Tuesday, December 15, 2009

Islamic Shariah Bank

The Islamic Shariah Bank providing a service of the collection of money, the channelization of money, selling, purchasing, insurance and so on. The selling and purchasing is basically done by the method of barter/transfer of property. The Bank decides its profit in the initial transaction, and includes the profit together with the real price. And the value of property in transaction will be adjusted according to the form of payment and the period of giving a payment, this system is also commonly known in Islamic Banking as murabahah, salam and istishna’.

In this article, I would like to draw my attention the point of Selling and Purchasing in Islamic way and Selling and Purchasing according to credit system.

Trading and purchasing in according to Islamic law (Shariah) and in according to Credit System.

وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا
“And Allah has permitted selling and purchasing and ban the riba” (Al-baqarah 2:275)

Islam allow the selling and purchasing publicly, and the Ulama (Islamic Scholars) also allows the selling and purchasing by credit system, among those ulamas who allow this type of selling and purchasing are Syaikhul Islam Ibnu Taimiyah, Imam Ibnul Qoyyim, Syaikh Abdul Aziz bin Baz, Syaikh Muhammad bin Sholih Al Utsaimin, Syaikh Al Jibrin and so on. But the Islamic Scholars agreed that the selling and purchasing are not at all free, there are certain rules must be followed during the transactions, here are some important points to notice during the transaction in according to Islamic law:

1. The payment can be paid later after the transaction

a. This is based on Qur’an
O you who believe! When you contract a debt for a fixed period, write it down (Al-Baqarah : 282)

b. Based on Hadith:
From Aisyah R.A said, Truelly that Prophet PBUH purchased a food from a Jew and he give a payment later, Prophet Give his iron clothe for the guarantee of payment. (Bukhari and Muslim)

2. Secondly, to add price after transaction is permitted due to an early of payment and due to a credit payment.

a. This is based on the Qur’an:
O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent. (An-Nisa’: 29)

Thus, it’s explained that all transaction as long as it is done by mutual consent is permitted.

b. Based on Hadith:
“During the prophet PBUH visit to Madina and the traders are selling the fruits with pay early trading for a period of one year or two years, the prophet PBUH said: “Whoever sale and purchase in paid early trading, should be in a equal dosage, and obvious weight and until the clear period of time”. (Bukhari and Muslim)

From the above proof of hadith, it is clear that prophet PBUH allowed the pay late trading with the clear passage of time, and with the clear weight and dosage, and it is also prevail for the credit system trading as well as cash payment trading.

3. The Proof of Consensus (Dalil Ijma’)
Muslim scholars agree that the trading by credit system with different price is permitted, among the scholars who agree with this argument are:

1. Syaikh Bin Baaz
When was questioned regarding on a legal to sell a sack of sugar and other things at 150 Riyals by credit. In which the value is equal to 100 riyals in cash sale. Then he remarks:
“The transaction of money in this way is allowed, furthermore the muslim is getting use of this transaction, and according to the consensus it is allowed to do a transaction among them in such a way, and it is not a riba.” (Ahkamul Fiqh, Syaikh Abduloh Al Jarulloh, Page: 57 – 58)

2. Syaikh Muhammad Shalih Al Utsaimin
He remarks on his book Al Mudayanah Page 4 “kinds of debt and trust”

Someone wanted to buy a commodity but he wasn’t have a money in cash to pay, he decided to buy a commodity and the money will be paid after period of time, with a condition that a price will be more higher then that if he pay it in cash. And this kind of transaction is allowed.
Presume: Someone buy a house for him self or for rent with a sum of 10.000 Riyals by a late fee till one year, in which if he could pay it in a cash it will cost only 9000 riyals, or if someone wanted to buy a car for him self or for rent with a sum of 10.000 riyals by a late fee till one year, in which if he could pay it in a cash it will cost only 9000 riyals.

Allah said in Qur’an:
“O you who believe! When you contract a debt for a fixed period, write it down.” (Al-Baqarah verse: 282)

Someone wanted to buy commodities but the fee would be paid in a fixed period, as he wants to sell those commodities.
Presume, someone buy a wheat and will pay the fee in a fixed period, but the price is higher then that if he buys it in cash, according to Syaikh it is allowed based on the qur’an above. And these kinds of transaction are also allowed by Syaikhul Islam Ibnu Taimiyah, based on the Qur’an and Sunnah and proof of consensus by scholars. (Majmu’ Fatawa 29/498-499)

4. The Proof of Measurement (Dalil Qiyas)
There is similarity between a credit fee and early payment fee, both of this transaction is allowed by Prophet Muhammad PBUH assuming that both of this transaction is late in receiving their fee or commodity. But, incase of early payment fee the money will be paid in advance but a commodity will be received later, similarly in case of credit fee the commodity is received in advance but the fee will be paid later. The different of both is in early payment fee the price will be less expensive then the credit fee.

