ISLAMIC FINANCE (FIN546)

ASSIGNMENT 1:
THE EVOLUTIONS OF ISLAMIC FINANCE

PREPARED BY:

NO NAME MATRIC NO GROUP

1 NORINANI BINTI JOHARI 2021470852 RBA2424A
2 NUR AFRINA ATHIRAH BINTI KHAIRI 2021808854 RBA2424A
3 FARAH IRDINA BINTI JAMALI 2021603168 RBA2424A
4 NURUL HANIS BINTI NORZAN 2021467612 RBA2424A
SITI NUR ATHIRAH BINTI MOHD
5 2021864254 RBA2424A
TAJUDDIN

PREPARED FOR: DR HASYEILLA BINTI ABD MUTALIB

GROUP: 7

DATE OF SUBMISSION: 9 DECEMBER 2022

 TABLE OF CONTENT

NO CONTENT PAGES

1 Historical background, milestone & development of

Islamicfinance in Malaysia

Current Issue: Islamic Finance is on the rise - Labuan FSA

1-3
By: Siti Nur Athirah Binti Mohd Tajuddin (2021864254)

2 Similarities and differences with conventional finance

Current Issue: Emergence of other Islamic Hubs A Boon

4-6
By: Nur Afrina Athirah Binti Khairi (2021808854)

3 Islamic Finance/banking product

Current Issue: Funding Societies launches Tawarruq-

based Financing for MSMEs 7 - 10

By: Norinani Binti Johari (2021470852)

4 Riba versus interest and profit

Current Issue: Economic Crises can be avoided by using the

Islamic Financing Paradigm 11 - 14

By: Farah Irdina Binti Jamali (2021603168)

5 Maqasid al-shariah

Current issue: Bond and sukuk issuance concluded

15 - 17
By: Nurul Hanis Binti Norzan

Page | 2
 HISTORICAL

BACKGROUND, MILESTONE

AND DEVELOPMENT OF

ISLAMIC FINANCE IN

MALAYSIA

HISTORY
Islamic banking has been practised in Malaysia for over four decades.

Overall, Islamic financial development has taken an incremental rather than

radical approach. Malaysia is the only nation in the world to have established

such a complete framework for the development and implementation of

Islamic finance under law and regulation. Strong dedication and deliberate

efforts by the two regulatory bodies and the government have aided the

growth of Islamic finance in Malaysia. The Islamic Financial Services Act,

2013 was recently implemented in Malaysia in an effort to encourage risk-

sharing financing by mandating the segregation of conventional deposit

accounts from Islamic investment accounts.

1963
The Pilgrims Management Fund

and Board of Malaysia (later

1993
renamed Lembaga Tabung Haji)

The Ministry of Finance in Malaysia

was established by the government

introduced the Interest-Free

with the intention of helping

Banking Scheme (Skim Perbankan

Malaysian Muslims save money for

Tanpa Faedah, SPTF) for

Haj. This is Malaysia's first bank

conventional banking, marking a

that accepts deposits in

watershed moment for the

accordance with Syariah law.

country's Islamic banking sector.

This law mandates that both

1983
Islamic and non-Islamic funds be

Bank Islam Malaysia Berhad (BIMB)

kept in separate accounts;

was established in 1983, marking the

however, conventional banks may

beginning of Islamic banking activity

use existing facilities to provide

in Malaysia.
Islamic banking services via an

"Islamic window."

1999 2004 2006

Malaysia welcomed its second
A significant step forward was
BNM launched the

Islamic financial institution,

taken for Islamic banking in
International

the Bank Muamalat Malaysia

Malaysia with the issuance of three
Center for

Berhad (BMMB). Bank

new Islamic bank licences under the
Education in

Bumiputra Malaysia Berhad

Islamic Banking Act 1983 (IBA) to
Islamic Finance

Be Bank
(BBMB) and Different
of
Islamic financial institutions from
(INCEIF) in 2006.
Commerce (M) Berhad merged
the Middle East.
to become BMMB (BOCB).

RECENTS

With the help of Entry Point Project 10 (EPP 10), Malaysia aims to cement its position as a

worldwide leader in the Islamic financial sector by increasing the proportion of Islamic

financing to overall financing from 29% in 2010 to 40% in 2020. By 2020, the government

intends for at least one domestic Islamic financial institution to rank among the world's top 10

Islamic financial institutions by total assets.

