How the Shariah index helps Islamic investors

The onset and the development of trading of services and commodities has slowly but steadily grown to include every conceivable option in the world of business. While businesses across the globe continue to swell so are the investments.

The investment from every community including the traditional Islamic community that is steeped in strict religious beliefs has increased manifold across the world. But even today this Islamic investor community upholds their canonical law called the Shariah that allows them to invest only in companies doing select businesses while forbidding them from investing in certain widely prevalent business practices.

This is the underlying principle why a separate index of equities called the Shariah Index was formed to tap the ever increasing Islamic investors in businesses across the world. The aim is to enable the Islamic financial world to invest in Shariah-friendly businesses across the world.

What is a Shariah Index?

According to experts, a Shariah Index is an index of companies that are found to be complaint with the stringent rules of the Shariah. The companies listed here on this index called the Shariah indices have been created and updated based on an existing index, which were already monitored by a separate board for conformity of the principles of the Holy Quran.

For example, the indices in the Standard & Poor's S&P/TSX 60 Shariah Index is evaluated and recategorized every month by an outside agency Rating Intelligence Partners before it is passed on to a panel of Middle East based Shariah scholars with financial backgrounds.

How companies are selected?

The Shariah takes a different view of the term asset. The law doesn't see money as an asset and prohibits the making of more money in the form of interest by lending money. Also, the law prohibits Muslims from investing in companies doing certain 'forbidden' businesses.

Hence, to be listed on the Shariah Index the companies are monitored at two levels: one determined by the sector that the company operates and two a few of the operating ratios that the company works with, as found in their annual report. For instance, companies dealing with pork, alcohol, gambling, tobacco, telecommunications, and advertising and media with some exceptions are left out of the index. Similarly banks do not feature in the index as Islamic investors are not allowed to profit from interest.

Also companies with certain ratios of leverage, and cash like those companies with more than 33% of ratio of debt to the market value of equity do not make it to the Shariah index. However, those companies, whose involvement in non-permissible businesses is less than 5% of total revenue, qualify to be included in the index. These calculations are monitored and status updated from time to time.

Why a Shariah Index?

The underlying principle behind the creation of a separate Shariah index is to help the Islamic investor community identify and invest in businesses that are complaint with the Shariah laws. In a nutshell, this separate index gives the Shariah-friendly businesses an opportunity to reach out to more potential Islamic investors. At the same time the Index offers the Islamic investors a chance to take part in the businesses of the companies on the index without compromising on Islamic laws.

Is there a Shariah Index in India?

Yes. In February 2008, Standard and Poor's (S&P) launched two Shariah indices based on Indian equity markets called the S&P CNX 500 Shariah and the S&P Nifty Shariah. The companies on both the indexes were created after monitoring the constituents of the Shariah complaint S&P CNX 500 and the S&P Nifty. Following this, many mutual funds and fund portfolio management services were included in line with the Shariah laws.

Link:http://business.rediff.com/report/2009/sep/10/perfin-how-the-shariah-index-helps-islamic-investors.htm

Sharia derivative standard out by year-end-IIFM

* First master Islamic derivative possible by end year

* Islamic scholars still divided on derivative use

By Cecilia Valente

LONDON, Sept 10 (Reuters) - The first template for over-the-counter derivatives compliant with Islamic law could be in place by year-end, allowing quicker and cheaper Islamic risk management, one of the institutions involved in its creation said.

Ijlal Alvi, CEO of the International Islamic Financial Market (IIFM), told Reuters he hoped the master-contract, originally expected earlier this year [ID:nLB438463], would be approved by its scholars panel within the next three months.

"It is happening. We are working internally and with some banks as well," Alvi said in an interview on Wednesday.

The contract -- to be known as Ta'Hawwut or hedging -- would create a standard legal framework for OTC derivatives in the Islamic market, whereas currently contracts are arranged on an ad hoc basis.

OTC derivatives, or swaps, are privately negotiated deals between investors and counterparties and are commonly used to hedge against interest rate risk and default risk. The total notional amount of OTC deals outstanding was nearly $592 trillion at end-2008, according to the Bank for International Settlements.

Islamic institutions have limited access to derivative products mainly because Islamic law requires the underlying assets in any transaction to be tangible, virtually excluding most of the mainstream derivatives instruments.

Islamic scholars are split on the legitimacy of derivatives; some see them as permissible instruments to hedge risks but others as speculative transactions, which Islam forbids.

Some Islamic operators have used a contract known as Arbun to replicate call options.

"We are waiting for approval from the sharia board -- this work is now reaching finalisation. We are very hopeful it will be by the end of the year," Alvi said.

The IIFM, which was founded by the central banks and monetary agencies of some countries in the Middle and Far East as well as the Islamic Development Bank, has been working with the International Swaps and Derivatives Association (ISDA).

ISDA was not immediately available for comment. (Reporting by Cecilia Valente, Editing by )

Link: http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSL901001820090910

Increasing trade finance in Malta

Trade finance plays an important role in facilitating trade transactions between buyers and sellers. It is a form of short term banking facility to help the buyers and sellers in managing their cash flow in the short run. For years banks worldwide have been practicing the conventional method of trade financing until in the last few decades when Islamic Banking emerged. The system has become very popular because it offers an excellent alternative to customers.

Islamic trade finance operation is a specialised area of Islamic banking utilising various concepts that need to be understood by the parties involved, particularly bankers and traders. Essentially, the underlying contracts in trade finance such as guarantee (Kafalah) and agency (Wakalah) are similar to those in conventional finance. However, the financing mechanisms that accompany these types of contracts vary significantly.

