Wealth Management and Investment in Islamic Settings

Recently, Islamic wealth management is one of the new emerging financial service industries that attract many wealthy people to trust their assets managed in accordance with Islamic values and principles. Islamic wealth management is distinct from the conventional conception of wealth management from the philosophical foundation. Therefore, Islamic wealth management’s philosophical foundation is fundamental to understanding wealth management from the Islamic perspective. The paper aims to redefine the contemporary concept of wealth management from an Islamic perspective derived from the Qur’anic perspective. The finding shows that Islamic conception of wealth management from Qur’anic framework is very comprehensive that cover all philosophical foundation; ontology, epistemology, and axiology. The Islamic wealth management process contends three aspects: (1) wealth creation, (2) spending, and (3) saving or investment. Wealth creation has a relationship with the fulfillment of the infaq (spending) objective. The objective is to promote maqashid shari’ah, promoting just and welfare in order to achieve Falah.

In the classical Islamic literature, there is an existing dispute of opinion among the scholars on treatment of material wealth and its connection with the spirituality of a believer. The differing approaches towards treating wealth arise from the inherent dichotomy between the Islamic mysticism-influenced perspective and the mainstream jurisprudence-oriented scholarship. The premises of Islamic mystical argumentation lie in the belief that wealth and worldly affluence puts a barrier in the path of a believer’s spiritual ascendance. This contention is subtly rejected by the mainstream Islamic jurisprudential literature but not in a clear and cogent way. The lack of clarity on the true status of wealth and its Islamic paradigm causes a blurred line of understanding on the topic. The availability of Shari’ah-based valid evidences on the virtues versus vices of wealth and affluence create more complexities on the topic than to make things simpler. Thus, to deliberate the Islamic framework of wealth management, it is imperative to demystify the Islamic position on acquisition and treatment of wealth. This chapter attempts to conceptualize the concept of wealth in Shari’ah followed by analyzing its treatment from a Shari’ah perspective. By moderating the conflicting views and narratives, the chapter endeavors to develop a balanced Shari’ah-based view towards treatment of wealth and its management. The chapter employs qualitative research paradigm, and it adopts a content analysis technique to analyze the primary and secondary sources of Shari’ah.

Wealth and politics have been complementary in both the competing Islamic and secular paradigms of wealth. The universally harmonious, peaceful, constructive, progressive and divine Islamic politics of humans as the vicegerents of Allah (SWT), which has been aiming at ensuring the dominance of the blessed Universal Order of Allah (SWT) and Islam as His revealed Ad-Deen—a complete code of successful and blissful life of all humans, introduces the multidimensional wealth as a mainstay of the universally sustainable human development and bliss in this world and in the world-hereafter. Islam and the progressive divine Islamic politics of perfectly protecting and optimally developing the Islamically rightful Halaal multidimensional wealth of the whole universe peacefully integrate all humans as well as integrate the entire humanity and all other entities of the natural universe, preclude all the potential pitfalls of the multidimensional wealth as well as its investment by implementing the Islamic teachings and principles, and culminate in zenith of the matchless progressive Islamic blissful civilization and the ideal patterns of sustainable human development. This divine Islamic paradigm of the wealth-politics-welfare nexus was practically transformed into a historical glorious universal truth of the actual existence of the then matchless universal Islamic civilization in the Golden Age of Islam. True, numerous recent ever-worsening pattern of unsustainable development—global warming, climate change, extreme poverty, excessive taxation, stagflation, extreme wealth inequalities, deforestation, deterioration of human values, globalization of warfare, contamination of all environmental media, and culmination of lopesided development into dead-end growth—prove the failure of the conventional economics to increase the universal wellbeing and happiness of majority of humans in the world. In this setting, this chapter sheds light on the matchless potential contribution of Islam and the progressive divine Islamic politics of perfectly protecting and optimally developing the Islamically rightful Halaal multidimensional wealth of the whole universe towards the peaceful realization of socially, economically, environmentally, politically, and strategically sustainable human development on the universal level. It illustrates the progressive Islamic institutional framework and highlights a set of Islamic principles of wealth management-cum-investment. It highlights universal Islamic politics of wealth-welfare nexus. Above all, it contributes the first-ever pioneering comprehensive theoretical explanation and diagrammatic portrayal of the uniquely progressive dynamics of ever expanding environmentally sustainable production possibilities, which can potentially culminate in peaceful realization of Islamically and environmentally sustainable human development within the progressive institutional framework of an Islamic universal economy. In this scenario, it explicates the pertinent Islamic transmission mechanism which demonstrates the sustainable progressive structural transformation of the universal Islamic economy from its initial low human development status to the optimum human development.