REFERENCES
https://link.springer.com/chapter/10.1057/978-1-137-53159-9_5
https://tkbb.org.tr/Documents/Sunumlar/PRESENTATION_MALAYSIA_paper.pdf

SITI NUR ATHIRAH BINTI MOHD TAJUDDIN (2021864254)



(https://www.bernama.com/en/business/news.php?id=2118636)

INTRO
The Labuan Financial Services Authority Act of 1996 led to the creation of the Labuan
Financial Services Authority (Labuan FSA) on February 15, 1996. The developing and
administering of Labuan International Business and Financial Centre (Labuan IBFC) is under
the responsibility of the Labuan FSA. Labuan Islamic Banking is also one of the financial
services offered under the Labuan IBFC.

Labuan FSA's primary goals are to:

• Serve as the primary regulatory, supervisory and enforcement authority for the
international business and finance sector in Labuan.
• Promote and expand Labuan as a global hub for financial and business activities
• Develop national goals, policies, and priorities for the efficient growth and
management of international business and finance in Labuan

SUMMARY
This article is talking about the issue of Islamic finance that was

increasing in Labuan after the pandemic of Covid-19. Following the

pandemic, Muslims maintained their position as the largest contributors

to Islamic finance. Demand for long-term investment has also increased

due to the ESG-related agenda, and this has drawn the interest of non-

Muslim investors to Islamic finance.

ISSUES
Nik Mohamed Din Nik Musa, who is the head of the Labuan Financial Services Authority, said
that the growth of Islamic finance has sped up since the pandemic. He said that Islamic
finance assets grew by double digits to USD3.4 trillion in 2020 and are expected to reach
USD5 trillion by 2025.

In his speech, he said that Islamic fintech, or digital delivery of Islamic finance, is growing as
the worldwide Muslim population remains one of the biggest drivers of Islamic finance
development. He also mentioned that this group is interested in investing in moral and
ethical financial solutions with appropriate returns, unlike the profit-oriented traditional
investors.

In the wake of the pandemic and its effects on the economy, social unrest, and climate
change, governments and businesses have never had a greater need to take ESG
(Environmental, Social and Governance) actions than they do now.

According to the director-general of the Labuan FSA, the ESG-related agenda has made the
demand for sustainable investment grow. Following that, the trend of investing in
sustainable, environmentally friendly, and socially conscious businesses is also increasing
the interest of non-Muslim investors in Islamic goods.

"In the past few years, the Islamic finance sector has started a number of initiatives and
frameworks that focus on sustainability and ESG-motivated. Refinitiv reported that ESG
Islamic bonds, or sukuk issuances, reached a record value of over USD 5.3 billion in 2021,
helped by sizable sustainable issuances," he added.

He also said that market liberalizations supporting free cross-border commerce and
corporate activities have gained speed. The Regional Comprehensive Economic Partnership
(RCEP) is intended to boost market access and financial inclusion in Asia.

Furthermore, it will rely on its geographical position and ride on the strong expansion of
bilateral commerce, investment, and cross-border business between Malaysia and the rest
of the globe. The Labuan International Business and Financial Center (IBFC) is an important
part of Malaysia's financial system and an important market for the Malaysian economy as a
whole.

At the end of his speech, Nik Mohamed Din also

stated that using the Free Trade Agreements
(FTAs) in which Malaysia participates,
most notably the RCEP agreement,
which started its operation for Malaysia
on March 18, 2022, the centre hopes to
be the portal for economic
connection between Malaysia
and intra-Asian markets.

SITI NUR ATHIRAH BINTI MOHD TAJUDDIN

2021864254
 DISCUSSION
Why Islamic finance is driven by Muslims?

Most of the Muslim populations choose Islamic finance because it refers to

financial or banking operations that follow Shariah. For example, it contains
justice and fairness. A profit-sharing concept forms the basis of the Islamic
banking model. Under this approach, the bank and the client both bear a
portion of the risk associated with the transaction. This kind of financial
intermediation helps to contribute to a distribution of wealth and income
that is more egalitarian. The biggest reason why Islamic finance became
the choice of the Muslim population is due to the restriction that prevents
lenders and investors from taking or paying interest on their loans and
investments.

Are ESG and sustainable investment practises

provide further impetus for the expansion of
Islamic finance?
Yes, since the Muslims focused on ESG-related issues, the number of
sustainable investments in Malaysia has grown, and Islamic finance has
also improved at the same time. This is due to the fact that the Muslim
population is interested in investing in moral and ethical financial
solutions with adequate returns. Both Islamic finance and ESG investment
are founded on the notion of acting as a responsible steward toward
society and the natural world by seeking to minimise negative impacts
while maximising positive outcomes.