This is mainly because interest based financing (in conventional finance) is replaced with Shariah approved financial arrangements. Malta is gradually gaining momentum in international trade finance. This is mainly attributable to financial institutions registered in Malta with mainly foreign shareholding which use Malta as a hub for trade finance. This hub concept can also be used for Islamic trade finance.

The most common trade finance used are, for example, the documentary credit/letters of credit. In Islamic Finance letters of credit are basically based on a Kafalah (guarantee) contract complemented with a Wakalah (agency) contract in order to affect the undertaking/guarantee. There are three different main underlying contracts in Islamic letters of credit, namely the Musharakah, Murabahah and Wakalah with their particular modus operandi.

The financing amount with the Musharaka LC is basically an arrangement entered into between the financial institution and the customer for an identified commercial purpose. Basically the buyer/importer and the financial institution will share the profit from the venture as provided by the Musharakah (partnership) agreement. On the other hand a Murabahah LC (cost plus mark up) is a facility that has similar features to the conventional LC coupled with a finance element for the buyer to finance the trade.

There is also the Wakalah letter of credit. In this type of facility the financial institution will act as the agent for the customer and issue a LC to effect payment for the imported goods on behalf of the customer. No financing is required from the financial institution in the case of the Wakalah LC.

Qatar is investing heavily in international business. The Emir of Qatar, Hamad Bin Khalifa Al Thani, has stated that the State of Qatar is going a long way in diversifying its economy. Indeed it is doing so and the strong welcome given to the President of Malta and the Maltese business delegation is evidence of this. Maltese and Qatari businesses and enterprises now have an opportunity in front of them. The possible increase in trade will also lead to an increased activity in financial services between the two countries.

In order to facilitate this trade with Qatar but with also other Muslim communities, Maltese financial services institutions may want to consider tapping into this lucrative market of alternative method of finance while assisting the commercial community to increase their international trade. Visits like the Qatari one should be followed and nurtured regularly also through ensuring that the necessary basic infrastructure to service the trade between the two countries is fully operational. Is Malta achieving this?

Furthermore, Maltese Financial Institutions may wish to ride upon the opportunity that Qatar is offering. The Qatar Financial Services Authority is gearing itself to gain substantial momentum in the growth of the sector. Various international organisations are looking positively at Qatar given the opportunities that it offers.

Certain Maltese financial institutions may have the sufficient resources to ride upon the openings given by a wealthy state which aims to excel in financial services. While there is both Islamic and conventional finance in Qatar, it seems that the largest business is determined by the Islamic finance institutions. In this context, Maltese organisations may want to start gearing themselves to provide these type of alternative finance too.

There are various parts of Islamic finance that are not new to Malta and hence with sufficient knowledge one may build upon Malta's own history. Also, given Malta's political interface and portfolio of double taxation treaties (including that with Qatar) Malta financial institutions are at an advantage over other countries' organisations targeting Qatar.

The media in Malta has already reported that Maltese businesses have closed interesting deals with Qatari organisations. Given the lack of appropriate Islamic financing in Malta one wonders whether these transactions will result in higher activities for Islamic Banks elsewhere. I am however, optimistic that Maltese financial institutions will take the opportunity and create a hub of services in Islamic finance. Qatar may be Malta's first opportunity to start heading towards its vision of becoming a centre of Islamic finance in the Mediterranean.

The author is managing director at Erremme Business Advisors and chairman of the education section of the Malta Institute of Management.

Rueben Buttigieg

rmb@erremme.org

Fixed interest runs counter to Islamic banking

Iranian president Mahmoud Ahmadinejad is against a usury based lending system saying that fixed interest is usury and is against the country's banking laws.

Fixed bank interest rate is usury and is described as illegal. Bank interest is largely planned to be a function of economic circle,” The president told a news conference on Monday.

Article 21 of the Law on Usury Free Banking Operations rules out usury in the country's banking system. The article reads: In its dealings with other banks, Central Bank of the Islamic Republic of Iran is not authorized to engage in banking operations which involves usury; nor are the banks among themselves.

The president added that the government is "determined to take the necessary steps to keep interest rates at single rate levels. We are planning fiscal disciplines to stick to this plan.”

Further to banking reform plans, Ahmadinejad said the tenth government would decrease unemployment to below 7 percent by pursuing its economic reform plan.

“Despite a global economic downturn and sanction challenges, we will manage to cut the unemployment rate to less than 7 percent during this presidential term,” Ahmadinejad said.

The official rates for unemployment in 2009 stand at just over 12%. The figures for youth under 30, especially females, is significantly higher.

The Iranian president also stressed that the cabinet under his previous term of presidency had succeeded in containing inflation despite two serious crises - a global economic meltdown and unprecedented sanctions against the country.

According to the central bank, Iran's inflation rate fro 2008 was 24.3%.

Link: http://www.haber27.com/news_detail.php?id=39835

Q&A-Indonesia new VAT, tax law to boost mergers, Islamic market

By Gde Anugrah Arka and Dicky Kristanto

JAKARTA, Sept 9 (Reuters) - Indonesia's parliament is due to pass a revised law on value added tax (VAT) and sales tax on luxury goods next week, which could boost corporate mergers and spur the growth of its fledgling Islamic markets.

The government expects the new law to help lift its VAT revenue target by 30 percent to 267 trillion rupiah in 2010. VAT accounts for a third of the country's total targeted tax revenue.

The law will come into effect next year and will scrap the double taxation on financial products in the Islamic financial markets, effectively removing one of the key impediments to the growth of this industry.

