SEMINAR AKHIR TAHUN Direktorat Perbankan Syariah

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The Islamic Gracious Monetary Instruments A
Theoretical Approach
Associate Professor Rifki Ismal The 3rd
International Workshop on Islamic Economics
(IWIET) Universitas Islam Indonesia (UII) and
University Kebangsaan Malaysia Jogjakarta, 19-20
June 2012
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• Background
• General Assumptions
• Islamic Gracious Monetary Instruments
• Qardh hassan central bank certificate
• Waqf central bank certificate
• Hibah (gift) central bank certificate
• Utilities of the gracious instruments
• Conclusion

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Background
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BACKGROUND
Natures of the Islamic Central Bank Instruments

• The central bank uses some monetary instruments
  to inject/absorb liquidity.
• It can use either tabarru (gracious) or tijarah
  instruments but have to comply with sharia
  principles and values.
• The main objective is to increase the economic
  activities by relocating unutilized funds to the
  productive projects.
• Qard hassan (free loan), Waqf (endowment), Ibra
  (loan forgiven), Iarah /ariyah (free leasing of
  non fungible item) or Hibah (Gift) are gracious
  contracts available to be adopted as gracious
  Islamic monetary instruments.

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BACKGROUND
Pre requisite to Implement

• Generous depositors locate/donate funds to
  finance projects/businesses in the real sectors.
• The issuance of central bank certificates is not
  for profit but for welfare of the people.
• The main intention of depositors is the bounty of
  Allah SWT
• Qard hassan (free loan), Waqf and Hadiah are
  contracts to be exercised.
• Depositors funds are extended to finance the
  productive real sector projects with investment
  based, leasing based or trading based financing.

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General Assumptions
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ASSUMMPTIONS
Assumptions in Issuing the Certificates

• Fostering economic activities by utilizing idle
  funds.
• Gracious instruments are offered to the public.
• Generous depositors want to locate/donate their
  funds for the sake of the needy.
• No remuneration in the Qardh hassan central bank
  certificate but it needs to be returned in an
  agreed time.
• In Waqf central bank certificate, Nadzir (the
  central bank) can manage funds for the benefit of
  the people.
• The owner of Waqf funds is Allah SWT (Lord) and
  any income comes from Waqf funds is for the
  needies (public).

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ASSUMMPTIONS
Assumptions in Issuing the Certificates

• Waqf funds are not allowed to face losses, as
  such, it is not appropriate for investment based
  projects.
• In Hadiah (Gift) central bank certificate, the
  central bank can utilize the funds to finance
  investment, leasing or trading based financing.
• The central bank is the owner of such gift funds,
  no obligatory remuneration, no need to return the
  funds even it can freely choose the projects.
• Adoption of temporary Waqf and Qardh hassan
  funds.
• The projects are very likely the government
  projects.

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Islamic Gracious Monetary Instruments Qardh
Hassan Central Bank Certificate
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CONSTRUCTION

• Total Qard hassan funds are called Xq for the t
  period between 0 lt t lt n.
• Xq will then mature at tn in the future.
• Xq finance Mudarabah or Musharakah financing
  (government projects).
• The probability of having profit is a, the
  probability of having loss is (1-a). a stands
  between 0 lt a lt 1.
• The rate of return and rate of loss are
  represented by rp and rl with 0lt rp, rl lt 1.
• p is the profit sharing for the central bank and
  q is portion of profit sharing for the
  entrepreneur. p and q are between 0 lt p,q lt 1.

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APPLICATION

• The monthly return (Rt) of a Mudarabah project
  from t 1 until the last month (t n) or 1 lt t lt
  n is

• the monthly costs (Ct) are fixed costs of C and
  variable costs of cXq

• The positive return is arpXq and the negative
  return (loss) is (1-a) rlXq.

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APPLICATION

• formulas of profit and the maximum profit are

• formula of losses is

• Profit sharing the max profit for the central
  bank are

(pcb) p/(pq)(rprl)a-c

• The end of the contract, Xn is

• Xq is returned to the holders of Qardh hassan
  central bank certificate, while pcb and pe go
  subsequently to the central bank and the
  government (entrepreneur)

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BENEFITS

• Accomplishment of the government projects which
  are useful for the public,
• Utilization of idle funds which prevents
  inflation,
• Reduction of unemployment because they are now
  working in the projects and,
• Increasing the national output (GDP) or economic
  performance.
• Those benefits are not only enjoyed by the holder
  of Qardh hassan central bank certificate, the
  government or the central bank but also the
  public in general

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Islamic Gracious Monetary Instruments Waqf
Central Bank Certificate
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CONSTRUCTION APPLICATION

