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Assisting Poor & Needy in the Midst of the Pandemic using Modes of Islamic Social Finance.

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Islamic finance has become popular today in the Maldives. The population had become well acquainted with modes of Islamic commercial finance as those modes have been institutionalized in the formal finance sector. However, like in other parts of the world, the pandemic has made us realized in the Maldives that it is not sufficient only to have the modes of Islamic commercial finance institutionalized; but there is need to activate and institutionalize Islamic social finance modes as well. In the midst of the pandemic, due to the containment measures taken by the governments to protect human race from becoming extinct, it has been reported that the world poverty clock has turned back. What has been witnessed in the midst of this unprecedented pandemic is that overnight people have become poor. This domino effect caused by the pandemic in a nutshell is shown in the figure below. As such, the poor and needy segment of the population needs financial assistance that is not compatible to be provided using the modes of Islamic commercial finance. Social finance is an approach to managing investments that generate financial returns while including measurable positive social and environmental impact.

What is Islamic Social Finance?

Islamic social finance is a branch of Islamic finance that offers product and services not for profit. The objectives of Islamic social finance are to achieve social justice via redistribution of wealth. The list of Islamic social finance institutions and tools are not exhaustive as it is an area which is still developing. Islamic social finance is also known as Islamic social safety nets or charitable sector of the economy.  It is imperative to note that Islamic social finance is different from Islamic commercial finance of which the objective is different even though some of the instrument/contract used could be same.

Modes of Islamic Social Finance

The modes of Islamic social finance include: zakat; sadaqat or infaq; waqf; takaful; and microfinance.

  • Zakat: A compulsory payment paid every year by those who are eligible for the benefit of those who are stated in Quran, 9:60.
  • Sadaqat or Infaq: A non-compulsory payment given to assist poor and needy to seek pleasure of Allah (SW).
  • Waqf: A non-compulsory irrevocable which means a permanent contribution of one’s wealth whether cash or in kind to seek pleasure of Allah (SW) for social purpose.
  • Takaful: A concept based on mutual assistance or Ta’aawun and donation or Tabarru where joint guarantee to one another is by provided by a group of people who agree to participate with each other who is known as contributors by contributing an amount of money as donation to help each other from damages caused due to happening of future unfortunate events to any participant of the group by helping them using the donation made by the participants of the group.
  • Microfinance: It is providing finance to those who are poor financing via non-profitable means such as interest free loan (qard hasan) or via profitable means such as mudharabah or musharakah to assist them.

 

Ways in which Islamic Social Finance can be utilized to help the needy and Poor

In the midst of the pandemic it has been realized that in different countries in the world, modes of Islamic finance have been activated to assist poor and needy via shared responsibility. Below listed are some ways in which in the Maldives, modes of Islamic social finance could be activated to assist poor and needy.

  • Revise the criteria of poor and needy to provide opportunity to receive zakat assistance to those whose income has been affected adversely due to the pandemic.
  • Even after giving of the debt moratorium to those who have taken financing facilities from financial institutions, but due to loss of income who are unable to pay their debts ought to be assisted by zakat or sadaqat or infaq.
  • A special waqf fund to assist the poor and needy in the society need to be created and this needs to be initiated by the private sector.
  • Islamic microfinance schemes need to be introduced to assist poor and needy to provide them with opportunities to venture into business with interest-free loans and other shariah compatible modes of financing.

 

Conclusion

The pandemic has provided with the opportunity to re-strategize our economic and financial activities. Therefore, it is imperative to innovate ways to utilize Islamic social finance tools and institutions to help those who are poor and needy. As such, the required legal, regulatory, governance and technology infrastructure need to be developed. Definitely through implementation of Islamic social finance tools and institutions, the socio-economic justice will be achieved. From Maqasid al Shariah (objectives of Islamic law) perspective, it is mandatory for one to help each other in protecting one another from hardship as one can achieve success in this world and hereafter.

 

Dr. Aishath Muneeza is an Associate Professor at the International Center for Education in Islamic Finance. 

Opinion

Chinese Debt Trap: Debunking the Allegations.

Hamdhan Shakeel

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The recent rhetoric’s by Speaker Mohamed Nasheed on India’s “WION” news channel surrounding the debt owed by the Government of Maldives to China has reignited the debate on the topic of “Chinese Debt Trap”.