It will also reduce the tax costs related to mergers, according to legislators and to drafts seen by Reuters.

Here are some questions and answers about the law:

WHAT WILL CHANGE AND WHAT IMPACTS WILL IT AHVE?

The VAT rate will be set between 5-15 percent of the selling price against a fixed rate of 10 percent currently.

The maximum rate for luxury goods sales tax will be set at 200 percent of the selling price, against 75 percent currently. The minimum rate remains unchanged at 10 percent.

The government is also expected to raise rates on sectors that have not been taxed, such for online purchases.

Details of which luxury goods will be affected and related tax rates will be provided in supporting government regulations next week, but local media have said high-end cars and yachts are likely to see higher VAT rates.

In the case of mergers and acquisitions, the transfer of taxable assets such as properties and vehicles to the buyer will no longer be subject to VAT.

There are currently around 120 commercial banks in the country, and the central bank is keen to see further consolidation. High tax costs are one of the barriers to M&A deals in the country.

The state enterprises ministry previously said it was considering merging tens of state firms into holding firms based on their respective industries, for example merging pharmaceutical firms Kimia Farma with Indofarma .

Major banks in which the state has stakes could also undergo mergers, including Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI) and Bank Mandiri.

Transactions in the Islamic financial markets will no longer be subject to double taxes, moving in line with the tax treatment for conventional business transactions.

This is likely to encourage more companies to issue sharia-compliant products.

Property developer Bakrieland Development has said it expects to issue 500 billion rupiah worth of sukuk later this year, and others may follow suit.

Sharia-based banks such as Bank Muamalat, which is partly owned by Islamic Development Bank, and Bank Syariah Mandiri, a unit of Bank Mandiri, are expected to benefit from the removal of the double taxation.

(Editing by Sara Webb & Kazunori Takada)

Supervising Islamic Finance

Riyadh, Asharq Al-Awsat-Since its emergence, Islamic banking has never been subjected to any kind of independent supervision with the exception of supervising itself and that of [Islamic] Shariaa bodies that observe its activities and the tools and products of Islamic banking and its institutions.

The supervisory bodies that oversee financial corporations, such as central banks, market authorities and the bodies supervising insurance have paid no attention to this, either because they want to avoid double standards or because they are unaware of the importance of a supervisory body and of the need for standards to govern such an industry and its institutions. Those who passed laws with regards to this industry did not activate them, and they were more like ineffective instructions rather than laws.

This is because those in charge of supervisory bodies were unaware of the substantial and perhaps radical differences between the Islamic banking industry and conventional banking. Most of these people were conventional bankers who had no previous experience in the field of Islamic banking. Moreover, they had no incentive to learn, as they were in strong positions in the sense that they were the ones to enact, and at the same time, supervise the laws. They alone can solve or further complicate matters.

In addition, Islamic banking was not as wide spread as it is today and people were not forced to deal with it. However, as the influence of this industry has increased recently and has expanded so much that it has become a dominating feature of some financial institutions and their products in some countries, it will force the officials in charge of supervisory bodies to review their positions and to strive towards learning about the secrets of this industry and towards studying it carefully so that they can supervise it more effectively.

As some Asian and Western cities, London in particular, seek to attract the finances of Islamic banking and its institutions in order to become the financial capital of this industry, the Islamic banking industry took on an international dimension after having been immersed in localism.

After the emergence and intensification of the global financial crisis and after the Western world in particular realised that the Islamic banking system and its institutions could help the world out of the crisis, several systematic and advanced markets opened up to this industry. Such markets do not allow any kind of activity unless proper laws are enacted and proper mechanisms of supervision are ensured so as to guarantee risk control and good management. These countries have sought to pass laws that are suitable to the characteristics of such an industry and to create an effective supervisory system to monitor it.

With the risks of this industry being brought to light, such as the risks entailed in the settlement of Sukuk and the fact that several financing operations of some struggling companies are Islamic finances, this still gives rise to disputes between banks, these companies, Sukuk bearers and issuers. Due to the lack of clear rules and specialized courts necessary for this industry, there is no doubt that such disputes would be prolonged, which would affect the interests of the parties involved, especially banks and Sukuk bearers who would be highly affected by any delay in judgment and in obtaining their rights in such cases.

All these combined elements are now putting pressure on the founding Islamic countries to deal with the Islamic banking industry in a different manner so that this industry is acknowledged, proper laws are enacted, effective supervisory bodies are formed for risk control, accounting policies are legislated to ensure proper transparency and so that a fair judicial system is set up to preserve and give people their rights in the quickest and easiest way possible. This will make Islamic banking and its institutions a significant source of development for these countries and also a factor of financial strength after having been marginalized for a long time by the supervisory bodies in these countries, causing the finances in these countries to head towards other advanced markets that can guarantee a sound legal environment. As a result, these countries were deprived of that industry’s finances that would have contributed to the development of these countries by making the appropriate finance available for the infrastructure of these countries and contributing to financing the private sector and creating suitable job opportunities for their people.

Providing the appropriate supervision of any industry is enough to protect it and ensure its development and the Islamic banking industry is in dire need of supervision to protect it against itself and to ensure its development.

Link: http://aawsat.com/english/news.asp?section=6&id=18054

Analysts: Islamic banks perform as expected

Loans growth strengthens but Q2 provision for loan losses higher

PETALING JAYA: The recent financial performance of Islamic banks, although relatively weaker than in previous years due to the challenging economic conditions in the past 12 months, remains in line with expectations, according to analysts.

