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Farah Farhana

Oct 30, 2018 5:54pm

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Multi Level Marketing

The issue about the status of Multi Level Marketing when there are certain parties that abuse the concept of MLM business such pyramid scheme. Pyramid scheme is absolutely different with the MLM business. The recruitment of a new member or participant is their main income sources. In the pyramid scheme, there is no product being moved because their income comes from the registration fee of new participants. This is not permissible and any operation of this business strategy must avoided by Muslim because this activity is persecuting people which is the upper level will get more money. In real MLM business, money is made only when the person moves product, not when people signed up.

Public perspective of Multi Level Marketing was the upline in the company earn commission from the sales of downline. This was the most common criticism against MLM because they assumed that the downline whose tried to sell the products and the upline just waited for the sales to generate by the downline. The truth was the upline also played an important role in the business. They have to trained the downline on how to promote the products, ways to attract the consumers and other things.

The perspective of MLM in public’s eyes was the members of MLM earn profit and income without spending a capital and less effort. It is due to the misperception from the public that fails to distinguish between MLM business with pyramid schemes that hidden behind MLM company. The actual MLM business need the members to have the startup capital and operating cost as well as high effort to achieve higher income. The capital and effort is usually much less than the issued capital.

The public assumed that there is possibility of gambling in MLM business. The risk of building a network by recruiting new members are acceptable risk-taking in business. However, shariah issues may arise if the company not recruit new members to carry out the business through marketing of the product, otherwise used for head hunting to earn commissions through the new recruitment. Although in shariah this method is not considered as gambling because gambling is done as money game that taking other people’s property with haram’s way.

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Stock Market
PEST

There was a time when boisterous traders at the New York Stock Exchange yelled out orders to each other, creating a raucous din. When a stock traded on the strength of a news story, traders gathered in the stock's trading area and started shouting matches that sounded like brawls. Today's high-tech trading goes on without the shouting, and offers investors efficient ways to research and purchase stocks.

Research
According to the Securities and Exchange Commission, investors have unprecedented access to information about companies and their stocks. The Internet provides current stock prices, company earnings reports, and breaking news about stocks and the companies issuing those stocks. Financial advisers can relay current developments to their clients, and companies can track the performance of their stock in real time. The result of this nearly instantaneous information is better-informed investors, traders and advisers.

Execution of Trades
Computer systems record buy and sell orders so quickly that investors can know their price and other details within seconds. In addition, because electronic trading eliminates handling of transactions by people, errors have become infrequent. Though the long-established standard of three days remains in effect for verification that money has changed hands and the shares have been recorded in the buyer's account, in practice, electronic trades accomplish all of that in seconds.

High-Frequency Trading
Electronic trading has encouraged the phenomenon of high-frequency trading. People using this trading style buy and sell stocks within the same day, sometimes executing a full buy-and-sell cycle within minutes. Though this gave rise to what is commonly called "day trading" for individuals, the true impact comes from institutional investors who initiate trades in millions of shares in a matter of moments. This can trigger a buying or selling frenzy among other investors who want to participate in what they see as a trend developing in a particular stock. This type of trading was unavailable when trading was much slower.

Program Trading and Glitches
Many institutional investors, such as mutual funds, hedge funds and pension funds, use programs to buy and sell stocks. This can result in a sudden sell-off or purchase of stocks, because the program has a specific date and time to make the trade. Investors can be fooled by the sudden volume. In addition, some institutional investors experience technology glitches that can trigger sudden buying and selling. These events can put traders in a panic, because they see no news to justify the trades, and assume that they should buy or sell the stock so they can be in on the action.

Inflation and deflation
Inflation can have an adverse affect on the stock market. Inflation is the rate at which the price of goods and services increases. It is the result of several factors including a rise in the cost of manufacturing, transporting and selling goods. When inflation ia at a low rate, the stock market responds with a surge in selling. High inflation causes investors to think that companies may hold back on spending. This causes an across the board decrease in reveneu and the higher cost of goods coupled with the drop in reveneu causes the stock market to drop. Deflation is when the cost of goods drop. While deflation sounds like it should be welcomed by investors, it actually causes a drop in the stock market because investors perceive deflation as the result of a weak economy.

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Forex investments made by individuals on online or we called it as internet platforms are illegal. This decision has been made by the National Fatwa Council's muzakarah. This is because the muzakarah finds that individual forex trades by electronic platforms contain elements such as riba through the imposition of rollover interest, the purchase and sale of debt through leverage, qabd which is not clear when exchange transactions, currency-denominated sales and speculation involving gambling. Forex online is usually not allowed to individuals, but it is allowed to Islamic Banks. This is because currency is a 'ribawi' thing. Mean that, it must be sold in cash and currency exchange occurs on the spot (not delayed). If run online, it will be inconvenient for individuals to make it happen on the spot. That is why it is not allowed. For example; if the exchange of two currencies is different, US Dollars convert to Ringgit Malaysia must comply with "spot transaction" requirements. Means, they must have account that will help them to make the "spot transaction" to avoid the delay in any transaction. In addition, forex activity in the bank's conventional concept it does not take care of the conditions that shariah is subject to. Then, forex activity like this is classified as riba nasiah. Where riba is a matter of illicit and prohibited in transactions according to shariah islam. The forex run by conventional banks is the "forward" forex which is this  forex not illegal transaction in islam. Forex using this 'Forward' value is certainly known to generate more profit than the spot in most cases if appropriate. Forex is based on Islamic perspective it is an activity that is required if it complies with Islamic shariah (avoid usury elements).