Is non-Muslims only interested with

Islamic finance after the pandemic?

Islamic finance has gained popularity around the world, especially in

non-Muslim nations, even before the pandemic. In 2017, the value of

asset-backed bonds issued by non-Muslim nations reached USD

2.25 billion. Al Rayan Bank, the largest Islamic financial institution in

Britain, reports that around one-third of its clients are not Muslims.

With the existence of Covid-19, it has further increased the interest

of non-Muslims in Islamic finance. Most of them are beginning to

see that it has the ability to eliminate global poverty and improve

global equality.

CONCLUSION
As they say, every cloud has a silver lining. The same goes to the

pandemic of Covid-19, which has caused Islamic finance in Malaysia and

around the world to suffer in the first quarter of the pandemic. However,

the situation changed after the pandemic, when most people were more

interested in participating in Islamic finance. As a proof, the Labuan FSA

itself stated that Islamic finance was on the rise after the Covid-19

outbreak. Lastly, in 2025, we expect the assets of Islamic finance to

reach USD 5 trillion.

REFERENCES
https://www.bernama.com/en/business/news.php?id=2118636
https://www.borgenmagazine.com/how-islamic-finance-can-reduce-

poverty/
https://www.euromoney.com/article/297ljl7o060lbd1wh23nk/esg/mala

ysia-brings-islamic-finance-and-esg-together
https://www.labuanfsa.gov.my/about-labuan-fsa/the-regulator

SITI NUR ATHIRAH BINTI MOHD TAJUDDIN (2021864254)

 NUR AFRINA ATHIRAH BINTI KHAIRI
2021808854
RBA2424A

SIMILARITIES AND
DIFFERENCES ISLAMIC
FINANCE AND
CONVENTIONAL FINANCE

ISLAMIC
FINANCE
Since the entrepreneur
has a firm grasp of the
situation regarding
inflation, there will be no
increase in price.
CONVENTIONAL
FINANCE
Due to inflation, the business
owner must raise the pricing
of his goods and services to
account for the impact of
inflation on the overall cost
of production.

Before disbursing cash for a The presence of capital

capital project, Musharrakah
and diminishing
Musharrakah agreements
are formed to ensure the
presence of capital goods.
goods is not a consideration
in the lending process for
bridge financing or long-term
loans.

Sharing earnings in the case of Leverage is a benefit that

Mudarabah and participation in
the establishment of a business
venture in the case of
Musharrakah generates
additional tax for the federal
government. As a result, the tax
burden on salaried individuals is
reduced.
comes with debt financing
for an organization since
interest expenses are
deductible items that go
toward taxable profit.

Earnings in Islamic banking is In conventional banking,

allocated from the bank's profit depositors get a set rate
for the month based on of interest.
predetermined weightages.

For Islamic finance, they make Conventional finance

loans to all firms except those provides financing to all
that deal with illegal substances sorts of business.
such as alcohol and gambling.

Conventional banks and Islamic financial institutions both operate in

the same society and perform all of the functions that are expected
of a financial institution. Islamic financial institutions operate
similarly to conventional banks by providing mortgages, auto loans,
credit cards, time deposit
 NUR AFRINA ATHIRAH BINTI KHAIRI
2021808854
RBA2424A

ARTICLE REVIEW:
EMERGENCE OF
OTHER ISLAMIC
HUBS A BOON

INTRODUCTION
At terms of the growth of Islamic banking, Islamic capital
markets, and takaful, Malaysia is now in the leading. In
addition to a powerful and all-encompassing Islamic
financial system, it possesses a solid regulatory structure
and legislative framework that are both driven by
businesses. One of the most important worldwide hubs
for Islamic finance is in Malaysia.
The Malaysia International Islamic Financial Centre (MIFC)
Community was founded in 2006 in conjunction with the
introduction of the MIFC concept. This community is
responsible for providing services to Malaysia's Islamic
financial industry.

