Scholarships

This time of year always brings news of deserving students (especially non-Bumis) failing to obtain scholarships to study overseas. It is a known fact that despite their smaller number, more Chinese students attain better results than their Malay and Indian counterparts. Therefore, based on merit, these students deserve to be given scholarships to study abroad.

Before going into the scholarship issue, why study abroad? I guess it is because most people have lost faith in the local tertiary education system. But is it justified? Is our education system so flawed? Or maybe the education is on par but the politics in education is the factor that drives people to seek overseas education?

My personal opinion is that, education at local universities only serves to teach the subject matter and not to prepare the students for the real world. The freedom to express their opinions is curtailed by acts of law. Universities have become a political tool instead of an arena for ideas and thoughts to develop. There are far too many restrictions.

Back to the issue of scholarships, how do we ensure equity in awarding scholarships? Do we base it on the number of “A”s? Or do we base it on financial standing? Or both? Or do we also factor in the sports and co-curricular activities?

Apparently there are 2,000 scholarships available annually to top scorers for overseas study. I’m not sure whether this includes pre-university studies or just for bachelor degrees. Let’s just say all the scholarships are for pre-university studies. Maybe a criterion should be set for those wanting to apply;

1. A minimum of 8 distinctions and includes English, Mathematics plus three or four subjects relevant to their undergraduate course of choice (e.g. Bio, Chem for those intending to do Medicine or Econs, Accounting for those desiring to pursue a Business/Finance related course or History, Literature for those wishing to study arts).
2. Household income of less than RM 4,000 per month, substantiated by documented proof such as income tax documents.
3. Participated in sports or co-curricular activities. Again must be substantiated by documented proof (a newspaper cutting showing the student winning a medal at the MSSM meet is also considered documented proof).

Each will be given a score, say for example 5 points for the 8 distinctions (even if the student has 16As, the score is still 5); 3, 4 and 5 points for household income of below RM4,000, 3,000 and 2,000 respectively; 3, 4 or 5 points for representing school, state or country in co-curricular or sports activities respectively.

A minimum of 11 points is required to qualify to apply.

The scholarship processing department will then rank all the applicants by the number of points obtained and the top 2,000 shall be awarded scholarships. Being scholarships, these students are upon graduation expected to serve the in the civil service for a number of years, say 5 or 7, failing which they will have to repay the total cost of their education in one lump sum. This is hoped to arrest the problem of brain drain.

Scholarship will also be given to pursue certain fields that are crucial to the nation or in areas where the country face shortages of skilled human resources. So, not everyone will get to study medicine.

If it so happens that 1,900 of the successful applicants are non-Bumis, then so be it. The Bumis will have to work harder to get the scholarship. That is what meritocracy is all about; giving what is due to the most deserving. We have no rights to anything unless we earn it.

So, what about those who just failed to make it? Those with, say 11 or 12 points. There must be a back-up programme for them. An interest free loan perhaps? Twinning programme? That’s another topic for another day.

VI Speech Day - 1958

It was during his speech at VI's Speech Day in 1958, the Hon. Minister of Education, Inche Khir Johari declared that all school children are to wear a uniform set of school uniforms.

The practice at that time was each and every school had their own uniform. With the standardised uniform, a student from one school is differentiated from another by the school badge that is worn on the uniform. So newsworthy were the Minister's proposals that it became the front page story in the following day's Malay Mail.

Other than making that announcement, the Minister also made a speech on racial unity; he said "...Over and above the ties of locality and race there are bonds of national unity, and transcending the loyalty of one's community or nation there is a higher loyalty to the entire human race. There is no ready made road towards this; we all have to unite to build that road. I am a Malay - born a Malay. I had no choice to be otherwise when I was born! But now I am a Malayan citizen - a citizen of a free and independent Malaya just like any one of you here. In other words, I am a Malay by accident but a Malayan by choice. You may be of Chinese or Indian or Eurasian origin but I want every one of you to consider yourself first and foremost a Malayan. It is only through having that attitude of mind that we can resolve our differences and prejudices and work solidly for the good of the country..."

He's right and still is right.

source: The Big School, A V.I. Odyssey by Chung Chee Min

http://shariah-finance.blogspot.com/

I've been posting a lot of materials on IBF, I think they deserve their own blogsite.

From 12 May 2009, all new IBF posting will be on http://shariah-finance.blogspot.com

IBF #15 – Risk sharing? What risk sharing?

An Ijarah wa Iqtina transaction typically involves the bank purchasing an asset at the request of the customer and leasing the asset to the same customer for a specified period. The lease is terminated at the end of the period whereby the bank transfers the ownership of the asset to the customer, or by the customer terminating the lease prematurely by paying a pre-agreed price to the bank.

Although the bank has ownership of the asset during the tenure of the lease, they are not expected to assume any risks associated with ownership and are protected against any negative movements in the market value of the asset. Instead it is the customer (lessee) who has to bear the risks of ownership and the risks of fluctuation in asset value. The profits banks make equals the returns for providing financing and independent of the market value of the asset. Sounds very much like the conventional finance lease doesn’t it?

My question is, where is the justice and equity in such a transaction? Why can’t banks treat ijarah transactions as operating leases? Unless negligence or breach on the part of the lessee is proven, why can’t the risks be borne by the rightful party, in this case the owners of the assets?

The reason why Islamic financing uses finance lease model is because it has / wants to conform to the conventional banking norms, to adapt to the conventional accounting treatment for banks and financial institutions.

Like I said before, IBF is a young, developing science but the development must be done in the right way lest it grows into a farce.