Which mean, any trade and transactions made shall be subject to all that has been defined by shariah. It is to ensure that any activity made does not lead to illegal things. Other example in forex trading, if we have 1000 usd and we trade for 1000 usd with another currency and pay cash ( rule of Sarf in islamic finance), this is acceptable(valid). But, if with them 1000 usd they trade for 2000 or 3000 or more then 1000 usd, it is no more an “investment” it is a speculation, not only they may be exposed to full loss of capital but in addition on what they borrow they will pay interest rates (riba). What is forbidden, clearly, is the speculation. This situation explain to us, that for all these reasons we can not trade more then what we have as money.

Muzakarah also mentioned that this decision was not applicable to foreign exchange transactions through counters in licensed money changers and foreign exchange transactions operated by financial institutions licensed under the laws of Malaysia. islamic banking activity forex is allowed because they use spot forex transaction, that mean no delay transaction happen between the two parties involved. They have Nostro and Vostro accounts, which mean that account will help them pay on the spot between the two currencies even online. This kind of methods will help them avoid in delay transaction. Besides that, Islamic financial institutions also have Shariah advisors overseeing currency-related activities. So, the way banks make "forex" is different from those who play forex on the internet. This activity needs to get confirmation and approval from their Shariah Advisory Council which they have been already undoubtedly set the strict requirements that must be adhered to in the Islamic shariah. Other than that, forex means foreign exchange. Then, when we mention forex, we know that it is a currency trading transaction. Means that, when buy a currency if we use Al Sarf's sharia contract, it is permissible. From the perspective of fiqhiyyah it is subject to Bay al-Sarf's law which is to be followed by the general terms of sale and special requirements of Bay al-Sarf. The conditions of Bay al-Sarf, there is taqabbudh between the two items involved in the forex platform before the two parties conducting transactions separating from the council. Based on other information, the sale and purchase of the currency shall be levied and shall not be suspended and the sale of al-sarf must be free from khiyar al-Syart. The general terms of sale and purchase is:

·         The parties must have the qualification of contracting (Ahliyyah al-Ta'aqud).

·         The purchase price shall be clearly stated by both parties.

·         The purchase item shall be wholly owned and wholly owned by the seller and may be delivered to the buyer.

·         Sighah akad shall show the plea of ​​both parties, no element of abolition and sighah of consent and qabul must be compatible and conform to each other in terms of its features and rates.

In Malaysia, there are two financial system running parallel to each other.  The conventional system that has existed since the British colonial era and it has been well accepted by people of Malaya and now, Malaysian also accept the system especially the non-Muslim. The system however, is not well received by predominantly the Muslim population of the country because of the system is riba based. The Muslim realised that they need to obligate the shariah rule that prohibited from riba, gharar and maisir.

The second issue is the comparison between forex in conventional institution and forex in Islamic institution. There is a considerable consensus between Islamic jurists regarding the authority for trading different foreign exchanges with different rates and in cash. This judicial authority is due to independent entity of different currencies and their distinctions in intrinsic value, and purchasing power. Also there is an overall agreement between most of fiqh schools about invalidity of implementing currency futures and forwards because of deferment in settling commitment and rights of parties to a future time. However for validity of different financial instruments in FOREX, following fiqh conditions are necessary; (1) The authority of the parties. (2) The necessity to offer and acceptance in contracts. (3) The forbidden of riba. (4) The forbidden of gharar.

Firstly, as we know in Shariah compliance, the element of the riba is not permissible in trading or forex currency. However, the element of the riba is applicable in the forex of conventional institution. If there are element of riba is involved in forex trading, the Muslims is not allowed to enter in that forex. The Muslims is encouraged and permissible to enter the forex trading in Islamic institutions than the conventional institution. There are the element of the riba in conventional institution and  the conventional forex also involved trading and usury, the usury is also not allowed in Shariah and the Muslims is not encouraged to enter the forex trading in conventional institution because the element of the usury is not permissible in Islam.

The forex trading in Islamic institutions is allowable in a contracts that name Bay’ al-sarf. According to the Ijma Fuqaha, comprising of Hanafi, Maliki, Shafii and Hanbali school of thought said bay’ al- sarf  is considered as a trade where foreign currency is involved but there are several pillars to which al-sarf is based upon in order to fulfil the requirements of the mechanism of Islamic currency exchange. If the several pillars is not followed, the contract may be null or void. It is because in the contract of Bay’ Al- Sarf[U1] [U2]  may be have the element of riba or others elements that are prohibited in Shariah compliance.

In addition, the forward forex or hedging is applicable in conventional but not in the Islamic institution. This is because, the majority Fuqaha agrees that forward forex or hedging should not permissible under bay’ al- sarf. The meaning of the forward exchange or hedging an essential instrument where both parties agree to exchange two chosen currencies at a precise time in the future. The instrument that involved in the forward exchange or rate is vital because the purpose of the forward forex or hedging is to protect buyers from currency price fluctuation. However the practice is obviously uncertain and it may have the element of maysir.  We are not certain that the currency of the forex will increase as their plan or may be the rate of the forex may be decreased in their certain of period. In the conventional, the forward exchange or rate is applicable because they want to minimal risk faced by an institution or financial organization. They will protecting the value of the asset from being exposed to the volatility and fluctuation of a market.

