Written by Zahid Aziz  Monday 14 March 2011

This article appeared in Forum page of The Edge Malaysia, Issue 849, Mar 14-20, 2011

LOOKING AT THE FINANCIAL CRISIS FROM AN ISLAMIC PERSPECTIVE

In 2008 for the first time since 1930s the world economic system was on the brink of collapse. The international financial system was a like a train screeching to a halt. Fortunately it did not happen this time, the train hobbled on, a wrong system saved by, in all likelihood, an equally erroneous solution that probably sowed the seeds for an even bigger disaster to come.

Nobody knows the ultimate impact of the crisis of October ‘08 but the causes are now generally understood, within the context of conventional understanding without the benefit of an Islamic worldview. This article will try to provide the Islamic perspective on some of the problem.


US mortgage lenders go bankrupt between early 2007 to October 2008   BNP Paribas freezes funds; Northern Rock UK nationalised, Bear Stearns collapsed, Fannie Mae and Freddie Mac rescued; Lehman Brothers bankrupt; AIG rescued by Federal Reserve; credit market squeezed, Icelandic and many European banks nationalised or recapitalised.


The trigger was a decline in US housing prices which unraveled highly leveraged and unsound lending which has been building up over time specifically in the subprime residential mortgage market. It came in the form of securitisation of housing mortgages.

This is the scenario. Banks gives out mortgages which are then sold to a special purpose company (SPC) which issue securities to investors. The Arrangers are investment banks who get paid a fee and their employees gets paid huge bonuses as more structuring are generated. The housing loan banks were happy because they can continue to extend mortgages without keeping them on their books. The Arrangers are happy for as long as mortgages continue to be generated much demanded mortgage backed securities (MBS) can be repackaged and sold to investors. The Investors are also happy, pensioners in Sweden or Singapore are holding clever US originated securities. The US government are also happy and assisted the saga further by deliberately keeping interest rates low in pursuit of a home owners’ democracy.

Soon the good credits dry up. Prudence would have stopped the securitisation machine however a system without values pays no credence to prudence if players involved find they can get way with it, and got away with it they did, and then some.

They started to get involved in predator lending. They seeked sub prime housing loan borrowers aptly described as NINJA borrowers, i.e. individuals with No Income No Job and Assets. Their objective is to keep the production line churning so that the model can continue to securitise the mortgages and MBS sold to the investors.

A clever idea at the time had the poor credits bundled with the better ones to create more saleable securities. To ensure continued sale they got another party involved to deliver credit enhancers. Thus enter AIG, US’s major insurance corporate with the now infamous credit default swaps or CDS.

What this paper actually does is to take the credit risk away from the Credit Debt Obligations (CDO) which is the official name of the securitised mortgages. AIG gets a fat fee for the CDS, assuming credit risks they have no way of measuring. The investors are lulled into believing they have a truly secured paper, secured by the largest insurance company of America.

However bubbles have to burst. By end 2006 US house prices reached unsustainable levels. As the interest rates was raised to address inflationary concerns weaker borrowers began defaulting on housing loans. New purchasers stopped entering the market triggering downward spiral in house prices.

This process rapidly transmitted itself through the structures of securitisation. Lost in their own structuring in the initial stage they did not know who owned the securities that were becoming impaired; the housing loans being packaged and repackaged into CDOs repeatedly. Since the market did not know who owned the loans they stopped dealing in such securities. Soon their attention turn to the companies active in such instruments and are likely to hold large amounts of such impaired securities. Interbank lending and borrowing stopped and the credit crisis internationalised. The dominoes fell as outlined above.

Western literature does not one touch the underlying world view; it either does not know the significance of world views or does not know what it does not know. When world views are not addressed then existing systems and values or lack thereof are assumed correct so solutions are designed for a fundamentally defective system ; patches on balding tyres when what’s required is a full and complete replacement.

From the Islamic perspective there is nothing wrong in securitisation. What is wrong is in the mechanics, the subject matter, and derivative innovations on the concept of securitisation unfettered by Shariah parameters.

Securitisation according to Shariah has certain basic rules to comply with which limits its growth within the confines of the allowables. Such rules include rules of ownership where if sales are made then ownership must be transferred whole; Shariah does not allow sales where it is not clear whether and to whom ownership has been transferred. Apart from the issues of gharar or uncertainty such incomplete transfers approaches the definition of a batil transaction. Secondly, is the asset being transferred Shariah compliant?  Do the parties trading the securities that represent ownership of the underlying assets understand the assets? If not we are clearly in the realms of gharar. It is worse if the assets are ‘toxic’.

