May 1, 2014

Interest is riba (usury) absolute

In the Islamic finance, the very important variable must be avoided is usury (riba). From the perspective of Al Qur'an, usury is absolutely prohibited. But, The question is about form of usury when it applied in the real economy or financial industry.
Some people argue that interest is not usury if the other party who involved in transaction doesn't feel persecuted. In their opinion, the point of usury is not about the form itself but about impact which received by other party. Another opinion, which was agreed by majority of Islamic scholars, says that interest is usury. It's not about the impact of interest but it's all about the interest itself. 
The definition of usury and interest is same, that is an excess or additional of money. It means, the establishment of usury only comes from transaction that used money as an object. It can be buy-sell transaction or the common type is lending-borrowing transaction. From Sharia perspective, money can't be the object of transaction because it's prohibited. It means, either buy-sell or lending-borrowing money both are prohibited.
Buy-sell transaction with money as object is categorized as usury because Islam told that money can only exchange within the equal value, nominal and form. If the exchange is unequal, it means the transaction is categorized a riba-based transaction.
The other hand, from the perspective of Sharia, lending-borrowing is not a part of business transaction, it's a part of social-based (tabbaru) transaction. Because of that, the lending-borrowing must not ask for excess or additional money. If it asks for additional money, than it is riba-based transaction.
From that explanation, It's clear that interest is usury absolute. No doubt.


Mar 31, 2014

The Selection Process of Islamic Stock

When we are talking about Islamic or Sharia stock, it means we are talking about a selected stock. All stocks are categorized as Islamic stocks must have special characteristics compared with non-Islamic stocks. To be categorized as Islamic Stock, it must pass a selection process which held by regulator or Sharia board.

In general, the process of selection of Islamic stock is divided into two (2) criteria. First, a line business of listed company, a stock issuer, must comply with Sharia. It must not be a product that prohibited by Islam. For example the riba-based product, a haram product, etc. Second, source of fund and income of listed company must be free from riba. Because nothing can be free from riba, almost all Islamic scholars agreed to create a minimum requirement of riba which is tolerated.

For the first criteria, almost all selection process over the world have the same criteria, that all haram products are prohibited. But for the second, every country or every Sharia board has a different view. For example, DJIM uses a market capitalization as a divisor while Indonesia or other country uses total asset as a divisor. Beside that, the percentage of minimum requirement of riba in every country is different. DJIM use 33% as a minimum requirement of tolerated-riba, while Indonesia use 45%.

The important thing in selection process of Islamic stock is that all of these differences are the result of ijtihad of Islamic scholars. It will be adjusted with the characteristic of the business or country.

Feb 27, 2014

Whether the Capital Market is Gambling?

The presence of public perception that investing in the capital market is gambling is one of the main issue which faced by Islamic capital market.

Gambling from the Sharia perspective is divided into two type, maysir and qimar. Most Islamic scholars told that both are the same activity but in fact both have different meanings and forms. Maysir is a game-of-change activity while qimar is a betting activity.

A game-of-change means a game that involving many parties which the winner will receive a gift that comes from the contributions of others. This kind of gambling is called a Maysir according to surah Al Maidah:90-91 or Al-Baqarah: 219. A betting means some parties would bet on something with contributions and those who can bet precisely is the winner and reserve the right to take all contributions. This kind of gambling is called qimar. It means, either maysir or qimar, both aren't buying or selling transaction because the parties who involved on that activities are only do either gaming or betting.

From the above elaboration, It's clear that investing in the Islamic capital market is not a gambling because the transaction is based-on buying or selling activity not gaming or betting.  

Feb 22, 2014

Sukuk is an Asset Securitization

The government of Indonesia will issue a Sukuk retail (SR006) on March 5, 2014. As usual, the return of SR006 is always higher than deposits rate in the market. The rate of return is 8.75% while deposits rate is 7.5%. Before we talk about investing on the SR006, we should know what the Sukuk is.

A lot of people have wrong definition on Sukuk. They though that Sukuk is like bonds, so we can call it as Islamic bonds. But, from concept and practice point of view, Sukuk is totally different with Bonds.

Sukuk is an asset securitization-based product, while bond is a lending & borrowing-based product. As an asset securitization, Sukuk must have an underlying asset, while bonds no need to have it. The concept of asset securitization is asset financing, it means investor will finance the asset for certain period not lend money. Therefore, the excess from Sukuk is rate of return, while the excess from bonds is interest rate. So, Sukuk is a product that complies with Syariah while bond is prohibited.

In general term, akad which used by Sukuk is divided into two different type of akad. First, lease based akad or akad Ijarah. This akad is very popular when issues Sukuk because investor will receive return periodically. The second is partnership-base akad, such as mudharabah & murabahah. The partnership-based akad is unpopular when issues Sukuk, because return that will be received by investor is variable not fixed like Ijarah.

The information about Sukuk Retail that will be launched by Indonesia government can be read on


Feb 8, 2014

What is Gharar?

the IOSCO's sharia principles will be used as basic principles for entire blog. For the first, we will elaborate what gharar is.

The capital market is all about investing activities and it means uncertainty. Why? Because investing is an activity to create return in the future from asset which managed in the present. It means investment involves variable of time. Because time is uncertain, then investment is an activity that the result can't be ascertained. In the investment world, uncertainty is defined as risk and it's an integral part of return.

Islamic scholars have different views on the definition of gharar. But, the most widely used of definition of gharar is uncertainty. That definition is used by such as Obaidullah, El-Gamal and IOSCO. Because the references of gharar in the Al Qur'an and hadist are limited, then many people misunderstand about gharar. Further explanation of gharar can be read in
Thus, gharar is risk which inherent on investment.