Gharar can be translate as “trading in risk”. In every trading it will involves some degree of risk either high or low. It is possible to see gharar as a continuum of risk and uncertainty where in the extreme point of zero risk is the only point that is well defined. Beyond a point on this continuum, risk and uncertainty or gharar becomes unacceptable. Another presented meaning for gharar is ignorance (Jahl). It arises from inadequate information that caused uncertainty and ambiguity. Uncertainty appears when the terms of exchange, such as, price, objects of exchange, time of settlement etc, are not determined exactly. This meaning of gharar is more acceptable. The condition above infer from a fiqh axiom namely gharar prohibition

Besides that, in forex conventional institution there are someone who want to involve in the forex trading but they want to exchange currency sometime in future but already fixing a rate in a contract that is sealed today. It is permissible in the conventional institution but not in the Islamic institution because there actually have an element of the uncertainty. The element of the uncertainty is the rate may actually increase or decreased by the period of the contract end. It also might have someone to loss or gain profit but the systems itself is already at risk. It is very different in Forex in Islamic institution because forex in Islamic institutions is involves two different currencies to be transacted on spot basis or at the same time. The people who involved in forex trading already know what their loss or profit because the foreign exchange is made at the present tense and not in the future.

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Malaysia had been recognized as a sukuk hub. There are a few issue had risen as been mentioned earlier. There are four main issues which are sustainability of Sukuk during financial crisis, the application of Bay Al-Inah and Bay Al-Dayn, determinant of the firm in issuing sukuk over bond and sukuk defaults. This issue had been analysing via PEST Analysis. Pest Analysis consist four Aspects which are politic, economic, social and technology.
The first issue is sustainability of sukuk during financial crisis. Sustainability can be defined as the ability to be maintained at a certain rate or level. As been stated earlier this issue occurred due to different underlying structure and provisions in comparison to Conventional bonds. This issue had been mentioned by Wahida Ahmad and Rafisah Mat Razi through their article ‘Sustainability of Sukuk and Conventional Bond during Financial Crisis: Malaysia Capital Market’. They had state that sukuk had declining upon to 50% by the end of year 2008.
In the aspect of political, the Malaysia government issued the first global sovereign sukuk which is become an international benchmark for issuing of global Sukuk and has risen up to USD 600 million. Other than that, the government has issue Sukuk on a few lists which are on the Luxembourg Stock Exchange, Labuan International Financial Stock Exchange and Bahrain Stock Exchange. The issue of sustainable of sukuk has been proven in a few more articles. In the aspect of politic factor we can see through the article written by Abdullah, ME, Burhan, S &Shah which is ‘The Bright Side of Downturn, Rating Agency Kuala Lumpur. This article had mentioned about in 2008 Malaysia was the hardest hit in there was a marked deterioration in Sukuk which is 50% compared to 2007 due to subprime crisis in 2008. The next aspect is in the aspect of Economic, Sukuk has proven that it is a very a sustainable investment which shown that it is less than $500 Million in 2001 but exceeded to $60 billion in 2007 which is average annual growth rate is 21 %.  In Malaysia economic Sukuk have a very important role. Sukuk is more than 50% of the country total debt. Another article that discussed this issue is the article that been published by Nikkei Asian dated January 3, 2018 stated that Malaysia's continued infrastructure push amid a steady economic growth is likely to keep issuance of sukuks steady this year and cement the Southeast Asian nation's position as one of the biggest players in global Islamic finance market. This article also stated that the sukuk Islamic finance made up 60% of $31 billion rose via debt last year. This is proved that sukuk is stable and keep rising in capital market.

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Malaysia had been recognized as a sukuk hub. There are a few issue had risen as been mentioned earlier. There are four main issues which are sustainability of Sukuk during financial crisis, the application of Bay Al-Inah and Bay Al-Dayn, determinant of the firm in issuing sukuk over bond and sukuk defaults. This issue had been analysing via PEST Analysis. Pest Analysis consist four Aspects which are politic, economic, social and technology.
The first issue is sustainability of sukuk during financial crisis. Sustainability can be defined as the ability to be maintained at a certain rate or level. As been stated earlier this issue occurred due to different underlying structure and provisions in comparison to Conventional bonds. This issue had been mentioned by Wahida Ahmad and Rafisah Mat Razi through their article ‘Sustainability of Sukuk and Conventional Bond during Financial Crisis: Malaysia Capital Market’. They had state that sukuk had declining upon to 50% by the end of year 2008.
In the aspect of political, the Malaysia government issued the first global sovereign sukuk which is become an international benchmark for issuing of global Sukuk and has risen up to USD 600 million. Other than that, the government has issue Sukuk on a few lists which are on the Luxembourg Stock Exchange, Labuan International Financial Stock Exchange and Bahrain Stock Exchange. The issue of sustainable of sukuk has been proven in a few more articles. In the aspect of politic factor we can see through the article written by Abdullah, ME, Burhan, S &Shah which is ‘The Bright Side of Downturn, Rating Agency Kuala Lumpur. This article had mentioned about in 2008 Malaysia was the hardest hit in there was a marked deterioration in Sukuk which is 50% compared to 2007 due to subprime crisis in 2008. The next aspect is in the aspect of Economic, Sukuk has proven that it is a very a sustainable investment which shown that it is less than $500 Million in 2001 but exceeded to $60 billion in 2007 which is average annual growth rate is 21 %.  In Malaysia economic Sukuk have a very important role. Sukuk is more than 50% of the country total debt. Another article that discussed this issue is the article that been published by Nikkei Asian dated January 3, 2018 stated that Malaysia's continued infrastructure push amid a steady economic growth is likely to keep issuance of sukuks steady this year and cement the Southeast Asian nation's position as one of the biggest players in global Islamic finance market. This article also stated that the sukuk Islamic finance made up 60% of $31 billion rose via debt last year. This is proved that sukuk is stable and keep rising in capital market.

