da'amir

Principles of Takaful

2010-01-27T01:54:00.001+08:00

The principles of Takaful are as follows:

Policyholders cooperate among themselves for their common good.
Every policyholder pays his subscription to help those that need assistance.
Losses are divided and liabilities spread according to the community pooling system.
Uncertainty is eliminated in respect of subscription and compensation.
It does not derive advantage at the cost of others.

Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool.

The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden."

Commercial insurance is strictly not allowed for Muslims as agreed upon by most contemporary scholars because it contains the following elements:

Al-Gharar (Uncertainty)
Al-Maisir (Gambling)
Riba (Interest)

There are three (3) models and several variations on how takaful can be implemented.

Mudharabah Model
Wakalah Model
Combination of both

Islamic Insurance

2010-01-27T01:51:00.001+08:00

Takaful ( التكافل) is an Islamic insurance concept which is grounded in Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law.

This concept has been practised in various forms for over 1400 years.

Muslim jurists acknowledge that the basis of shared responsibility in the system of aquila as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance.

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A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.
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Indemnification

2010-01-27T01:45:00.002+08:00

The technical definition of "indemnity" means to make whole again. There are two types of insurance contracts;

an "indemnity" policy and
a "pay on behalf" or "on behalf of" policy.

The difference is significant on paper, but rarely material in practice.

An "indemnity" policy will never pay claims until the insured has paid out of pocket to some third party; for example, a visitor to your home slips on a floor that you left wet and sues you for $10,000 and wins. Under an "indemnity" policy the homeowner would have to come up with the $10,000 to pay for the visitor's fall and then would be "indemnified" by the insurance carrier for the out of pocket costs (the $10,000).

Under the same situation, a "pay on behalf" policy, the insurance carrier would pay the claim and the insured (the homeowner) would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language.

An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance 'policy'. Generally, an insurance contract includes, at a minimum, the following elements: the parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified" against the loss covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a 'claim' against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the 'premium'. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims—in theory for a relatively few claimants—and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses (i.e., reserves), the remaining margin is an insurer's profit.

Principles Of Insurance

2010-01-27T01:20:00.002+08:00

Commercially insurable risks typically share seven common characteristics.

A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004. The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, proportionally the actual results are increasingly likely to become close to expected proportions. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
Definite Loss. The event that gives rise to the loss that is subject to the insured, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.
Large Loss. The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer.
Affordable Premium. If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the U.S. Financial Accounting Standards Board standard number 113)
Calculable Loss. There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurer's appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

Insurance

2010-01-27T01:08:00.000+08:00

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss.

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss.

An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance.

The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.

Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

Malaysia's first quarter GDP shrinks 6.2%: Bank Negara

2009-05-28T19:27:00.000+08:00

NST

KUALA LUMPUR, Wed: Malaysia's first quarter gross domestic product this year contracted by 6.2 percent from a growth of 0.1 percent in the fourth quarter last year but the prognosis for improved economic conditions look brighter in the second half of the year.

Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz, in announcing the GDP figures, attributed the contraction to the significant deterioration in external demand following the deepening recession in advanced economies.

"Export demand continues to be weak and the environment is still challenging. Despite early signs of improvement, Q2 will be similar to Q1," she told a press conference on the country's economic performance here today.

The economy was expected to continue to contract in the second quarter, she said.

"However, economic conditions are expected to improve in the second half of this year supported by fiscal stimulus measures and enhancing access to financing," said Dr Zeti.
"Malaysia is expected to see a significant improvement in the third quarter this year and a higher degree of positive growth in the fourth quarter that would continue into next year."

"There will be improvement, but it will also depend on both the external and domestic environment as well," she said.

"If the measures taken by other economies does take place, then Q2 would have seen the worst, she added.

Elaborating on the first quarter contraction, Dr Zeti said it was contributed also by the large inventory drawdown, particularly in the manufacturing and commodity sectors.

Fixed investment registered a decline due to weaker business sentiment. Public spending however, provided some support to growth.

On the supply side, all sectors recorded contraction except for the construction sector.

First Batch Of Sukuk Bonds Open For Sale

2009-04-14T08:25:00.002+08:00

The Star

PETALING JAYA: The first batch of the dual-series RM2.5bil Islamic bonds, which offer returns of 5% per year, is open for sale today.

Applications can be made at any commercial or Islamic bank, or development financial institution in the country from today to May 13. Allocation is on a first-come, first-served basis.

The minimal allocation is RM1,000, while the maximum value is capped at RM50,000.

The first series of this Islamic bond, called Sukuk Simpanan Rakyat (SSR) 01/2009, is part of the Government’s RM60bil stimulus package announced on March 10, where up to RM5bil in saving bonds will be issued this year for people aged 21 and above, and with a maturity period of three years.

This programme is designed for Malaysian citizens as an alternative savings vehicle providing double the current fixed deposit rates, with option for account holders to withdraw their money any time.

Features include flexibility for holders to redeem as early as the first quarterly profit payment, including profits, and without an early exit penalty.

Retrenched Workers Are In Higher Demand Now

2009-03-25T21:18:00.001+08:00

Source: Emailed by Jobstreet

Recently the government provided a real boost for retrenched workers in its 2nd stimulus package announcement

It announced that companies who employ workers retrenched from 1 July 2008 be given double tax deduction * on the amount of remuneration paid.

