Csr in islamic perspective

Investment Function Specifications for the TSR Case

Asset Valuation Process CSR Model for the TSR Case

TSR for Better Civilization

Qur’an and Hadith in the Investment Activity

Investment Activity mainstream

- economic is the action or process of investing money for profit or material result. (wikipedia)

-“Economic activity that forgoes consumtion today with an eye to increasing output in future.” (P. Samuelson W. Nordhaus)

According Qur’an and Hadith

1. Lukman verse 34



2. Al-Hashr verse 7

investment or property turnover in Islam should not

be just one certain group.



3. Yusuf: verses 46-50

Investments that means delaying the use of the wealth

we have at this time, or means storing, managing and

developing it is recommended in the Qur'an.

Identification Investment Function Specification for TSR

What is Investment in Islamic Perspective ?

Investment and risk relations in Islamic Bank ?

The Principles of Islamic Investment for hereafter objective?

Investment in Islam

Investment

Free from Subhat (mix between halal and haram)

Free from Gharar (uncertainty

Free from Maysir

(sepculation/gambling

Free from Riba

Free from haram

Investment in Islam

Investment in Islam

investment should meet

following criteria:

“Al-Ghorm bil Ghonm”

meaning that “with risk comes

profit”

“Al-Kharaj bil Daman”

meaning “profit comes with

responsibility”

“Al-Ghorm bil Ghonm” meaning

that “with risk comes profit”

This legal maxim asserts that profit can only be acquired by the taking of risk. The behavior is in direct contrast to riba where the taking of risk is absent from the taking of surplus out of a loan. The law of riba allows capital to increase without any possibility to decrease, while the law of al-bay allows capital to increase or decrease based on market conditions and systemic events.

“Al-Kharaj bil Daman” meaning

“profit comes with responsibility”

This legal maxim asserts that when a sale is made, the selling party is required to give a guarantee that the goods are in good condition and provide benefits (manfaat) to the buyer. The guarantee can be in the form of warranty agreement wherein defective goods, if any, can be exchanged for a new one or repaired without incurring additional cost to the buyer.

Investment in Islamic Bank

Shariah Principles Islamic Contracts Relationship

Prohibition of Riba Murabaha (cost-plus)

Salam (future delivery)

Istisna (purchase order)

Ijarah (leasing)

Wadiah (safe custody)

Musharakah

(Partnership) /

Mudarabah (Trust Profit

Sharing)

Buyer-Seller,

Lessor-lessee

Investor-entrepreneur

Partner-partner,

etc.

Prohibition of Gharar

Prohibition of Maisir

Prohibition of haram activities

Al-ghorm bil ghonm

Al-Kharaj bil daman

The contractual relationship in Islamic banking business is

depicted below:-

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RISK Mitigation on Each Investments

Investment in Islamic Bank and Risk

Contract Stage 1 Stage 2 Stage 3

Murabahah: Risks Operational risk –

of commodity

ownership as IB is

responsible for

damage until it is

delivered to buyer.

Credit risk –

default in payment.

Liquidity risk –

due to delayed

payment from buyer

(timing mismatch)

Market &

Commodity risk –

due to commodity

price fluctuation

arising from non-

acceptance of delivery

of commodity.

Relationship: Buyer and Seller

Suitable for financing of manufacturing of finished goods, purchase of raw materials, machinery. Also fixed asset.

Mitigation Take collateral / g’tee/ cash margins /Takaful cover

Impose stringent controls e.g. financial covenants, conditions to utilization.

Align rewards/pricing to risk. Apply benchmarks & hedging

12




Istisna’: Risks Performance risk –

defective goods or

mismatch of

specification .

Delivery risk –

unable to deliver

goods on time

Credit risk –

default in payment

on timely basis.

Liquidity risk

Market,

Commodity

& Price volatility

risk - due price

differential between

nominal set price &

market price.


For financing of acquisition of assets to be fabricated / manufactured.

Flexible mode & timing of payment. Flexible delivery time.

Mitigation Performance guarantee. Assess past performance.

Accept only reputable contractors/manufacturers. Reserving adequate capital.

Structure payment on progressive basis against timeline / work schedule.