In the aspect of social factor, the awareness among the Muslim community in Malaysia and world for shariah compliance product has accelerated development of Sukuk in Malaysia. Islamic debt instrument’s demand is only 7% of total bond back then in 1999 and had grew to 25% in 2000. In 2005 has rising to 76%. In the article that wrote by Robert Cookson in Hong Kong on May 28, 2010 had mentioned that the demand for Malaysia sukuk is so strong that it is 180 point infront of United State Treasuries.  The last is in aspect of technology, Malaysia has taken one step ahead by introducing World’s First Green Sukuk. Green Sukuk is must be climate-friendly investment.  The article that has been published by ‘New straits times’ had stated that Green Sukuk has issued by Tadau Energy Sdn Bhd, a Malaysian-based renewable energy and sustainable technology investment firm, and structured on the Syariah principles of istisna’ (manufacturing sale) and ijarah (leasing), the RM250 million Green SRI Sukuk Tadau is to finance the construction of large scale solar (LSS) photovoltaic power plants in Kudat, Sabah, with a tenure of two to 16 years.
The second issue is the application of Bay Al-Inah and Bay Al-Dayn. This issue had mentioned by Saiful Azhar Rosly & Mahmood M. Sanusi through the article of ‘The Application of Bay Al-Inah and Bay Al-Dayn in Malaysia Islamic Bonds: An Islamic Analysis. This issue basically come out when the Middle East start not accept this kind of contracts. In the aspect of politic the Malaysia government has a very important role to control and ensure that Sukuk is riba-free. In order to overcome this issue the BIMB Securities Sdn Bhd outline that the Malaysian Islamic bond are structured of bay al-inah and subsequently trade on the basis of bay al-dayn. Basically,  the  Shariah  Advisory  Council  of  the  Securities  Commission  Malaysia  allows  the utilization of bay al-inah in the  issuance of sale-based Sukuk  in the primary  market. However, scholars  in  the  global  capital  market,  mainly  in  the  Middle  Eastern  countries  disallow  the  said practice. This statement had been mentioned by Yusuf Sani Abubakar and Dr. Ahamad Faosiy Ogunbado through their article ‘USING BAY AL-INAH IN ISSUANCE OF SUKUK IN PRIMARY MARKET: A LOOK INTO SCHOLARS’ VIEW’. Malaysia Government also had set of rules and regulation for the flow from the spending units to the deficit spending unit. Shariah principle has strictly governed these rules and regulation. Muqaradah bond is one of instrument. In the aspect of economic we can clearly see through of selling of dayn or debt by issuer to the financier therefore involves two types of bond issues.  Other than that Muqarada bond also give a great impact toward the Malaysia economic. Muqarada Sukuk Bond has a functioned to a common ownership and entitles their holders share in the specific project which the bonds have been issued for financing purposed.

