Transcript SEMINAR AKHIR TAHUN Direktorat Perbankan

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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
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), I’arah /a’riyah (free leasing of non fungible
item) or Hibah (Gift) are gracious contracts available to
be adopted as gracious Islamic monetary instruments.
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
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).
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
CONSTRUCTION
•Total Qard hassan funds are called Xq for the t period
between 0 < t < n.
•Xq will then mature at tn in the future.
• Xq
finance Mudarabah or Musharakah financing
(government projects).
• The probability of having profit is α, the probability of
having loss is (1-α). α stands between 0 < α < 1.
•The rate of return and rate of loss are represented by rp
and rl with 0< rp, rl < 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 < p,q < 1.
APPLICATION
•The monthly return (Rt) of a Mudarabah project from t
=1 until the last month (t = n) or 1 < t < n is:

Rt   rp X q t  1   rl X q
n

t 1
•the monthly costs (Ct) are
fixed costs of C and
variable costs of cXq
t
•The positive return is
αrpXq and the negative
return (loss) is (1-α) rlXq.
Ct   C t  cX q t
n
t 1
αr
C
c
αrp
cXq
αrpXq
Rt
0
Ct
n
rXq
C
C
(1-α)rlXq
0
(1-α)rl
n
Xq
APPLICATION
•formulas of profit and the maximum profit are:
n
 t

 t   rp X q t  1   rl X q t  C t  cX q t
t 1

X q
 rp  rl   c
•formula of losses is:
 


Lt   1   X q t  C t  cX q t  X q t
n
t 1
•Profit sharing the max profit for the central bank are:

 
 (πcb)’ = p/(p+q)[(rp+rl)α-c]

p n








 cb 

r
X

1


r
X

C

cX
 p q t
l
q t
q t 
t
p  q  t 1

•The end of the contract, Xn is:
X n   cb  X q
•Xq is returned to the holders of Qardh hassan
central bank certificate, while πcb and πe go
subsequently to the central bank and the
government (entrepreneur)
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
CONSTRUCTION & APPLICATION
•Total Waqf funds are called Xw for the t period between
0 < t < 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:
n
Rt   ri X w t
t 1
X 
 w 
 t t
n
Ct   C t
C
r i, t
t 1
(Xw)/t
(Xw)/t
C
Ct
ri
r iX w
0
n
0
Xw
n
Xw
APPLICATION & BENEFITS
•formulas of profit and the maximum profit are:
n
 t   ri X w t  C t
t 1
 t
 ri
X w
•The end of the contract, Xn is:
X n   cb  X w
•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
CONSTRUCTION & APPLICATION
•Total Hibah funds are called Xg for the t period between
0 < t < n, then are used for Mudarabah financing.
•Total monthly return (R) is:
•PLS and max
profit for the
central bank:
t
Ct   C t  cX g t
n
t 1

 t   rp X g t  1   rl X g t  C t  cX g t
n
t 1
•formula of losses:

t 1
•If the monthly costs are fixed and
variables then:
•Formula of profit:

Rt   rp X g t  1   rl X g
n
 



Lt   1   X g t  C t  cX g t  X g t
n
t 1

 


p n
 cb 
 rp X g t  1   rl X g t  C t  cX g t 
p  q  t 1

 cb
p
rp  rl   c

X g p  q


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Utilities of the Gracious
Instruments
UTILITIES
n
rrXXX
 mC11rrXX  C
Islamic Gracious
Monetary
Benefit
cXqgmttt  for the Economy (Public)
 tt 
  
i p wwtmgq tt 
 t C t ll qgm t t CttcX
tt 
1
1
t
Instruments
t
1 

n

Status of the
Funds

Qardh hassan central bank
certificate (Mudarabah
Financing)
 t   rp X q t  1   rl X q t  C t  cX q t
Qardh hassan central bank
certificate (Musharakah
Financing)
 t   rp X m t  1   rl X m t  C t  cX m t 
n
t 1
n
t 1
 t   ri X w t  C t
Belonged to the
God
t 1
 X w  m 

  C t 
t
t
t 1 

Waqf central bank certificate
(Murabahah Financing)
n
 t   

 t   rp X g t  1   rl X g t  C t  cX g t
n
t 1
Gift central bank certificate
(Musharakah Financing)
Returned to the
Certificates’
Holders
n
Waqf central bank certificate
(Ijarah Muntahia bitamlik
Financing)
Gift central bank certificate
(Mudarabaha Financing)
Returned to the
Certificates’
Holders
 t   rp X m t  1   rl X m t  C t  cX m t 
n
t 1
Belonged to the
God

Belonged to the
Central Bank
Belonged to the
Central Bank
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
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).
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
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.
Terima kasih
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