Wealth Management and Investment in Islamic Settings: Opportunities and Challenges

415 Pages·2022·6.385 MB·English

by  Toseef Azid, Murniati Mukhlisin, Othman Altwijry

Toseef Azid · Murniati Mukhlisin ·
Othman Altwijry Editors
Wealth
Management and
Investment in
Islamic Settings
Opportunities and Challenges
Wealth Management and Investment in Islamic
Settings
· ·
Toseef Azid Murniati Mukhlisin
Othman Altwijry
Editors
Wealth Management
and Investment in Islamic
Settings
Opportunities and Challenges
Editors
ToseefAzid MurniatiMukhlisin
CollegeofBusinessandEconomics RectorSTEITazkia
QassimUniversity Bogar,Indonesia
SaudiArabia,SaudiArabia
OthmanAltwijry
CollegeofBusinessandEconomic
QassimUniversity
SaudiArabia,SaudiArabia
ISBN 978-981-19-3685-2 ISBN 978-981-19-3686-9 (eBook)
https://doi.org/10.1007/978-981-19-3686-9
©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNature
SingaporePteLtd.2022
Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether
thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuse
ofillustrations,recitation,broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,and
transmissionorinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilar
ordissimilarmethodologynowknownorhereafterdeveloped.
Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication
doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant
protectivelawsandregulationsandthereforefreeforgeneraluse.
Thepublisher,theauthors,andtheeditorsaresafetoassumethattheadviceandinformationinthisbook
arebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor
theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany
errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional
claimsinpublishedmapsandinstitutionalaffiliations.
ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSingaporePteLtd.
The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721,
Singapore
Foreword
Forthelastfivedecades,theepistemologyofsocial,economic,management,busi-
ness,psychological,andseveraltheoriesintheIslamicframeworkhavebeendevel-
oped based on the integration of this life and life hereafter. The development of
thesetheoriesfollowstheinjunctionsofthetwoDivinesources,theQur’anandthe
SunnahoftheProphet(PBUH).Islamictheoriesfocusonthedevelopmentofsoci-
etieswhichsustaintheenvironmentofvirtuesanddiscouragevices.Thisapproach
isincontrasttotheunderstandingoftheoriesintheconventionalsystem,whichis
largelyconsideredneutraltowardmoralandethicalvalues.
Accordingly, Islamic Wealth Management (IWM) takes a systems view of the
relationshipbetweenworldlylifeandthehereafter.Thewealthmanagementprocess
also follows the injunctions of the Qur’an and the Sunnah, in addition to detailed
shari’ahsourcessuchasFiqh(Islamicjurisprudence)onpracticalmattersrelatedto
wealthmanagement.Forthepastfourteenhundredyears,theQur’anandtheSunnah
havetaughttheirfollowershowtobehavevis-à-viswiththewealththeyown,andthe
statusofmaninrelationtothiswealth.BothDivinesourcesprovideprinciplesand
a broad view of wealth management-related phenomena. Epistemologically, these
phenomenapresentthedifferentdimensionsthatcandevelopthebelievers’person-
alityandincreasetheirfalah(abroaderconceptofwelfare),improvetheirmoraland
ethicalvalues,upgradetheenvironmentlevel,regulatethemarketanddeveloptheir
social and economic values. These sources also recommend how believers should
developveryprominentsectorsofsociallifesuchaseducationandhealththrough
theinstitutionsofzakat,waqf,andotherformsofcharity.
Literary, the definition of al-mal (wealth) has three attributes: it has value, has
benefit,andmustbepossessedandowned.Furthermore,al-malmustmeetthecriteria
ofhalal(lawful)andTayyib(goodorpure)[2:172],asopposedtoHaram[unlawful]
andKhabith(evilorimpure)[5:100].Hence,regardlessofthequantity,goodorpure,
al-malispreferredovertheevilorimpureone[5:100].Impureal-malisthatwhich
isunlawfulornotpermittedbytheshari’ah.Forexample,wealthgeneratedthrough
maysir (gambling), riba (interest), or through the production of unlawful goods
such as wine and pork. Here, the concepts of halal and Tayyib (lawful and pure)
andHaramandKhabith(unlawful,impure)areclearlymentionedbytheshari’ah.
v
vi Foreword
Islamic literature discusses the different types of wealth, such as corrupt wealth
(whichisnotgeneratedbyfollowingtherulesandregulationsofshari’ah),impure
wealth(earnedthroughunlawfulmeans),andpurewealth(earnedbyfollowingthe
shari’ahinjunctions).
