- Industry Growth Lopsided Thus Far
- Product Development Lacks Creativity
- Solutions Needed To Remove “Darurah” Situations
Singapore (18 September 2020) – Islamic finance in Singapore which has been growing slowly and in a lopsided fashion, will continue to remain slow in the foreseeable future, devoid of leadership and talent, Dr Shamsiah A Karim, Chief Executive Officer of Pergas Investment Holdings (PIH) said in a recent interview with Halal Universe.
The industry has witnessed encouraging developments in the capital market space, but lags in the area of financing – particularly in the areas of mortgage and consumer finance – which incidentally are the areas the community is in urgent need of.
Dr Shamsiah, honoured as among the Top 20 Most Influential Women in Islamic Finance by Cambridge IFA, made headlines in May this year with the creation of PERLU, an awqaf (endowment) fund of SGD 20m. The Fund is essentially a capability development fund for the exclusive empowerment of Singapore’s Islamic teachers and Shariah scholars.
She also did the asatizah community proud with the launch of Paradise@PERGAS, a 5-storey commercial building on Changi Road, Singapore, which PERGAS bought in November 2018 for SGD 28.8 million, funded in part with profits reaped from the sale of seven shophouses along Joo Chiat Road.
A Singaporean, Dr Shamsiah graduated from the International Islamic University of Malaysia with a Bachelor of Business Administration, before moving on to complete her PhD in Waqf and Islamic Finance from the UK’s University of Durham.
According to Dr Shamsiah, Singapore trail-blazed in the international Islamic capital market very early on when the Islamic Council of Singapore, MUIS, launched the world’s first sukuk in 2006 for USD 60million. “I was the Director of MUIS Wakaf Division. The sukuk was for the acquisition of Fusion, 11 Beach Road, and the acquisition of the Bencoolen Street serviced apartments.” The sukuk issuance was the brainchild of Mr Yusuf Wahid, now the Managing Partner of AEP Investment Management. The sukuk was structured by a lawyer from UOB Malaysia. MUIS then was under the leadership of Mr Maarof Salleh, who was receptive of the undertaking. Under the guidance of Dr Daud Bakar, a Malaysian Shariah scholar of international repute and Dr Yahia Abdul Rahman, father of riba-free finance in the United States, the sukuk issuance was launched and fully subscribed. Among the subscribers were local town councils and the mosques in Singapore.
“We received an award for that – the Syeikh Al-Maktoum Award – for being the first wakaf sukuk and first sovereign sukuk. Even Malaysia had not started issuing sukuk.” Many Fatwa committees, according to Dr Shamsiah, weren’t yet familiar then about sukuk and Shariah finance.
Eversince then, encouraging milestones have been achieved in the Shariah-compliant investment space in Singapore. In the area of stock and shares, for instance, the Singapore Exchange introduced a number of Shariah-compliant products. Last year, SGX together with FTSE launched their Shariah indices.
Growth Of Financing Sector Lags
“What has not progressed is the financing side,” Dr Shamsiah lamented. “It is very slow.”
Since OCBC Bank’s introduction of the Shariah-compliant deposit accounts in the mid-90s, the city-state has seen two Malaysian banks – Malayan Bank and CIMB Bank – offering Shariah-compliant deposit-taking accounts and other consumer banking facilities. Singapore’s other major banks have not followed suit.
“DBS Bank is not taking it up. It’s the biggest bank in Singapore. All in our community are banking with DBS, but there aren’t any (Shariah-compliant savings accounts offered),” she said, adding that savings and financing are the two worst areas of growth in Islamic finance in Singapore.
The issuance of the wakaf sukuk by MUIS underscores the importance of product development. Unless products are created, religious bodies will not have the avenues to park their funds. The wakaf sukuk provided a new investment avenue for the local mosques – a fixed income option that was Shariah-compliant. Prior to the sukuk issuance, the only option available was to place their funds in non-Shariah compliant fixed deposit accounts, Dr Shamsiah said.
