Editor’s notes

Citation

Kabir Hassan, M. (2011), "Editor’s notes", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 4 No. 3. https://doi.org/10.1108/imefm.2011.35204caa.001

Editor’s notes

Article Type: Editorial From: International Journal of Islamic and Middle Eastern Finance and Management, Volume 4, Issue 3

The current issue of the International Journal of Islamic and Middle Eastern Finance and Management (IMEFM) contains five articles, which were processed and accepted by our outgoing Editor Dr Kadom Shubber. The journal is growing in reputation which is evident from the increasing number of scholarly submissions to this IMEFM. I am responsible for all submissions to this journal from the beginning of January 2011, including the articles that were under the review process but not completed during the past editorial tenure.

Islam upholds the view that economic progress cannot solely lead to social justice and sustainable development even though economic progress is important to the well-being of humankind. Human needs have deep religious/spiritual roots that must be incorporated and accounted for in the development process. The aim of “Islamic development” is to achieve a state of “human well-being” based on spiritual, humanitarian and socio-economic foundations to achieve well-being in the hereafter.

There are fundamental philosophical differences between the Islamic and Western worldviews of the universe and the relationships between man and his creator, his environment and other humans. A comprehensive inquiry into the disposition of both worldviews on the concept of “development” reveals that in addition to differences in their core philosophies, they also differ in their focus, goals, approaches, applications, and mechanisms. It could be strongly argued that these differences are so real that they cannot be overlooked, marginalised or narrowed, nor can they be reconciled and integrated within a standardized single development model. Such differences therefore do not only justify but also necessitate the building of an alternative Islamic model of entrepreneurship that works towards the realisation and fulfilment of the Islamic vision of “well-being”.

A religion with a positive attitude towards work and productivity is most likely to contribute positively in the direction of creating new quality business entities and fostering friendly entrepreneurship environments. A constructive attitude produces fruitful results when complemented with a comprehensive framework and matched by political will and commitment from the state.

The suggestion that religion has a key role to play in shaping the mode and the level of entrepreneurial activity in a given society is gaining widespread acknowledgment and recognition. The link between religion and economic activity in the wider context was explored and demonstrated by the work of many scholars.

Among the basic rights that all individuals are entitled to, and should enjoy, is access to income. Socio-economic justice – based on the theory of “social equilibrium” – implies that people are entitled to have equal opportunity. It does not infer equality in terms of wealth. Earning a lawful (halal) living is tenable through engagement in productive activities. Such activities include employment (working for others) and being self-employed and employing others (undertaking entrepreneurial activity). Although Islam endorses working for others for fixed salary, it encourages and stimulates Muslims to embark on entrepreneurship as the preferred option to earning halal income.

Islam not only motivates Muslims to be entrepreneurs, it impels adherents to work hard and gain halal. This is because earnings beyond immediate needs lets practitioners care for the community and the Muslim ummah at large. Earning halal income through entrepreneurship and helping others to earn a living stops exploitation of public wealth by a few and discourages people from being dependent on the state. Public wealth belongs to the Muslim ummah. This means that public wealth should be used for projects that serve the common need and interest of society.

Islam provides both the incentives and conducive framework for economic and entrepreneurship development. The Qur’anic verse states “And when prayer is over, disperse in the world and search for the bounty of Allah” (Qur’an, 62, 10). Additionally, others Islamic philosophers cite “It is He Who made the earth manageable for you, so traverse ye through its tracts and enjoy of the sustenance which He furnishes: but unto Him is the resurrection (Qur’an, 15, 67)”. Searching and steering through the earth’s tracts goes beyond simply finding employment opportunities or even engaging in basic entrepreneurial activities. The word “search” implies the exploration of the unknown in order to discover new horizons and uncover new opportunities for the benefit of humankind. Actively searching involves taking risks and requires innovative thinking.

The holy Qur’an and the traditions of the prophet Muhammad (PBUH) explicitly praise entrepreneurship and commend moral entrepreneurial activity. One notable example is “But Allah hath permitted trade (bai) and forbidden usury (riba)” (Qur’an, 2, 275). The economic transaction of buying and selling for profit (bai) implies the existence of the entrepreneur. It is held that the PBUH said, “A faithful and trustworthy businessperson will be resurrected at the day of judgement with the prophets, the truthful, and the martyrs” (Ibn Majah; al-Tirmithi). Furthermore, the prophet Muhammad (PBUH) and many of his close companions were trustworthy and successful entrepreneurs. He explicitly emphasised the importance of entrepreneurship and encouraged Muslims to actively participate in business activity. Nu’aym Ibn Abd Al-Rahman stated that the prophet (PBUH) said, “Nine-tenths of the sustenance (rizq) is derived from trade (business ventures)”. The second Muslim khalifah, Omer bin Al-khattab (May Allah be pleased with him) also was a trader. He stated that “nothing is more beloved to me than to earn my living through my own hard work and efforts”.

The Islamic concept of collective obligation (fard kifayah) is based on the ability of society to meet its minimum and basic needs from a specified activity or meet national challenges and obligations. An appropriate share of the Muslim population should undertake entrepreneurial activities by their own choice and according to their own initiative to ensure the continuity of the nation’s economic viability. Failure to achieve such a level of performance means that the Islamic government must step into assume its legal and moral obligation to compensate for any shortfall of the private sector.