ARTICLE SUMMARY
Mohd Fadzil Mohamed, chief investment officer at Principal
Islamic Asset Management, explains that the advent of other
global Islamic financial centers acts as a supplement to the
continuous expansion of Islamic finance in Malaysia. The
Islamic finance industry in Malaysia has benefited from long-
standing government efforts. According to Fadzil Suliman,
Malaysia is well-protected against a severe recession. Islamic
finance is still in its infancy compared to traditional financing,
and Principal continues to seek "scale-up" opportunities, he
added. The lockdowns have increased demand for Islamic
financial goods. (Hiew, 2022)

ISSUES
Lacks awareness of Islamic finance
Islamic finance accounts for 80% of bank funding in Saudi
Arabia, however there is opportunity for development in
terms of awareness in other industries and nations. Even in
Malaysia, there exist knowledge gaps. In 2019, the Malaysian
central bank reported that about sixty percent of Malaysian
SMEs (Small and Medium Enterprises) were unaware that
Islamic banking services were available. Aside from these
areas, the Islamic finance market is undeveloped due to
several problems, such as low levels of knowledge. (Al-Natoor,
2021)
It does not provide funding for all businesses.
Islamic banks do not offer business loans to all types of firms.
They forbid the sponsorship of immoral businesses such as
alcohol, tobacco, weapon production, and adult entertainment
institutions, as well as gambling in any form. Most of these
enterprises that are regarded immoral or un-Islamic are legal
under state law.
 NUR AFRINA ATHIRAH BINTI KHAIRI
2021808854
RBA2424A

DISCUSSION
No interest
Fundamental to Islamic economics is the ban of interest. The
contemporary Islamic banker has circumvented this
restriction, though. As with other Islamic goods, the bank
forms a partnership with its depositors and invests their
funds in a Sharia-compliant enterprise. This "profit rate" is
comparable to the interest rate offered by conventional
banks to depositors. (Foster, 2009)
Comparable products
Modern Islamic financiers have developed products that are
remarkably comparable to conventional products. To the
extent that, to an outside observer, they may be regarded
identical. Islamic banks currently provide Islamic mortgages,
auto loans, credit cards, time deposit and guaranteed return
accounts, insurance, and in certain cases even Islamic
managed and hedge funds.

CONCLUSION
Even though it represents a little portion of the global
financial system, Islamic finance is expanding at a furious
pace and possesses a massive undeveloped capacity for
much more expansion.
The Islamic finance industry should be a system or
ecosystem that controls how money is used in a way that
is systematic, all-encompassing, and efficient. It must
implement Shariah rules because that will symbolize the
privilege of Islamic finance. (International Monetary Fund,
2017)

REFERENCES
Al-Natoor, B. (2021, March 22). Awareness and standardization biggest
challenges for Islamic finance. Unravel. https://unravel.ink/awareness-
and-standardisation-biggest-challenges-for-islamic-finance/
Business Complier. (2022, January 19). Advantages and Disadvantages
of Islamic and Non-Interest Banking. Business Compiler.
https://www.businesscompilerng.com/2022/01/advantages-and-
disadvantages-of-islamic-bank.html
Foster, J. (2009, December 11) How Sharia-Compliant is Islamic
Banking? BBC News. http://news.bbc.co.uk/2/hi/business/8401421.stm
Hiew, K. (2022, October 25). Emergence of other Islamic hubs a boon.
The Star. https://www.thestar.com.my/business/business-
news/2022/10/25/emergence-of-other-islamic-hubs-a-boon
International Monetary Fund (2017, February). The IMF and Islamic
Finance. IMF https://www.imf.org/external/themes/islamicfinance/
 FARAH IRDINA BINTI JAMALI
2021603168
RBA2424A

RIBA VS INTEREST
AND PROFIT
Riba
Riba is the Arabic term for usury, which is defined
as lending money at extortionate interest rates.
It is usually added to a loan of money, not to the
cost of a product.
Riba refers to lenders typically need interest
payments in addition to the principal. Any form of
"addition" is forbidden in Islam, even the tiniest
amount.
A loan's riba is usually specified in advance. It's a
percentage of the loan's total amount.
Total interest depends on amount borrowed and
interest rate. More interest is paid when the
amount or interest rate rises.

Profit
Profit, or "ribh" in Arabic, is a markup applied to a
product's cost.
Islam allows profit but prohibits riba.
Shariah prefers income increases owing to a
believer's hard labour, therefore wealth should be
obtained via effort and risk.
Post-trade, the profit is calculated. Therefore, a
transaction's profit is unclear since it depends on the
contractual party's products or services.
Zero profit if the contractual party doesn't charge
for any items or services

Process of interest
Profit is often generated by involvement in actual
economic activity. To generate a profit, company
owners will engage in or invest in trades that
satisfy the demands of consumers.
"Riba," the interest made on a ribawi transaction, is
received from people who "purchased" the
banking goods to which they agreed when they
initially engage into the contract. It also provides
interest-bearing loans, which do not directly
address people's needs.