13




Salam: Risks Supply /

Operational risk –

due to commodity’s

delivery timing

/specification

mismatch

Business &

reputation risk.

Market risk &

liquidity risk – due

to delay in delivery.

Commodity / Price

volatility risk –

between delivery &

sale of commodity

for a long position.

Credit risk – due to

default from buyer’s

side to purchase

commodity at agreed

price.


Allows purchaser to

lock in a price, thus

protecting both

parties from price

fluctuation.

Applicable for all

types of

commodities except

ribawi items. e.g

agriculture product

Mitigation Seller’s indemnity.

Insurances/Takaful

cover

Apply benchmark,

hedging & VAR.

Collateralize the

facility. Match

payment tenor to cash

flow.

14




Ijarah: Risks Business risk - due

to external event

surrounding the

business

Operational risk –

unable to provide the

usufruct due to non-

completion or

ownership of asset.

Credit risk -

default in monthly

rental and/or

obligation on

maturity of Ijarah

contract

Liquidity risk -

Operational

risk – damage of

assets during the

lease period.

Market risk -

variation between

estimation & market

price or refusal to

purchase the lease

asset by Lessee on

maturity. IB will have

to dispose at market

prevailing price at that

instant.

Relationship: Lessorand Lessee

Mitigation Insurance/Takaful

against losses or

damages to asset.

Invoke the contract.

Obtain guarantee.

Monitor & manage

account closely.

Structure repayment at

different time period

instead of lump sum at

maturity.

15




Musharakah: Risks Business risk - due to external event surrounding the business. Operational risk –due to moral hazard

Credit risk (non-payment of obligation)Liquidity risk(inability to provide cash for further investment).

Market risk(forced disposal at lower than market price) Equity risk

Relationship: Partner A and Partner B

Combines investment & management. Suitable for e.g. financing of house under construction.

Mitigation Management involvement, monitoring, insurance

Sale of equity to 3rd

party.Reserving adequatecapital. Proposerestrictive covenants

Payment structure onseveral presetinstalments.

16




Mudharabah: Risks Business riskOperational risk

Liquidity riskCredit risk

Market risk Equity risk

Relationship: Capital Owner and Entrepreneur

The two parties complement each other, allowing a business venture to be completed. E.g. mobilization of funds via savings & investment account.

Mitigation Stringent assessment on partners knowledge / experience, feasibility study, insurance

Monitoring businessperformance,financials.Reserving adequatecapital.

Payment structure onseveral presetinstalments.

ATURAN ETIKA

Independensi, Integritas, dan obyektifitas

Standar umum dan prinsip akuntansi

Tanggungjawab kepada klien

Tanggungjawab kepada rekan seprofesi

Tanggung jawab dan praktik lain

Did you know that the most

profitable investment ?

PERILAKU ETIKA

Profesi akuntan adalah semua bidang pekerjaan yang mempergunakan

keahlian dibidang akuntansi, termasuk bidang pekerjaan akuntan publik,

akuntan intern yang bekerja pada perusahaan industri, keuangan atau dagang,

akuntan yang bekerja di pemerintah dan akuntan sebagai pendidik menurut

Internasional Federation of Accountans (dalam Regar, 2003)

Arleen & Yulius, 2008

Pengabdian Pada Profesi

Kewajiban Sosiial

Kemandirian Keyakinan Terhadap

Profesi

Hubungan dengan rekan

seprofesi Gambaran Profesionalisme

Akuntan Publik

By Definition

By Requirement

By Reward

By Prohibition

Boynton dan Kell (1996:55) dalam Ferdian dan Ainun 2006 membagi kekeliruan dalam

Laporan Keuangan, yaitu :

Kekeliruan dalam mengambil atau memproses data akuntansi yang akan digunakan untuk

membuat laporan keuangan

Kekeliruan perkiraan akuntansi yang diakibatkan oleh kekeliruan interpretasi

terhadap fakta

Kekeliruan dalam penerapan prinsip akuntansi terkait dengan jumlah, klasifikasi, tujuan dan

pengungkapan

By Definition

Zakah

Infaq

Shodaqoh

Waqaf

Al Baqarah 261






terhadap fakta


pengungkapan

By

Requirement

Ikhlas

Al Baqarah 265






terhadap fakta


pengungkapan

By Reward

Multiply Reward

Al Baqarah 261






terhadap fakta


pengungkapan

By

Prohibition

Want to be

commended

Show off or Riya

Hurt the feelings

of the recipient

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Fastabiqul Khairat

Race in the good things

Maslahat Investment M

asla

ha

t a

nd

In

ve

stm

en

t

“Al-Ghorm bil Ghonm”