In his interview to the “WION” news channel, Speaker Mohamed Nasheed alleged that China is still actively working on getting back the repayment for the loans it disbursed to the Government of Maldives during former President Abdulla Yameen’s administration.

While this is not the first time the former President Mohamed Nasheed has made these allegations, the New Delhi friendly Speaker Mohamed Nasheed has consistently maintained that China will seize control over the State-Owned Enterprises and grab land from the Maldives if the Government of Maldives fails to repay their loans. During the 2018 Presidential Campaign and the 2019 Parliamentary Election campaign trail, Speaker Mohamed Nasheed along with current Health Minister Ahmed Naseem alleged that China had taken control of 16 islands in the Maldives for the development of military bases.

While none of these allegations have any factual backings, Speaker Mohamed Nasheed himself have on several occasions contradicted himself regarding the “Chinese Debt Trap”. On 27th October 2020, Speaker Mohamed Nasheed stated within the Parliament Chambers that “China will not seize state assets even if the current administration fails to repay the Chinese loans”.

The notion that China is out to gain control and colonize other independent states though “Debt Trap” is a rhetoric originating from the west. As China gains popularity and influence over global politics through its mutual benefit beneficial development programs, western states including the U.S. continue to lose their influence and support. This ultimately led to the rhetoric that the Chinese development offers, grants and loans are a “Debt Trap”, which was then adopted by current ruling party Maldives Democratic Party (MDP) which has close ties to India and by proxy the U.S.

One instance of the “Chinese Debt Trap” rhetoric being used to undermine China’s popularity was witnessed in the virtual trip by U.S. Secretary of State Anotny Blinken to Africa back in February 2021, which was marked with his strong sentiments towards the Chinese-African development projects. Similar to his predecessors Mike Pompeo and Rex Tillerson, Secretary of State Antony Blinken touted the “Chinese Debt Trap” through what some have described as “kindergarten mathematics”.

In his trip, the U.S. Secretary of State Antony Blinken stated that “ If someone is coming along and saying I’m going to invest a lot of money in your country, but it’s a loan so, that means you have a debt and you’re going to have to pay it back someday and if that is too great and you can’t pay it back, then I’m going to own the asset in question”. While this was repeatedly denied by China and African economists and politicians, the west continues to wage the economic war against China and its development partners.

It was reported that Chinese Foreign Ministry Spokesperson Wang Wenbin retorted stating that “If we break down African Countries’ foreign debt, multilateral financial institutions and commercial creditors hold more than three quarters of the total, and so bear a greater responsibility for debt relief. Not a single African country had debt difficulties due to its cooperation with China.”.

Speaking on the subject of repayment of loans, Chinese Foreign Ministry Spokesperson Wang Wenbin is also reported to have stated that “When African Countries have economic problems, China is always ready to find proper solutions through friendly consultation. We never press countries having difficulties on debt repayment, not to mention asking them to sign any imparity clauses. In the meantime, China attaches high importance to debt suspension and alleviation in Africa. We have signed relief agreements or reached debt relief consensus with 16 countries”.

Economist Kelvin Chisanga who closely monitored the situation described the idea of a “Chinese Debt Trap” as “unrealistic”.

Even prominent western educational institutions such as the Johns Hopkins University has also researched and found that the notion of “Chinese Debt trap” to be unrealistic. A recent research from the Johns Hopkins University found that Chinese banks are willing to restructure the loans and that they have not seized a single asset from any country over debt.

In their study, the Johns Hopkins University researched $7.5billion of debt restructuring by Chinese banks in 10 African nations from 2000 to 2019. It was found that China had written off 94 interest-free loans amounting to over $3.4 billion.

And if we look at the situation here in the Maldives, the debt accumulated by the government of Maldives within the 5-year term under former President Abdulla Yameen’s Administration, stands at $1.56 billion while the debt owed to India into two years under President Ibrahim Mohamed Solih’s administration has hit over $2.4 billion. While details of some of the debt owed to India has been classified by the current administration, it is speculated that the total debt owed will be close to $2.6 billion.

From this publicly available data, it is evident that the debt owed by the Government of Maldives to India is far greater what is owed to China. And based on the fact that unlike India, there has been no instance of China forcing one of its development partners to repay amidst hardship or seize assets, China has no incentive to do things differently here in the Maldives.

If one were to impartially examine the data and facts surrounding Chinese loans and grants, it would be evident that the “Chinese Debt Trap” rhetoric is nothing more than a slogan produced by the west to undermine China’s growing influence over global politics.