5. The Proof of Benefits (Dalil Maslahat)
Transaction by credit system is benefit for both the seller and the buyer. The buyer will be benefited by gradually paying the money with a fixed period and the seller will be benefited by increasing the price, this kind of transaction does not contradict in Shariah (Islamic Law), because it is based for the benefits of ummah.

Syaikh Bin Baz agrees with this kind of transaction, in which both seller and buyer are having benefits, both of them like it and no one is loss. (Ahkamul Ba'i, Syaikh Jarulloh, page. 58).

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Tuesday, December 08, 2009

Indonesia - why there is no recession in the world's leading Muslim economy

Following the election of US President-elect Barack Obama there is likely to be a slow recovery in confidence in the United States financial and banking system. A recession is unavoidable in the US and EU, but with only a downturn in developing countries. This crisis of confidence in the Western banking and financial system comes during the dying days of the most unpopular American presidency in living memory. Financial mismanagement and weak regulatory frameworks have devastated the US economy, making the rich richer and the poor poorer. Two million Americans may lose their homes. Millions in the US and Europe will lose their jobs.

Yet the devastating legacy of the Bush presidency leaves open great opportunities for Indonesia, the Muslim world and the developing countries of the South.

Indonesia can play a key role in leading the Muslim world toward economic recovery, and help minimize the impact of global recession.

First, by managing its national economy to maintain growth, demand, imports and exports. The nominal Gross Domestic Product for 2009 is projected at $547 billion. Indonesia is already in the top 20 economies of the world.

Indonesia is currently overtaking Belgium and Sweden. It will soon overtake Turkey, the Netherlands and Austria as it enormous size, resources and population come into play. It is a strong candidate to join the top 10 economies in the world within two decades.

Second, by mobilizing investment for oil, gas, energy projects, biofuels, infrastructure (roads, railways, ports), manufacturing and retailing sectors. It needs over $40 billion for electricity alone, to finance an additional 40,000 MWe of power by 2025. Indonesia will become a nuclear power, and plans four power stations. Total foreign investment needed overall during the next 15 years exceeds $100 billion.

Investment is still coming from the US and EU (including Eastern Europe) but increasingly from the BRICs (Brazil, Russia, India and China), and also from Asia-Pacific Economic Cooperation countries like Canada, Japan, Korea, Taiwan, and from Association of Southeast Asian Nations member states (including Brunei, Malaysia, Philippines, Singapore, Thailand). Investment is also coming in greater volume from the Gulf Arab states, Israel and South Africa.

Third, Indonesia can help lead Muslim economies by using its economic size and prestige as a member of the United Nations Security Council to join Brazil, Russia, India, China and Southern countries to bring about changes in policies and in the balance of power in world organizations dealing with trade, finance and development, especially the World Bank, the International Monetary Fund (IMF) and World Trade Organization (WTO).

Indonesia has major reservations about the IMF following its own experience in 1998. German Finance Minister Peer Steinbrueck said that the world should not slip into creating a shadow world economic government run by an inner IMF council. Indonesia is also tired of being kept on the fringes in the WTO.

Asia and Southern countries want a new deal. Muslim countries collectively represent an increasingly important source of capital, while Western liquidity has partly dried up. Muslim economies represent important investment sources as well as investment destinations. The collective size of Muslim economies represents significant demand for Western goods and services, relatively unaffected by the recession in the West.

Indonesia can still deploy export credits, sovereign funds, Islamic finance and other non-traditional financial sources, such as environmental funds and carbon credits. Despite the global downturn Indonesia is still pulling in some bank finance.

A $140 million syndicated loan for Excelcomindo for telecommunications expansion was announced recently. Low-cost airline Lion Air is buying 12 Boeing 737 planes even though the required local cash contribution for the last four has risen to 30 percent. Lion Air will use its own cash to carry on expanding. St. Miguel Corp. of the Philippines is competing with a US-led consortium to clinch a $1.3 billion coal supply deal, to buy PT Bumi Resources from Bakri Brothers. There is money here and money coming in.

Standard and Poors is holding Indonesian credit ratings stable and its credit rating may even be raised. Singapore could slip into recession but Indonesia will not, and the reason is mostly sheer size plus improved financial and economic management.

Indonesia is in a key position as the largest Muslim country in the world with a population of 230 million and a land area of 1.9 million square kilometers.

The Indonesian Gross Domestic Product was $843.7 billion in terms of purchasing power and $432.9 billion in terms of official exchange rates in 2007. It has fixed foreign investment of $57.6 billion and holds $9 billion of investment in other countries. It has more than 3,500 millionaires holding over $100 million each, of whom 70 percent live in Jakarta.

Its current economic growth is 6.5 percent and may fall below 6 percent in 2009 due to reduced exports. Government will stimulate growth using the national budget which already reached $100 billion in 2008. Government is confident it can hold growth at 6 percent. The World Bank has set aside a $2 billion standby loan for 2009 only to be triggered if growth falls below 5.8 percent.

In 2007 Indonesian exports were $118 billion and imports $86 billion, a trade surplus of $32 billion, and foreign exchange reserves as of this month were $50 billion.