This allows companies to enjoy big tax savings by employing retrenched workers.

How does it work?

If an employer recruits a retrenched worker from another company and pays a salary of RM24,000 a year. Normally, tax deduction to the employer is RM24,000 from taxable profit. However, with this measure, the company is allowed to deduct RM48,000 from profit, that is, at double the salary. This represents an additional tax reduction for the company of RM6,000 or 25% from RM24,000.

If you are in this situation, now is the best time to get that interview because companies are much more likely to hire a retrenched worker because of this government incentive!

Government Jobs For 3,000 ICT Grads

2009-03-20T11:31:00.001+08:00

The Star

PETALING JAYA: There will be a silver lining soon for 3,000 unemployed information and communications technology (ICT) graduates as the Government will spend RM72mil for them to become facilitators in schools with SchoolNet connectivity nationwide.

Energy, Water and Communication Minister Datuk Shaziman Abu Mansor said that under the internship programme the graduates would be paid a RM1,000 monthly allowance for two years to help them weather the economic slowdown.

He said the programme, to begin in June, would give priority to rural schools.

“We also hope the 3,000 graduates will take this opportunity to continue to improve their ICT expertise and knowledge,” he said.

“This is not so much to give them permanent jobs but to enable them to continue to hone their ICT skills so that they can get jobs in the future.”

He said any unemployed ICT graduate was welcome to apply for the programme.

“The ministry and the Malaysian Communications and Multimedia Commission will be selecting the applicants,” he said, adding that the ministry would also cooperate with local public universities to provide the 3,000 with further ICT training during the internship programme.

Shaziman added that the ministry would also upgrade 3,000 schools with the SchoolNet programme from 1Mbps to 4Mbps with the RM100mil provided under the second economic stimulus package.

On another matter, Shaziman announced that all ICT-based companies earning less than RM5mil annually would be exempted from contributing to the universal service provision fund until the end of next year.

“This is to enable these companies to operate well in this trying economic climate,” he said.

It was mandatory for all ICT operators to contribute 6% of their revenue to the fund set up to provide telephony services to under-served areas and groups a decade ago.

Oil Prices At Highest For This Year

2009-03-20T11:28:00.001+08:00

The Star

NEW YORK: A weakened dollar and evidence that OPEC has significantly slowed production sent oil prices soaring to new highs for the year Thursday.

"I think we'll see higher oil prices for a while," said Michael Lynch, president of Strategic Energy & Economic Research.

"There's an expectation that the market has bottomed out."

Benchmark crude for April delivery surged $3.47, or 7 percent, to settle at $51.61 a barrel on the New York Mercantile Exchange.

Oil prices hit $52.25 earlier in the day, a price last seen on Dec. 1.

Crude prices have increased 11.6 percent since OPEC ministers met in Vienna on Sunday.

The group said it would not cut production again immediately, but there is growing consensus that the millions of barrels taken off the market already each day are starting to balance a supply and demand picture that has been skewed for months.

With the April contract set to expire Friday, most of the trading had shifted to the contract for May delivery, where prices jumped $3.14 to settle at $52.04 a barrel.

Analysts rushed to buy crude after the Federal Reserve announced late Wednesday it would buy long-term government bonds, a measure that's expected to jolt the U.S. economy with lower rates on mortgages and other consumer debt.

The Fed also said a $1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets.

The announcements sent the dollar into a tailspin.

The U.S. dollar dropped against other major currencies almost immediately, at one point falling to levels not seen since January.

The dollar has fallen about 5 percent against the euro over the past couple days. Because oil is bought and sold in dollars, a weak U.S. currency makes crude cheaper globally.

"The government is basically printing money to buy back all this paper, and it devalues the dollar," said Phil Flynn, analyst at Alaron Trading Corp.

Flynn said the rise in oil shouldn't be taken as a sign that the economy in on the mend.

The Fed is using all of its powers to prop up American businesses, "and this is one of their last shots," Flynn said.

"If this doesn't work, they're out of bullets."

A government report that said jobless claims set a new record for the eighth straight week.

The Labor Department said continuing claims for unemployment insurance jumped 185,000 to a seasonally adjusted 5.47 million, another record-high and more than the roughly 5.33 million that economists expected.

Initial claims dropped to a seasonally adjusted 646,000 from the previous week's revised figure of 658,000, however.

That was better than analysts' expectations.

Job cuts are part of the reason for a severe drop-off in miles driven by Americans, a growing number whom no longer commute to work.

The Federal Highway Administration said Thursday that motorists logged seven billion fewer miles in January, 3.1 percent less than the same period in 2008.

The dour economic news did little to dissuade investors as prices topped $50.47 a barrel, the previous high for 2009.

Part of the reason is that the Organization of Petroleum Exporting Countries appears to be pushing through the production cuts it promised to make last year, according to tanker tracker Oil Movements.

Member states agreed last year to squeeze global oil supplies, trimming 4.2 million barrels per day.

Crude exports from OPEC countries have been shrinking during the past few months.

They're expected to drop 770,000 barrels a day in the four weeks leading to April 4, according to an Oil Movements report.

While the recession kept oil near five-year lows, tighter supplies in the spring and summer should buoy crude prices in the next three months, the report said.