According to the Western concept of financial system, wealth is owned by the individuals and they are free to do as they please. However, in the Islamic mind-set, the whole universe and its wealth belong to Allah and Allah alone. Humans are instructed to use and distribute wealth according to the teachings of Islam. This paper aims to highlight the notion of wealth and wealth creation in the eyes of Islam, and how it should be managed or administered for the advancement of human welfare. It discusses the significance of its key redistributive instruments such as zakat, waqf, inheritance and sadaqah, towards the betterment of the society. This study utilises the exploratory methodology and presents a comparative overview of the Islamic tax system (Zakat) as compared to the conventional system and it dives into how Islam protects the sanctity of community life through proper wealth creation and wealth management tools. This study also offers an overview of the wealth cycle which includes wealth creation, wealth enhancement, wealth protection and wealth distribution.

The chapter addresses how the zakat institution is perhaps the main institution relevant to the field of investment and wealth management. The benefits underlying zakat are not fully appreciated and the concept remains bound by a narrow understanding of zakat’s charity aspect in alleviating poverty. By highlighting the unique features, the institution of zakat brings to the discourse, it argues for the critical importance of Islamic practices, ethics, and motivations found in zakat. The paper first outlines the notion of investment and wealth management, especially as it concerns a more productive human and capital development. Secondly, the chapter argues that, despite the redistribution of wealth benefits inherent in zakat as an investment and wealth management strategy, it appears not to be fully explored. This paper conceptualizes and clarifies the various facets of zakat in sustaining investment and wealth management. The conclusion outlines the values of zakat to investment and wealth managers as a way of improving wealth as well as investment portfolio management or strategies, especially when targeting Muslim clients and engaging the Islamic market.

The study attempts to reveal debt position in wealth management and Islam Solution to overcome unresolved debt. The study is written by answering a number of predetermined research questions. The literature related to the research question is used as the reference material. Debt management is a must in Islam. There are three important things in assessing gharim namely: motives of the debtor, purposes of the debtor, and circumstances of the debtor. Furthermore, Islam solution to avoid the negatives side of debt: personal support, Social support, Institutional Support.

The problem of financing for large, medium and small contractors is on the need for working capital in project implementation. The cost of capital for bank loans is currently still large and burdensome for the entrepreneurs. This study aims to determine whether Islamic banks can act as agents (representatives) of customers to invest in property projects, and whether the purpose of sharia (maqasad Al Shari’ah) can be achieved from the application of the project financing model and what kind of financing model that can be applied either by the banking as well as by property businesses with the project financing model. To arrive at the desired research objectives, several stages are performed. In-depth interviews are conducted to get an idea of the need for new sharia financing products. The result of the interview is used as the basis for designing the model in the application of financing project by using Analytic Network Process (ANP) method framework and the questionnaire model to get the required data. The results of this study indicate that hifzh al-maal is being the main objective of project financing model for small medium property enterprises. To reach the goal, sharia compliance criteria need to be considered properly, with taking profit from halal business takes the highest priority of this sub-criteria cluster. Mudharabah project financing model is suggested to be implemented in order to give the friendly financing for small medium property enterprises.

In the Islamic economics, when we want to deal with investment decisions, we should determine that what proportion of wealth should allocate to risky asset and what proportion to fixed income instruments like Murabahah and Ijarah Sukuk. Theoretically, Islamic fixed return instruments and conventional risk free bonds are completely different from each other, since the investor of Sukuk actually buys the underlying asset and has some ownership risks. But in practice, it is usually believed that these risks would decline the satisfaction level of investors, and so, financial institutions provide Sukuk in such a way that they are very similar to conventional bonds. In this paper, we want to analyze the effect of Islamic fixed return instruments on the investment decisions when they have no risk in one case, and when the investor face the risks in these instruments in the other case. For this purpose, we construct a stochastic investment-consumption optimization model for each case and solve it to find the optimal path of variables overtime. To compare the results of different cases, we assumed some hypothetical values for the parameters and calculated the numerical path of variables over time. The results show that, the model which considers the risky characteristics of Sukuk brings more utility and welfare to the investor comparing to the model that considers Sukuk as risk free instrument.

Improper household financial management often becomes a dispute in the family, which eventually becomes the cause of divorce. The divorce rate in Indonesia in 2020 reached 306,688 cases which has increased every year since 2015. According to data in June and July 2020, the number of divorce cases increased by 57 thousand cases with 80 percent of divorce cases that went to Religious Court filed by wives. Of all these cases, not a few are triggered by economic problems in the family. Family financial management hence is a way of managing family finances regularly and carefully through the stages of planning, implementing, and monitoring. By using library research and field research, this research categorizes and interprets the literatures using thematic analysis perspective. Coupled with understanding of maqasad al shari’ah, the results of the study find that Islamic family financial management starts from planning, based on tawhid and straight intentions. Then the family has to manage income, which ensures income is obtained and used in a lawful and tayyib way, complete with sense of mujahadah and ukhuwah. The family also has to manage needs, allocate proportionally (not stingy and wasteful), donate, record every cash flow (money in and out), Then if there is a surplus it must be managed with savings/investment and if the deficit is attempted to stay away from debt. Next, the family has to fulfill five elements of maqasad al shari’ah to achieve family financial dreams. Finally, financial evaluation is carried out by auditing, zuhud, gratitude and muhasabah. So that all financial activities must be run with good morals.