The next aspect is social; it has an issue rise which is when Malaysia starts to accept the application of Bay Al-Inah and Bay Al-Dayn while the Middle East community did not accept that. These statements also mentioned by Yusuf Sani Abu bakar and Dr. Ahamad Faosiy Ogunbado through their article. Middle East community had large dominated al-mudharabah and al ijarah either than Bay Al-Inah and Bay Al-Dayn. The last aspect is technology, leading in this rapid economic change sukuk need to be change rapidly. Block chained technology had been introduced. Based on article that been published by TheStar.com on September 24 2018. The article had discussed about the need for a strong disclosure regime augmented by independent credit ratings is further underscored by the Securities Commission Malaysia’s recent announcement on the liberalisation of its regulatory framework to enhance retail participation in sukuk and bonds.
The next issue is determinant of the firm in issuing sukuk over bond. Based on the article that written by S.Shahida and Sarah Sapiyi ‘Why Do Firms Issue Sukuk over Bonds? Malaysian Evidence’. The main contrast between Sukuk and Bond is Sukuk is Shariah Basis while bond is based on conventional. The first aspect is in political aspect. It is clearly shown through a few framework that been provided under the guideline on the offering of Islamic Securities guideline. The article ‘ Sukuk: Islamic Capital Market Series’ by Thomas and Abdulkader 2009 stated that AAOFI Shariah Board had recommended a few rules in order to ensure the Sukuk has fulfilled the Shariah guidelines and keeps sustains. Other than that, Malaysia Government has introduced a various tax incentive in order to boost the financial markets especially Islamic financial instruments.
Next is in the aspect of economic. Sukuk had well-known as it is able to drive the Malaysia economy. November 2002, RAM Rating Services Berhad (RAM) has rated 87 IPDS issued worth RM36.7 billion compared with 549 conventional PDS totalling RM129.2 billion. The trading of IPDS had increased by 59.7% in 2003. This is much higher that increase emanated from new issues of IPDS amounting to RM8.1 billion and strong trading sentiments in the first half of the year. The third aspect is in social. As a Muslim, Islam gave many ways for people to buy and sell goods but the transactions must be Shariah-compliant. Similar to the transaction of sukuk, Islam also permitted the buying and selling asset-based capital but must be based on the Shariah principles. This fact can be the reason why Malaysian tends to invest in Sukuk rather than conventional bond. This statement also been supported by Syed Muhammad Hassan Bukhari, Huma Nawaz and Shrafat Ali Sair through the article ‘COMPLIANCE OF INVESTMENT SUKUK WITH SHARIAH’ published in 2014. They had stated that, 20% of banking customers now moved towards Islamic financial products (Standard & Poor's).
Technology aspect is the last aspect that been analyse. This stellar growth experienced by the sector over the last few years is due to attributable the changing, rapid population growth, urbanization trends improvement in living standard and demographics of Asia. Sukuk also has a great potential based on the robust economic landscape in the GCC and Asia, coupled with rising wealth and strengthening demand for Shariah compliant investment.
The last issue has been mentioned earlier is Sukuk default. Sukuk default had mentioned in an article ‘Sukuk Defaults and Its Implication: A case Study of Malaysian Capital Market written by Hafizi Ab Majid, Shahida Shahimi and Mohd Hafizuddin Syah Bangaan Abdullah. Normally customer starts to misconception about Sukuk. They believe that as Sukuk is based on Shariah, They are default free. The first aspect to analyse is in the political aspect. Malaysia government has set that in Malaysia, all debt securities including sukuk issues are at all times required to be accompanied by a credit rating. A credit rating is a mechanism through which an independent third party, as the credit rating agency (CRA), needs to makes an assessment on the likelihood of a corporate issuer’s default on its debt repayments.
Next is in the aspect of economic. Malaysia’s Islamic capital market remain to show dynamic growth as can be seen from the ever-increasing size and diversity of sukuk offered. This is attributable to various factors likes well-executed policies, facilitative regulatory environment, increasing numbers and sophistication of intermediaries that continue to push the frontiers in terms of product innovation as well as the existence of a complete, matured and well-established Islamic financial system. Another Article that has discussed on this issue is article dated on October 3, 2009 ‘Sukuk investors’ position amid defaults’ published by TheStar.com. The article had mentioned about Most of the sukuk issued in the local market take the form of asset–based sukuk. The third aspect is in social. In this aspect the perception of society is become another major issue in sukuk default is the investors' right and protection. Since many customers distiguish that sukuk should be more secured rather than the conventional bonds, the default should be seen as something to be avoided from the perspective of investment attraction. The last aspect is technology. As the technology in economic increase, there is also increase of economic terms to describe the type of sukuk, there are three common types of sukuk; namely fixed-income sukuk; asset-backed sukuk (ABS); and hybrid sukuk (Zawya). Sukuk can be of many types depending on Islamic contracts or principles of financing and trades used in the structuring process. AAOIFI has issued standards as guidelines for 14 different types of sukuk, which can be classified as tradable and non-tradable, development and industrial project financing.

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2.0 EXPLANATION & ANALYSIS

2.1 THE CONCEPT OF TA’WIDH

Ta’widh is a word that derived from the word al-i’wad which means instead. It also defined as a fine in a contract that agreed by the parties as compensation that can be claimed by creditor when the debtor unsuccessful to pay or late payment of debts. Besides, it also means damages charged on the actual loss of the lenders financing effected by delayed payment of the receiver. However, the ta’widh is specifically for Islamic banking. In conventional banking system, there is application of a penalty or gharamah. Gharamah means a fine charged for late payment of debts or penalty, with left out proof of existence of the actual loss. Without any doubt, conventional banking system practiced riba’ or charge interest towards their customer when penalty is implemented.

2.2 IMPOSITION OF TA’WIDH

Practically, in Malaysia ta’widh is used as a mechanism that helps to avoid disadvantage to Islamic banks. It is dissimilar from interest which charged by conventional banks. In the perspective of Maqasid Syariah, ensuring the sustainability of Islamic banking is important in order to protect religion of Islam. The one who deliberately refuse to pay back their debt is known as tyranny by Prophet Muhammad SAW. In addition, Mazhab Hanafi allowed penalty when detriment happened to any party. Majma’ Fiqh al-Islami also totally agree when penalty clause is imposed towards the financier. Therefore, the implementation of ta’widh is allowable but must be in line with guideline provided by Shariah Advisory Council of Bank Negara Malaysia in its 4th meeting in 1998 which the ta’widh must not surmount the actual loss suffered by the financier.

The appliance of ta’widh in banking system need some time to change and adjust the banking system accordingly. For example, Bank Islam started to implement ta’widh on February 2010 until now, even though ta’widh was introduced since 1998. The other issue related to ta’widh is some of Islamic bank in Malaysia practiced ghramah instead of ta’widh. Usually, it happens in Middle- East Islamic banks that operate in Malaysia. They usually follow their parental bank based in Middle East country and tolerate by AAOFI opinions.

On 20 May 2010 which was the 101st meeting, the Shariah Supervisory Council of Bank Negara Malaysia has ruled the concept of ta’widh and gharamah that is permissible, in condition of when financial obligations arising from exchange contracts such as buying, selling, and leasing due to the late payment. Ta’widh can be charged after the end of the repayment period that is agreed by the both parties. It also may recognize as income on basis that it is imposed as compensation for actual loss suffered by Islamic banking institutions. Last but not least, grammah must be channeled to certain charities, cannot be taken into account as income.

2.3 METHOD OF COMPUTATION PENALTY AND TA’WIDH

According to conventional banking, it charged about 2% to 5% of total loans outstanding as penalty. The penalty will be included in the loan amount. It will be pegged to the percentage of the original loan amount, if there is further penalty.