Dr Shamsiah recalled the time she helmed the Education Endowment fund, Wakaf Ilmu, at MUIS. “I wanted to invest the funds in sukuk. But I couldn’t get triple-A rated sukuk papers.” Singapore statutory boards could only invest in investment grade products, she said, adding that the funds were finally invested in property, some sukuk and Shariah-compliant equities. “We were heavy in properties because of the limited Shariah-compliant products out there.”
Similarly, PIH’s investments are in property. Endowments are long-term investments and one could perhaps assume a bit more risks. But she said they don’t have the professionals like in the case of Harvard Endowment. “I don’t think we are ready to face the public” should anything untoward happen to their investments, she said.
Islamic Finance Product Development Lacks Creativity
Even so the global Islamic finance market is still lacking in creativity in the area of product development. Dr Shamsiah concurred that many Islamic finance products mirror the conventional and the differences in many of these products are found in the terminologies and contracts, less of substance.
“If you talk about what Islamic finance wants to achieve, which is the maqasid al shariah, then some of these products that have been produced do not bring any benefit at the end of the day. It is just contractual in nature. It does not achieve its objectives of why Islamic finance is Islamic,” Dr Shamsiah said. “You just change the terminologies to make (them) Islamic. At the end of the day, the outcome is still the same and sometimes the outcome may even be detrimental. It may even be more expensive, more complicated, not straight-forward, and (you have) more ambiguity.”
Maqasid al shariah refers to the overall goals and meaning that the Shariah aims to achieve from its principles and rulings related to financial activities and transactions, according to Prof Akram Laldin in one of his publications. For Islamic economics, banking and finance, the objectives among others include the circulation of wealth in the society, advocating for transparent financial practices and promoting socio-economic justice. (Source: https://www.maybank2u.com.my/iwov-resources/islamic-my/document/my/en/islamic/scoe/knowledge-centre/research-paper/Maqasid-al-Shariah-in-Islamic-Finance.pdf)
Dr Shamsiah noted critics’ view that the Islamic system is still “operating within a conventional system.” At least the Shariah-compliant products are not based on riba (interest), but based on Shariah contracts, such as buy-and-sell contract as opposed to a lending contract. At the end of the day, offering Shariah-based products to the market has to be the ultimate objective, Dr Shamsiah said.
Dr Shamsiah is of the view that the global pandemic could have a long lasting impact on the global financial system. “With the Covid situation, we are seeing a lot of negative interest rates, zero interest rates. The banking system has no choice but to go into the actual business transaction system and not on the lending-based system. The debt system will eventually be phased out because it is not economically viable,” she said. Proponents of the conventional system, she said, have benefitted hugely from this system of money and lending. Nonetheless for the conventional system to adopt the business transaction system, there needs to be mindset shift amongst depositors, too, she said. ‘The fact is depositors don’t want risk. They want a system where they just get returns without assuming (any) risk.”
Trend Is Towards Shariah-Based Consumer Products In Malaysia
In Malaysia, the trend is towards Shariah-based consumer products, Dr Shamsiah said. Islamic banks there have started offering deposit-taking services based on the Mudharabah contract, or profit-loss sharing contract, Dr Shamsiah said. Just prior to joining PIH, Dr Shamsiah spent five years in Malaysia, the last stint of her Malaysian sojourn was with Islamic bank Bank Muamalat as its Vice President overseeing the the Shariah Division in the areas of zakat and awqaf. Despite a short stint with the bank Dr Shamsiah introduced many lasting changes to the zakat collection system and launched Shariah-based, as opposed to Shariah-compliant, financial products.
At Bank Muamalat, Dr Shamsiah was involved in the development of the deposit accounts based on the Mudharabah contract. “It is an investment account where depositors participate in the profit-sharing of the bank.”
According to Dr Shamsiah, both Malaysia’s central bank Bank Negara and the Shariah scholars are now calling for the Islamic banks in Malaysia to be more creative in their product development. “Instead of turning the conventional to Islamic; you create Islamic-based products. You must come out with something that don’t just mirror the conventional,” she said. Product development isn’t just in the realm of the conventional banking, she said. At the moment, practitioners are emulating the conventional. “Pawn-broking becomes ar-Rahnu; that one becomes this. There’s no creativity.”