Cameron Hanover analyst Peter Beutel said a new high at closing Thursday, along with OPEC production cuts, the federal stimulus package and other bullish factors "are working together to be more important at this moment than the recession and its impact on demand."

"It means things are better than they've been in a while," Beutel said.

Also surging were natural gas prices after a government report showed that U.S. stockpiles fell slightly more than expected last week.

The Energy Information Administration report said inventories held in underground storage in the lower 48 states fell by 30 billion cubic feet to about 1.65 trillion cubic feet for the week ended March 13.

In other Nymex trading, gasoline for April delivery jumped 7.16 cents to settle at $1.4373 a gallon, while heating oil rose 9.2 cents to settle at $1.36 a gallon.

Natural gas for April delivery jumped 49 cents to settle at $4.174 per 1,000 cubic feet.

In London, Brent prices rose $3.01 to settle at $50.67 on the ICE Futures exchange.

PIDM (Perbadanan Insurans Deposit Malaysia)

2009-03-20T02:40:00.006+08:00

Deposit Insurance

Deposit insurance is a system that protects depositors against the loss of their insured deposits placed with banks in the unlikely event of a bank failure.

It is established by the Government to enhance the consumer protection framework and promote financial system stability. It is not related to or managed by general or life insurance companies.

Generally, it is a Government sponsored scheme, although in certain countries it is sponsored by the banks.

The deposit insurance system in Malaysia was launched in September 2005 and is managed by Perbadanan Insurans Deposit Malaysia (PIDM).

PIDM is a Government agency established under the Akta Perbadanan Insurans Deposit Malaysia 2005.

Benefits to depositors

• Deposit insurance protection is automatic

• PIDM protects depositors holding deposits with banks

• There is no charge to depositors for deposit insurance protection

• Should a bank fail, PIDM will promptly reimburse depositors on their deposits

Benefits to the financial system

• PIDM promotes public confidence in the Malaysian financial system by protecting depositors against the loss of their deposits

• PIDM reinforces and complements the existing regulatory and supervisory framework by providing incentives for sound risk management in the financial system

• PIDM minimises costs to the financial system by finding least cost solutions to resolve troubled banks

• PIDM contributes to the stability of the financial system by dealing with bank failures expeditiously and reimbursing depositors promptly

With the introduction of a deposit insurance system in Malaysia, depositors receive protection for their deposits under the law. Depositors will know how and when reimbursement of their deposits will be made in the event of a bank failure.

Deposit insurance is recognised internationally as an important component of a country’s financial safety net and has been implemented in some 100 countries around the world.

Al Rajhi Bank

2009-03-20T02:30:00.003+08:00

Al Rajhi Bank is the largest Islamic banking group in the world recognized for being instrumental in bridging the gap between modern financial demands and intrinsic Islamic values. One of the fastest growing and most progressive banks in Saudi Arabia, it owes its banking excellence to its unwavering commitment to Shariah principles and the use of technology to offer diverse products to meet customer needs. The Group has a vast network of over 500 bank branches, 2,000 ATM machines and over 18,000 POS installed all over the kingdom.

Leveraging on its established principles and operations in the Middle East, Al Rajhi Bank ventured out as an international bank by setting up its first overseas operations in Malaysia in October 2006. Operating on the same platform as the home bank, Al Rajhi Bank Malaysia extensively uses the latest banking technology to consistently provide customers with speed and convenience in banking. It opened its first and main branch at Jalan Ampang on 16th October 2006. Today, it has 19 branches, 14 in the Klang Valley, one each in Johor Bharu, Melaka, Penang, Kuching and Kota Bharu.

The bank is expanding its suite of products and services that currently offers Savings account-i, Current account-i, Personal financing-i, Charge card-i, Debit card-i, Fixed term investment-i, Automobile financing-i, Home financing-i, Structured Home Financing-i, Al Musafir Card-i and customised corporate products. As of Feb 2008, Al Rajhi had a customer base nearing 100,000 and the numbers are steadily growing.

Based in Riyadh, Saudi Arabia, Al Rajhi Bank plays an integral part in the life of the desert Kingdom. We've been serving its citizens, financing its growth and contributing to Saudi development for over 50 years, catering for both the retail and wholesale needs of our clientele. We've now grown into the country's largest branch and ATM network with over 18,000 POS installed with merchants all over the Kingdom. We're also one of the largest joint stock companies in Saudi, with a paid-up capital of SR 13.5 billion (US$ 3.6 billion)

Malaysia marks as first foray into the international banking market and it's an exciting and highly significant development in the history of the bank.

Bank Islam Malaysia

2009-03-20T02:24:00.003+08:00

Bank Islam emerged as Malaysia’s maiden Shariah-based financial institution when it commenced operations in July 1983.

Since then, Bank Islam has become the symbol of Islamic banking in Malaysia. Its vision to be “The Global Leader in Islamic Banking” illustrates its status as the flagbearer of the country’s Islamic financial services industry.

From only RM80 million initially, Bank Islam’s paid-up capital swelled to RM1.73 billion as at June 2007, which was instrumental in making possible the growth of its assets and the implementation of its expansion programmes.

Through a network of 93 branches and more than 345 automated teller machines nationwide, Bank Islam parades a comprehensive list of more than 60 innovative and sophisticated Islamic banking products and services, comparable to those offered by its conventional counterparts.