• Total Waqf funds are called Xw for the t period
  between 0 lt t lt n, then buys an assets under
  IMBT.
• The rental rate is fixed riXw and total price
  of the asset is divided proportionally or (Xw/t)
• Total monthly return (R) is below, if monthly
  costs are fixed or Ct and less than (Xw/t) plus
  (riXw) then

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APPLICATION BENEFITS

• formulas of profit and the maximum profit are

• The end of the contract, Xn is

• All of the profit above belongs solely to the
  central bank and is extended to the public

• the trading (buying and leasing) of a project
  which is increasing the economic activity,
• paying return (profit) and fee to the related
  parties (private owner of the project, the
  government council for the government tax,
  services from intermediaries of the transaction,
  etc),
• helping the government to lease and finally own
  the project for the public benefits and,
• adding the number of public infrastructures (for
  example, hospital, school, etc) meaning improving
  the welfare of the people (needies)

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Islamic Gracious Monetary Instruments Hibah
Central Bank Certificate
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CONSTRUCTION APPLICATION

• Total Hibah funds are called Xg for the t period
  between 0 lt t lt n, then are used for Mudarabah
  financing.

• Total monthly return (R) is

• If the monthly costs are fixed and variables
  then

• Formula of profit

• formula of losses

• PLS and max profit for the central bank

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Utilities of the Gracious Instruments
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UTILITIES
Islamic Gracious Monetary Instruments Benefit for the Economy (Public) Status of the Funds
Qardh hassan central bank certificate (Mudarabah Financing) Returned to the Certificates Holders
Qardh hassan central bank certificate (Musharakah Financing) Returned to the Certificates Holders
Waqf central bank certificate (Ijarah Muntahia bitamlik Financing) Belonged to the God
Waqf central bank certificate (Murabahah Financing) Belonged to the God
Gift central bank certificate (Mudarabaha Financing) Belonged to the Central Bank
Gift central bank certificate (Musharakah Financing) Belonged to the Central Bank
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UTILITIES OF QARDH HASSAN

• Qardh hassan central bank certificate under
  Mudarabah and Musharakah financing contracts give
  benefits for the economy but the one from
  Musharakah financing give more benefits than
  Mudarabah financing.
• It is because, funds utilized in Musharakah
  financing is a combination of funds from the
  Qardh hassan central bank certificate and from
  the government (entrepreneur) funds.
• However, the usage of the Qardh hassan funds
  should consider the tenor and maturity date as
  such funds have to be returned to the certificate
  holders at the end of the Qardh hassan
  certificate period

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UTILITIES OF WAQF

• Waqf central bank certificate under Ijarah
  muntahia bitamlik and Murabahah financing
  contracts give main benefits in terms of
  purchasing or leasing to be purchased an asset(s)
  or project(s) to increase the public benefits.
• The Waqf funds are assumed not permanent thus
  they are going to be returned to the holders of
  the Waqf central bank certificates.
• However, the central bank as the manager of the
  Waqf funds (Nadzir) has to be professional in
  managing them as loss is not allowed to occur in
  this type of Islamic contract.
• Compared with the first Islamic gracious
  certificate, the economic impact of trading based
  financing contracts (Ijarah muntahia bitamlik and
  Murabahah) is less than investment based
  financing contracts (Mudarabah and Musharakah).
  

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UTILITIES OF HIBAH

• Hadiah (Gift) central bank certificate under
  Mudarabah and Musharakah financing contracts give
  benefits for the economy.
• Nevertheless, the Hadiah central bank certificate
  provides even more benefits than the one from the
  Waqf central bank certificate.
• It is because the Hadiah (Gift) central bank
  certificate is not time restricted (tenor and
  maturity date) such as the one in Qardh hassan
  central bank certificate.
• Hence, the central bank should not strictly avoid
  business losses and has a full control over the
  management of funds

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CONCLUSION

• Unlike the conventional one, Islam (Sharia) has
  Islamic gracious central bank certificates for
  the public benefits and the needies.
• In this case, there are at least three proposed
  central bank certificates which are (i) Qardh
  hassan central bank certificate, (ii) Waqf
  central bank certificate and, (iii) Hibah (Gift)
  central bank certificate.
• All of them contribute to the economy in
  different ways even the profit earned by both
  central bank and the government is for the
  welfare of the people as well.
• From the perspective of monetary control and
  easiness to attract generous depositors, Qardh
  hassan and Waqf central bank certificates are
  preferred than Hibah.
• Qardh hassan, has maturity date (temporary
  placement), similar as the commercial central
  bank certificates.
• However, Hadiah (Gift) is more flexible to manage
  funds than Qardh hassan and Waqf central bank
  certificates.

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Terima kasih
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