ISLAMIC WEALTH

MANAGEMENT &
FINANCIAL PLANNING
Muhamad Faisal bin Bahari
Faculty of Management &
Information Technology
Universiti Sultan Azlan Shah
• Why wealth is important for Muslim?
• They can better defend Islam if they have wealth.

• Wealth could actually strengthen their faith in Allah as they

have sufficient financial resources to acquire more religious
and other useful knowledge.

• Wealth brings them security and, therefore, more peace of

mind to perform their spiritual obligations to Allah.
• Explain a concept of the ownership of
wealth in Islam.
• Wealth should be earned, invested and spend in the correct avenues,
and it should reward the individual, his family and the society as a
whole.
• Wealth is considered as an endownment or a gift from Allah and
human beings are considered as trustees on Allah’s resources on
earth.
• These resources are to be wisely exploited, not abused, destroyed,
wasted or left to idle.
• Islam does not oppose any material pursuit neither it is against the
accumulation of wealth.
Dan carilah (pahala) negeri akhirat dengan apa yang telah dianugerahkan Allah kepadamu, tetapi
janganlah kamu lupakan bahagianmu di dunia dan berbuat baiklah (kepada orang lain)
sebagaimana Allah telah berbuat baik kepadamu dan janganlah kamu berbuat kerosakan di bumi.
Sesungguhnya Allah tidak menyukai orang yang berbuat kerosakan.
(Al-Qasas: ayat 77)
• Based on this verse, explains the Islamic
point of view on the question of
property.
• All wealth that a man possesses has been received from
Allah.

• Man has to use it in such a way that his ultimate goals should
be the Hereafter.

• As wealth has been received from Allah, its exploitation by

man must necessarily be subject to the commandments of
Allah.
• List a major elements of Islamic
management of wealth.
1. Internal self-regulation – Use wealth to obtain the blessings of
Allah.
2. Responsibility towards family – provide as much education and
guidance as possible to the children.
3. Mandatory social obligations – pay government taxes in full.
4. Productive role – improve productivity and efficiency of production.
5. Voluntary social responsibility – donate generously for charity.
6. Leadership role – fight against injustice and exploitation.
• Describe about Islamic worldview of
wealth management and financial
planning
1. Islam is the way of life

2. Man as Allah’s vicegerent (Khalifah) on earth

3. Allah is the sole giver of bounty

4. Financial planning is ibadah

• Explain about the six steps of the
financial planning process
1. Setting goals, objectives and priorities.
2. Gathering relevant data and information.
3. Analysing information and assessing financial status.
4. Developing and presenting financial plan for
implementation.
5. Executing the financial plan.
6. Monitoring the execution and reviewing of the financial
plan.
• Based on the six steps process, list additional
aspects relevant to Islamic financial planning.
• Setting goals and objectives of a Muslim.
• Get information on Shariah obligations such as needy
relatives.
• Verify current nett worth and current cash flow.
• Include planning for zakat, hajj and other obligations.
• Selection of investment and other products complying with
Shariah criteria.
• Verifying plan is on track.
• Explain the key differences of Islamic Financial
Planning to Conventional Financial Planning
Subject
• Time Horizon
• Method & Objective
• Achieving al-Falah as the Objective

• al-Falah. Literally, to become happy or success

Technically, it implies success in the world and hereafter.
1. TIME HORIZON
A Muslim’s time horizon does not end upon death. He will continue to
live in the Hereafter. This is a major tenet of the Islamic faith. He has
needs in the Hereafter
In a hadith reported in Sahih Muslim:
“Abu Hurayrah reported Allah's Messenger (may peace be upon him) as
saying: When a man dies, his acts come to an end, but three; (1)
recurring charity, or (2) knowledge (by which people) benefit, or (3) a
pious son, who prays for him”
Conventional financial planning has no notion of the Hereafter.
2. METHOD & OBJECTIVES