Over the years, the development of the Islamic financial industry has opened
doors for several opportunities for Muslim investors and households toward the
IWM.Opportunitiesarealsoextendedtoacademiciansandpolicymakerstoaddto
thediscourseofIWM.Therearetwodifferentopinionsintheliteratureregardingthe
domainofIslamicwealthmanagement.OneopinionviewsIWMasthedomainof
thegovernmentsoftheMuslimcountrieswhichareduty-boundtopromoteIslamic
wealth management. In contrast, the other opinion grants the significant role of
a wealth manager to IWM. The wealth manager is expected to have expertise in
differentfieldsofhumanpsychology,sociologyandknowthedifferentverdictsof
shari’ahrelatedtofinancialmatters.Accordingly,thewealthmanagementindustry
wouldpromoteanddevelopitsnormsanddimensionswhiletakingintoconsidera-
tiontheclients’psychological,social,andreligiousstates.Nevertheless,thecontrib-
utors of this volume are of the view that these two opinions should be considered
simultaneouslysincemarketforcesandthelawofgovernmentaffecteachother.
The concept of IWM in the present work is oriented toward inter-generational
and intra-generational justice. The former, intergenerational justice, is a long-term
measurewhichisachievedintimeseriesacrossgenerations.Thecommoninstitutions
usedtoachievethisformofjusticeisthelawofinheritanceandwaqf.Ontheother
hand,inter-generationaljusticeisashort-termmeasureapplicableatapointintime
withineachgeneration.Thetypicalinstitutionsusedtoachieveitarezakatandother
formsofcharity.
Wealth Management and Investment in an Islamic Setting: Opportunities and
ChallengescanbeviewedasanalarmbellandcatalystforthegurusoftheIslamic
wealthmanagementindustry.Insteadofreplicatingthesystemandproductofconven-
tionalindustry,theyshoulddeveloptheirsystemandproductsguidedbythefunda-
mental sources of Islam. The authors of the current volume come from various
countriesandthereforeenrichtheworkwithvarietiesofexperiencesrepresentedby
thesecountriesthatincludePakistan,Egypt,Indonesia,Mauritius,Malaysia,Dubai,
Brunei, Nigeria, and Turkey. This is a significant manifestation of the strength of
diversityacrossthecontentofthechapters.
Wealth Management and Investment in an Islamic Setting: Opportunities and
Challenges offers a variety of issues and their solutions in the domain of Islam
toitsreadersandvaluableviewsrelatedtowealthmanagement.Theworkistimely
becauseofthedevelopmentofIslamicfinancearoundtheglobe,scholarsinbusiness,
economics,andfinancefocusingonreligionasarelatedfieldofstudy.
WealthManagementandInvestmentinanIslamicSettingalsooffersamixtureof
subjectsasasubsetofwealthmanagementinthecontextofdifferentcultureswith
novelexperiences.Iamdelightedtorecognizetheeffortsoftheauthorsinaddressing
the various contemporary issues related to the process of wealth management, the
role of the believers in this process, and the extent of falah they would achieve in
thisworldlylifeandlifehereafter.
Foreword vii
The efforts of the brilliant scholars of this volume can increase mutual under-
standingacrossthedifferentculturesoftheglobe.Ihopesecularlyorientedschools
ofbusiness,economics,andfinancecanbenefitfromsuchresearchwithoutteaching
Islamdirectlytotheirstudents.Thiswillequipthestudentstolearnaboutdifferent
cultureswithintheIslamicworldinthewealthmanagementcontext.
I hope that readers as academicians, policymakers, and financial advisors will
benefitfromthescholarlyworkofthecontributorsofthisvolume.