The subprime aspect aside, there are already issues in the securitisation structure. Mortgages are receivables or dayn. Under all mazhabs (Islamic schools of law) other than Shafie securitisation require the purchase of the houses with the attached mortgages.

Some structures are so complex structurers can buy pools of asset to underlie their securities, distancing further the security holders from the house owners. The zenith of the structure are CDO’s of CDO’s. This is what happens when structuring are limited only by the imagination of the structurer without benefit of guidance by revealed Shariah. The asset which the securities represent ownership thereof is gharar of the highest nature. Such instruments will not see the light of day under an Islamic system.

Under Shafie purchase of debt is only acceptable if inter alia, it is dayn mustaqir, a valid and collectible debt, purchased by cash The sub prime MBS is certainly not dayn mustaqir and similar issuance cannot arise in jurisdictions adopting Shafie rules.

An insurance company sells CDS for a fee. This means it will reimburse all credit defaults by individual mortgage borrowers. Islam views whoever sells CDS for a fee as engaging in maysir or gambling. These players do not know whether or not the mortgage borrowers will default and they hope their calculation on the fees is correct. When the property bubble burst their calculations and gamble failed. A takaful company would have been prohibited from issuing CDS because of gharar in the nature of asset purchased and maysir in the transaction.

In this context one cannot avoid discussing moral hazard or the weakness of man to conduct muamalat (economic transaction) in an honest and God fearing way. In the Western problem the only worry is getting caught. Furthermore individual interest always supersedes public interest.

So obviously, the structural problems of subprime were made worse by the dishonesty of the players in pursuit of incentive payments and fat bonuses. Personnel of arrangers and banks were in cahoots in predator lending. Personnel of CDS providers blind themselves to the maysir of CDS.

 The personnels’ lack of world view aggravated a defective structure that delivered a killer blow to the US economy. An Islamic system with God fearing personnel should remove some, if not all, of the moral hazards because in an Islamic system it is not about being caught but about being watched.

My Say : When risk is a four-letter word

Written by Zahid Aziz  Monday 17 January 2011

This article appeared in Forum page of The Edge Malaysia, Issue 841, Jan 17-23, 2011

The objection of Islamic Syariah to riba has never been about the size of the interest charged. It is also not confined to consumption loans; it is prohibited also to investment loans.

Investment loans, isn’t that a misnomer in the first place? How could an investment be a loan, and how could a loan be an investment? That is the objection of Syariah to riba, an investment cannot be a loan, and a loan cannot be an investment. But we have accepted the fraud and spun it that a loan is an investment without question. For how else could we have agreed to a guaranteed return to someone who has lent us capital?

How else could we have agreed to a full undiminished return of his capital at the agreed time without consideration of the underlying success or failure of the business? Someone used to say, tell the lie a thousand times and it will be accepted as the truth. In riba the axiom seems to be, practice it for a hundred million times and people will no longer question its injustice.

It becomes a fact of life that we are numbed to its injustice. We are numbed to its injustice because it is not us who bears the direct brunt of the injustice. The UN sponsored Study by the World Institute for Development Economic Research reported that in the year 2000 there were one billion people living on less than USD1 per day.

The per capita GDP (total national output divided by the population)- the difference in income between the world’s richest countries and the world’s poorest countries - is now 267 times, from 22 times in 1913 1% of the world’s population now own 40% of the planet’s wealth.

"The study emphasised that economic growth is, by itself, no fix: How the gains are distributed is just as important. In China, Romania, Sri Lanka and many Latin American countries, swiftly expanding economies have improved incomes for many, but the benefits have been limited by a simultaneous increase in economic inequality, putting most of the spoils into the hands of the rich and not enough into poor households..."  This is the tragedy of the riba driven economy, delivers economic growth but with much inhumanity.

But it is not our problem because we are not amongst the one billion people mentioned above. And so we continue with our life. We have a form of Islamic banking. Some of us are no longer practicing riba banking; really? As outlined above isn’t the objection to riba based on the risk aspect where all manner of risks are transferred by a lopsided contract to the other party? Isn’t the objection to riba about the owner of money disattaching himself from all manner of risks whilst expecting a guaranteed return at the same time?

How do we measure against this requirement? No measure of akad (contract or agreement) will make a transaction riba free until we address the risk aspect. Risk is indeed a four letter word when we have not yet shed our riba drenched clothes.