For example A makes a housing loan of RM100, 000 and the outstanding is RM90,000. A fails to pay the debt for a month. A set of penalty of 5 percent is imposed. As a result if the amount to be paid by A is:

• RM90, 000 X 5% = RM4500

• RM90, 000 + RM4, 500 = RM94500

• RM94500 X 6.75% (interest rate) = RM6378.75

• RM94500 + RM6378.75 = RM100, 878.7

Compared to Islamic banks ta’widh rate that is charged 1% and non-compounding. This shows that it cost lower than conventional one. .

For example, B made a financing from the Islamic banks of RM100, 000. In the first year B failed to pay as installments of RM2, 000 per month. On top of that for 2 months arrears. There are, the amount of ta’widh to be paid is:

· 1% x RM 4,000 = RM 40

• RM 40 + (RM2, 000 x 2 months) = RM 4,040

As stated above, the amount of the fine charged by Islamic banks for 2 months in arrears is only RM40 and 2 months overdue installments of RM4, 000. Thus, the total need to be paid by B is RM4,040. Therefore that computation shows the difference between ta’widh and penalty (riba’) charged in conventional banks. In fact, revenue derived from ta`widh must be channeled to charitable purpose or used partly as accordance with the Shari’ah Supervisory Council bank advice respectively.

2.4 VIEWS ON TA’WIDH

Practically, Islamic banking has impose amount of money as a compensation or penalty, this amount is actually considered as a cost-benefit charge faced by the bank when the customer does not pay its debts to the banks on the time. There are a different between compensation that imposed by Islamic bank and penalty that imposed in conventional banks. Compensation or penalty that imposed by the Islamic bank are due to the process buying or selling with the promised instalment payment in due time. While, conventional bank penalties are based on the loan contract only. The contemporary scholars has divided three (3) groups to determine the compensation of late payment charge that can be imposed in Islamic banks.

First group is penalty must be charged in money. Syeikh Mustafa Az-Zahra, Syeikh Muhammad Sadiq Ad-Dharir, Sheikh Abdullah bin Mani, syariah advisory council of Islamic bank Jordan, and majority of syariah advisory of Islamic bank in Malaysia. Based on their opinion, the money that Islamic bank got from the penalty can be use by the Islamic bank. This requirement is based on several arguments.

Second group is penalty must be charged in money but channelled to the virtues. For this group just same with group first from the point of requiring penalty in the form of money imposed when the customers late to pay their debts, but all the money that Islamic bank got from the penalty can’t be use by their own. All the money must be channelled to the public welfare or faqir miskin. One of the scholars that hold on this opinion is Dr Abd Sattar Abu Ghuddah, it was decided by syariah council AAOIFI for murabahah product.

Third group is penalty should not be imposed. Among the scholars who are agree in this group are Dr Nazih Hammad, Dr Md Ali El-Gari and others. For them, penalty that imposed when the customers failed to pay the debt on the time is a riba.

After referring to the arguments from three groups and based on current condition, I preferred to the second group’s view. The third group’s view also good but to apply it in current condition, it is not suitable because nowadays lack of trustworthiness in customers’ to pay the debts on the time and to make sure Islamic bank didn’t get burden when the customers late to pay the debt so the ta’widh must be imposed. In Malaysia, to avoid the customers from paying the debt late, ta’widh must be imposed on condition it is actual loss incurred by the Islamic bank. The rate of loss is decided by Bank Negara Malaysia. Other than that, the rate of ta’widh is only 1% and it must be not be a compounding value.

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When entering into a new country, marketers must be aware of various environmental differences that they may have to address, such as media restrictions and cultural and legal factors. This time, we focused on Malaysian media professionals’ perceptions towards various media and advertising restrictions in their country since their official religion is Islam. It found that advertising images, particularly nudity, indecent language, and sexist images, were perceived as major reasons for advertising restrictions.

While many products are not perceived as contro- versial in nature and have no restrictions on how it is sold, there may be re- strictions on the type of images that can be used in its advertising. Some images in advertising, including nudity, anti-social behavior, racist and sexist images, are openly used in some cultures, but restricted in others to reduce the degree of offense in the community. Such restrictions would reduce the ability to standardise a campaign around the world. Within society there are various social/cultural aspects that can have a large influence on how a company can promote its prod- ucts. Some basic factors, like ethnic diversity, the use of multiple lan- guages, and the practice of different religions, are significant factors in Malaysia. This may mean a marketer must change advertising material, vary product varieties, and avoid marketing activities that may cause of- fence to the local market.

The advertising industry in Malaysia faces complex challenges, in par- ticular the numerous government regulations. The regulations reflect the national aspirations of achieving a Malaysian identity and culture, while conforming to the values of Islam, the national religion. These aspirations were set out by the Ministry of Information and specified in the Advertis- ing Code for Television and Radio (1990). This Advertising Code was designed to safeguard advertising and the consumers against the influ- ence of foreign cultural values. In particular, it prohibits the “adaptation or projection of foreign culture which is not acceptable to a cross section of the major communities of the Malaysian society either in the form of words, slogans, clothing, activity.

Religion affects people in many ways because it prescribes proper behav- iour, including work habits. The Protestant work ethic encourages Chris- tians to glorify God by working hard and being thrifty. Islam exalts work, and idleness is seen as a sign of a person’s lack of faith in the religion. In Hinduism and Buddhism, the emphasis is on the elimination of desires because desires cause worries. Not striving brings peace, and a person at peace does not suffer. The Malaysian Government’s primary task is to en- sure that none of these contrasting elements are depicted in commercials.