February2022 MustafaOmarMohammed
Director
CenterofIslamicEconomics
InternationalIslamicUniversityMalaysia
KualaLumpur,Malaysia
Preface
Thetheoryofwealthmanagementsuggestedthatinvestorsandhouseholdsalways
behavelikerationaleconomicagentsandtakerationaldecisionsandmaximizetheir
utility.However,theyhavecertainconstraintsbasedontheirsocio-economicenvi-
ronment. Their ultimate objective is to get economic, social, psychological, and
religioussecurity.Therefore,theyexpectthatthemarketshouldbehaveefficientlyto
earnagoodreturn.However,since1987,thefinancialmarketsallovertheworldhave
sufferedseveralfinancialcrises;intheresultantoutcomewerenumerousbankrupt-
ciesandhugefertilities.Thispositedrathermarketinefficiency,asymmetricinfor-
mation, or irrational behavior of the market agents. It is also leading to a major
problemfortheoldretiredindividuals.Thesedysfunctionsareadispositioneffect,
regretaversion,lossaversion,cognitivedissonance,anchoring,mentalaccounting,
overconfidence,over-andunder-reaction,reference-dependentpreferences,confir-
mationbiases,herdingbehavior,hindsightbias,andmanyotherbehavioralbiases.
Alltheseattributesmadethefinancialmarketsextremelycomplex.Overandabove
asymmetric information contributed more to this apathy due to moral hazards and
adverseselection.
Afterobservingtherecentglobalfinancialcrises,mostoftheexpertsinfinancial
markets, economists, and bankers tried to apply those models suggested by Nobel
Prizeco-winner2013RobertShiller(2000)inhisbookentitledIrrationalExuber-
ance.However,anotherthoughtemergedduringthisperiodaboutIslamicfinance.
SeveralexpertsfoundthatIslamicfinanceismoreresilientbecauseofitsnature,i.e.,
Asset-based/backed.Therefore,theyrelookedthefoundationofconventionalfinance
andtriedthedifferentmodels.Amongthem,themostattractivewasIslamicFinance.
This opened other doors for researchers, policymakers, and academicians. Conse-
quently, governments introduced the new rules and regulations, whereas investors
changedtheiroptionsandpreferencesorders.Theseendeavorshavealsoreshaped
theactivitiesofthewealthmanagementindustry.Furthermore,italsoimprovedthe
role of the wealth manager. In a nutshell, three major developments (recent finan-
cial crises, Shiller’s thoughts, and development of Islamic Finance) improved the
understandingofthemajoractorsinthewealthmanagementindustry.
ix
x Preface
This volume tries to integrate behavior, religion, and finance, which is a gener-
ally neglected area in the current wealth management literature. And the major
player in the wealth management industry did not pay too much attention to this
perspective. In reality, this perspective started with the birth of human beings and
simultaneously grew with the generations. In fact, it is an essential part of human
beings’social,psychological,andeconomiclife.Wetrustourhumbleeffortwould
increaseabetteranddeepunderstandingofthesubjectmatterofwealthmanagement.
Ourwhole effortsarebasedontheassumption thatreligiousand moralvalues are
thecentralpillarofthebuildingofhumanbehavior.Byfollowingthisassumption,
we invited scholars from diverse social-cum-religious backgrounds to develop the
different dimensions of wealth management and investment under the umbrella of
shari’ah.
As editors of this volume, we aim to provide an opportunity to the scholars to
start a discussion regarding the wealth management industry’s social, behavioral,
psychological, and financial issues. This was our endeavor to encourage them to
developsomemissingmoralandreligiousissuesofthewealthmanagementindustry
andprovidetheirempiricalfindingsinthisvolume.Weadmitthatcontributorstothis
volumeofferednewavenuesforfurtherdiscussiononthissubject.Weacknowledged
thatcreditgoestoallcontributorswhotriedtofillthegapandidentifiednewissues
inthecurrentliteratureonwealthmanagementandinvestment.Wetriednottoedit
orchangethecontributor’sscholarlywork;therefore,readerswouldunderstandtheir
viewsintheoriginalform.
Thisvolume,“WealthManagementandInvestmentinanIslamicSetting,”invites
itsreaderstothinkaboutthebehavioralandreligiousissuesrelatedtothedifferent
dimensionsofwealthmanagement,particularlyrelatedtoIslamicfinance.Moreover,
weexpectthatreadersfromdiverseacademicandprofessionalbackgroundsmayfind
someinterestingdiscussionsrelatedtotheirfieldofknowledge.Weanticipatethat
this volume also opens new avenues for the followers of the conventional theories
of finance and economics. However, we do not claim that this volume covers all
the salient features of the understudied area. This volume does not include many
critical areas, such as financial therapy, reference-dependent preferences, role of
state,dispositioneffect,regretaversion,lossaversion,cognitivedissonance,mental
accounting,andmanyothers.