An analyst with a local stockbroking firm saw improvement in net profit year-on-year and quarter-on-quarter due to higher income.

Loans growth also strengthened in the second quarter with CIMB Islamic Bank Bhd recording growth of 21.9% over the previous quarter, followed by Maybank Islamic Bhd (+7.1%), Alliance Islamic Bank Bhd (+6.5%), RHB Investment Bank Bhd (+6%) and Public Islamic Bank Bhd (+5.1%).

However, the analyst noted that Islamic banks’ provisions for loan losses had risen in the second quarter with the possibility of further increases going forward.

She pointed out that allowance for losses on financing and advances of Islamic banks in the second quarter jumped some 56% to RM279.7mil versus the previous corresponding period.

“However, non-performing assets ratio has improved to an average of 1.95% in the second quarter against 2.24% in the first quarter,” she said.

Malaysian Rating Corp Bhd (MARC) vice-president/head of financial institutions ratings Anandakumar Jegarasasingam noted that financing activities by Islamic banks continued to register double-digit growth of 11.5% during the first seven months of 2009 compared with the low 3.6% posted by the commercial banking sector.

“Given the increased popularity of the Islamic banking model and its still relatively small size in the broader financial sector, this growth trend is expected to continue into 2010,” he said.

As for profitability, Anandakumar pointed out that income from financing activities had increased in tandem with growth in financing activities but non-financing-based income, such as fees and commissions, were impacted by the decline in business activities.

Provisions made in 2008 and the first half of 2009 were generally higher for most Islamic banks.

Anandakumar said the Islamic banking sector’s loss coverage of non-performing financing facilities increased from 65% at end-December 2006 to 83% at end-December 2008, and remained at that level at end-July 2009.

“This increase in provisions could be attributed to the banks’ desire to shore up their loss reserves as a buffer against an anticipated increase in delinquencies that are likely in view of the weak economic conditions and, in the case of some of the newer banks, as a result of the seasoning in their financing portfolio,” he added.

He expects some increase in delinquencies over the next two to three quarters.

This, in tandem with the likely pressure on income streams due to competition and lower macro interest rates, is likely to impact expansion in profitability.

On propects for Islamic banking, analysts expect such operations to continue to improve in the country as banks are putting more emphasis on growing the division.

A banking analyst with another research arm said: “The Islamic banking business has helped pull up the financials of banks such as AMMB Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd in the recent second-quarter results.

“Moreover, there is strong interest for issuance of sukuk as an alternative to funding. I expect stronger contributions from this division going forward.”

Link: http://biz.thestar.com.my/news/story.asp?file=/2009/9/7/business/4654872&sec=business

Zakat-ul-mal (Zakat)

Zakat is the third Pillar of Islam. It is sometimes translated as alms or poor-due, but actually means purification, growth, and blessing.

Zakat purifies the heart from the detested trait of stinginess, and also purifies the wealth by giving out a portion of that wealth. It also causes the wealth to grow through Allah’s blessings. While regular charity is strongly recommended and abundantly rewardedby Allah (SWT), Zakat is a debt we owe Allah (SWT), and must be paid as a part of ourbelief in Him.

Zakat, as a specific amount, was ordained in Madinah during the month of Shawwal of the second year of Hijrah. In order to emphasize its importance, the order to give Zakat is associated with the order to perform prayers over eighty times in the Nobel Qur’an.

In one verse which is repeated many times Allah (SWT) says what can be translated as, “…

And perform prayers and give Zakat…” and Allah (SWT) says to His Messenger (SAW)

what can be translated as, “Of their wealth take alms so that, through it, you may purify

and sanctify them…” [Surah At-Tawbah (9:103)]

The order to give Zakat is established numerous times not only in the Noble Qur’an,

but also in the Hadiths of Prophet Muhammad (SAW). The Prophet (SAW) said: “Islam is

built on five pillars…” [Reported by Imams Bukhari, Muslim] and he mentioned Zakat as

one of them. When the Prophet (SAW) sent Mu’ath to the people of Yemen, he told him:

“… And let them know that Allah has ordained on them alms, to be taken from their rich

(people) and given to their poor…” [Reported by Imams Bukhari, Muslim, and others]

There are several verses and Ahadith that warn about the severe consequences for those

who do not pay Zakat. We read what can be translated as, “… and those who hoard gold

and silver and spend them not in the way of Allah announce unto them a most

grievous penalty. On the Day, when they (gold and silver) will be heated in the fire of

Hell and used to brand their foreheads, their flanks, and their backs. This is what you

have hoarded for yourselves, taste you then what you have hoarded.” [Surah At-

Tawbah (9:34-35)] What is meant by “hoarded” here is every wealth on which Zakat was

due but was not paid.

the Prophet (SAW) says: “For every owner of a hoarded wealth on which he does not

pay Zakat, this wealth will be heated in the fire of Hell and made into sheets with which his

flanks and forehead will be branded until Allah passes judgment among His servants on a

day that measures fifty thousand years (of our reckoning), then his path will be shown,

either to Heaven or to Hell.” [Reported by Imams Bukhari, Muslim and Ahmad]

The companions of the Prophet (SAW) have unanimously agreed, during Abu-Bakr’s

term of Khilafah, to fight those who refused to pay Zakat; and they did in fact fight those

who withheld Zakat.

WHO MUST PAY ZAKAT?

Zakat is obligatory on every Muslim, male or female, who has an amount of money,

called “Nisab”, in excess of his/her basic needs that have stayed in his/her possession for

one whole lunar year.