Islam forms the largest single religious group in Malaysia, practiced by around 60% of the population. Islam prohibits gambling and alcohol consumption. However, because Malaysia is also a multicultural society, these restrictions were only limited to national mass media such as televi- sion and prints that are targeted at the Malays. Other media such as Chi- nese, English and Hindu language newspapers and magazines were allowed to carry both gambling and alcohol advertisements provided that the advertisements do not encourage the readers to gamble nor increase alcohol consumption.

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Explanation & analysis of the issues (form different perspective)

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Explanation & analysis of the issues (form different perspective)

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Kootu Fund“Kutu” practices in Malaysia

Explanation & analysis of the issues (form different perspective)

Why kootu fund or informal financing is highly practised by most Malaysians? It was derived from the reasons for the development of microfinance itself. Generally, most of the commercial banks will not offer loans to the poor. This is due to a few factors such as screening problems, monitoring problems, enforcement problems, assumption on the poor, non-collateral clients, uneconomic and small loan size clients.

Due to these factors, the evolution of microfinance is unavoidable in most of the countries. Microfinance is vital in providing support and enhance the living standard of the poor especially those who runs small business. It will be difficult for them to sustain their business without microfinance from the commercial bank which forcing them to make an informal financing or kootu fund. This is also the reason why microfinance initiatives is the solution to the financial limitations and constraints faced by the poor. With the existence of the kootu fund, they are able to develop and expand their business to a better level and get away from the poverty life.

However, in Malaysia, it is prohibited to carry out such activities, transactions or businesses. It has been stated in the Kootu Funds (Prohibition) Act 1971 under section 3 that “It shall be unlawful for any person to carry on the business of promoting kootu funds and any person who carries on such business shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding five hundred thousand ringgit or to imprisonment for a term not exceeding ten years or to both.”.

The Kootu Funds (Prohibition) Act 1971 is enforced up until today because there are always cases where people has been deceived and scammed by the kootu fund activities or businesses. Let us imagine if there is no such law exist to control the fraud scheme, there will be more victims involved in such cases. Therefore, although kootu funds could help the poor to improve their financial and social status but it is also could bring down the poor to a worst situation than before.

References

Rani, N.S.A., Hamit, N., Das, C.A. and Shaikh, J.M. (2011) ‘Microfinance practices in Malaysia: from ‘kootu’ concept to the replication of the Grameen Bank model’, J. International Business and Entrepreneurship Development, Vol. 5, No. 3, pp.269–284.

Kootu Funds (Prohibition) Act 1971 s. 3 (MYS).

Hasbi Sidek. (2018, 17 September). Main Kutu Satu Kesalahan. New Straits Times Press. Retrieved from https://www.bharian.com.my/berita/kes/2018/09/474595/main-kutu-satu-kesalahan-jsjk

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The business screen (or sometimes known as qualitative screen or sectoral screen) is being conducted to investigate the nature of the core business. Mean while, the financial ratios or quantitative screen is being carried out to check the revenue of the company whether they are free from prohibited income or they are involved with it but under the acceptable ratio that has been permitted by the Shariah scholar.

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These challenges are noticeably different from those of the Islamic finance industry because non- financial publicly listed companies were not set up to offer Islamic finance products and services, nor do they have a separate wing that offers Islamic banking or a financing unit.

2) identify the main challenges as the non-existence of standardized Shariah rulings embraced by regulators from various geographic locations and an insuf cient number of quali ed scholars to participate in the administration and rulings of Shariah law.

3) lack of understanding among companies regarding the items considered important to Shariah principles.

4) there are differences in the quantitative screening in terms of the formula, the denominator being used and the threshold limit granted to the companies.

5) the differences in the quantitative ratios can be caused by different objectives among the Shariah screeners, whether country-speci c, regulation-oriented or globally business-oriented.

6) identifying prohibited activities indicated in the required category, in the main activities of the companies.

7) identifying the operations that constitute the main activity of a company

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Less emphasis on social welfare obligations of the ummah

Nowadays, Islamic banks offer different financial services and has grown rapidly in Malaysia. They are unique because they are responsible for fulfilling the social and ethical role inherent in their character as Islamic institutions. First and foremost, Islamic banks are not necessarily profit-oriented but they are aimed at promoting Islamic norms and values as well as protect the needs of the Muslim community as a whole without degrading its commercial viability.

However, there has been an issue of the Islamic bank which has less emphasis on the social welfare obligations of the ummah. Wahbah Al-Zuhayli, a prominent Syariah scholar, supports the socio-economic framework of Islam financial institution in his famous Al-Fiqh Al-Islami wa-Adillatuh, "The main goal of Islam financial institutions are not profits, but the confirmation of socio-economic social goals development and poverty reduction. With this, Islamic banks may need to be more sensitive to the needs community, promoting more social welfare programs and activities and also making more contributions to poor and needy.

Bank Islam needs to know more and accept the responsibility to contribute in example through zakat for widespread socio-economic goals to alleviate poverty, health improvement, better education and general social development especially in poor communities. This is for the collection and distribution of funds to the poor provision of generous loans (Qardul Hasan) to eligible individuals and regional investment distribution.

As Islamic banking is considered green, their activities had to be ‘commercial as opposed to predominantly socioeconomic’. Therefore, it would be expected that social welfare oriented activities of Islamic banks will increase as these institutions become more established.