Innovation has been known as one of the important factors that can boost economic growth in a country. Firms should innovate to overcome the inadequacy of resources. All industrial sectors must have their own innovation concept to sustain the business, including halal industry. Halal industry is one of the most overwhelming industries in the world. To enhance the innovation level, the firms are encouraged to cooperate and to obtain the knowledge from other stakeholders, and this is called as open innovation (OI). Since 2003, there are many research has been conducted on OI. Nevertheless, still there is a necessity to study the implementation of OI as there is a lack of systematic confirmation on its impact to the firm performance. Other than that, it also urges for theoretical development and empirical research. Hence, this research aims to investigate innovation activities in Halal industry which claim as Shari’ah Compliant Firms. This research examines the relationship between open innovation effort and firm performance in manufacturing firms that produce halal products. This research will analyze public listed shari’ah compliant firms in Indonesia. The research model is tested using regression.

The aim of this study is to assess the level of accounting involvement among participants in an Islamic microfinance program, and to propose a financial accounting and recordkeeping framework for Islamic wealth management practices that can be used by clients and families, this can also give them better insight into finance and their family business. To achieve the two research objectives, the authors used Participatory Action Research (PAR) by preparing an exercise questionnaire as a research instrument for participants for four months. The study is limited to discussing the empowerment of women/mixed participants through microfinance institutions in three countries (Indonesia, Pakistan and Egypt). Institutions selected as case studies provide funds and loans to meet their living needs and run their small businesses. The total participants involved in this study were 130 participants; 68 from Indonesia, 50 from Pakistan and 12 from Egypt. Overall, participants' knowledge of accounting and finance in the three countries is quite similar which is still relatively low. Yet they show a strong interest in adopting simple wealth management practices starting with recording their business assets and cash flows. This exercise initially showed the result that 95% of the participants had no knowledge of accounting matters such as recording their finances and making their financial plans. After three months of training, participants in Indonesia (35%) actively participated and found the exercise useful. As per Pakistan, only 30% of all participants filled out the research instrument. In terms of the IMF, Akhuwat Foundation Pakistan and Bab Rizq Jameel Egypt works with more expertise and professionalism than Baitut Tamkin Tazkia Madani (BTTM) Indonesia. The first two institutions released their annual reports including financial statements that have been audited by Big- Accounting Firms. BTTM on the other hand is still audited by an internal audit firm. Based on the findings, we recommend that regulators in charge of poverty alleviation policies need to focus on basic financial education, regular accounting and wealth management training and strict field supervision to equip the lower classes.

The idea of developing Social Impact Sukūk (SIS) was to create an alternative investment opportunity to those are interested in investing in the community developments. Islamic investment funds are available in the global financial market for investors wish to generate income in line with the notion of Maslaha to examine whether or not it better serves the interest of the Muslim community at large who seek the strict adherence to the underlying principles of Sharī’ah since Islamic finance is inseparably connected with the Sharī’ah. However, this has not been addressed earlier as far the as researchers are aware, and thus the purpose of this chapter is to fill this research gap. Moreover, extensive initiatives have not been made so far on social finance in the Islamic capital market (ICM) as was expected. We seek to argue that the notion of Maslaha must be applied into ensuring the compliance of Sharī’ah in the structure of SIS in order to serves the best interest of the community from the premise that the theory and practice of fiqhus-Sukūk or an understanding of Sukūk necessitates to fulfil the objectives of the underlying principles of Maslaha and devise criteria on which Sukūk can serve the maximum interest of their stakeholders. The Maslaha is applied to measure this in order to explore that SIS are enthusiastically designed to cater for social finance dimension and offer to investors who have some tolerance with a lower return. The methodology chosen for this chapter is essentially a literature review, and as such the relevant literatures are reviewed to critically argue the opportunities and challenges of adopting SIS in ICM. Brunei Darussalam has been chosen as a case study due to the fact that the country has the potential to compete in the fastest-growing services in the global financial market: Islamic finance.

This chapter examined the behaviour of Muslims towards the management of debt. Islam has its unique values which are completely different than the conventional financial system. In this system debt is based on the behaviour of both parties. No one is trying to exploit the other party. According to teaching of Islam, debt has not any reward in this world except reward in life hereafter. This study is based on the urban centres of Malaysia, households survey was conducted and Hierarchical regression was employed for the empirical analysis. It has been observed that those are following their religion particularly Islam they have higher moral values than those are not following proper values of religion. It has been observed that follower of religion have positive debt management behaviour.

