Assalamualaikum :)

Dear all,
After a long break, now I feel like writing.

Just some sort of discussion about Islamic finance. Is it an alternative or panacea (solution)?




Beforehand, let me give you an interesting analogy (it wasnt originally mine :D)

You are in a flight from KL to Kota Bharu. The flight attendant asked you " Sir, would you prefer tea or coffee?"

Let say you prefer coffee. Okay, that is fine. What happen if you choose tea? Of course, it does not matter either. Everyone ought to choose what they like, isn't it? 

Alright. What if you have to choose between coffee and wine? Then only it will make a big difference. 

Why? 
Because both tea and coffee is halal and thus allowed to consume but wine is intoxicating and thus prohibited in Islam. 

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In the context of banking today, especially in Malaysia, the conventional and Islamic banking co-exist and is competing with one another. 

The first Islamic bank established in Malaysia was Bank Islam, in 1983. It was an experimental bank, in which the government want to see whether there would be demands for Islamic banking products and its ability to survive within the conventional environment at that time. After more than 30 years, we can see that the experiment succeeded and more Islamic banks were established and the industry flourished and get attention from industry players globally. Malaysia was also the first country to issue Sukuk.

Islamic finance does not merely focusing on Islamic banking. It also covers  Islamic capital market and Islamic money market. 

Okay, let's get back on track. 

For me, personally I will say that Islamic finance is a solution. It is not an alternative. Hereby, I list my views and you are free to agree or disagree :)

1. When you mention of the word solution, it means the other party must have its illness or weakness that you want to avoid. In conventional banking, it is undeniable that it operates solely based on riba (interest). Meanwhile, in Islamic finance, we prohibit Riba and we exchanged it with something called profit (though it is also controversial issues regarding the similarity of these two).

2. The conventional banking does not operate based on real economic activities. It is merely accounting entries. In islamic banking, for personal financing, it is based on Tawarruq contract (commodity murabaha). There is an underlying asset which is crude palm oil (CPO). When you want to sign an agreement, the bank officer will usually ask you to tick the box saying that the bank will  take care of the crude palm oil and not to be sent in real to the you(At least we have the underlying asset). This contract is still new and it replaced the contract of deferred payment(Bay' Bithaman Ajil) which has its own isues. 

I know you will say that actually in the end, the islamic and conventional bank is actually the same. The profit that the islamic bank charged is just like the interest from a conventional bank. 

But, you know sometimes we have to accept it and if you do have any better suggestions, go to the relevant authority to voice it out. It is also good to bear in mind that in every Islamic banks, they have a Shariah Board and they are actually responsible in ensuring the end-product is halal and does not resemble riba. As common people who do not get involved in scholars' discussion and issues fatwa, we just be positive and be thiqah with the matters that have been decided by our scholars. 

3. We must realise that our global economy is operating based on fiat money which is the mother of riba. (I'll discuss it in detail later) Therefore, our dream of having a true Islamic financial system may have some obstacles and struggles but kudos to all stakeholders that has brought Islamic finance this far. 

I believe that every Muslims want to have the purest banking system and we must believe that the Muslim authorities are trying their best to serve the needs of Muslims (especially in Malaysia). The enactment of Islamic Financial Services Act (IFSA) 2013 has also levelled up the recognition of Islamic banking and finance. 


Wallahua'lam.

May Allah give us the strength to do good deeds.
May Allah give us good health.
May Allah remove our hardships.
May Allah forgive our sins.
May Allah unite us all in paradise.
Ameen.