REFERENCES
Abdul, M. (2018, February 28). The Concept of Ribh (Profit) and Riba (Usury) in Islamic
Economics. Retrieved May 15, 2021, from LinkedIn:
https://www.linkedin.com/pulse/concept-ribh-profitriba-usury-islamic-economics-abdul-
cife-/
Abdullah, A. K. (n.a., n.a. n.a.). Interest (riba) vs profit (ribh). Retrieved May 15, 2021, from
IAIS Malaysia: https://iais.org.my/publications-sp-1447159098/dirasat-
sp1862130118/economic-finance-zakat-awqaf/item/143-interest-riba-vs-profit-ribh
 RIBA VS INTEREST
AND PROFIT

Profit Riba

The business The amount of a

operation led to a loan that is more
good result. than the
principal.

Uncertain. Profit
is usually
determined when Pre-determined
all trades have
been made.

Halal Absolute
(permissible) prohibitions
according to the (Haram) in the
holy Quran holy Quran

No equitable
distribution is
Distribute fairly assured since it
generally helps
just one side.

REFERENCES
NIK ABDUL GHANI, N. A. R. (n.d.). ISLAMIC BANKING: PROFIT VS INTEREST. Maybank Islamic.
https://www.maybank.com/iwov-resources/pdf/islamic/learning-centre/islamic-banking-profit-vs-
interest.pdf
 ARTICLE REVIEW:
ECONOMIC CRISES CAN BE
AVOIDED BY USING THE
ISLAMIC FINANCING PARADIGM

INTRO
In light of the current economic crisis facing the
world, a shariah-based financial system is
preferable to the status quo.
The Islamic financial sector has had the quickest
rate of expansion. As the economy has grown,
so too have the demands for financial products
and services, and thanks to constant innovation,
both the quality and breadth of these markets
have increased.
The expansion of access to savings, investment,
and other financial instruments based on profit-
loss sharing models.

ARTICLE SUMMARY
As claimed by Md. Touhidul Alam Khan, Additional
Managing Director of Standard Bank Limited,
Bangladesh, in 2020, Islamic industrial assets were
worth $3.37 trillion; by 2025, they are expected to
be worth $4.95 trillion, an annual increase of 8
percent.
There has been more clarity and comprehension on
issues related to the supervision and regulation of
banks and financial institutions, especially Islamic
Financial Institutions.

ISSUE
1. Reliability of the seller and the purchaser.
It will cause an imbalance of knowledge between
the seller and the purchaser.
2. Islamic financial concept is misunderstood,
and there is a lack of standardisation.
Some individuals have the wrong impression that
Muslims are the only ones who can use Islamic
financial institutions. Despite its conformity to
Shariah Law, the use of Islamic banks is not limited
to Muslims.
3. Business dishonesty.
One of the main rules of Islamic commerce is to
respect the other person and protect their
honour. In Islam, you can't lie or cheat when
doing business. This idea makes sure that we value
and respect the people we trade with, as well as
being honest in our dealings. The Prophetic
narration states: "Whoever cheats us, is not one of
us." [Sahih Muslim]
 ARTICLE REVIEW:
ECONOMIC CRISES CAN BE
AVOIDED BY USING THE
ISLAMIC FINANCING PARADIGM

DISCUSSION
1. Employees should be treated fairly and paid
promptly.
Research reveals that a company's production,
development, profitability, and retention and turnover
rates are all improved when its employees feel
valued. It fosters more in-depth client relationships
and a diversified personnel.
2. Practice fintech (financial technology)
Fintech and its repercussions assist global economies
in developing innovative financial solutions. Fintech
has a positive effect on Islamic banking, but its full
social influence is unknown. Islamic financial
institutions should encourage the use of Islamic fintech
through proactive campaigns and user-friendly
techniques.
3. It's vital that Muslim nations liberalise their
economies, build competent institutions, and
execute standard macroeconomic policies.
They must expand faster and handle all Shariah-
related social and economic justice challenges.
Economic growth is the main driver of a thriving
Islamic finance sector and equity-based assets more
broadly.

CONCLUSION
The Shariah-based Islamic business model, which is
heading toward quicker economic growth and the
expansion of the financial sector, is showing signs that
Islamic countries are ahead of non-Muslim countries.
In light of this, it is straightforward to assert that it is
possible to forestall crises on the economic front by
employing the Islamic finance paradigm.