While efforts from small market players to develop Islamic finance in Indian Ocean island Mauritius started in the late 1990s, regulatory initiatives to support the development of the sector were taken in the mid-2000s. Mauritius is a reputed international financial centre (IFC) which sought to embrace Islamic finance to diversify its array of financial products and attract high-net-worth investors in its offshore market. However, after more than a decade of the country’s initiatives to enter the Islamic finance industry, the market remains relatively small and nascent. This chapter examines the prospects and challenges of developing Mauritius as an Islamic investment and wealth management (IIWM) destination. There is limited research carried out within the Islamic capital market segment of Mauritius, specifically in the area of IIWM. Through literature-based analysis, primary data collection through a structured survey and the researchers’ own experience of Islamic finance in the country, the issues, challenges and opportunities facing the industry are assessed. Relevant recommendations to enhance the prospects of the Mauritius jurisdiction as an IIWM centre are thereafter suggested.

This chapter analyses the risk levels of sukuk portfolio compared to conventional bonds, using a sample data that is extracted from daily closing prices of Sukuk and bonds that are traded in Nasdaq Dubai’s security market. The recent data show that global interest in Sukuk instruments as an alternative source of financing has risen, due to its asset back structure. Whereas, discussion founded on the distinct riskiness of Sukuk, when compared to conventional bonds, remains a contentious topic. We conduct a comparative analysis on the risks associated with Sukuk and conventional. We examine the risk levels by measuring and comparing VaR values of both Sukuk and traditional bonds. We also conduct historical and Monte Carlo simulation by incorporating the daily returns of 15 Sukuk and 15 conventional bonds sampled from the Nasdaq Dubai's security market. Results highlight that the daily returns of Sukuk and conventional bonds are significantly different as Sukuk are exposed to daily losses compared to conventional bonds leading to the conclusion that a Sukuk portfolio is riskier than conventional bonds.

The significance of Waqf goes beyond being an act of worship that has been ordained to fulfill society’s welfare in many fronts, spiritual and material, individual and social, as well as here and hereafter. It is characterized as being one of the most pertinent tools of Islamic economics. This is due to its autonomy, flexibility, sustainability, and continuity, and its ability to achieve socioeconomic development for contemporary and future generations alike. The Waqf system have witnessed various stages of development in the light of the Islamic civilization to encompass all socioeconomic sectors; education, culture, healthcare, housing, services, politics, military, energy, infrastructure, food and water security, clean and affordable energy, and more. Proving itself to be capable of achieving high and advanced potentials of Sustainable Development Goals (SDGs). This chapter aims at investigating the capacity and flexibility of Waqf, and its ability to achieve advanced progress towards various SDGs. The challenges facing Waqf and hindering it from achieving its great potentials are analyzed and solutions and policy recommendations would be presented.

To mobilize new sources of capital to achieve the goals stated in the SDGs, blended finance is one of the most important and new approaches to utilizing public funds. In addition, the blended finance model can also be used to attract private investment. In Islam, blended finance is a way of using public capital or Islamic social funds to increase private sector investment in developing countries to realize the SDGs. Blended finance allows for-profit or non-profit organizations to co-invest with one another while achieving their own goals (social impact, financial return, or a combination of both). This study proposes waqf as a source of funds to be included in the blended finance model and creates investment opportunities in developing countries, especially Indonesia, as a country with the largest Muslim population in the world, which in particular can have a significant development impact on SMEs and those in need. This study contributes to practical discussion on how to maximize the potential of waqf fund and it’s institution through blended finance model for SDGs.

Lack of funds has been a substantial challenge in achieving the sustainable development goals for all developing countries including many of OIC member states. The World Bank estimates that approximately, from $1.5 to $2.7 trillion is needed every year to finance SDGs projects between 2015 up to 2030. This chapter examines the potential role of waqf as a fund-mobilising instrument. It specifically focuses on the progress in achieving SDGs in OIC countries. Four key development areas are highlighted in this regard, namely, poverty alleviation, healthcare, education and finally infrastructure development. A comparison between OIC and non-OIC countries is drawn to assess the progress of OIC countries. Except for some areas in infrastructure development, OIC countries seem to be lagging behind their non-OIC counterparts in all the four covered areas. Tapping waqf resources can greatly contribute in achieving the SDGs, in particular the monetary waqf or cash waqf. To support this argument, this chapter brings various case studies from waqf institutions operating in the Muslim world. The first case study discusses two institutions in Turkiye and the second one highlights the contribution of two subsidiaries of Islamic Development Banks. This chapter concludes with a prolonged discussion of the existing challenges encountering the full employment of waqf in achieving the SDGs.