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Amanah Saham Bumiputra (ASB) is a activity aimed at helping bumiputras improve and collect their income equities. As a matter of fact, ASB needs a small amount of capital to invest in large profitable companies that can generate substantial returns. However, ASB itself has some obstacles when many people doubt their halal status. Thus, some fatwas have been issued to study the halals status of the ASB. Fatwa is a study that refers to a religious law that has never been decided on the basis of nasr of Quran, hadiths and other sources. In addition, the fatwa is generally about a legal opinion on a matter issued by the authoritative body in the field of fatwa in Malaysia. In this case of ASB, the focus of this study is only on two fatwas, the national fatwa of 1-3 FEBRUARY 2008 which requires ASB while another fatwa on 12 APRIL 2011, the Selangor fatwa which decides that the investment of Bumiputrais not halal. In this case, the fatwa selected is very thorough as national fatwa is chosen based on its status as a national fatwa coordinating body and it is a source of fatwa references to society while the Selangor fatwa is chosen because at first they allow ASB but then they decide it is not lawful.

Furthermore, based on the two selected fatwas, a study will be conducted such as analyzing the methodology or fatwa approach taken by the MKI Fatwa Committee Muzakarah and the State Fatwa Committee in setting ASB investment law. Muzakarah Fatwa Committee the National Assembly of Islamic Religious Affairs requires investment in Amanah Saham Bumiputera (ASB) and Amanah Saham Nasional (ASN) since 2008. However, there are 3 fatwa who say they disagree with that view and do not justify the investment of ASB. The three disagreeable fatwa include the Selangor fatwa, the Penang fatwa and the Fatwa of Pahang. The secular fatwa does not legalize ASB obviously involved in mixed-investment activities and associates the SC's syariah advisory council classified as non-compliant fund. Additionally, Penang does not legalize because it sees the largest investment of ASB is the Ribawi Bank while Pahang also decides it is not halal it considers ASB's banking activities not syariah-compliant.

However, in 2017, the three fatwa revised its decision and the fatwa was announced by PNB Chairman, Tan Sri Wahid Omar, during the PNB Syariah Governance and Governance Conference at Universiti Sains Islam Malaysia (USIM). The new fatwa decision on ASN and ASB must be resolved by the three fatwa. On April 27, 2017, the Selangor Fatwa Council reconsidered their fatwa and reached the consent of many in requiring the investment of ASB. Selangor's fatwa says the percentage of investment in its Islamic compliant company has surpassed 66% according to the Securities Commission's standard and this requirement is based on the fiqhiyyah method which means 'Change of Law According to Change' Illah that is why. While the Penang fatwa council also reached the same agreement and required the investment on 15 August 2017. Thus, all fatwa has reached agreement in requiring ASB and all parties should welcome the agreement of the state fatwa on the necessity of investing in ASN and ASB.

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Amanah Saham Bumiputra (ASB) is a activity aimed at helping bumiputras improve and collect their income equities. As a matter of fact, ASB needs a small amount of capital to invest in large profitable companies that can generate substantial returns. However, ASB itself has some obstacles when many people doubt their halal status. Thus, some fatwas have been issued to study the halals status of the ASB. Fatwa is a study that refers to a religious law that has never been decided on the basis of nasr of Quran, hadiths and other sources. In addition, the fatwa is generally about a legal opinion on a matter issued by the authoritative body in the field of fatwa in Malaysia. In this case of ASB, the focus of this study is only on two fatwas, the national fatwa of 1-3 FEBRUARY 2008 which requires ASB while another fatwa on 12 APRIL 2011, the Selangor fatwa which decides that the investment of Bumiputrais not halal. In this case, the fatwa selected is very thorough as national fatwa is chosen based on its status as a national fatwa coordinating body and it is a source of fatwa references to society while the Selangor fatwa is chosen because at first they allow ASB but then they decide it is not lawful.

Furthermore, based on the two selected fatwas, a study will be conducted such as analyzing the methodology or fatwa approach taken by the MKI Fatwa Committee Muzakarah and the State Fatwa Committee in setting ASB investment law. Muzakarah Fatwa Committee the National Assembly of Islamic Religious Affairs requires investment in Amanah Saham Bumiputera (ASB) and Amanah Saham Nasional (ASN) since 2008. However, there are 3 fatwa who say they disagree with that view and do not justify the investment of ASB. The three disagreeable fatwa include the Selangor fatwa, the Penang fatwa and the Fatwa of Pahang. The secular fatwa does not legalize ASB obviously involved in mixed-investment activities and associates the SC's syariah advisory council classified as non-compliant fund. Additionally, Penang does not legalize because it sees the largest investment of ASB is the Ribawi Bank while Pahang also decides it is not halal it considers ASB's banking activities not syariah-compliant.

However, in 2017, the three fatwa revised its decision and the fatwa was announced by PNB Chairman, Tan Sri Wahid Omar, during the PNB Syariah Governance and Governance Conference at Universiti Sains Islam Malaysia (USIM). The new fatwa decision on ASN and ASB must be resolved by the three fatwa. On April 27, 2017, the Selangor Fatwa Council reconsidered their fatwa and reached the consent of many in requiring the investment of ASB. Selangor's fatwa says the percentage of investment in its Islamic compliant company has surpassed 66% according to the Securities Commission's standard and this requirement is based on the fiqhiyyah method which means 'Change of Law According to Change' Illah that is why. While the Penang fatwa council also reached the same agreement and required the investment on 15 August 2017. Thus, all fatwa has reached agreement in requiring ASB and all parties should welcome the agreement of the state fatwa on the necessity of investing in ASN and ASB.