From the traditional financing, savings and investment types of products exclusively for individual customers in the early years of establishment, the range of Bank Islam’s Shari’ah-based financial products, services and business solutions has significantly expanded to cater to the fast-changing financial needs of all categories of customers including those related to micro financing, wealth management, capital market, treasury and structured products.

Being a pioneer, Bank Islam has played a leading role in promoting the expansion of Malaysia’s brand of Islamic finance into other markets, especially in the region. This has helped develop Bank Islam into a well-established and universally recognised brand.

Zakat

2009-03-20T01:56:00.004+08:00

Zakāh or "alms for the poor", is the Islamic principle of giving a percentage of one's income to charity.

It is often compared to the system of tithing and alms, but it serves principally as the welfare contribution to poor and deprived people in the Muslim lands, although others may have a rightful share.

It is the duty of the Islamic state not just to collect Zakat, but to distribute it fairly as well. Zakat is one of the Five Pillars of Islam.

Believers in Islam are aware that by giving a fixed percentage of their surplus wealth, they are fulfilling this religious obligation.

Muslims see this process also as a way of purifying themselves from their greed and selfishness.

In addition zakat purifies the person who receives it because it saves him from the humiliation of begging and prevents him from envying the rich.

Minimums and Amounts

It is an obligation on Muslims to pay 1/40 (2.5%) of the wealth which they have had for a full lunar year, 1/40 (2.5%) of goods used for trade, and 5% or 10% of certain type of harvests depending on irrigation. Exempt from Zakat are a person's house and personal transportation.

Zakat is not mandatory on harvest if the total did not reach the minimum limit of about 653 kilograms, nor on gold amounts if the owner has less than 85 grams of gold or less than 595 grams of silver.

Planning For Unemployment

2009-03-20T01:38:00.004+08:00

Involuntarily separated, downsized, terminated, laid off, made redundant, fired. No matter what name you choose, involuntary unemployment is never pleasant. Unfortunately, job insecurity is a fact of life for most modern workers. The best way to deal with this challenge is to be prepared.

Get Your Job Search in Motion

When you find out the ax is going to fall, don't waste any time: immediately start looking for a new job. If you are able to begin your search while you are still employed, do it. It's easier to find a job when you have a job, because being employed gives you credibility. It also enables you to negotiate salary from a position of strength. You have no negotiating power when you are unemployed.

Keep in mind that job searches can take a long time. A typical job search will take three to six months depending on the position and the market. If you wait too long to start your search, you may end up desperate for cash and willing to settle for the first offer that comes your way. This could lead to a significant pay cut. While the immediate income will help to pay the bills, the lower salary puts you in a weaker position when looking for your next job - the job that will put your salary back where it belongs.

In a declining economy, which is usually the time for job cuts, the longer you wait to start your search, the more competitive the job market becomes as procrastinators and the newly unemployed join the search. With all of these reasons in mind, it is important to get out and look for a job as soon as possible.

Resume Preparation

Even if you have a good job, your resume should be up to date. A resume is probably the most important document you will ever produce, so putting it together should not be done in a rush when you are desperate. Once your resume is ready, it will be there when you need it.

When you need to put your resume to work, reach out to your network. Send a copy of your resume to anyone that might be able to help you find a job. After that, post your resume online. There are a host of popular job search sites, and they are all useful tools.

Treat the job search as a serious task and devote a significant amount of time to it. Finding a job can be a full-time job, but the more effort you put into it, the better your chances of a smooth, quick transition.

Cash Flow

When unemployment is looming, one major focus of your efforts should be on minimizing your expenses. This is the time to take stock of your financial situation. Stop spending and start saving. If you don't have a budget, now is the time to put one together.

Don't touch your retirement savings. You put that money away for your future, and you're going to need it. If you spend it now, it will be gone. To keep up your cash flow, file for unemployment insurance as soon as possible. While unemployment checks won't replace all of your lost income, they will provide some assistance.

Official Business

When you get the official word from your employer that you are going to be out of work, find out what the company can do for you. Ask about a severance package. Find out when your last check will arrive and determine whether it will include remuneration for unused vacation days and sick days.

Get information about the Consolidated Omnibus Budget Reconciliation Act (COBRA) so that you can extend your healthcare coverage. Obtaining coverage when you are unemployed can be tough, so don't let the opportunity to continue your coverage pass you by.

Talk to your employer about outplacement assistance. The company may provide access to career counselors, telephones, computers and other resources. Lastly, make sure to ask for a letter of reference.

Prepare for Next Time

In an era marked by downsizing, outsourcing and scandals, job insecurity is a fact of life. Once you get back on your feet, prepare for next time by getting your financial house in order. You should build up your emergency fund, watch your spending even when you feel like you don't need to and minimize your debts.

It's also important to keep your skills current. If you need a degree, certification or advanced training to take your career to the next level, get it. Maximizing your skills maximizes your marketability.

Consider taking a second job or opening up a small sideline business. Moonlighting at part-time employment gives you a secondary source of cash flow that can really come in handy if your primary income source disappears. It may even give you a start on a new career path.

Ongoing vigilance is the best defense against involuntary unemployment. By getting your finances in order, keeping your resume and skills current and setting up a secondary source of income, you'll have done all that you can do to prepare for the possibility of losing your job.

