2nd Update on Public Asia Ittikal Fund (PAIF) Syariah Compliancy Issue

May 1st, 2008

Another update of the Public Asia Ittikal Fund (PAIF) syariah compliancy issue.

The first entry about this issue is here. The second one is here.

I recently received a response from one of my readers. Here it is:

Would like to contribute here…..

If you have gone through the SC guidelines, the limitations are on income derived from permissible and non-permissible activities. The guidelines are tolerent on income derived indirectly from non-permissible activities.

where in ABC’s case, loan was taken to finance its operations. However not all of the debt taken are borrowings from the bank and the nature of the borrowings are not listed out fully. Some could be without the influence of interest (do update me on this if you could find the nature of borrowings).

Borrowings here are used to operate the business to derive profit.

Meanwhile the guidelines are focussing on direct activities like giving loans by charging interest as a business activity or directly involved in non-permissible activities as a core business activity to derive income/profit.

Therefore borrowings in ABC’s case are not core business activities but just means of funding to support the business. Eventhough to a certain extent interest is involved, this is still allowable.

According to shariah, interest (riba) is not allowed as most of the time profits the lender. Indirectly borrowers are not encouraged to take money from the lenders. However, having an objective view of the world today. What are ABC’s options, is there a Islamic Financing market to support ABC’s debt requirements in Australia?

ABC is doing a legitimate business and it brings goodness to the community at large (one of the Shariah requirement) and it has a good standing in the community (another requirement) - these two requirements fullfils the criteria of being a shariah compliant security. Taking a loan is non-avoidable here therefore looking at the situation, it is still within the permissible limits.

The limitations - 5, 10, 15, 20, 25% are on the profit deriving based activities of a firm.

Taking a debt is just a small indirect (among the many other activities done by ABC) and unavoidable part of the ABC’s activities

my humble views….open for comments.

Thank you

have a nice day.

Vaanan

Thanks a lot for your response Vaanan.

As of today, I’m still waiting for an answer from my unit trust consultant. Being in the 21st century and all, I could only wonder as to why it is taking so long? The last I heard, my concerns were being passed around Public Mutual’s ranks. Frankly, I am considering of changing my unit trust consultant. Any takers? You can expect some good business from me in the future (hopefully).

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Disclaimer: This article is not a specific nor general advice on managing or investing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.

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