HOW IS NISAB DETERMINED?

Nisab is either the equivalent of the price of eighty five (85) grams of gold, which,

according to today’s market value, is worth about one thousand dollars ($1000), or the

equivalent of the price of five hundred and ninety five (595) grams of silver, which is worth

about one hundred and forty dollars ($140). A Muslim can choose either one of the two

estimates. Some scholars are of the opinion that it is preferable to consider the Nisab

definition, which would help the needy, the most; i.e. the definition based on the value of

silver. It is important to remember that Zakat is calculated based on the total amount of

wealth owned at the end of the lunar year, not only the Nisab.

WHAT IS MEANT BY BASIC NEEDS?

Basic needs refer to the things one cannot do without. These may include any or all

of the following: food, clothing, housing, and transportation for oneself and one’s

dependents. Dependents include spouse, children who are unable to earn their living and

parents who are in need.

HOW IS ZAKAT YEAR DETERMINED?

Zakat year is one lunar year starting from the time one’s wealth reaches the Nisab. If

the wealth drops below the Nisab any time during the year, one should stop counting days

and start again the day the wealth reaches the Nisab. For example, if you choose the gold

definition of the Nisab (i.e. one thousand dollars- $1000) and you have:

$1000 on Ramadan 1st (Start counting for Zakat year)

$1200 on Shawwal 1st.

$1500 on Zulqa’dah 1st.

$ 900 on Zulhijjah 1st..(Stop counting)

$ 700 on Muharram 1st.

$ 800 on Safar 1st.

$1100 on Rabi’I 1st.(Restart counting and, on Rabi’I 1st of the following year, pay Zakat on

the amount you would have at that time assuming you continued to have at least $1000

throughout the year.)

So, if a person’s wealth consists of gold, silver, cash, stocks, bonds, and merchandise

(1), he/she should add up the values of all these possessions. If the total amount is equal to

or greater than the Nisab, and it has stayed above the Nisab for one whole lunar year, then

Zakat is due on this wealth, at a rate of two and a half percent (2.5%) of the amount owned

at the end of the year. (See examples at the end of this paper).

WHO IS ELIGIBLE TO RECEIVE ZAKAT?

There are eight categories of people eligible to receive Zakat. They have been

specified in the Noble Qur’an what can be translated as, “Alms are for the poor, the

needy, the employees who administer the funds, those whose hearts have been recently

reconciled to the Truth, those in bondage, those in debt, in the cause of Allah, and the

wayfarer, (thus it is) ordained by Allah, and Allah is most knowledgeable, most wise.”

[Surah At-Tawbah (9:60)]

Based on this verse, the ways of spending Zakat funds can be classified as follows:

1- For the poor (Fuqara’) who do not have enough to take care of their basic needs.

2- For the needy (Masakeen) whose basic needs are met but their income does not take

care of other important needs.

3- For those whose sole job is to collect and distribute the Zakat funds.

4- For those who are close to accepting Islam as a religion, and those non-Muslims

whose evil can be avoided if they receive money.

5- For freeing a Muslim person from bondage (whether a slave in the old times, or a

prisoner of war in our times)

6- For those who are indebted and cannot pay their debts.

7- In the cause of Allah (SWT): the scholars have said that what is meant here is that

Zakat can be given to those who volunteer to fight in the cause of Allah (SWT) and do not

receive a fixed salary from the government.

8- For the wayfarer who is stranded in a foreign land and cannot get enough money to go

back to his homeland, even though he might be rich otherwise. He should be given enough

money to allow him to return to his homeland.

It is preferable that Zakat be paid to the poor and the needy among the relatives first.

As we will see shortly, not all relatives qualify to receive Zakat.

WHO IS NOT ELIGIBLE TO RECEIVE ZAKAT?

There are categories of people who are not eligible to receive Zakat. They include:

a) the rich who have enough to support themselves; b) the healthy person who is capable of

working and earning his living, unless he cannot find a job or his job does not provide him

with enough money to support himself and his family. About these two categories, the

Prophet (SAW) said: “Alms are not to be given to the rich or to the well-built.” [An

authentic Hadith reported by Imam Abu Dawood] The term “well-built” conveys the

meaning that he is able to work and support himself.

In addition, Zakat cannot be paid to: c) one’s dependents whom he is responsible for

supporting. These include the wife, the parents, grandparents (up to the eldest living grand

grandparent), children, and grandchildren (down to the last born grand grandchild). Finally,

Zakat cannot be paid to: d) a non-Muslim, unless this person belongs to category No. 4 of

those eligible to receive Zakat (see previous section).

WHAT IF I HAVE A DEBT, SHOULD I EXCLUDE THAT FROM THE AMOUNT

ON WHICH I HAVE TO PAY ZAKAT?

Debts are usually of two types: a) due for payback in the immediate future, and b)

long-term payback arrangement. If the debt is due in the very near future at the time of

paying Zakat, this debt can be excluded from the amount on which Zakat is due. However,

if the debt is being paid back as installments, say every month or every year, then the

amount that has been paid back over the previous lunar year is subtracted from the total

income in the process of calculating Zakat.

CAN TAXES BE CONSIDERED A PART OF ZAKAT, KNOWING THAT THE

GOVERNMENT SUPPORTS THE POOR OUT OF THESE TAXES?

No! For the following reasons:

a. The avenues for spending Zakat funds in Islam have been clearly defined in the

aforementioned verse.

b. Zakat is paid only to Muslims (exception was mentioned earlier).

c. The portion of the tax that is spent on projects for the poor is not precisely known,

since other projects are funded from the same pool of tax money.