Due Diligence - DD

2009-03-20T01:22:00.000+08:00

i. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.

ii. Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed.

iii. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction

iv. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

Islamic Investment

2009-03-20T01:14:00.002+08:00

Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual and the secular.

The establishment of an Islamic investment policy, be it for the institutional or individual investor, starts with the Sharia Board, a group of Islamic scholars (jurists) that vests investment products for compliance with Islamic Law and conducts ongoing due diligence of them.

Sources for interpretation follow a hierarchy of authority: the Quran, believed by Muslims to be the words of Allah verbatim as revealed to his prophet Muhammad in the seventh century; the Sunnah which are rules from the prophet's sayings (Hadiths) and actions; Qiyas which are scholarly legal deductions; and Ijma, the consensus of scholars on a particular issue.

The challenges that a Sharia-compliant portfolio faces would appear to be no different than those that any other portfolio manager would come up against.

A manager formulates an investment thesis which drives portfolio selection criteria. He or she then needs to decide against the appropriate benchmark against which to measure performance.

Managing assets in accordance with Islamic precepts is a bit more unique in that the practice is a form of socially responsible investing with the unique specification of avoiding interest bearing investments of any kind.

Because borrowing and setting aside excess funds in short-term, low-risk, interest-bearing instruments are integral to corporate finance, the application of Islamic law to corporate finance poses some interesting questions.

Is it feasible for a portfolio manager to be completely invested at all times? May one remain faithful to Islamic law in the stock selection when the realities of corporate finance dictate the need for companies, even those not engaged in prohibited businesses, both to borrow and to find a principal-protected repository for excess cash?

From a private client portfolio management perspective, once armed with Sharia-permissible products, an investment committee at an Islamic private wealth firm would face the same issues as any other, namely, how to develop, implement and monitor an investment policy consistent with a client's objectives.

Additional challenges exist, namely the lack of both a deep secondary market for these products and the lack of uniform standards in the vetting process across the Muslim world.

Wakalah (Agency)

2009-03-08T12:15:00.001+08:00

This occurs when a person appoints a representative to undertake transactions on his/her behalf, similar to a power of attorney.

Wadiah (Safekeeping)

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In Wadiah, a bank is deemed as a keeper and trustee of funds.

A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it.

The depositor, at the bank's discretion, may be rewarded with a hibah (gift) as a form of appreciation for the use of funds by the bank.

In this case, the bank compensates depositors for the time-value of their money (i.e. pays interest) but refers to it as a gift because it does not officially guarantee payment of the gift.

Takaful (Islamic Insurance)

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Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes.

Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals.

Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers.

In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance which spreads the risk among many people.

The concept of insurance where resources are pooled to help the needy does not contradict Shariah.

However, conventional insurance involves the elements of uncertainty (Al-gharar) in the contract of insurance, gambling (Al-maisir) as the consequences of the presence of uncertainty and interest (Al-riba) in the investment activities of the conventional insurance companies.

These factors (uncertainty, gambling and interest) contravene the rules of Shariah. It is generally accepted by Muslim jurists that the operation of conventional insurance does not conform to the rules and requirements of Shariah.

Sukuk (Islamic Bonds)

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Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond.

However, fixed-income, interest-bearing bonds are not permissible in Islam.

Hence, Sukuk are securities that comply with the Islamic law (Shariah) and its investment principles, which prohibit the charging or paying of interest.

Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

Qard Hassan (Good Loan)

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This is a loan extended on a goodwill basis, and the debtor is only required to repay the amount borrowed.

However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor.

In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true interest-free loan.

Some Muslims consider this to be the only type of loan that does not violate the prohibition on riba, since it is the one type of loan that truly does not compensate the creditor for the time value of money.

Joint Venture

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Musharakah is a relationship between two parties or more, of whom contribute capital to a business, and divide the net profit and loss pro rata.

This is often used in investment projects, letters of credit, and the purchase or real estate or property. In the case of real estate or property, the bank assess an imputed rent and will share it as agreed in advance.

All providers of capital are entitled to participate in management, but not necessarily required to do so.

The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions.

This concept is distinct from fixed-income investing (i.e. issuance of loans).

Ijarah-Wal-Iqtina

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A contract under which an Islamic bank provides equipment, building, or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee.

The undertaking or the promise does not become an integral part of the lease contract to make it conditional.

The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum along with profit over the period of lease.

Ijarah Thumma Al Bai' (Hire Purchase)

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Parties enter into contracts that come into effect serially, to form a complete lease/ buyback transaction. The first contract is an Ijarah that outlines the terms for leasing or renting over a fixed period, and the second contract is a Bai that triggers a sale or purchase once the term of the Ijarah is complete. For example, in a car financing facility, a customer enters into the first contract and leases the car from the owner (bank) at an agreed amount over a specific period. When the lease period expires, the second contract comes into effect, which enables the customer to purchase the car at an agreed to price.

The bank generates a profit by determining in advance the cost of the item, its residual value at the end of the term and the time value or profit margin for the money being invested in purchasing the product to be leased for the intended term. The combining of these three figures becomes the basis for the contract between the Bank and the client for the initial lease contract.

This type of transaction is similar to the contractum trinius, a legal maneuver used by European bankers and merchants during the Middle Ages to sidestep the Church's prohibition on interest bearing loans. In a contractum, two parties would enter into three concurrent and interrelated legal contracts, the net effect being the paying of a fee for the use of money for the term of the loan. The use of concurrent interrelated contracts is also prohibited under Shariah Law.