Dr Shamsiah said that while in Malaysia, she worked on the development of a non-interest based home financing product called Ijarah Bittamleek for Bank Muamalat. It’s a leasing that leads to ownership of property. Maybank was the first to launch the product in Malaysia, she said.
Dr Shamsiah said practitioners have issues with risks and profits. “Our product developers don’t want to assume risks, but want lots of profits. They’ll say Islamic-based product is not good. We’ll just follow the conventional. Its an easy way out.”
Leadership Vacuum In Singapore’s Islamic Finance Space
Asked if there’s a leadership vacuum in Islamic Finance in Singapore that’s arresting the industry’s development, Dr Shamsiah said growing the sector would be a massive undertaking needing an equally huge amount of resources. It will have to be done at the governmental level with the “like of MAS (Monetary Authority of Singapore)” overseeing the sector. At the moment, however, Singapore’s authority views Islamic Finance as “religious,” she said. Developing the space to the scale of its immediate neighbours’ is unlikely in the forseeable future. Being a secular country, all of Singapore’s banking act and regulations will have to be religious-neutral, Dr Shamsiah said.
The Islamic Religious Council, MUIS, on the other hand too, is a statutory board and isn’t structured to be a regulator of the Islamic finance sector. It also does not have the resources and the expertise in Islamic finance.
Dr Shamsiah recalled the time when OCBC Bank first launched its Shariah-compliant deposit accounts in the mid-90s. She said the launch created some confusion in the community. “The question was does it mean the situation of “darurah” that the Malay/Muslim community was facing has been lifted with this offering of Islamic window by OCBC? And now all the Muslims should be putting all their funds in the Al Wadiah account? There wasn’t a strong leadership (at that time) to say yes this is Shariah-compliant and also there was no expertise in those areas,” she said.
At the community level, PIH’s Financial Shariah Advisory Consultancy (FSAC) will step up and play the leadership role, she said. “We are a community-based; we are not a statutory board. I think we can do in small matters, we can give irsyad, we can give opinions on whether certain things are deemed to be halal or haram, non Shariah-compliant and so on,” she said. FSAC will publish its irsyad – or advisory – on Shariah finance matters on its website. Already a number of local and regional companies, including from crypto-currency trading houses have consulted FSAC on Shariah compliance matters, she said.
Leaders Need To Find Solutions To “Darurah” Situations
Those assuming leadership roles must work towards removing the situations of “darurah” and work towards providing solutions for the community. She cited as an example the MUIS Fatwa issued in 2003 that ruled interest payments by the Central Provident Fund Board to its members is a gift. “That was a difficult fatwa as it involves the welfare of many. It’s about bread and butter issues. When you calculate the amount of interest and if you don’t take it, it affects your livelihood. It was a difficult decision but it was acceptable because of “darurah”.”
In his article, Abdul Azeem Abozaid stated that “darurah” is a well-established principle in Islamic law. It means necessity and renders the prohibited things permissible and the obligatory things not mandatory. It is something which is indispensable for the preservation and protection of five essential values: 1)Religion 2) Life 3) Intellect 4) Lineage 5) Wealth. This means that being in a state of darurah gives the Mukallaf (the Muslim charge with Shariah rules) the legal excuse to commit the forbidden when it becomes indispensable for his survival spiritually or physically. (Source: Abdul Azeem Abozaid, Role of Fiqh in Islamic Finance, https://mpra.ub.uni-muenchen.de/94268/1/MPRA_paper_94268.pdf)
Having said that, there must be effort on the part of the leadership to remove situations of “darurah” from the community. “Singapore needs a stronger research on religion. We are too small. We need to empower our ulama (scholars). This is what’s needed to guide the community. Sadly there is no sponsorship in these areas.” -/- www.halaluniverse.net