The claims that Islam has the propensity to deter development and that Muslims in general are low in achievement have even been conceptually challenged by Western intellectuals. A number of Western thinkers – in addition to Muslim scholars – have acknowledged the progressive nature of Islam and recognised its positive attitude towards prosperity and the desirability of engaging in productive business activity. Islam is a religion of knowledge and Islamic tradition has always included a positive approach to economic activity. The prophet Muhammad (PBUH) was a merchant before his prophetic mission, and Islam generally has a positive attitude towards entrepreneurship and the rights of ownership. The uniqueness of the Islamic code of business ethics and trust in business relationship can make economic activity cost effective and organisationally competent.

The first paper by William Marty Martin, and Karen Hunt-Ahmed titled “Executive compensation: the role of Shari’a compliance” discusses issues surrounding executive compensation as it relates to current understandings of Islamic business law. They review the emerging body of literature in the fields of executive compensation and opinions of stock options under Shari’a law. It appears that the trend in offering employee stock options as part of a Shari’a compliant compensation package is acceptable in most cases. A company motivated by Shari’a compliancy must be vigilant in obtaining the approval from its Shari’a Standards Board before offering it as part of an overall compensation package. This is because of a close association with the more problematic idea of derivative transactions. The authors make recommendations on the inclusion of employee stock options as part of a Shari’a compliant executive compensation package.

The second article is “Islam and the Olympics: seeking a host city in the Muslim world” by Dr Kasim Randeree. This study examines the issue of awarding the Olympic Games to a host city in the Muslim world. The author believes this would send a clear indication from member nations of the International Olympic Committee of the desire by the international community to engage with Muslim nations on a level that transcends sport. He examines if a city in the Muslim world could ever become host to the greatest sporting spectacle on earth. Additionally, he analyzes which city would be likely to achieve approval as well as the when and why? The paper examines the merits of former host cities and then qualitatively comparing these with member countries of the Organisation of Islamic Conference which have a majority Muslim population in order to gauge the host potential of cities in the Muslim. The research findings indicate that there are five cities in the Muslim world which are likely to be awarded one of the coming six Summer Olympic Games between the years 2020 and 2040. The broader implications of the study are that we can probe development and advancement capability if Muslim nations in the modern world by in examining of them from the point of view of mega-event management on a global scale.

The third article is entitled “Dynamic relationships between Middle East stock markets” by Christos Floros. This paper examines the dynamic relationships between Middle East Stock markets. The author uses daily data from the Egyptian (CMA) and Israeli (TASE-100) stock indices. The paper uses a Bivariate cointegration GARCH(1,1) model to explain price discovery and lead-lag relationships for the period of July 1997-August 2007. Empirical results confirm that the Egyptian market plays a price discovery role thus implying that CMA prices contain useful information about TASE-100 prices. Results show that the CMA market is more informationally efficient than TASE-100 market. Further, the CMA index reflects new information faster than the TASE-100 index. The findings are helpful to financial managers and traders dealing with Middle East stock markets.

The fourth article is “The potentials of Mushārakah Mutanāqisah (MM) for Islamic housing finance” by Edib Smolo and Kabir Hassan. This study provides a comprehensive review of the mushārakah mutanāqisah (diminishing partnership) technique and its potentials for Islamic financial institutions. Based on an extensive literature review, this paper aims to highlight, explain, and discuss the basic principles underlying implementation of MM and its distinctive features as compared to other modes of finance. Over the years, Islamic banks have developed several modes of finance that are more or less similar to their conventional counterparts. Al-Bayc bithaman al-ājil (BBA) and murābahah are two instruments commonly used by Islamic banks and financial institutions. Investment and financing through the profit and loss sharing (PLS) instruments is almost nonexistent within the Islamic financial system. The MM technique is an alternative financial instrument available for Islamic banks. It is a relatively new and very little-used product available for Islamic banks. This paper claims that MM is highly in-line with Shari’ah teachings and as such, should be used more by Islamic financial institutions. The study indicates that MM possibly has comparative advantage for both financier and customer when compared with conventional loans and BBA.

The final article is titled “Prize-giving to the Premium Savings Certificate holders: a Shari’ah Compliance Review on the Bank Simpanan Nasional (National Savings Bank) in Malaysia” by Mohd. Fuad Md. Sawari, Razi Hassan and Md. Faruk Abdullah. This paper is a case study that aims to justify the Shari’ah-compliancy of this product by analyzing its underlying contracts. The study proposes a Shari’ah-compliant savings certificate to replace the current practice which is invalid under Shari’ah but considers the high demand for the premium savings certificate (PSC) of the National Savings Bank of Malaysia. The paper argues that the underlying contract used in PSC violates the conditions of wadi’ah contract. Under wadi’ah, the bank is not allowed to spend the money for investment. In practice, BSN uses the money for investment making the underlying contract in PSC a qard (loan) contract. Scholars have unanimously declared that giving any kind of benefit – like prizes – to creditors is riba. This means that PSC is an invalid practice per Shari’ah. However, a PSC is different from gambling since prizes given via PSC originate from a third party. The paper proposes implementing a mudarabah contract within a PSC where the bank invests according to its interest. In this way the depositors share the profit and loss while the huge fluctuation of profit and loss is shrunk by the special fund method.

I hope the reader will enjoy the current issue of the journal.

M. Kabir Hassan