IS IT PERMISSIBLE TO TRANSFER ZAKAT MONEY TO AN AREA OTHER

THAN WHERE IT WAS COLLECTED?

In principle, Zakat should be distributed among the people in the area where it was

collected, for this has been mentioned in the Hadith when Mu’ath was sent to Yemen.

However, if there were no people eligible to receive Zakat in the same area where Zakat

was collected or if there were Zakat money left over after distribution, then this money can

be sent to other areas where it is needed.

DO WOMEN HAVE TO PAY ZAKAT ON THEIR JEWELRY?

The scholars have agreed that jewelry made of precious stones or metals other than gold

or silver does not necessitate paying Zakat. As for jewelry that is made of gold or silver, the

scholars have not reached a unified opinion. Some see that Zakat is due on this type of

jewelry; among them are Saeed Ibnul-Musayyeb, Saeed Ibnu-Jubair, Mujahed, and Abu

Hanifah. They have drawn their evidence from the Hadith, which starts with “For every

owner of gold or silver who does not pay their duty (i.e. Zakat), this wealth will be heated in

the fire of Hell and made into sheets…” In another Hadith, a woman came to the Prophet

(SAW) accompanied by her daughter in whose hand there were two bulky bracelets made of

gold. The Prophet (SAW) asked the mother: “Do you pay Zakat on these?” She answered

“No”. The Prophet (SAW) said: “Would you like that Allah exchange them for two

bracelets made of fire (you’d wear on the Day of Judgment)?” [Reported by Imam Abu

Dawood]

On the other hand, there are scholars who say Zakat is not due on this type of

jewelry; they include Ash-Sha’bi, Tawoos, Malik, Ash-Shafe’i, and Ahmad. They have

drawn their evidence from: “Aa’isha, (R.A.) looked after her orphaned nieces who used to

wear jewelry and she did not pay Zakat on the jewelry.” [Reported by Imam Malik]

“Abdullah Ibn Omar (R.A.) used to give his daughters and female servants jewelry made of

gold and he did not pay Zakat on it.” [Reported by Imam Malik]

It should be noted, however, that stored gold and silver, whether in the form of

jewelry or otherwise, are considered savings and thus are included in the calculation of

Zakat.

WHAT IF ZAKAT WAS NOT PAID FOR YEARS, DOES IT HAVE TO BE PAID

NOW?

Zakat is considered a debt we owe Allah (SWT), and it should be paid when it is due

without any delay. If a person is supposed to pay Zakat and he/she neglected to pay it for

years with or without a legitimate reason, then the whole amount of Zakat, which he/she

missed, paying should be paid immediately after calculating it precisely. Moreover, if

he/she had no legitimate reason for being late to pay Zakat, he/she should repent and ask

Allah (SWT) for forgiveness.

CAN ZAKAT BE PAID, PARTIALLY OR FULLY, BEFORE IT IS DUE?

Yes, according to some Fiqh scholars. A situation may a rise where there is a need

to give out some or the entire anticipated Zakat amount before Zakat year is over. In this

case, the amount given out with the intention of being considered Zakat is deducted from

the actual Zakat amount due at the end of Zakat year.

EXAMPLES OF HOW TO CALCULATE ZAKAT:

Example 1: a person who works as an employee:

Annual Salary $35,000

Annual Expenses ($25,000)

Savings……………………………………. $10,000

Value of shares owned in a business…………… $10,000

Dividends during the past lunar year………….. $ 1,000

_________

Total……………………………………… $21,000

House used as a dwelling – Exempt***………….. $ 0

Car used for transportation – Exempt………….. $ 0

Money in a retirement account – Exempt****…….. $ 0

Amount subject to Zakat……………………… $21,000

Amount of Zakat $21,000 X 0.025 = $525

Houses or other properties (like machines or vehicles) are exempt if they are being

used by the owner or rented to someone else, in which case Zakat is due only on the income

from the rent. However, if these properties are kept as savings for the future, or are being

offered for sale (as a business), then Zakat is due on the value of these properties.

Retirement accounts referred to here are those which are provided by employers, and

which are not controlled by the employee or cannot be withdrawn without penalty. Once

this money is withdrawn, however, it is considered income subject to Zakat. For other types

of retirement or insurance arrangements in which the accumulated money is under the

control of the person (i.e. he/she initiated it and can withdraw it easily), the accumulated

money is considered savings and must be included in the calculation of Zakat.

Example 2: a person who owns a business:

(At the start of the business the capital was $75,000, and over the first year this asset

grew through buying and selling, which translated into a larger inventory)

After one lunar year, inventory was valued at…. $100,000

Cash in the register……………………….. $ 1,000

Money saved in the bank…………………….. $ 7,000

Vehicles, furniture, appliances…etc. (used in the operation of the business) -

Exempt…… $ 0

________

Amount subject to Zakat $108,000

Amount of Zakat $108,000 X 0.025 = $2,700

_____________________________________________________________

(1) Note for owners and shareholders of businesses:

In general, there are three types of businesses: trade (buying and selling), manufacturing,

and service.

For businesses that deal in trade, every partner in the business calculates Zakat based on

his/her share of the merchandise on hand at the end of his/her Zakat year (merchandise

might reflect the original capital plus any profit that was made during the year). Since

shareholders are practically partners in the business, every shareholder must pay Zakat on

the value of the shares and the dividends received during the year.