Amongst the parameters of an Islamic Economic system is the prohibition by law of riba and an economy driven by qirad or mudarabah. Banks will take deposits on Mudarabah and extend financing in the form of Mudarabah and Musyarakah. Banks will remould themselves as true Investment Banks and bankers remould themselves into equity investment managers.

In order to allow the Banks to operate freely as true equity managers of money, the nation’s payment system will in most likelihood be decoupled from them and run by specialist Debit Banks who will honour cheques much in the way debit cards operate. In other words cheques only for amounts in current accounts and processed by banks who are unable to extend credit. Thus the exposure of the investment banks and any failures in their financing will not collapse the nation’s payment system.

The setting is set now for the banks to extend capital on Mudarabah (trustee profit sharing) and Musyarakah (joint venture profit and loss sharing), thus truly transforming the banks into equity investors and rewriting the risk formula into what is natural for business. No more fixed returns on capital extended, and no more guaranteed full return of capital notwithstanding outcome of business.

Banks extend capital on equity basis and absorb business losses as is only equitable. Things are now back into natural equilibrium and risk is no longer a four letter word. Risk is assumed in the correct proportion by all component parts of the economy and serves its function as the oil that runs the economy.

The only people who will object to this will be the riba financiers who have it their way all this while, and of course some of the professionals they enslaved who can no longer see the woods from the trees.

My Say: Risk-managing in Islamic financial institutions

Written by Zahid Aziz    Monday, 09 August 2010

This article appeared in Forum page of The Edge Malaysia, Issue 818, Aug 9-15, 2010

Surah Ta Ha Verses 115 to 119 of the Holy Quran basically tell us that God created us in an environment of risk. Our Father Adam was created in heaven, given a wife and everything he needed but God also gave him risk — the risk of disobeying His command. Man was made weak and susceptible to risk, hence Verse 115, which says: “We had already, before hand, taken the covenant of Adam but he forgot; and We found on his part no resolve.”

This teaches us at least two things. First, an environment of risk and exposure to risk is a natural state of existence for man, right from his beginnings in the heavens of God. On top of that, man is naturally forgetful and weak, which accentuate his exposure to risk.

If man does not have needs, he is less susceptible to risk. If Adam had not needed Hawa, he only had himself to manage as risk exposure. But his need for a wife extended his responsibility of risk management beyond himself. This teaches man that living in a society of other beings is also a natural state of being for him. He has to accept that fact, recognise the increase in risk exposure and manage it.

Similarly, an Islamic financial institution (IFI) has to accept the fact that risks exist in its business and have to be managed. There is no business that is riskless except perhaps riba or interest-based banking. That is why riba banking is abhorred by syariah. Author Saiful Rosly (Performance of Islamic and Mainstream Banks in Malaysia — Saiful Rosly & Afandi Bakar [2003] International Journal of Social Economics) notes that the riskless nature of riba banking “violates the law of nature in Islam since everything except God must depreciate and money is no exception. When money is not subjected to the law of depreciation, man has put money equal to God. In Islamic law, this amounts to idolatry [shirik]. For this reason, God declared war on Muslims who consume riba”.

Once we acknowledge that there are risks in Islamic banking, we need to identify and learn how to manage them. Islamic banking is a business, so there are risks attached to various aspects of the business. What is Islamic banking? It is a business of collecting monies from the public and investing those funds to give returns to the people who have extended the monies. We then need to know why people give money to Islamic banks. Is it for investment or safekeeping? Truly, there is no such thing as depositing money in an Islamic institution and expecting a return. That presumes there is a price on money and the act can be construed as a rental of money, which is the theme of riba banking and the antithesis of Islamic banking. Monies placed in Islamic banks should never be described as deposits with all their conventional connotations. They should be described as public investments or monies for public safekeeping.

So, what are the risks associated with such monies? The risk of not being able to deliver the cash when required by the bank’s customers because the cash has been invested in profit and loss earning projects is one. The question is, why are investors entitled to withdraw on demand when they agreed their money was an investment that surely has a period of maturity? Allowing withdrawals on demand is then clearly seen as an act of aping conventional banking. If the bank needs to have this feature, then the akad of safekeeping or wadiah yad dhamanah seems the most appropriate. Then there is a legitimate risk for the Islamic bank to manage; it needs to risk-manage the liquidity risk of not having enough cash when customers demand to take out their money. That’s the risk on the sources side.