• Ḥalal income. In his pursuit of wealth, a Muslim must abide by Shariah at all times. Basically, he must avoid
gambling, riba-based investments and any dealings in things that Islam prohibits – liquor, pork, etc.
• He must purify his wealth through payment of zakat (tithe).
• For his wealth protection needs, he must do it via risk sharing takaful contract wherever possible. For
conventional financial planning, they can also use conventional insurance which is non shariah compliant.
• And, how his wealth are distributed upon death is also his concern, because it has bearings on his well-being
in the Hereafter.
• Conventionally, a person can dictate anything of his wealth upon death. However, a Muslim must follow
Shariah and be guided by Shariah in the matters of wealth distribution. The understanding of faraid,
wasiyah, hibah and waqf are key areas for Muslims.
2. METHOD & OBJECTIVES – Cont.
Wealth Creation/Accumulation
• Islam strongly encourages the earning of livelihood through trade and other economic activities. In fact, it is
an obligation upon a Muslim to find his own income for living and avoid from begging from others.
• Seeking one’s livelihood is definitely ordained by Allah SWT, with the reminder that the obligation to Allah
SWT surpasses every worldly activity: “And when the Prayer is finished, then may ye disperse through the
land, and seek of the Bounty of Allah SWT. And celebrate the Praises of Allah SWT often (and without stint):
that ye may prosper.” (Al-Qurān, 62: 10)
• In acquiring wealth, a Muslim is to observe Islamic teachings:
Permissible economic activities only;
Avoidance of riba (usury or interest), maysir (gambling), gharar (ignorance, excessive uncertainty or
speculation); oppressive practices.
Mutual consent and agreement between parties.
2. METHOD & OBJECTIVES – Cont.
Wealth Protection
• Wealth protection aims to protect the accumulated wealth against financial risks and threats. One should protect
one’s wealth from the uncertainties and unpredictable occurrences in life, such as death, losing ability to work,
chronic diseases and old age.
• Islam encourages risk management to protect oneself, family and property, for example through takaful
arrangements.
The Prophet SAW noticed a Bedouin leaving a camel and asked him: “Why do you not tie down your camel?” The
Bedouin answered , “I put my trust in Allah.” The Prophet said: “Tie your camel first, then put your trust in Allah.”
Wealth Purification/Cleansing
• Muslims must ensure they discharge certain obligations in relation to wealth and assets they have accumulated.
• Zakat payments upon fulfilment of its conditions with regards to income, businesses, precious metals, etc;
• Purification of one’s assets from any impermissible income that has resulted during the process of accumulating
wealth. This income cannot be consumed and is to be channeled to charitable purposes.
2. METHOD & OBJECTIVES – Cont.
Wealth Distribution
• Wealth Distribution seeks to make proper planning so that your accumulated wealth can be managed and
distributed according to your wishes with minimum hassle.

• From the Shariah perspective, the appropriate measures are important to:
ensure Islamic injunctions regarding one’s properties and financial obligations are fully carried out, including
outstanding debts, dependents’ expenses and zakat payments;
achieve one’s objectives with regards to one’s assets and belongings in ways which are in accordance with
Shariah principles;
ensure expeditious distribution of the estate to one’s heirs;
minimize unnecessary legal costs, protracted legal proceedings and payment of taxes;
minimize financial hardship to the family and the assets from being frozen; and minimize the risk of conflict
and animosity arising amongst family members.
3. ACHIEVING AL-FALAH AS THE
OBJECTIVE
• al-Falah. Literally, to become happy or success. Technically, it implies success in the
world and hereafter.
• To achieve al-falah, Muslims MUST strive in Allah’s cause with his wealth and his
self (Al-Quran, 61:11). He must pay a zakat and also highly encourages the giving of
hibah, sadaqah, infaaq and waqf, as these can help promote the harmony in society.
• What is being advocated is for Muslims to achieve al-falah through sound financial
planning
• By going through a financial planning process guided by Shariah – and having a
Shariah compliant plan at the end – a Muslim can achieve al-falah
• However, in conventional financial planning, there is neither Allah nor al-falah to be
consider
 REGULATORY FRAMEWORK IN
FINANCIAL PLANNING INDUSTRY
1. GOVERNING ACTS IN FINANCIAL PLANNING INDUSTRY
1. Capital Markets and Services Act 2007
2. Financial Services Act 2013 (FSA 2013)
3. Islamic Financial Services Act 2013 (IFSA 2013)
 Akta Perkhidmatan Kewangan Islam
(IFSA) 2013
Gabungan:
1. Akta Bank Islam 1983 (IBA 1983)
2. Akta Taka­ful 1984 (TA 1984)
3. Akta Sistem Pembayaran 2003 (PSA 2003)
4. Akta Kawalan Pertukaran Wang 1953 (ECA 1953)

Dengan penguatkuasaan IFSA 2013 ini maka keempat-empat akta

di atas telah tamat perkhidmatan mereka.
 Akta Perkhidmatan Kewangan 2013
(FSA 2013)
Gabungan:
1. Akta Perbankan dan Institusi Kewangan 1989 (BAFIA 1989)
2. Akta Insurans 1996 (IA 1996)
3. Akta Sistem Pembayaran 2003 (PSA 2003)
4. Akta Kawalan Pertukaran Wang 1953 (ECA 1953)