For businesses that deal in manufacturing or service, each partner pay Zakat based on net

profits only; there is no Zakat on machines or tools used in these types of business. For

shareholders in these businesses, Zakat is paid only on the dividends that were received

during the year.

This paper has been designed to give general information about Zakat. If you need more

detailed information, you may consult the appropriate sources.

Source : islam1.org

Is moving into Islamic finance such a good idea?

Islamic finance courses have been popping up in the UK over the last couple of years, and an increasing number of bankers with conventional backgrounds are looking to get in on the act. But the industry has not been immune to problems and it's debatable whether there are that many job opportunities at the moment.

"A lot of Islamic banks were looking to the UK as a wholesale centre in order to develop the industry," says Ken Eglinton, head of the Islamic Financial Services Group at Ernst & Young in the UK. "The City has a number of strengths to play to – innovative products, secondary markets, benchmark prices and indices, asset finance and structuring. However, the crisis has knocked London's reputation, meaning France and Singapore have attempted to steal a march as an Islamic finance centre."

London is home to four Islamic investment banks – including Bank of London and the Middle East (BLME), Gatehouse Bank and the European Islamic Investment Bank – and a retail bank, Islamic Bank of Britain.

Gatehouse is the product of a merger between Gatehouse Bank and Global Securities House UK – both local subsidiaries of Kuwaiti firm The Securities House – in August.

Gatehouse had barely completed a single deal since its establishment in 2008, and lost its CEO David Testa as a result of the merger.

"There is an interest from institutional investors and that's why there are a number Islamic investment banks in UK," says Professor Habib Ahmed, Sharjar chair in Islamic Law and Finance in the school of government and international affairs at Durham University. "However, the industry has not performed as expected and during recent times the crisis has also dampened its growth."

However, he says there's "huge demand" for Islamic finance courses at the moment, "so large that it's difficult to cope with".

Besides the degree available at Durham, there's an MSc at Reading University, an MBA at Cass Business School, and CIMA and the Securities and Investment Institute also offer Islamic finance qualifications.

CIMA's global Islamic finance qualification director John Willsdon tells us that there's been an influx of bankers from a conventional backgrounds signing up to the course "speculatively" in the hope it will add an extra cavaet to their CV.

But how likely is it that you'll find a job? Islamic finance opportunities in the UK do exist, but they are still relatively rare. BLME, for instance, has just recruited three for its new private banking arm, although Gatehouse has hired 30 investment bankers since it started last year.

Prior experience seems essential. Humphrey Percy, CEO of BLME, said: "All of our staff are seasoned professionals with a good range of Islamic finance credentials."

And Eglinton suggests that some firms are now beginning to feel the pinch.

"Islamic banks have been hit hard by the financial crisis just like conventional institutions – borrowers are defaulting on loans and property investments have slumped."

Link: http://news.efinancialcareers.co.uk/newsandviews_item/newsItemId-21053

The World's Top 10 Richest Arabs

The combined wealth of the world's super rich may have fallen by $2 trillion (€1.6 trillion) last year according to Forbes, but there several billionaire Arabs appear to have weathered the financial storm.

A new survey by online daily arabianbusiness.com, has compiled a list of the world's 50 richest Arabs over a period of four months research. Nearly 37 out of 50 are billionaires.

Research from Merrill Lynch and Capgemini earlier this year shows high net worth indidual wealth in the Middle East fell by 16% between 2007 and 2008. By comparison, wealth in the UK and US fell by around 22% in each region.

In the future oil is expected to be a less dependable driver of wealth in the future, so growth there is likely to be slower in the Middle East than it has been in the past. But , for now, the Middle East remains one of the more buouyant regions of the world, with 6% GDP growth expected between now and 2013.

The following top ten is a direct extract from Arabianbusiness.com, where the full list is available below.

1. HRH Prince Alwaleed Net Worth: $16.3bn Company: Kingdom Holding Company

HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud is the world’s richest Arab and the Middle East’s most high-profile businessman. He has assumed an iconic status, his far-sighted investments in firms such as Citigroup, Apple and News Corporation having garnered a fortune that was at one point worth as much as $28bn.

Today, some of his more ambitious investments are showing the strain of the global economic slowdown. The depreciation in value of his 5% stake in Citigroup, has been well-documented.

2. Mohammad Al Amoudi Net Worth: $8.8bn Company: Saudi Amoudi Group

Born in Ethiopia to a Yemeni father, Mohammad Hussein Al Amoudi was raised in Saudi Arabia and is today considered one of the largest foreign investors in Swedenand North Africa.

He made his first fortune in construction and real estate before branching out into buying oil refineries in Morocco and Sweden — where he was honoured with the Royal Swedish Order of the North Star by King Carl XVI — and his native Ethiopia, where he bankrolls the national soccer team.

By the end of last year, the current economic crisis had taken a toll on a number of Al Amoudi’s Swedish investments. The stock exchange lost over 30% of its value between August and December 2008, while the plummeting oil price hardly helped Al Amoudi’s oilfield operations.

3. Sheikh Mohamed Bin Issa Al Jaber Net Worth: $8.5bn Company: MBI International

One of the most successful Arab businessmen, Mohamed Al Jaber has in fact made a name for himself by avoiding the speculative stock market of the Arab world.

The MBI International group of companies today holds an asset value of over $8bn and boasts operations in Europe, the Middle East and the US. It includes real estate giant Jadawel International, JJW Hotels & Resorts, and the AJWA Group, one of the largest food companies in the Middle East. It also incorporates Continentoil, an international oilfield services and petroleumresource management company with offices in the US and UK.