The funding side entails credit risk when Islamic banks engage in credit finance, which has never been considered “illegal” by Islamic jurists; it is its over-usage and abuse that has drawn much criticism. With debt or credit finance, there will be credit risk or the risk of the counterparty not honouring its commitment. If the nature of the Islamic bank’s funding is equity of mudharabah or musyarakah, then the Islamic banker need only address investment risks.

Of course, all risks are looked at from the point of view of the Islamic bank that is exposed to the risks. If the risks are not managed, then the Islamic bank will suffer losses or in the worst-case scenario, it will have to be closed. All these risks are measured in terms of monetary loss. However, Islamic banks are also exposed to a particular risk that conventional institutions are spared from — the risk of a mukallaf, or not obeying the laws of his Maker.

In Islamic risk-management terminology, this is called syariah non-compliance risk. However, this is usually classified as an operational risk and its loss is measured in monetary terms. The overriding risk faced by an Islamic institution is the risk of incurring the displeasure of his Maker, but who is the mukallaf here? They need to be humans. In a combination of responsibility, we offer that the mukallaf include the regulators, shareholders, directors, management, staff and also customers of the bank. The nature of risk management here is to do all things to comply with the requirements of the Law Giver, be it in action, words or heart.

This teaches IFIs another form of risk management: to be true to the teachings and requirements of syariah in all its business and actions, and God will surely protect the institution. It needs to be said, however, that such institutions have to go beyond adhering to the literal legal rules of syariah and achieve the higher platform of embodying masqaid  al-shariah (objectives of syariah). Again, we quote Saiful Rosly (2003): “Ethics again takes a back seat, making way for legal rules to dominate Islamic banking juristic opinions. As ethics [akhlaq] and law [fiqh] do not seem to mix, the Quranic spirit of justice and mutual aid is compromised to pave way for financing techniques that may look Islamic on the outside only.”

Banks are exposed to four broad categories of risks — financial, operational, business and event. These should now be familiar to most people and are much discussed in literature. I would like to forward one aspect of risk for an Islamic bank that has rarely been discussed or brought to the forefront of public forum, that is the risk of operating in a dual financial environment. Islamic banking has to start in a dual banking environment; it’s not as if we have a choice. But the choice we have is not to ignore the impact of riba banking on Islamic banking. The greatest risk of this dual system is the risk of turning an Islamic bank into a replica of the conventional bank in order for the Islamic bank to survive.

When riba is not haram and Islamic and conventional banks have to compete for the same deposits, the rules Islamic banking have to observe can be an unfair advantage to conventional banks. However, this does not mean that conventional banks produce superior products in spite of not following syariah rules; what this means is that conventional banks are allowed to produce defective products for society which should not have been allowed to leave the production line. Factory rejects which are popular in the market would be an apt similitude for conventional products.

Islamic banks take deposits on mudarabah; they have little leeway to respond to sudden changes in market liquidity. Conventional banks price deposits on interest; they can adapt quickly to liquidity changes. As a result, Islamic banks can be high and dry in times of low liquidity and flooded with unwanted deposits in times of high liquidity. All this forces Islamic banks to replicate the nature of a conventional bank so that they can get economic benefits. These actions will bring them into disrepute, entering the dangerous zone of breaching syariah.

Second, an Islamic bank may wish to extend financing based on the equity concepts of mudharabah and musyarakah. However, such financing needs to be funded by deposits. Because of the rental of money concept introduced by conventional banking, people are used to depositing money for the short term so the majority of deposits are short term in nature. Islamic banks that want to extend financing based on mudarabah and musyarakah will think twice if they are to be funded by short-term deposits. What if the depositors wish to withdraw when the projects are always long term in nature?

So to be safe, Islamic banks will find financing that will deliver to them early returns; hence, they will focus on debt financing — again becoming a replica of conventional banking in order to get economic benefits. It is about time people recognised these particular risks of Islamic banking and addressed them in the manner the Law Giver expects them to.

Islamic economics have crossed the divide. Islamic accounting is on the verge of doing so. Islamic risk management must make the jump soon. A subject is only truly relevant when it crosses the divide to take into account the mukallaf’s fear of the consequences of the hereafter. Islamic economics have extended all time horizons to the hereafter and so their calculation of risks and rewards. We should not confine Islamic risk management to monetary loss lest we lose our grip on the subject. An IFI’s risk management must cater for the biggest risk of all — incurring the wrath of the Law Giver.