Ijarah

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Ijarah means lease, rent or wage. Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price.

Advantages of Ijarah

Ijarah provides the following advantages to the Lessee:

Ijarah conserves the Lessee' capital since it allows up to 100% financing.

Ijarah gives the Lessee the right to access the equipment on payment of the first installment. This is important as it is the access and use (and not ownership) of equipment that generates income.

Ijarah arrangements aid corporate planning and budgeting by allowing the negotiation of flexible terms

Ijarah is not considered Debt Financing so it does not appear on the Lessee' Balance Sheet as a Liability. This method of "off balance sheet" financing means that it is not included in the Debt Ratios used by bankers to determine financing limits. This allows the Lessee to enter into other lease financing arrangements without impacting his overall debt rating.

All payments towards Ijarah contracts are treated as operating expenses and are therefore fully tax-deductible. Leasing thus offers tax-advantages to for-profit operations.

Many types of equipment (i.e computers) become obsolete before the end of their actual economic life. Ijarah contracts allow the transfer of risk from the Lesse to the Lessor in exchange for a higher lease rate. This higher rate can be viewed as insurance against obsolescence.

If the equipment is used for a relatively short period of time, it may be more profitable to lease than to buy.

If the equipment is used for a short period but has a very poor resale value, leasing avoids having to account for and depreciate the equipment under normal accounting principles.

Hibah (Gift)

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This is a token given voluntarily by a creditor to a debtor in return for a loan. Hibah usually arises in practice when Islamic banks involuntarily pay their customers interest on savings account balances.

Bai Salam

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Bai salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver, or currencies based on these metals. Barring this, Bai Salam covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship.

Basic features and conditions of salam

The transaction is considered Salam if the buyer has paid the purchase price to the seller in full at the time of sale. This is necessary so that the buyer can show that they are not entering into debt with a second party in order to eliminate the debt with the first party, an act prohibited under Sharia. The idea of Salam is to provide a mechanism that ensures that the seller has the liquidity they expected from entering into the transaction in the first place. If the price were not paid in full, the basic purpose of the transaction would have been defeated. Muslim jurists are unanimous in their opinion that full payment of the purchase price is key for Salam to exist. Imam Malik is also of the opinion that the seller may defer accepting the funds from the buyer for two or three days, but this delay should not form part of the agreement.
Salam can be effected in those commodities only the quality and quantity of which can be specified exactly. The things whose quality or quantity is not determined by specification cannot be sold through the contract of salam. For example, precious stones cannot be sold on the basis of salam, because every piece of precious stones is normally different from the other either in its quality or in its size or weight and their exact specification is not generally possible.
Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply the wheat of a particular field, or the fruit of a particular tree, the salam will not be valid, because there is a possibility that the crop of that particular field or the fruit of that tree is destroyed before delivery, and, given such possibility, the delivery remains uncertain. The same rule is applicable to every commodity the supply of which is not certain.
It is necessary that the quality of the commodity (intended to be purchased through salam) is fully specified leaving no ambiguity which may lead to a dispute. All the possible details in this respect must be expressly mentioned.
It is also necessary that the quantity of the commodity is agreed upon in unequivocal terms. If the commodity is quantified in weights according to the usage of its traders, its weight must be determined, and if it is quantified through measures, its exact measure should be known. What is normally weighed cannot be quantified in measures and vice versa.
The exact date and place of delivery must be specified in the contract.
Salam cannot be effected in respect of things which must be delivered at spot. For example, if gold is purchased in exchange of silver, it is necessary, according to Shari'ah, that the delivery of both be simultaneous. Here, salam cannot work. Similarly, if wheat is bartered for barley, the simultaneous delivery of both is necessary for the validity of sale. Therefore the contract of salam in this case is not allowed.

Musawamah

2009-02-25T10:06:00.001+08:00

Musawamah is the negotiation of a selling price between two parties without reference by the seller to either costs or asking price. While the seller may or may not have full knowledge of the cost of the item being negotiated, they are under no obligation to reveal these costs as part of the negotiation process. This difference in obligation by the seller is the key distinction between Murabaha and Musawamah with all other rules as described in Murabaha remaining the same. Musawamah is the most common type of trading negotiation seen in Islamic commerce.

Murabahah (Cost Plus)

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This concept refers to the sale of goods at a price, which includes a profit margin agreed to by both parties. The purchase and selling price, other costs, and the profit margin must be clearly stated at the time of the sale agreement. The bank is compensated for the time value of its money in the form of the profit margin. This is a fixed-income loan for the purchase of a real asset (such as real estate or a vehicle), with a fixed rate of profit determined by the profit margin. The bank is not compensated for the time value of money outside of the contracted term (i.e., the bank cannot charge additional profit on late payments); however, the asset remains as a mortgage with the bank until the Murabaha is paid in full.

Mudarabah (Profit Sharing)

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Mudarabah is an arrangement or agreement between the bank, or a capital provider, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity. The entrepreneur provides expertise, labor and management. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor. It is this financial risk, according to the Shariah, that justifies the bank's claim to part of the profit. The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating rate that is pegged to the debtor's profits.

