Doing Business The Shariah Way - Mufti Ismail Desai


Friday, August 07, 2020 / 1:00 PM / Bukola Akinyele for WebTV / Header Image Credit: WebTV


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Mufti Ismail Desai, a renowned global Shariah adviser, at a recent Webinar organized by TAIF Digital Institute for Islamic Finance, noted that Islam was a religion of balanced justice and equity, and had no room for business dealings that could cause social imbalance, deprivation and injustice.


Giving a historical overview he said in the early 1960s and 1970s, Egyptian and Dubai Islamic banks formed the early Islamic banks that evolved over the years.

During this period the Egyptian Islamic banks provided support in rural areas to farmers who wanted to collect funds and earn a shariah-compliant return.


Before this time he attributed the slow pace of the growth of Islamic Banking to the activities of imperialism and colonialism in the Muslim States, in the early 19th century.


On the side of significant developments in Islamic Finance, he said in the early 1970s-80s basic products were being developed and in the early period of the year 2000, more advanced and sophisticated products emerged in the non-interest finance market.


He further highlighted the requirements of Islamic Finance/Sharia-Compliant Transaction which include:

  • Asset-backed
  • Prohibition of Riba/interest
  • Prohibition of Certain activities
  • Prohibition of uncertainty and
  • Profit and Loss Sharing

Speaking on the fundamental tenants of Islamic finance such as:

  • Prohibition of interest (Riba): the giving and taking of interest. Example: Overdraft Facility, Interest-bearing loans
  • Prohibition of Gharar (speculative behaviour): Involvement in speculative and uncertain transactions. Example: Life Insurance
  • Prohibition of Qimaar (Gambling): Involvement in gambling transactions. Example: Lotto
  • Prohibition of investing in unlawful and prohibited activities: Islamic classical law prohibits transactions in Wine, drugs, Pornography, pork-related products, conventional finance, etc. Example: Porn shop
  • Risk Sharing: Risk must be shared between at least two parties so that the entrepreneur and capital provider share the loss based on capital contribution. Based on the Islamic principle "No return without risk" and others.

He believed Islamic banks are backed by real assets or services and there is actual valuation when it comes to the market.


On the side of basic concepts of Islamic finance and banking, he highlighted three basic categories such as equity base transaction, trading based transaction and lease-based transaction.


Giving illustration on each equity participation, he explained the first concept which is Musharaka, which is an equity-based transaction where two or more parties pull capital together and the profit is shared based on the agreement while loss is based on capital contribution ratio.


Mufti Desai observed that one needs to document one's agreement in a shariah-compliant manner and seek advice from Muslim scholars. For Mudarabah which is based on partnership, he noted that one party contributes a capital while the other party contributes through management expertise.


He said Murabaha refers to cost-plus financing where the buyer is aware of the cost price. The scholar believed Murabaha is the most commonly used product in Islamic banking.


He also cited Istina as a concept that can be used for off-plan sales of assets. From his perspective, it can also be seen as a contract executed to procure an asset or commodity manufactured on order.


Takaful, Islamic insurance which refers to mutual indemnification is rapidly growing. He cited Malaysia that the penetration rate is approximately 30%.


Speaking on the introduction of Sukuk or Islamic bond, the Shariah Adviser said it refers to certificated financial instruments and it is a growing industry that is worth several billions of dollars, and there is a huge opportunity for corporates and also SMEs through mini-Sukuk.


Highlighting the difference between Sukuk and conventional debt instruments, he said Sukuk represents ownership of the underlying asset while conventional debt instruments represent debt obligations due from the issuer.


He identified Mediation and Arbitration, Partnership-Equity/Debt, Employment-Hadeeth of sweat and documentation of contracts as part of the common pitfalls that relate to Shariah-compliant businesses. 

The scholar re-emphasized the need to stay away from Riba which is also known as interest on loans or tradable assets.

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