Malaysia Budget 2012 - Commitment for Islamic Capital Market

Yesterday, the Malaysia Prime Minister, Najib Razak tabled to the Dewan Rakyat the country Budget 2012 proposal. Some of the items tabled were:

• Kuala Lumpur International Financial District (KLIFD): Income tax exemption of 100% for 10 years and stamp duty exemption on loan and service agreements for KLIFD status companies. Income tax exemption of 70% for 5 years for property developers in KLIFD.
• Sukuk: Income tax exemption given for sukuk issuance and transactions (based on wakalah principles) is extended for another 3 years until the year of assessment 2014.
• ETF: To boost Exchange Traded Funds (ETFs), Valuecap Sdn. Bhd subsidiary, I-VCAP, to provide RM200 million as seed monies for shariah-compliant ETFs. This fund will provide a matching loan subject to a maximum of RM20 million.
• SMEs: Government  to provide RM100 million for the SME Revitalisation Fund. This scheme offers soft loans up to a maximum of RM1 million for entrepreneurs to revive their businesses. To help SMEs to commercialise research products, government to set up shariah-compliant Commercialisation Innovation Fund totalling RM500 million with an attractive profit margin.

which it is pretty obvious that on a way forward, the Malaysian government will be focusing in developing the country as the hub of Islamic capital market. One of the concept within the Islamic capital market is Islamic finance.

What does the “ISLAMIC FINANCE” mean, what makes it different from the conventional finance/ banking? I did some light research, and these are my findings:

Fundamental of Islamic Finance: Constant with Islamic Law/ Principles (Prohibition of investing in businesses that are haraam (unlawful), e.g. business in alcohol, pork, pornography, gossiping media, etc.) Prohibition of usury/ “Riba” (collection and payment of interest). Prohibition of "Maysir"  (involved in contracts where the ownership of a good depends on the occurrence of a predetermined, uncertain event in the future. Prohibition of "Gharar" (speculative transactions). Motive: The concepts of “Riba”, ”Maysir” and ”Gharar” were prohibited in Islamic Finance transaction due to they involve excessive risk and foster uncertainty and fraudulent behavior – contrary to Islamic values. The use of derivative instruments (as practiced in conventional finance/ banking) is impossible in Islamic finance/ banking. Allowable transaction concept in Islam: Some concepts/ principles of Islamic business transaction have well been established during the lifetime of the prophet Muhammad, but some were established thereafter, derived from the principles outlined in the Al-Quran & As-Sunnah. Some of these Islamic finance transaction concepts are: Bai' al 'inah (sale and buy-back agreement) Bai' bithaman ajil (deferred payment sale) Bai' muajjal (credit sale) Bai salam Musharakah (joint venture) Mudarabah (Profit Sharing) Murabahah Musawamah Hibah (gift) Ijarah (lease, rent or wage) Ijarah thumma al bai' (hire purchase) Qard hassan/ Qardul hassan (good loan/benevolent loan) Sukuk (Islamic bonds) Takaful (Islamic insurance) Wadiah (safekeeping) Wakalah (power of attorney)

Official site of Malaysia Budget 2012: http://www.treasury.gov.my/index_bi.html

p/s: Sure thing, the God who created the world and creatures within it understands the best their behavior and how they reacts to situations. Versus the creatures, who have very limited knowledge about the world and themselves. Something for us to ponder.looking forward to see Malaysian success in this area.