REFERENCES
Khan, Md. T. A. (2022, September 14). Economic crises can be avoided by using the
Islamic financing paradigm. Asian Banking & Finance.
https://asianbankingandfinance.net/islamic-banking/commentary/economic-crises-
can-be-avoided-using-islamic-financing-paradigm

Ganaie, B. A. (2020, March). Islamic Financial Paradigm: A Study in Growth,

Development and Socio-Economic Issues. Research Gate.
https://www.researchgate.net/publication/339883463_Islamic_Financial_Paradigm
_A_Study_in_Growth_Development_and_Socio-Economic_Issues
 Islamic Finance / Banking
Product Offered

Bay al - Murabahah
The sale of goods at a price

Ijarah
Leasing- Transferring the right to use a
commodity to another party for an
Trading agreed-upon duration and price.
Principles
Bay al - Sarf
Sale of Currency

Bay al - Inah
Sale and buy back- Loan or advance
payment

Musyarakah
In a joint business, all partners share
the profits and losses based on how
much money they put in.
Participation
Mudharabah
The bank provides the capital, while the
Principal
entrepreneur gives the labour and knowledge.

Qard al Hasan
Interest free loan- The borrower is
simply needed to repay the loan's
principal amount.

Ar Rahnu
Mortgages-A person commits a
security to another as collateral for the
settlement of a debt.

Hiwalah
Supporting Transfer of debt - A contract moving a
Principal debt from one person's responsibilities
to another's

Kafalah
Guarantee- The parties to the contract
or a third party guarantee the
performance of the agreement.

Wakalah
Agency- A person (principal) authorises
another individual (agent) to act on his
behalf with a fee.

NORINANI BINTI JOHARI | 2021470852 | RBA2424A

 FIN546 | Current Issue

Funding Societies
launches Tawarruq-based
Financing for MSMEs

1) Tawarruq Definition
Tawarruq is when a person buys a commodity with a deferred payment then sells it
to a third party for cash. It describes a transaction in which an Islamic bank sells a
commodity to a customer on deferred payment at cost plus profit, and the
consumer later sells the commodity spot to a third party for cash. This contract
seeks immediate cash from another party (Hassan, 2009).

2) How Tawarruq
Works 3) What is
Funding
Societies?
A digital funding platform called
Funding Societies is governed by
the Securities Commission.
Through an online platform,
Funding Societies link SMEs with
investors, improving their access
to capital. Investors that invest
in SMEs stand to benefit from
1. The Islamic Financial Institution (IFI)
higher risk-adjusted returns than
purchases a commodity in the commodity
those from more conventional
market on a cash basis from Trader A.
investment vehicles. A quick and
easy online method allows SMEs
2. The identified commodity's ownership will
to get short-term financing for
subsequently be transferred to the IFI.
business expansion. Since its
establishment, Funding Societies
3. Then, IFI will sells the commodity to the
has provided working capital to
Counterparty like other Islamic financial
more than 600,000 SMEs for a
institutions or a client for a deferred price, i.e.
total of more than RM10 billion.
cost price + profit margin.
(Source: Finding Societies
websites)
4. The commodity's ownership will be shifted
to the Counterparty.

5. The Counterparty then will sell the

commodity to Trader B in the commodity
market for cash. 4) Summarize
Finally, Trader B will receive ownership of the
specified commodity (Fahmi et al, 2008) of Article
Funding Societies offers
creditworthy to Malaysian micro,
small, and medium enterprises
(MSMEs) through commodity
Tawarruq trade financing. As the economy reopens and enters an endemic period,
the method helps MSMEs raise working capital. Wong Kah Meng, co-founder and CEO
of Funding Societies, said MSMEs are underserved and lack financing despite good
business performance. He said some of the main factors include low to zero credit
track record, lack of assets to pledge, and lack of financial documents for credit
assessment.

Due to social distance standards and limits in meeting clients face-to-face,

traditional banks have trouble lending to SMEs, especially in high-risk industries or
goods. MSMEs are using fintech and Islamic fintech (i-fintech) to fund business
expansion.

Masryef Advisory principal Khairil Anuar Mohd Noor said Funding Societies took a big
step by offering shariah-compliant products that allow Muslims and non-Muslim
investors to engage in its platform. Funding Societies' Masryef Shariah-certified
Islamic funding will helps the disadvantaged MSMEs.