The risk management framework of an IFI must have achieved maqasid syariah as its ultimate objective. Otherwise, we will achieve neither protection against monetary loss nor maqasid. Sometimes, what seems disastrous in terms of conventional knowledge may actually be the route we need to take to achieve our true objectives.

Muhammad Zahid Abdul Aziz, who has 20 years of experience in Islamic banking and finance, is a director of Muamalah Financial Consulting, an Islamic capital market consultancy

My Say: Commendable Act but it’s no saviour

The Edge Malaysia.

Written by Muhammad Zahid Abdul Aziz

Monday, 22 February 2010

The Central Bank Act 2009 was gazetted on Sept 3, 2009, to replace the Central Bank of Malaysia Act 1958, which was repealed. The Act created international history as the first central banking legislation anywhere in the world to declare that a nation is operating under a dual financial system, conventional and Islamic. Although Malaysia is acknowledged today as the country with the most advanced and comprehensive Islamic banking and finance legislation, local players will remember how they were thrown into the deep end with a barely adequate Islamic Banking Act in 1983.

Islamic bankers, lawyers, and other practitioners were expected to survive on their own, fight for new rules, and generally steer Islamic finance forward, with the condition that it complies both with syariah and every single piece of civil law. One doesn’t need a degree in comparative law to appreciate the enormity of this task.

Islamic banking is supposed to operate as the sole and single system in a riba-free environment, operating within an Islamic economy governed by syariah laws. The Revelations in the Quran certainly do not coincide with an Islamic banking system enveloped and impacted by a well-entrenched riba competitor system, operating within an interest-driven economy, within man-made laws.

Islamic banking law began to be built on case law, which could sometimes steer it into choppy waters. But we always found ourselves back on course, with many mindful of the fact that the boat we were in was being built on questionable specifications in the first place. Into this context was born the Central Bank Act 2009.

Is the Central Bank Act 2009 the long-awaited saviour? Before we analyse the Act, we need to identify the major outstanding issues of Islamic banking practices that cry out to be addressed:
•    Operating in a civil law environment where syariah issues may not be appropriately and adequately addressed, should Islamic banking be taken out of the realm of the civil courts and placed where it rightly belongs, the syariah courts?
•    Procedural laws, such as the Rules of the High Court, that do not accommodate Islamic banking. For example, court forms that require Islamic banks to specify the “principal” and “interest” of their facilities. Or the automatic 8% a year default interest from the date of default to date of judgement awarded by judges to all successful litigants.
•    There is no legislation that makes it compulsory for the courts to refer syariah issues to syariah experts, leaving it to the sole discretion of judges who may or may not consult syariah experts as they see fit.
•    In conflicts of Islamic banking legislation with other legislation, which one rules?
•    The National Syariah Advisory Council at the Central Bank, being the assumed supreme authority to determine Islamic banking laws, being then by wording of the legislation, be made subservient to the supervision and regulation of the Central Bank.

•    The legal treatment of Ibra’ or rebate in an Islamic debt-financing facility which iconises the incompatibility of syariah nuances with certainty as required by civil law.

•    The lack of formal Islamic finance education among judges and litigating and drafting lawyers has been much lamented but not addressed.

•    Consideration for alternative dispute resolution for Islamic banking cases in view of its alien nature to civil courts.
These are just some of the major issues facing Islamic banking practices presently. Let us now examine whether the new Central Bank Act 2009 has accommodated all Islamic banking wishes.

•    The Central Bank Act 2009 (CBA 09) does not touch on the jurisdiction for Islamic banking cases, which remain firmly within the ambit of the civil courts. As a Central Bank Act, it may not be the platform to change federal and state lists in the constitution. But the import of the Act reaffirms that Islamic banking is going to stay firmly on the federal list. This then begs the question on when the syariah capabilities and Islamic banking knowledge of judges and the legal fraternity are going to be addressed. If Islamic banking cases are to be dealt with by civil courts, court officials must be adequately trained. The problem is not going to go away by ignoring it. And when are procedural laws going to be amended to accommodate the existence of Islamic banking?  A lot of judicial time and effort are being wasted on matters that can be easily resolved with long overdue amendments to procedural laws.