Dengan penguatkuasaan FSA 2013 ini maka keempat-empat akta di atas telah
tamat perkhidmatan mereka.
 REGULATORY FRAMEWORK IN
FINANCIAL PLANNING INDUSTRY
2. SECURITIES COMMISSION (SC)
3. BANK NEGARA MALAYSIA (BNM)
4. SELF-REGULATORY ORGANIZATIONS
4.1 Malaysian Takaful Association (MTA)
4.2 Federation of Investment Managers Malaysia (FIMM)
4.3 The Life Insurance Association of Malaysia (LIAM)
4.4 Financial Mediation Bureau (FMB)
4.5 Perbadanan Insurans Deposit Malaysia (PIDM)
4.6 Agensi Kaunseling & Pengurusan Kredit (AKPK)
WHAT IS RISK MANAGEMENT?
• Risk management is the act to avoid risk, control risk, reduce risk or
finance risk.

• In financial planning, risk management is also known as wealth protection.

• It implies the act of protecting the wealth from any harm resulting from
pure risk.

• Risk management is one of the most crucial areas in financial planning.

Discuss about Islamic view on risk
management and takaful
• In Islam, risk has to be managed for a better future of the family
during bad times and death of the breadwinner. (Refer surah al-
Baqarah: 266)
• Muslims are asked to work hard in order to be able to change their
conditions. (Refer surah al-Ra’d: 11)
• In managing their daily lives, Muslims are encouraged to do their
utmost to be prepared and seek protection for their activities.
• In Islamic financial planning, one way to reduce the risk of loss
financially is by participating in takaful.
Give definition of takaful
• A scheme of sharing risk whereby participants mutually agree to
protect one another from unexpected future risk in terms of material.
Give definition of Mudarabah and
Wakalah in takaful context.
• Mudarabah: A contract between two parties; the capital provider
(participant) and the entrepreneur (Takaful Operator) who provides
the skills in a business venture. Profits are divided between the two
parties on a pre-agreed ratio.

• Wakalah: An agency contract under which the Takaful Operator acts

as an agent of the participants in managing the takaful fund. Under
such contract, the company will gets its income from the charging fee.
Explain the types of risk management
1. Risk Avoidance

2. Control of Loss: Loss Prevention & Minimization

3. Risk Retention

4. Risk Sharing
Explain the main principles of insurance
1. Indemnity
2. Insurable Interest
3. Utmost Good Faith
4. Contribution
5. Subrogation
6. Proximate Cause
Differentiate between takaful and
insurance
There are several practices in conventional insurance that are
contradicting the Shariah guidelines:
• Contract
• Maysir and Gharar
• Riba
• Liability of Insurer and Takaful Operator
• Shariah Compliant in Takaful
Why investment is necessary?

• Investment will help to provide capital and income at some

future time.
• Investment will help to meet a future obligation or need.
• Investment will help to transfer the wealth to the next
generation.
• Investment will help to maintain the purchasing power of
people money.
• Investment helps an economy to grow.
Kenapa kena melabur?

1.Kos sara hidup yang meningkat.

2.Gaji tak naik banyak.
3.Bukan waris jutawan.
4.Duit pencen / KWSP tak cukup.
5.Buat bekalan dalam kubur.
Shariah Concepts Relevant to Investment
1. Time Value of Money
• Money itself has no intrinsic value.
• Money does not grow on its own by time.
• Money must be used in a productive way.
• Muslims must appreciate time and optimize the use of time.
• Muslims should spend the money wisely and invest them in
productive business.
• The principal basis of Islamic finance is based on the concept of
trading involving the sharing of profit and risk (loss).
Shariah Concepts Relevant to Investment
2. Liquidity Planning
• “Those of you who die and leave widows should bequeath for their
widows a year’s maintenance and residence; but if they leave (the
residence), there is no blame on you for what they do with
themselves, provided it is reasonable. And Allah is exalted in Power,
Wise.” (al-Baqarah: 240)

• This verse serve as a guideline that Muslims must have a saving of at

least one year income for liquidity and emergency purposes.
Shariah Concepts Relevant to Investment
3. Risk Management
• Example, history of Prophet Muhammad s.a.w. migration from Mecca
to Madinah.
• Risk management technique is permisibble in Islam.
Others Shariah Concepts Relevant to
Investment
4. Risk Return Tradeoff
5. Risk and Return of Investment
6. Investment Diversification
7. Collective Investment Scheme
Shariah Compliant Investment Products
- Shares - Investment-Linked Takaful
- Unit Trusts - Indexes
- Exchange Traded Funds (ETFs) - Property
- Real Estate Investment Trust (REIT) - Gold
- Derivatives - Commodity
- Sukuk
- Investment Account
- Structured Products
Concept of Prophet Yusuf’s Cycle
• Surah Yusuf, verse 47-49.