Indonesia has already lost some jobs in sectors like textiles. Some exports to the US and Europe fell in the fourth quarter. The stock market, government bonds and the national currency also fell in value during the global financial crash in the first week of October.

The government launched a securities buy-back program spearheaded by state-owned enterprises and defended the rupiah currency by intervening in the currency market via the Bank of Indonesia. The government also took steps to increase liquidity and focused on getting inflation under control and on maintaining growth.

The government has increased guarantees on personal deposits to 2 billion rupiahs ($190,000), which covers 100 percent of deposits for over 99.7 percent of 81 million bank accounts.

Indonesian banks are strong, with adequate reserves, low non-performing loans and almost no exposure to subprime losses. Only a small group of investors lost money on Lehman-related instruments purchased via international banks.

The Indonesian inflation rate is declining from a high of 12 percent to maybe 9 percent by January with reductions planned to between 9 percent and 7 percent for the rest of 2009. The bank rate is being stabilized at 9.5 percent after six months of consecutive rises. It will be held for a while and then reduced to 7.5 percent in 2009.

Indonesian bonds are recovering from their recent nose-dive and the stock market is stabilizing. Local economists say the stock market was over-valued and more normal values and returns will be restored as part of the local share trading cycle.

The government is now focusing on trying to mobilize its massive $115 billion dollar national budget for 2009, up from $100 billion in 2008, to push projects and overall spending forward and help substitute local demand for declines in exports, with every hope of keeping economic growth for 2009 at between 5.5 and 6.0 percent.

Despite the collapse of the Bank of Indonesia subsidiary Indover Bank in the Netherlands, there is no sovereign default. Indonesian Finance Minister Sri Mulyani Indrawati and the new central bank governor, Boediono, have taken a stand against previous mismanagement.

In contrast to the kid-glove treatment of failed bankers and financial managers in the West, who took imprudent and possibly illegal risks, the Indonesian government is directing the work of its Corruption Eradication Commission and Corruption Court against corrupt central bankers and parliamentarians who took bribes.

The Indonesian government also says it will pursue legally those who misused its name and dragged it into the Indover collapse, by implying there were sovereign guarantees backing Indover borrowing when there were none. It also intends to pursue allegations of short trading and fraudulent practices in the stock exchange.

Indonesia lost 10 years as a result of the 1998 banking crash when it put its fate in the hands of the IMF, which initially failed to understand local strengths and exaggerated local weaknesses. An historical photo shows President Suharto sitting at his desk, signing his own political death-warrant while the IMF representative stood over him, as he signed the IMF agreement.

A lot has changed between the Asian banking crash of 1998 and the Wall Street crash of 2008. The economic balance of power in the world has changed and the balance of global power has shifted to the South and East. British Prime Minister Gordon Brown recognized this when he urged the Gulf states and the G20 to help stabilize the world economy.

In the 1998 bank crash Indonesia had no freedom and no choice. This time in 2008 Indonesia has freedom and is stronger, and can chose to tread its own path. Hopefully its greater strength and determination will inspire Muslim and Southern countries not to panic in the face of recession in the West, but to work together to avoid the spread of recession to the South and to build and strengthen a new world economic order.

Terry Lacey is a development economist who writes from Jakarta, Indonesia, on modernization in the Muslim world, investment and trade relations with the European Union and Islamic banking. This article is published with permission from the author.

Source: The Daily Star
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Thursday, December 03, 2009

Prayer (Salat) Idul Adha in Mecca

Idul Adha mubarak to all Muslim all over the world, the video below showing the prayer or salat of Idul adha in Makkah, where the hajis (pilgrimage) do worship to Allah together leaving their attributes their positions and their castes, all of them are the same in the eye of Allah.

سبحان الله والحمد لله و لا إله إلاالله والله أكبر
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Wednesday, December 02, 2009

Trade and Business Ethics in Islam

Islam is revealed to the mankind for their blessing (rahmatan li al-‘alamin). This brings a consequence that every single Muslim is an agent for a social interaction and change towards establishing a prosperous society in the world as well as in the hereafter (al-qasas: 77). The notion of falah or sa ’adah in Islamic economics derived from this version of the Qur’an as found in the bulk of economics literature makes the material purposes of economic and business activities integrated with attaining the spiritual heights in the hereafter, as an ultimate aim.

This notion may also be associated with the notion of amanah, as propounded by Hasan. for instance. He accentuates the conversion through the amanah concept from ambitious attainment of a Muslim in socio-economic activities into a spiritual height by achieving eschatological welfare in the hereafter. In relation to macro-perspective, the notion of ethics may be defined as equal to honourable moral precept, which illustrates the mission of the Prophet (pbuh) being sent to the world. He said:

“Truly, I was sent only to perfect the honourable moral.”

Elaboration of this perspective of ethics is generally found in the works below category of economic theory and methodology. Under this category, economic behaviour is also discussed. There are teens of studies found in the database under consideration. Among those literature, ethics is well elaborated in Naqvi’s Ethics and
Economics (1981) and Islam, Economics and Society (1994).
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