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Opinion

Significance of Human Governance in Islamic Finance Industry.

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Human governance is a principle-based approach where human beings are guided using moral and ethical principles that ought to be followed. Intrinsic values are used to enact human governance principles with the objective of promoting moral and ethical practices in all human dealings. It is presumed that if human beings are guided properly using moral and ethical principles which are intrinsically derived, they will be responsible in their actions and at any cost, they will strive to promote moral and ethical conduct in all their dealings irrespective of their emotions and the situations they are in. The Malaysian Institute of Accountants (MIA) defines human governance as “an internal, inside-out and values-based conviction to guide the human as the sentient being to behave.” Since Islam is a religion that embeds ethical and moral principles as part of it, following Islamic principles in this regard will lead to ethical and moral practices that will enable human beings to fight against satanic forces that compels them to deviate from ethical and moral behavior.

 

Why is Human Governance Important for Islamic Financial Institutions?

Human governance is important for Islamic financial institutions to achieve its objectives not only from a Shariah compliance perspective; but to achieve the anticipated operational and financial performance targets as well. Islamic financial institutions are also separate legal entities which is managed by humans. As such, having humans who follow ethical and moral values will ensure that unethical and immoral corporate practices are eliminated within the entity. Therefore, human governance principles ought to be implemented in Islamic financial institutions to ensure that the humans directing, managing, working and dealing with Islamic financial institutions adhere to Shariah or ethical and moral values to achieve the objectives of the respective institution in which they are part of. Good human governance will in this case definitely lead to good corporate governance that eventually pave way for the institution to perform better in a sustainable manner. In the context of Islamic banks and human governance, Amin (2018)[1] states the following three reasons to show why Islamic banks need human governance.

  • Firstly, human governance is aimed at upholding maqasid al-Shariah (objectives of Islamic law) to promote qalb-based leadership — a leadership where the soul is considered in all the decisions of the individual for the benefit of the ummah or humanity in general. Qalb essentially means soul.
  • Secondly, human governance improves the individuals’ productivity as every deed is defined as ‘ibadah (religious/worship activities). The employees work efficiently and ethically as God is watching them.
  • Thirdly, human governance is a device that ensures shareholders and stakeholders work together, paving the way for an Islamic banking operation consistent with the expectations of all.

Human Governance Principles for Islamic Finance Industry

Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has issued the “Code of ethics for Islamic finance professionals.” It will be not wrong to state that this is a Code that comprehensively covers the human governance principles that need to be followed by the Islamic finance professional all over the world. Figure (below) shows visual depiction of this Code.

Source: AAOIFI (2021; p.8)[2]

The Code introduces AAOIFI Adl and Ihsan equation which consists of: having the right intention and the right mindset; doing the right thing; doing it in the right manner; and engaging with others positively. There are also six ethical virtues names as “AAOIFI ethical virtues” in the Code which are: Taqwa (Allah (SW) consciousness); Tawakkul (reliance on Allah (SW)); Sidq (integrity); Amanah (trustworthiness); Quwwah (strength); and Tawasi bil Haq (exhorting truth). The Code also illustrates the interplay of AAOIFI Adl and Ihsan equation with the AAOIFI ethical virtues as shown below.

Source: AAOIFI (2021; p.14)

There are also four AAOIFI ethics protocol discussed in the Code and they are: self-accountability protocol; liability avoiding protocol; decision making protocol; and violation escalation protocol. The Code also illustrates the interplay of AAOIFI Adl and Ihsan equation with the AAOIFI ethics protocol as shown below.

Source: AAOIFI (2021; p.18)

 

Conclusion

Irrespective of the industry, we are in need of humans with ethical and moral values to achieve optimal results desired. Adopting proper human governance standards would definitely be an effective way to manage humans to guide them follow what is right and wrong using ethical and moral values as the basis. It is by having good human governance principles that one could achieve the desired results of corporate governance principles applied in a company. This is because, if the humans who are required to follow the corporate principles are not honest and tend to breach such rules or utilize the loopholes to practice unethical behavior, then no matter how strict and well the corporate governance rules applied in the company are enacted; the purpose of having such rules will be defeated which may eventually lead to adverse consequences that may ultimately compel the company to become insolvent. For this matter, Islamic finance industry is no exception and Islamic financial institutions ought to adopt and follow human governance principles and standards.