NORINANI BINTI JOHARI | 2021470852 | RBA2424A

 FIN546 | Current Issue

Funding Societies
launches Tawarruq-based
Financing for MSMEs

5) Tawarruq
(Commodity
Operationalising
Murabahah)
Bursa Malaysia introduced Suq al-
Sila', a platform for Islamic financial
transactions. Bursa Malaysia
developed Bursa Malaysia Suq Al-
Sila' (BSAS) in 2009 to ease Tawarruq
transactions, especially for Islamic
banks, while resolving scholars'
concerns about violations in the
previous practise of organised
Tawarruq using international
commodities platforms (Ismon, n.d)
.
Finding Societies will buys shares or
commodities on behalf of the MSMEs
and leases them back. The MSMEs
then owns the Murabaha contract's
assets. MSMEs can sell or liquidate
assets through an agency
agreement with Funding Societies.
6) Criticism in
Tawarruq
Commodities used for transactions
Another issue is that the
commodities utilised for the
transaction between Funding
Societies and its client might be old,
defective, or worthless, therefore
evidence, valuation, and proper
order must be established before a
transaction begins.
Possession of the good in its
physical form
Before reselling, the buyer must
entirely own the item. It suggests the
second sale should be separate.
Abdullah Ibn Umar narrated that the
Prophet Muhammad forbade selling
goods before complete possession
(Ismon, n.d).
Likely similar to Bai al- Inah
They would usually establish a pre-
arrangement with the customer to
sell the commodity back to them.
This is almost the same like Bai al
Inah. (Fa Yusuf et al, 2017)

7) Differences
between
Tawarruq &
Bai al Inah
Tawarruq (murabaha commodities) Bail al Inah
Involve 4 parties Involve 2 parties (same parties)
Seller does not related with final Seller is related with final buyer (the
buyer buyer in the end is the same person
Free to sell to anybody in getting as seller at first)
cash Sell and buy back arrangement

8) Conclusion
Shari'a allows for the use of tawarruq as
a last option in the search of liquidity.
Tawarruq funding is essentially a legal
tacticand a legal way out. However, it
may obstruct the natural route of the
Islamic economy, which Islamic
Shariah encourages. As a result, Shariah
boards must closely oversee all
Tawarruq-based transactions.

NORINANI BINTI JOHARI | 2021470852 | RBA2424A

 References
Amir al Fatakh. (2019, January 21). Financing : Tawarruq (commodity
murabaha). Islamic Bankers Resource Centre. Retrieved November 30,
2022, from https://islamicbankers.me/islamic-banking-islamic-
contracts/financing-commodity-murabaha-tawarruq/

Fahmi, E., et al. (2008). Revisiting OIC fiqh academy rules on organized
tawarruq. Paper IB1006 of Part, 1

Fa-Yusuf, H. S., & Ndiaye, N. D. (2017). Issues with the use of tawarruq
in Malaysia. Journal of Islamic Banking and Finance, 5(2).
https://doi.org/10.15640/jibf.v5n2a5

Hassan, Zulkifli. (2009). “Tawarruq: A Methodological Issue in Shariah

Compliant Finance”. http://zulkiflihasan.wordpress.com

Ismon, N. H. (n.d.). Legality of Tawarruq in Islamic Finance. Tazkia

Islamic Finance and Business Review, 7.1.

Funding Societies expands offerings for MSMEs. (2021, May 28). The
Star. Retrieved from https://www.thestar.com.my/business/business-
news/2022/05/28/funding-societies-expands-offerings-for-msmes.

Yunus, S. M., Kamaruddin, Z., & Embong, R. (2017). Towards banking

jurisprudence: Understanding Islamic banking products in Malaysia.
International Journal of Academic Research in Business and Social
Sciences, 7(8). https://doi.org/10.6007/ijarbss/v7-i8/3223