Both Jadawel and Ajwa remain profitable companies, but Al Jaber’s interests seem to be gravitating more towards his hotel portfolio, which he expanded significantly in 2008, snapping up resorts in Portugal and unveiling plans for an ambitious string of projects in Austria, France and the UK.

4. Nasser Al Rashid Net Worth: $8bn Company: Rashid Engineering

Many on this list will have their own private mega yacht, but few will own one quite as spectacular as the Lady Moura. She is the pride and joy of Nasser Al Rashid, a man who is believed to be an influential advisor to the Saudi royal family, and is certainly one of the world’s richest Arabs, even according to our most conservative estimate.

Al Rashid has owned the 344-foot Lady Moura since her launch in 1990, when he paid around $200m for the privilege.

Her name is etched on the stern of the ship, carved in 24 carat gold, while her tenders include a 48-foot San Juan sailboat and a Sikorsky S76B helicopter. She is rumoured to have a garage with a Boston Whaler, Ski Nautic boat, and Venetian Taxi, while she also boasts a sand-covered, retractable platform that slides out from her side just above the water line, to create a carry-along sandy beach.

On land, the founder of Rashid Engineering was once married to socialite Mouna Ayoub, and is currently married to a Belgian-Algerian woman.

5. The Bin Laden Family Net Worth: $7bn Company: Saudi Bin Laden Group

Titans of the Gulf construction industry, the Bin Laden family is pressing ahead with a series of high-profile projects through its Saudi Bin Laden Group (SBG).

Last year Middle East Development, the Dubai-based arm of the group, announced plans to raise $190bn to build two new cities in Djibouti and Yemen and a bridge linking them. Tarek Mohammad Bin Laden will provide at least $10bn of seed financing for the $200bn project, according to the plans.

Construction of the 28.5km bridge, which will link Yemen and Djibouti on the Horn of Africa, has already been nicknamed “bridge of the century” by the world’s press. Construction is due to start later this year and will take around 15 years to compete. The project will cost $20bn.

6. The Olayan Family Net Worth: $6.9bn Company: Olayan Group

The Olayan Group began as a trucking concern in 1947. In 1954 its founder, Suleiman Olayan, launched General Trading Company, the group’s food and consumer distribution business and was instrumental in bringing commercial insurance to Saudi Arabia, founding Arab Commercial Enterprises — which went on to become the region’s largest insurance and reinsurance broker.

Today, the group owns more than 50 companies, with hefty stakes in MetLife, First Boston and American International Group. Alongside Suleiman’s widow Mary, the four children — Khaled, Hayat, Hutham and Lubna — share the group’s multibillion-dollar fortune.

The family is also a long-time investor in Credit Suisse, last October upping its stake to 3.6% of registered shares and 3.4%of mandatory convertible notes.

7. Sulaiman al Rajhi Net Worth: $5.2bn Al Rajhi Bank

Sulaiman Al Rajhi is chairman of Al Rajhi Bank, Saudi Arabia’s largest Islamic bank, established by royal decree in 1988. The bank’s origins date back to the 1940s when it started operating as a money changer in the Kingdom. Today, its operations include retail, corporate and investment banking.

Sulaiman owns the largest cut of the institution’s shares, and the last six months have not been kind to Sulaiman or his beloved bank.

It could have been far worse, and earlier this year Sulaiman looked in trouble as Al Rajhi shares tanked in the wake of the severe economic downturn. The bank’s shares lost more than 50% of their value between August 2008 and March of this year, but have since staged a recovery of sorts, and today rest at around two thirds of their August 2008 worth.

8. Issam Al Zahid Net Worth: $5.1bn Alzahid Group of Companies

Issam Al Zahid is chairman of the Alzahid Group of Companies, launched in 1951 with Alzahid Construction.

At that time, the firm was involved in town planning, as well as the construction of buildings, roads, and other facilities. It also had the honourable distinction of being the first company to build coast guard stations along the shoreline of Saudi Arabia. By 1958 the company was in full swing, building everything from bridges to tunnels and flyovers — indeed much of the basic transport infrastructure upon which the Kingdom still relies.

9. Mohamed Abdul Latif Jameel Net Worth: $5bn Company: ALJ (Abdul Latif Jameel Company)

Established in 1945, the Abdul Latif Jameel Group (ALJ), and its president Mohamed are legends not just in Saudi Arabia, but across the Middle East.

Today, ALJ is the world’s largest Toyota dealership with operations in the Middle East, UK, Central Asia and China. It is also active in the fields of real estate, financing, software solutions, advertising and media, and distribution and sales of electronics and household appliances. ALJ employs more than 10,000 people worldwide with around 2,000 in the UK alone, and the group also operates Saudi Arabia’s largest consumer finance company. Jameel has also funded a gallery showcasing more than 10,000 Islamic artefacts at London’s Victoria and Albert Museum.

10. Saleh Kamel Net Worth: $4.9bn Company: AlBaraka Banking Group

Over the last 40 years Saleh Kamel has built an empire on the back of his close relationship with the Saudi government, and his company now incorporates investments of billions of dollars across 40 countries.

During the oil boom of the 1960s, Kamel put his company forward for a string of infrastructure contracts, so helping turn the government’s vision into a reality. The successful delivery of roads, pipelines and sewerage networks led to a contract to maintain the pilgrimage sites and Holy Mosques of Mecca and Medina, and public works continued with the Dallah Avco Trans Arabia Company, which was responsible for building and maintaining Saudi’s airports.

Link: http://www.wealth-bulletin.com/rich-life/rich-monitor/content/1055065496/