Webelievethateconomicandfinancialactivitiesarenotachievingtheirtargetsif
theyarenotintegratedwithreligiousandmoralvalues.Inourview,itisthereligious
andmoralresponsibilityofeveryonetomanagetheirwealthasperdivineguidance.
Particularly,thefollowersofAbrahamicreligionsbelievethattheyareaccountable
toGodonthedayofjudgment.Andtheyhaveveryclearcommandmentsaboutthe
managementofwealthandresources.However,thiscurrentvolumeisonlyfocused
onIslamicwealthmanagement.
This volume has five parts. After the introduction section, Part I discusses the
theoretical framework of wealth management within the Islamic jurisdiction, the
applicationofIslamicwealthmanagementispresentedinPartII,PartIIIprovidesthe
stateofwealthmanagementindifferentcountries,andPartIVsketchesIslamicsocial
responsible investment in the mode of waqf. Finally, Part V discusses a particular
Preface xi
issuerelatedtothesuccessofMuslimHouseholdsastruebelievers.Inthisvolume,
twenty-two chapters are selected covering the different research topics. The first
chapterdealswithbasicwealthmanagementissuesintheIslamicdomain.
EightchaptersareincludedinPartI.Allthesechaptersdevelopedthefoundation
ofIslamicWealthManagement(IWM).Forexample,Chap.2discussesthesalient
points of Islamic Wealth Management from Qur’anic Texts. Chapter 3 covers the
spiritual aspect of the IWM; Chap. 4 develops an exciting aspect of the subject
whichcoversthreedimensions,i.e.,politics,warfare,andwelfare;Chap.5focuseson
wealthcreation;Chap.6discussestheIWMthroughinjunctionofzakat.Incontrast,
Chap.7touchesontheverycrucialtopicofdebtmanagement.
PartIIhasthreechapters.Thesechapterscovertheapplicationsideofthesubject.
Forexample,Chap.8suggeststhefinancingmodelofsmall-mediumpropertyenter-
prises in the context of maqasid al-shari’ah (objective of Islamic Jurisprudence).
Chapter9developsastochasticmathematicalmodeltomeasuretheeffectsoffixed
return instruments on investment decisions in the periphery of Islamic economics.
In contrast, Chap. 10 presents the family financing management from the sakinah
familyperspective.
Part III has eight chapters. Among them, Chap. 11 analyzes the behavior of
theHalalindustryinIndonesia;Chap.12discussestheroleofaccounting,Islamic
microfinance,andIWMwhilestudyingthethreemarkets,i.e.,Pakistan,Egypt,and
Indonesia;Chap.13studiestheSukukandmaslahaperspectiveinBrunei;Chap.14
presentstheMalaysianexperiencebasedonreligionanddebtmanagement;Chap.15
discussesafascinatingcaseofMauritiusbasedontheprospectsandchallengesof
Islamicinvestmentwealthmanagement;Chap.16discussesthecaseoftheJakarta
Islamicindexwiththereferencetosustainability,shari’ahgovernance,andfinancial
performance.Chapter17presentsacomparativeanalysisbetweenSukukBetterand
ConventionalBonds.Incontrast,Chap.18providesaninterestingdiscussionrelated
toCOVID-19andsociallyresponsiblepracticesofIslamicbanks.
Part IV discusses the waqf as a special mode of social responsible investment;
Chaps.19and21boththrowthelightonthesocialdevelopmentgoalsandtheirrela-
tionshipwiththesustainabledevelopmentgoals,whereasChap.20studiestherole
ofwaqf bankinIndonesiaandtheassociationbetweenblendedfinanceandsustain-
abledevelopmentgoals,whereasChap.22inPartVsummarizesthediscussionina
novelwayandpositshowMuslimHouseholdsgetsuccessthroughthemanagement
oftheirwealthbyfollowingtheguidanceprovidedbytheQur’anandpracticesof
theProphetMuhammad(PBUH).
SaudiArabia,SaudiArabia ToseefAzid
Bogar,Indonesia MurniatiMukhlisin
SaudiArabia,SaudiArabia OthmanAltwijry