[1] Amin, H. (2018). Why Human Governance is Needed? New Straits Times. Retrieved from https://www.nst.com.my/opinion/letters/2018/02/336834/why-human-governance-needed

[2] AAOIFI. (2021). Code of ethics for Islamic finance professionals. Retrieved from http://aaoifi.com/wp-content/uploads/2021/01/00-AAOIFI-Code-of-Ethics-for-Islamic-finance-Professionals-Final-Standard-Issued-CS.pdf

 

Dr. Aishath Muneeza is an Associate Professor at the International Center for Education in Islamic Finance. 

 

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Opinion

Hiyaa flats- pigeon coops, negative stereotyping and lobbying.

Hamdhan Shakeel

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The Hiyaa social housing flats remains one of the most iconic housing projects in the Maldives. With over 7,000 housing units, the Hiyaa social housing flats was set to alleviate the situation surrounding the housing crisis in the capital city of the Maldives and provide a temporary solution for the residents of Malé city.

Since its construction began during President Abdulla Yameen’s administration, then opposition Maldives Democratic Party (MDP) pushed several false narratives surrounding the Hiyaa flats. The initial narrative was that the flats would only be given to members of then ruling Progressive Party of Maldives (PPM).

However, this was debunked as according to the official flat list, of the 7,000 people who got a flat, 3,591 were from then opposition Maldives Democratic Party (MDP), 517 people were members of other smaller parties and 933 were not registered under any political party. It was also revealed that only 1,959 people registered under the Progressive Party of Maldives (PPM) were on the Hiyaa flat list.

Then came November 2018 and president Abdulla Yameen peacefully handed over the powers of the state to incumbent President Ibrahim Mohamed Solih. The change in administration and subsequent evaluation by the senior members of the current administration ended with the Hiyaa flats being labelled as “pigeon coops”.

While this was intended to associate a negative stereotype to the Hiyaa flats, it struck a different chord with the public. As senior members of the ruling party engaged in negative stereotyping the Chinese built Hiya flats as low quality, the term “Pigeon coops” became synonymous with the public’s struggle to gain a roof over their head. Ordinary people who had been systematically at a disadvantage and suffering for decades joined the struggle under the banner of “Pigeon coop”.

Two and a half years later, the current administration finally opened up for the public to visit and assess the Hiyaa Housing Flats. It was evident by the lack of tiling and doors that the current administration had done little to no work since the change in administration back in November 2018.

This erupted many questions on why the current administration refused to hand over the Hiyaa flats.

While the anti-campaigns continue to target and scrutinize the Hiyaa Housing flats, the ordinary people who received units from the Hiyaa Social housing flats are overjoyed.

However, if we look beneath the racism, classism and politicizing of a key social issue, we see that it all leads back to business. Rumors and allegations of real estate tycoons and businesses fueling anti-social housing hysteria and paying for certain local media to publish such contents has been floating for some time now.

This is only further exacerbated by the fact that incumbent President Ibrahim Mohamed Solih’s family business, Pan Real Estate is the first and one of the biggest real estate companies in the Maldives and it will face major obstacles and losses to their operations if the Hiyaa flats are handed over to the public.

If we compare the current rates by Maldives’ first and biggest real estate company Pan Real Estate, it is evident that they are set to lose a lot once the rent prices in the capital city drops after the public moves into the Hiya flats. The Hiyaa flat units which has a median floor area of 580.85sqft were originally meant to have a rent of MVR 6,500.00 while companies like Pan Real Estate are currently renting similar two-bedroom 592sqft apartment for MVR 14,000.00.

According to the last national census, 26,739 households were recorded in the Maldives. It is a well-known fact that the overwhelming majority of these households are constructed through financing from local financial institutions which carry a heavy interest rate. This leads to an ever-growing rent hike in the Maldives.

This itself leads to a myriad of other social issues as the majority of the residents of the capital Malé city live paycheck to paycheck renting apartments.

A sudden loss of rent from 7,000 tenants from amongst those 26,739 household would account for a 26.17% loss on income for the real estate sector. This would cause a considerable hardship on those who have built their homes through financing from financial institutions with the aim of paying back the home construction loans through rent money.

While this would put the real estate sector in a difficult position, it would also simultaneously alleviate the living conditions of 7,000 families.

Ultimately, the baseless accusations against senior members of the previous administration and the racist stereotyping by members of then opposition MDP are nothing more than the manifestation of the anxiety from those who are set to lose a quarter of their income from the suffering of the people.

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