THE establishment of the Malaysian Syariah Index (Index puts Malaysia’s syariah compliance score at 75.42 per cent, NST, March 28) is another good development in Syariah governance.
The index uses Maqasid Syariah (five areas) as a benchmark for eight fields of governance, namely Islamic law (which scored 87.19 per cent), politics (79.19 per cent), economy (65.27 per cent), education (82.5 per cent), healthcare (73.92 per cent), culture (66.47 per cent), infrastructure and environment (62.31 per cent) and social (68.52 per cent).
I would like to address the economic pie from the Islamic and Banking Finance (IBF) perspective. In this regard, the article “Islamic banking’s challenges and goals” (NST, April 18, 2016) raised good questions for serious consideration.
However, I want to address one critical issue on equity-based financial products and services as a golden key in transforming the current economy into Ummah Economic Community (UEC).
Riba has never been a driver of economic freedom and progress since the emergence of Industrial Revolution, and certainly does not cater to the altruism of IBF. The solution to riba is trade and any supporting mechanism such as IBF.
The purpose of Maqasid Syariah is essentially to create a sustainable UEC based on trade. Syariah rulings, according to the four mazhabs, were seen as supporting equity as a strategic driver to achieve Syariah Economic Equilibrium. Since 1983, the focus was on equity-based
financing Mudharabah and Musyarakah (Mudha-Syara), two dynamic methods
of equity.
Over the years, there has been a departure from equity to debt engagement by both Islamic Banks and conventional banks having Syariah windows. According to a report, “the size of the Islamic finance market ranges from US$1.66 trillion to US$2.1 trillion and expected to reach US$3.4 trillion by the end of 2018”.
However, the majority of Islamic Finance engagements are focused on debt. IBF practice is disproportionately geared towards debt rather than equity, creating profound conflict of interests. Debt is attractive simply because of the Low Risk Exposure-Higher ROI (LRHR) factor. Take, for example, the popular murabahah vehicle of debt financing. Should it be debt all the way ?
Within the Maqasid Syariah framework applied to IBF’s LRHR it is, and should only be, a secondary component. This is not to delimit the function of debt.
How do you strike a balance in promoting both debt and equity financial products? Debt should ideally play a supporting role in forging equity forward as prime optimus, and not the other way round. Hence, the need for reformation to equity structure and sectoral practice.
To re-engineer a return to equity, it is imperative to refocus on Mudha-Syara by redesigning the structure to make it equity-centric, while allowing debt-based finance to play a supporting role. There is a need to reform Syariah compliance governance to a level where transparency is achieved for both debt and equity. This calls for Syariah Standardisation for equity and debt.
Regulation (statutory and self regulation) in IBF compliance standardisation for debt and equity has to be redefined. Disclosure of risks associated with debt and equity must be re-examined by a regulatory body to ensure a fair playing field. The quantum leap for strategy and policy in equity over debt framework is to adopt these measures:
TAX holidays, exemptions and deductions for equity preference;
INCORPORATION of Equity Ventures Bhd, whereby Debt Ventures Bhd plays a supporting role; and,
LEVERAGING unity and solidarity for justice and peace (13th Organisation of Islamic Cooperation as a new catalyst for economic activities using equity in support of UEC.
The rise of the Asean Economic Community should be seen as an opportunity to spearhead equity and to use Mudha-Syara as the new UEC vehicle.
JEONG CHUN PHUOC,
Shah Alam, Selangor