NORINANI BINTI JOHARI | 2021470852 | RBA2424A

 MARQASID SHARI'AH
Maqasid is an Arabic word [singular maqsid] that means "goals or
purposes," and when it is used in reference to Shariah [Maqasid Al
Sharia], it explicitly refers to the Shariah's aims and purposes. Three
similar Arabic words with similar meanings to maqasid may be found
in the pertinent usul al-fiqh literature. These are the words hikmah
(wisdom), 'illa (effective cause), and maslahah (interest or reward).
MAQASID SHARI'AH
AND ISLAMIC FINANCE
The importance of the Maqasid
al-Shari'ah in Islamic finance
comes from the understanding of
wealth under Islamic law. This
relevance connects to the general
aims of Shari'ah in wealth as
well as the goals of Islamic law
in business and finance.
The area of necessary affairs is
where the preservation and
protection of wealth are classified
(daruriyyat). It was discussed in
further detail in the previous
section that a society would
descend into chaos and anarchy if
certain basic needs were not met.
Loss of everything we cherish
would ensue from the abolition of
preservation in these matters.
The way in which Maqasid al-
Shari'ah is described and
classified shows how significant
money and financial substance
are in Islamic law. Therefore, it
is important to emphasize that
Maqasid al-Shari'ah views
finance as a valuable component
of life. Islamic law also protects
the financial system through the
adoption of ethical decisions and
practises.
OBJECTIVE
Al-Quran and Al-Sunnah state
that there are five primary
areas that must be achieved
as part of the ultimate goals
[maqasid al shari;ah] for
humans to be able to live
happily in this world.
1. Protection of al- Din
2. Protection of life
3. Protection of intellect
4. Protection of progeny
5. Protection of property
The crucial to emphasise on
Maqasid al-Shari'ah in the
current Islamic finance
transactions.
The position of wealth within Islamic
law and Maqasid al-Shari'ah, which
calls for the preservation of wealth in
daily business operations and the
advertising of socially responsible
activities, shows that there is a
significant link between the goals of
business transactions and the goals of
Maqasid al-Shari'ah.Neglecting the
goals of Maqasid al-Shari'ah in
economic dealings could lead to poverty
and anarchy.
The primary aims of Maqasid al-
Shari'ah in finance and business shall
be used as core instructions to
implement all forms of financial
transactions. Second, commercial
transactions in domestic and
international trade should be founded on
the principles of Islamic law. Third, the
specific Maqasid al-Shari'ah objectives
in economic transactions must be eternal
and consistent with the Maqasid al-
overarching Shari'ah's goals. Last but
not least, economic transactions should
be governed by Islamic law and the
Shari'ah and criteria of Maqasid al-
Laws. In other terms, Maqasid al-
Shari'ah is responsible for overseeing
and administering the Shari'ah principle
of Islamic banking.
 ARTICLE REVIEW :
Bond and sukuk issuance
concluded

INTRODUCTION
What are bonds and sukuk ?

Bonds and Sukuk are financial products that governments

or corporations issue to attract short-term capital from
investors.

Typically, Sukuk and bonds pay periodic coupon payments

during this time (either at a fixed or floating rate). The
money raised from investors, known as the principal, is
returned by issuers at the conclusion of this time frame, or
the maturity date.

Fixed and floating rates differ in the following ways:

The fixed coupon payment that remains constant

throughout time is what defines a fixed rate coupon.

The variable rate on a floating rate coupon is subject to

cyclical variation.

ARTICLE SUMMARY
Cagamas Bhd has finished issuing bonds and sukuk worth
RM1.09 billion. This project involved issuing RM150 million in
five-year conventional medium term notes, RM200 million in
three-year IMTNs, and RM735 million in one-year Islamic
medium term notes (IMTN).
The national mortgage corporation said in a statement that
the proceeds from the issuance will be used to pay for the
acquisition of housing loans and home financing from the
domestic financial system.

Sukuk and Bonds:

ISSUES
By issuing Sukuk or Bonds, an organisation is borrowing
money with the commitment to pay it back at maturity.
Governmental and private organisations both issue sukuk
and bonds.
Compared to equities, the prices of Sukuk and bonds are
thought to be less volatile, however the return on equities
may be larger.
Sukuk and bonds frequently provide fixed returns in
addition to the repayment of the principal.
In the case of a company's insolvency or liquidation, Sukuk
and Bond holders will receive payment first.
 DISCUSSION
The biggest differences between Sukuk and Bonds are:

Sukuk are financial certificates that adhere to Sharia law via

which investors can acquire a portion of an issuer's assets up
until the Sukuk maturity date. Bonds, on the other hand, are
financial certificates that allow investors to lend money to
the issuer with the promise of repayment at the maturity
date.
While Sukuk holders receive a portion of the proceeds from
the underlying asset, bondholders receive regular interest
payments.

CONCLUSION
The importance of the difference in the portfolios' mean
return, between Sukuk and bond portfolios with maturities of
under a year. The correlation analysis's findings show a
significant and positive association between bond portfolio
returns and Sukuk returns. The particularity of this article is
that it focuses on Sukuk and bond portfolios based on indexes
reflecting the performance of the Malaysian bond and Sukuk
markets instead of using a small sample of individual Sukuk.
In addition, given the positive association between these two
financial instruments, the results of various studies have
confirmed that Sukuk perform as bonds.

REFRENCES
Vejzagic, M., & Smolo, E. (2011, October 4). Maqasid Al-Shari’ah in
Islamic Finance: An Overview. (PDF) Maqasid Al-Shari’ah in Islamic
Finance: An Overview (researchgate.net)

Bond and sukuk issuance concluded. (n.d.). The Star. Retrieved

December 9, 2022, from
https://www.thestar.com.my/business/business-
news/2022/12/06/bond-and-sukuk-issuance-concluded