V2 islam fp concepts
- 1. ISLAMIC FINANCIAL PLANNING CONCEPTS By Lt Cmdr Johnny Moi (Ret)
- 2. DEFINITION The development and implementation of a systematic and comprehensive financial plan with the objective of achieving one’s personal & financial goals according to the Holy Quran Generally, Islamic financial planning involves taking a broad view of one’s financial affairs covering many areas of wealth management, and then going through a step-by-step process to solve financial problems and achieve financial goals according to the Holy Quran
- 3. SOURCES: DEVELOPING IFP . Conventional financial planning model . Primary sources • Al-Quran • Sunnah /Hadith . Secondary sources • Ijtihad – evaluation of existing financial instruments • Ijma - consensus of the Muslim scholars on Islamic laws • Qiyas - analogical deduction • Uruf – custom or usages that are not contradicting with Syariah
- 4. WHY ISLAMIC FINANCIAL PLANNING? Islam as a comprehensive religion – emphasizes worldly life and hereafter. Concept of Allah’s bounty – very important in Islam as a good Muslim is required to have a proper balance between the fulfillment of his spiritual and worldly obligations. Muslims are encouraged to plan their life and put effort to achieve the goal setting before proceeding to “tawakal”. A Muslim still has to commit to financial planning because either he would leaves debt or children to the trusted one.
- 5. WHY IFP? CONT… he Prophet stated; “A Muslim should prepare himself for the next world as if he is going to die tomorrow, but at the same time work hard to improve all his worldly comforts as if he is going to live forever” (narrated by Al-Dailani) As Muslims, we are not discourage from acquiring wealth, but we must know how to earn and spend it in accordance with the Islamic principles.
- 6. WHY IFP? CONT… In Islam, Muslims are discouraged to be in debt. Greatest sin is to die in a state of debt and no asset to pay it off. Therefore in Islam, financial planning can be used as a tool in managing one’s wealth. In this perspective, financial planning is therefore a must and is not only for the high-income earner and rich but applies to all.
- 7. PILLARS OF IFP ealth protection ealth accumulation ealth preservation ealth distribution
- 8. WEALTH PROTECTION oncept of protection in Islam – TAKAFUL akaful means joint guarantee, whereby a group of participants agree to jointly guarantee among themselves against a defined loss. ased on the principle of “Ta-awun” (mutual assistance) and Tabarru (donation, gift or contribution) where the risk is shared collectively by the group voluntarily. akaful provides guarantee against loss or damage & with Takaful, Muslims can plan ahead for any unwanted/unfortunate events. .g. – General Takaful & Family Takaful
- 9. ACCUMULATION OF WEALTH chieving a reasonable capital growth with the objective of preserving accumulated wealth. nvolves asset allocation strategies, investment policy and others. hannels of investment must be Syariah compliant – free from elements of gharar (uncertainty), Riba (usury), maisir (gambling) and free from haram products such as pork, alcohol etc.
- 10. WEALTH PRESERVATION rotecting wealth against every conceivable financial risks and treats through sound wealth management – quality investment etc. o one should suffer unnecessary losses due to the quality of investment advice they receive or to a failure to protect one’s assets. slamic view – wealth as a trial and man are responsible as the trustee to the wealth that ALLAH has given to him. Man are required to work hard if he wants to acquire wealth. xamples of Islamic products that can help to preserve wealth : Family Takaful, Wadiah & Mudarabah Savings, Islamic shares.
- 11. WEALTH DISTRIBUTION mportant discipline in IFP – proper wealth distribution after death. eath is inevitable, but many tend to ignore. anger of leaving a mess to family members –disputes etc.
- 12. DEFINITION:FARAID, WASIYAH & HIBAH Faraid - Distribution of estate after one’s death according to the Quran. Guidelines of estate distribution can be referred in verses 12 and 176 surah An-Nisa. Wasiyah - basically means giving a gift to others in term of wealth, debt and beneficence of one’s property after his death. However, not for legal heirs & allowable at maximum of 1/3 of total assets. Hibah - Giving one’s wealth to others without the expectation of any replacement or exchange with the transferring effect on the ownership during lifetime or executed upon death. Applicable either to family members (legal heirs) or members who are not entitled to inheritance.
- 13. WEALTH PURIFICATION undamental concept in IFP. pending on those in need is a highly commendable form of ibadah or worship. The Prophet declared: “A generous person is close to Allah, close to Paradise, close to people, and far from Hell. However, a miserly person is far from Allah, far from Paradise, far from people, but close to Hell. Allah loves more an ignorant man who is generous than a worshipper who is miserly. (Narrated by At Tarmizi)” adaqa (almsgiving) and Infaq (spending in the service of God) are voluntary whereas Zakat is obligatory.
- 14. ZAKAT he third pillar of Islam. ompulsory in Islamic jurisprudence. ave the capability to purify our wealth, protects our soul from miserliness, selfishness and greed. cts as an instrument to clean poverty in the society.
- 15. IFP: PRODUCTS & SERVICES Protection Distribution Purification Family Takaful Takaful Plans for: Medical needs Motor Vehicle Fire Financing / Mortgage plan Etc. Al-Wadiah Savings BBA Investment Property Etc. Takaful Plans for: Haji & Umrah Education Marriage Housing Family Takaful Shares Sukuks Unit Kutipan & Agihan Zakat Majlis Ugama Islam Federal & States nominated by MUI Counters at all Islamic Banks Waqaf plan offered by Islamic Insurance companies Refer to Accumulation & Preservation
- 16. About the Author: Lt Cmdr Johnny Moi (Ret.) •Certified Islamic Estate Planner (IEP, Malaysia) •Certified Master Financial Planner (MFP, USA) •Registered Financial Associate (RFA, USA) •Fellow of the American Academy of Financial Management (FAAFM) •Author of Servant Leadership according to the Holy Books Series 1.0 & 2.0 •Former Chief Editor & Writer of LEADERS publication ( www.theleaders-online.com) •Was Contributing Columnist for the New Straits Times – Property Column •Freelance Editor & Writer on Business, Strategy, Technology and Leadership and Holy Books to Business. Email:johnnymoi7@yahoo.com