IBF #14 – Beware of Singapore and Hong Kong

I received sad news today. A very close associate in the office is leaving for Singapore. He has been my point of reference for Shariah compliance issues for the past 2 years and his loss will be deeply felt.

Another thing is – he’s leaving not only for a competitor bank but also a competitor country. Singapore (and Hong Kong) have been trying to join the Islamic banking bandwagon for quite sometime now and doing everything possible to gain a foothold.

The Monetary Authority of Singapore (MAS) has drawn up a guideline on the application of banking regulations to Islamic banking and Hong Kong Monetary Authority (HKMA) has agreed to review tax laws to accommodate IBF transactions.

Malaysia has responded quite positively to the threats posed by these other jurisdictions by announcing that more Islamic banking licence will be given out to foreign Islamic banks including the setting up of a mega Islamic bank out of KL. This is a good step to strengthen KL’s foothold of the industry but Singapore and Hong Kong are traditionally centres of finance and they have the global presence and appeal that KL lacks. Hong Kong has the additional advantage of being one of the entry points to the still expanding Chinese market.

There is also this on-going debate about the Malaysian Shariah standards being less stringent as compared to that of the Gulf. The global market tends to look at the Gulf as the standard for Shariah compliance and as long as Malaysia is adamant on promoting its brand of Shariah standards, it may lose out especially when Singapore and Hong Kong are adopting the Gulf (read global) standards.

So, how does KL counter all these threats? For a start maybe it should start adopting the Gulf standard of Shariah compliance (in all fairness, Malaysia has done quite a bit to standardise the standards). Producing capable Islamic banking professionals, especially true Islamic bankers who were never conventional bankers is crucial to ensure quality IBF solutions are structured. Instead of setting up Islamic subsidiaries, why not convert existing conventional banks into Islamic banks and thus having the size right from the start. And of course, continuous public education on the merits of IBF should be pursued rigorously.

Despite its 1400 year track record, IBF is still a relative young and developing science. There is still a lot of room to improve and a lot of untapped markets to explore. It is still anyone’s game.

Political Maturity

I like what James Chin said in his article in the Malaysian Insider:

"It is time that we moved up the ladder in terms of our political development. We should not allow history to shackle us and hold us back. Just because a minority prefers Malaysia to remain a banana republic does not mean that all of us must behave like monkeys. We must learn to agree to disagree. We must learn that a difference in political opinions does not lead to chaos and emergency rule. We must learn that dissent has a place in a modern democratic nation. We must learn that the rule of law is the best guarantee for the nation’s future."

Maybe we should make that like a pledge and get all our lawmakers recite it every morning!

IBF #13 - It’s all About Branding

Quote from Dr Abdul Raman Saad, partner & founder of ARSA Lawyers.

“I would like to draw attention to the use of terminology in our industry. In Europe, especially in Germany, they do not use the term ‘Islamic finance’ or ‘Islamic banking’. Instead, they use ‘Shariah finance’ and ‘Shariah banking’.
Following the 11th September tragedy, the term ‘Islam’ sometimes gives people the wrong impression. The term ‘Shariah’, however, is more neutral and could appeal to a wider consumer base.
I recommend that we ponder on this and apply the term ‘Shariah finance’ instead of ‘Islamic finance’. Shariah has a more universal meaning and thus could embrace both Muslims and non-Muslims.”

Some people would disagree and ask why are we so afraid of the name Islam? I personally prefer the name Shariah Finance/Banking not because I’m afraid of the name Islam but like Dr Abdul Raman, I’m for a brand name which is acceptable to all. After all, IBF is for all regardless of religious or political belief. However, at the moment, Shariah based finance and banking is globally known as IBF, so in the name of uniformity, I shall refer to it as Islamic Banking and Finance, for now.

IBF #12 - Stepping out from the Conventional Bond’s Shadows

Sohail Zubairi of Dubai Islamic Bank’s unit Dar al-Sharia, likens Sukuks as the step-sister of Conventional Bonds. According to him, Sukuk is heading in the wrong direction because it is replicates the Conventional Bond.

New issuance of Sukuk completely dried up because Islamic banks were structuring them incorrectly from the start, According to him, authentic Sukuk issues should involve the company targeting investors first with a business proposal and inviting them to invest in the company or project. The company would also say how much it expected to generate from the project and the size of a potential return, payable regularly. The practice is however the opposite where companies looking to issue Sukuk had been approaching banks with a proposed sum of money they wanted to raise and soliciting bids — much like they would do if they were seeking to issue Conventional Bonds.

“Sukuk collapsed because the starting point was conventional. If the starting point would have been correct, I’m sure we would still have been up and running but the Sukuk market is unlikely to rebound until bonds do as it is so intertwined,” Zubairi said.

Again, this highlights the fact that Sukuks are not debt instruments and should not be treated as such. Bankers and Shariah advisers/consultants must take the bold step of issuing Sukuks in the right and proper way instead of mimicking the mechanics of the Conventional Bond.

Almost all Islamic banks in Malaysia offer corporate financing products identical to those offered by their conventional counterparts. They may be called by different names such as Murabahah Term Financing or Istisna’ Project Financing but the modus operandi save for some buying and selling activities are practically identical to that of the conventional alternative. I am of the opinion that these products are quite redundant as a Sukuk serves the same purpose but since the market equates Sukuks with Bonds, it often used to fund large ticket items and not to fund smaller scare projects which are traditionally funded through bank loans.

Sukuks need to step out from the shadows of the Conventional Bonds and stop behaving like a debt instrument.