Bai Muajjal (Credit Sale)

2009-02-25T10:02:00.000+08:00

Literally bai muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabaha muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

Bai' Bithaman Ajil (Deferred Payment Sale)

2009-02-25T10:01:00.000+08:00

This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. This is similar to Murabahah, except that the debtor makes only a single installment on the maturity date of the loan. By the application of a discount rate, an Islamic bank can collect the market rate of interest.

Bai' Al-Inah (Sale and Buy Back Agreement)

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The financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount. The buying back agreement allows the bank to assume ownership over the asset in order to protect against default without explicitly charging interest in the event of late payments or insolvency.

Shariah Advisory Council / Consultant

2009-02-24T15:12:00.001+08:00

Islamic banks and banking institutions that offer Islamic banking products and services (IBS banks) are required to establish Shariah advisory committees/consultants to advise them and to ensure that the operations and activities of the bank comply with Shariah principles.

On the other hand, there are also those who believe that no form of banking can ever comply with the shariah.

In Malaysia, the National Shariah Advisory Council, which additionally set up at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the operations of these institutions and on their products and services.

A number of Sharia advisory firms have now emerged to offer Sharia advisory services to the institutions offering Islamic financial services.

The Principles of Islamic Banking

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Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is EIjara wa EIqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower forms a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rent out the property to the borrower and charges rent. The bank and the borrower will then share the proceed from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank's share on the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receives the proceeds from an auction based on the current equity. This method allows for floating rates according to current market rate such as the BLR (base lending rate), especially in a dual-banking system like in Malaysia.

There are several other approaches used in business deals. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan is equal to a certain percentage of the company's profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy.

And finally, Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of investment, and moral purchasing is encouraged. In theory, Islamic banking is an example of full-reserve banking, with banks achieving a 100% reserve ratio. However, in practice, this is not the case, and no examples of 100 per cent reserve banking are observed.

Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro-lending institutions founded by Muslims, notably Grameen Bank, use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).

Riba

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The definition of riba in classical Islamic jurisprudence was "surplus value without counterpart." or "to ensure equivalency in real value" and that "numerical value was immaterial."

During this period, gold and silver currencies were the benchmark metals that defined the value of all other materials being traded.

Applying interest to the benchmark itself (ex natura sua) made no logical sense as its value remained constant relative to all other materials: these metals could be added to but not created (from nothing).

Applying interest was acceptable under some circumstances. Currencies that were based on guarantees by a government to honor the stated value [“fiat money”] or based on other materials such as paper or base metals were allowed to have interest applied to them When base metal currencies were first introduced in the Islamic world, no jurist ever thought that "paying a debt in a higher number of units of this fiat money was riba" as they were concerned with the real value of money (determined by weight only) rather than the numerical value.

For example, it was acceptable for a loan of 1000 gold dinars to be paid back as 1050 dinars of equal aggregate weight (i.e., the value in terms of weight had to be same because all makes of coins did not carry exactly similar weight).

Islamic Banking

2009-02-24T14:59:00.001+08:00

Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics.

Sharia prohibits the payment of fees for the renting of money (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden).

While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

Property

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The Qur'an states that God is the sole owner of all matter in the heavens and the earth. Man, however, is God's viceregent on earth and holds God's possessions in trust (amanat). Islamic jurists have divided properties into three categories:

Public property
State property
Private property

Public property

Public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) over which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be utilized by any citizen, as long as it does not undermine the right of other citizens over it.

Some types of public property can not be privatized under Islamic law. Muhammad's saying that "people are partners in three things: water, fire and pastures", has led some scholars to believe that the privatization of water, energy and agricultural land is not permissible. Other types of public property, such as gold mines, were allowed by Muhammad to be privatized, in return for taxes to the Islamic state.

The owner of the previously public property that was privatized has to pay zakat and, according Shiite scholars, khums as well. In general the privatization and nationalization of public property is subject to debate amongst Islamic scholars. Public property thus, eventually, becomes state or private property.

State property

State property includes certain natural resources, as well as other property that can't immediately be privatized. Islamic state property can be movable, or immovable, can be acquired through conquest, or peaceful means. Unclaimed, unoccupied and heir less properties, including uncultivated land (mawat), can be considered state property.

During the life of Muhammad, one fifth of military equipment captured from the enemy in the battlefield was considered state property. During his reign, Umar (on the recommendation of Ali) considered conquered land to be state property, instead of private property (as was usual practice).

The reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent this property from being used for the general good of the community. The property remained under the occupation of the cultivators, but the taxes collected on it went to the state treasury.

Muhammad said "Old and fallow lands are for God and His Messenger (i.e. state property), then they are for you". Jurists draw from this the conclusion that, ultimately, private ownership takes over state property.

Private property

There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual's right to private ownership. The Qur'an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. Muhammad said that he who dies defending his property was like a martyr.

Islamic economists have classified the acquisition of private property into three categories: involuntary, contractual and non-contractual. Involuntary means are inheritance, bequests, and gifts. Non-contractual is acquisition involves the collection and exploitation of natural resources that have not previously been claimed as private property. Contractual acquisition includes activities such as trading, buying, renting, hiring labor etc.

A tradition attributed to Muhammad, with which both Sunni and Shi'ite jurists agree, in cases where the right to private ownership causes harm to others, then Islam is in favor of curtailing the right in those cases. Maliki and Hanbali jurists argue that if private ownership endangers public interest, then the state can limit the amount an individual is allowed to own. This view, however, is debated by others.