“Al-Kharaj bil Daman”

Zakat, Infaq, Shodaqoh and Waqaf

Asset Valuation Process CSR Model for the TSR Case

What is Asset Valuation?

What is CSR Process ?

How the Implementation ?

Asset

INTANGIBLE

“ All Elements of a business enterprise

that remain after tangible assets are

removed”.

“ Elements after working capital and

fixed asset that make the business go

and contribute to earning power”.

TANGIBLE/FIXED ASSET

ASSET

Qur’an and Hadith in the Asset Valuation


1. Ali Imran verses 14

Everything that is owned by a person or group in the form of wealth,

or trade goods, home, money, animals and others that tend to want

owned, controlled and exploited by humans.

Qur’an and Hadith in the Asset Valuation


2. An Nuur 33

Wealth in Islam is essentially a mandate (surrogate) from Allah SWT.

Meanwhile, the absolute owner of everything that is on earth, including

property, is Allah. Ownership by man is only relative, limited to carrying out

the mandate to manage and use in accordance with the provisions of God..

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Valuation Asset (highlight in mainstream economics)

Market Value Insurable value

Value-in-use

Liquidation value

Investment Value

1

2

3

4

5

http://en.wikipedia.org/w/index.php?title=Insurable_value&action=edit&redlink=1

http://en.wikipedia.org/wiki/Value-in-use





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Valuation Asset in Islam

Qur'an, Hadith, and Fiqh. These sources are hierarchical sequence can not preceded one another. The first source is always Qur'an, followed by Hadith, Fiqh then and so on

There are three interrelated dimensions in the valuation

assets (1) seeking the pleasure of Allah as the primary goal

in determining the socio-economic justice; (2) the

realization of benefits for society, namely the obligation to

the community, and (3) meet personal needs, such as

meeting basic needs.

Based on these asset will be valuable if it can using for

society beneficiaries.

30

Asset and CSR

Based on the principle asset will be more valuable if it

has beneficiaries to the society

CSR is constantly evolving and incorporates different approaches

depending on circumstances and needs.

In Islam such as for instance in Islamic Bank should packed with

Islamic principles and moral foundation, ethics, and social

responsibility. Besides the above principle of obedience to the

commandments of God and the Caliph. And the last of the principle of

public interest, and the the ummah in stopping environmental

degradation and reduce poverty. (Ω,S)

31

Asset and CSR

The Western view on CSR is in general more

aligned with the materialistic approach to life than

with ethical concerns.

For example, According to the theories of CSR based on the social

contract, the 'social contract' between businesses and society needs

renegotiating as society's preferences change. This confirms the

relative and transitional nature of CSR in the business sense.

32

CSR and TSR

In contrast to the Western theories,

the Islamic view of CSR

(consiousness Social

Responsibilities) takes a rather

holistic approach. It offers an

integrality spiritual view based on

the teachings of the Our‘an and the

Sunnah of providing a better

alternative philosophical framework

for man's interaction with nature as

well as his fellowmen. In fact, the

moral and ethical principles derived

from divine revelations are more

enduring, eternal, and absolute,

thus may serve as better guidelines

for corporations when exercising

their business and social

responsibilities simultaneously.

CSR in TSR

CSR in TSR

Human

dignity

Free will Equality and

rights

Maslahah

1 2 3

Qur’an, Hadith and Ijtihad

Based on Islamic CSR/Taqwa

Maslahah and Maqhasid Sharia in CSR

Trust and

responsibility

4

fundamentals of Islam such as aqidah (belief and faith), ibadah (worship)

and akhlaq (morality and ethics) are not subject to change

Need of Reports to measures of Islamic CSR such as Islamic Social

Reporting Index

Economy & Finance

Csr in islamic perspective