•    The previous legislation did not make it compulsory for judges to refer syariah issues to syariah experts. Section 56 of the new CBA 09 appears to have resolved this problem by requiring the Court (and arbitrator) to “take into consideration” any published rulings of the Syariah Advisory Council of Bank Negara. However, a Muslim bred in unspoken respect and obedience to fatwa finds this phrase quite discomforting. Section 56 is an improvement over the previous legislation, but it does not say  the rule is binding on the judge. Religious nuances aside, what if a judge “takes into consideration” an SAC syariah ruling, decides it is not appropriate for his judicial decision, and makes a decision which in terms of the Islamic Banking Act (IBA) is against Islam? Does not the IBA define Islamic banking business as any banking business that does not go against Islam?
Whilst it is all very well to declare in Section 51 that the SAC is the supreme authority over Islamic financial law, Section 55 then goes on to say that the judge is actually the ultimate arbiter. So that fits into the context that Syariah law is not supreme in this country. But how then do you reconcile a judicial decision which is ultra vires a democratically passed Act of Parliament, namely the Islamic Banking Act? The position is, however, a bit clearer on new issues which have not been deliberated on by the SAC — upon making a reference to it under Section 56, the court is then bound by the ruling under Section 57.
•    Conflicts between Islamic banking legislations and other legislations are not addressed by the CBA 2009. Only against the Companies Act does Islamic banking legislation win by virtue of Section 55 of the IBA, which makes the Companies Act subservient to it. Against all other legislation there remains deafening silence. We’d hope that the Islamic Banking Act, as outlined above, would be a comfort of sorts, but a more forthright legislative defence would be the preferred choice.

•    The phrase in the previous legislation putting the National Syariah Advisory Council under the purview of Bank Negara appears to have been left out. In addition to the deletion we have, for what it’s worth, Section 51 (2) which says the SAC may determine its own procedures. Dare we draw comfort from the fact that the SAC is no longer by wording of legislation subservient to a body which should not be, and I daresay would not want to be, its supervisor, Bank Negara?

•    Ibra’ or rebate of an early settled Islamic debt financing facility has always exemplified the uncomfortable juxtaposition of syariah nuances with the certainties as required by civil law. Syariah advisers have always been loathe to approve rebate clauses in Islamic sale and purchase agreements for fear of indicating a multiplicity of prices in an Islamic buy and sell akad which demands the declaration of only one price. This quirk of syariah demand has led to banks demanding defaulters settle the full selling price in mid-term defaults, when it is clearly not due. Islamic banks that know the correct procedure will then make an undertaking in their statement of claim to rebate to the defaulter any amount not due to them. Islamic banks who know that the date of settlement could be years after the date of judgement resort to this, rather than go to court again to ask for an additional sum. It is clearly so much easier to ask for the full selling price, which they are entitled to, and rebate all amounts not due to them. But some court submissions were made without the undertaking to rebate in the statement of claim.

Remember the  infamous case of Affin Bank vs Zulkifli Abdullah (2005), where the plaintiff bank did not make the undertaking to rebate, leading the judge to declare Islamic banking exorbitant, and subsequently, for the same judge to declare that all such Islamic debt financing facilities non-syariah compliant. The decision was overturned by the Court of Appeal, leading to a collective sigh of relief for the embattled Islamic banking industry. The SAC in 2002 approved the inclusion of such an Ibra’ or rebate clause, in sales agreements based on the objective of maslahah and the analogy or qiyas of dha’ wa taajjal. Perhaps via Section 56 and 57 of the CBA 2009, when syariah rulings of the SAC may no longer be ignored by the courts, this issue will be put to rest once and for all.

•    Lastly, although arbitration is mentioned under Section 56 and 57, no declared bias is made in its favour as compared to settlements via court. Perhaps this is not entirely unacceptable as only through court battles can case law be built and precedent Islamic banking law be established.

Conclusion
The CBA 2009 is clearly not the knight in shining armour expected by some. Clearly, the authorities have decided to postpone all major battles. However, its hand is shown in the manner of testing of waters. We commend the law makers for the bold declaration of a dual financial system and the legislative requirement that the judiciary may no longer ignore SAC rulings. Apart from that, the CBA 2009 can hardly be said to have resolved all outstanding issues in Islamic banking practices. With the baton of leadership in their hands, we sincerely hope the authorities are mindful of the landscape of the battlefield we find ourselves in, for no war can ever be won without such vision. We need generals who see the battlefields clearly and an army that is well trained, disciplined and committed. For did not Allah say we are at war with riba?

Muhammad Zahid Abdul Aziz has almost 20 years of experience in Islamic banking and finance. Starting with Bank Islam Malaysia Bhd in 1990, he made  his mark as a sukuk pioneer. He left Bank Islam in 2000 to form an Islamic capital market consultancy in Kuala Lumpur called Muamalah Financial Consulting.