Capitalist Market Economy

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The origins of capitalism and free markets can be traced back to the Islamic Golden Age and Muslim Agricultural Revolution, where the first market economy and earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".

A vigorous monetary economy was created by Muslims on the basis of the expanding levels of circulation of a stable high-value currency (the dinar) and the integration of monetary areas that were previously independent.

Innovative new business techniques and forms of business organisation were introduced by economists, merchants and traders during this time. Such innovations included the earliest trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital expenditure, revenue, cheques, promissory notes, trusts (see Waqf), startup companies, savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system, and lawsuits.

Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.

The systems of contract relied upon by merchants was very effective. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish.

Recently, a collection of documents was found in an Egyptian synagogue shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances.

Networks developed during this time enabled a world in which money could be promised by a bank in Baghdad and cashed in Spain, creating the cheque system of today. Each time items passed through the cities along this extraordinary network, the city imposed a tax, resulting in high prices once reaching the final destination. These innovations made by Muslims and Jews laid the foundations for the modern economic system.

Islamic Economic

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Islamic economics is economics in accordance with Islamic law. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.

The former paradigm, particularly as developed by modern Shia scholars such as Mahmud Taleqani, and Mohammad Baqir al-Sadr, seeks not only to enforce Islamic regulations on issues such as Zakat, Jizya, Nisab, Khums, Riba, insurance and inheritance, but to implement broader economic goals and policies of an Islamic society.

It seeks an economic system based on uplifting the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth and ensuring participants in the marketplace are rewarded for being exposed to risk and/or liability. Islamists movements and authors will generally describe this system as being neither Socialist nor Capitalist, but a third way with none of the drawbacks of the other two systems.

The latter paradigm is of necessity more limited, revolving around a few main tenets of Islam: the payment of zakat charity by believers, borrowing and lending without payment of fixed interest (riba), and socially responsible investing. The key difference from a financial perspective is the no-interest rule since most other religions favor charitable giving and socially responsible investing.

The belief that the prohibition of investment with interest charges is essential for an Islamic society is widespread, though liberal movements within Islam may deny the need for this prohibition, since they see Islam as generally compatible with modern secular institutions and law.

Mudharabah (Profit Sharing)

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By this principle, the entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ra's-ul-Mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-Mal.

The contract specifies how the profit (surplus) from the operations of takaful managed by the takaful operator is to be shared, in accordance with the principle of al-Mudharabah, between the participants as the providers of capital and the takaful operator as the entrepreneur. The sharing of such profit may be in a ratio 50:50, 60:40, 70:30, etc. as mutually agreed between the contracting parties.

In order to eliminate the element of uncertainty in the takaful contract, the concept of tabarru (to donate, to contribute, to give away) is incorporated. In relation to this a participant shall agree to relinquish as tabarru, certain proportion of his takaful installments or takaful contributions that he agrees or undertakes to pay thus enabling him to fulfill his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss.

In essence, tabarru would enable the participants to perform their deeds in sincerely assisting fellow participants who might suffer a loss or damage due to a catastrophe or disaster. The sharing of profit or surplus that may emerge from the operations of takaful, is made only after the obligation of assisting the fellow participants has been fulfilled.

It is imperative, therefore, for a takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure. Therefore the provision of insurance cover as a form of business in conformity with Shariah is based on the Islamic principles of al-Takaful and al-Mudharabah.

Al-Hari Rayais the pact among a group of people, called participants, reciprocally guaranteeing each other; while Al-Mudharabah is the commercial profit-sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business.

The operation of takaful may thus be envisaged as the profit-sharing business venture between the takaful operator and the individual members of a group of participants who desire to reciprocally guarantee each other against a certain loss or damage that may be inflicted upon any one of them.

Takaful

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Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law. This concept has been practised in various forms for over 1400 years.

Muslim jurists acknowledge that the basis of shared responsibility in the system of aquila as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance.

The principles of Takaful are as follows:

Policyholders co-operate among themselves for their common good.
Every policyholder pays his subscription to help those that need assistance.
Losses are divided and liabilities spread according to the community pooling system.
Uncertainty is eliminated in respect of subscription and compensation.
It does not derive advantage at the cost of others.

Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden."

Commercial insurance is strictly not allowed for Muslim as agreed upon by most contemporary scholars because it contains the following elements:

a) Al-Gharar (Uncertainty)
b) Al-Maisir (Gambling)
c) Riba (Interest)

There are three (3) models and several variations on how takaful can be implemented.

1. Mudharabah Model
2. Wakalah Model
3. Combination of both

Malaysia

2009-02-21T04:50:00.001+08:00

Malaysia is a federation that consists of thirteen states and three federal territories in Southeast Asia with a total landmass of 329,847 square kilometres (127,355 sq mi). The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government.

The population stands at over 27 million.The country is separated into two regions — Peninsular Malaysia and Malaysian Borneo — by the South China Sea. Malaysia borders Thailand, Indonesia, Singapore, Brunei and the Philippines. The country is located near the equator and experiences a tropical climate.

Malaysia's head of state is the Yang di-Pertuan Agong and the government is headed by a Prime Minister. The government is closely modeled after the Westminster Parliamentary System.