Saturday, December 25, 2010

A thesis research worse than Wikileaks

Omar Choudary finished his master with an excellent  research work. However, this work might be threatening the whole banking industry in Europe and in Canada !!!

"Representatives of the UK banking industry have sent a take-down notice (PDF link) to Cambridge University, demanding that they censor a student's webpage as well as his masters thesis (PDF) . The banks' objection is that the information contained in the report might be used to exploit a vulnerability in the Chip and PIN system, used throughout Europe and Canada for credit and debit card payments. The system was revealed to be fundamentally flawed earlier this year, as it allowed criminals to use a stolen card with any PIN. Cambridge University has resisted the demands and has sent a response to the bankers explaining why they will keep the page online."

This is what we can amazing mind.


Thursday, December 23, 2010

Firefox 4 new status bar

Another amazing aspect of Firefox. It shows the link URL in the right half of the address bar and not in the status bar. This will save some space for browsing.

Wednesday, December 22, 2010

Firefox 4 is simply amazing

Firefox is not just one of the free browsers. It is the best with this advanced beta of the new version. The speed is not comparable and the quality of the graphics rendered is really outstanding.

One drawback I have seen is the loss of clarity at the tab title area.

Tuesday, December 14, 2010

Time value of money in Islamic banking: By Najmul Hassan

Unlike conventional banking based on interest-bearing loans, funds invested in an Islamic bank are used essentially for trade. There is no room for ambiguity in Islam “every loan that draws a gain is riba.”

Many people question whether Islamic finance differs meaningfully from conventional finance. Outwardly in form, many structures do bear a similarity in various respects. The present day operating environment is a conventional one, from market structuring and dynamics, to rate benchmarks and circulation of money, to regulatory controls as well. However, the way these two types of finances function with respect to core defining parameters is very different. Many things look the same but are in essence differ in fundamental perspectives.

We begin with basic principles. One is interest-based money lending while the other operates like a trading house. What allows this difference? Two core principles lie at the centre, elimination of Riba and Gharar. Any Islamic transaction needs to assess these two things first.

Keeping in mind the definition given in Hadith, one can discuss time value of money and the workings of present day Islamic banks. For this, we would have to look at the differences in ways in which modern capitalist theory views ‘money’ and ‘commodity’ from the principles defined by Islam.

According to capitalist theory, there is no difference between money and commodity in so far as commercial transactions are concerned. Accordingly, both are treated at par and can be sold at whatever price parties agree upon. For them selling Rs100 for Rs110 or renting Rs100 for a monthly rental of Rs10 is the same as selling a bag of rice costing Rs100 for Rs110 or renting a fixed asset costing Rs100 for a monthly rental of Rs10.

Islamic principles differ from this concept as money and commodity have different characteristics, for instance:
  • money has no intrinsic value but is only a measure of value or a medium of exchange, it is not capable of fulfilling human needs by itself unless converted into a commodity, while on the other hand a commodity can fulfil human needs directly
  • the commodities can be of different quality while money has no differential quality in the sense that a new note of Rs1,000 is exactly equal in value and quality to an old note of Rs1,000,
  • commodities are transacted or sold by pinpointing the commodity in question or at least by giving certain specifications.
Money however cannot be pinpointed in a transaction of exchange. Even if it is, it would be of no use since the different denominations of money summing into equal amount are exactly the same. Keeping in view these differences, one would agree that exchanging Rs1000 with Rs1100 in a spot transaction would make no sense since the money in itself has no intrinsic utility or a specified quality and thus the excess of amount on either side is without consideration and hence not allowed under Shariah.

The same would hold true if we were to exchange these Rs1000 with Rs1100 to be delivered after a period of one month, since the excess of Rs100 would be without any consideration of either any utility or quality but only against time. 

The same is not true when commodities are involved. Since a commodity is known to posses an intrinsic value and quality, the owner of such a commodity is allowed to sell it at whatever price the buyer and himself mutually agree provided the seller does not commit a fraud but is subjected to the forces of demand and supply. This would hold true even if the price that is mutually agreed upon is higher than the prevailing market price.

In conclusion, any excess amount charged against deferred payment is Riba only where money is exchanged for money, since the excess charged is against nothing but time. 

The proof lies in the fact that if the debtor fails to repay at the stipulated time, extra money is charged from him. In contrast, where a commodity is being exchanged for money, the seller may take into consideration different factors (like demand and supply situation, quality, utility, special features etc) including the time of deferred payment.

It is true the seller may take the factor of time in increasing the price of his commodity in credit sale but the increased price is being fixed for the commodity and not exclusively for time nor the time is the exclusive consideration in fixing the price; therefore once the price is fixed it relates to the commodity and not to the time. 

For the same reason if the purchaser fails to pay at the agreed time, the price will remain the same and the seller under no circumstances would be allowed to charge more than what he actually owes.

Keeping in mind the above discussion, the use of KIBOR [or LIBOR] as a benchmark by Islamic banks in calculating the selling price of their commodities in Murabaha sale transactions is not only justified but necessary to remain competitive given the current banking industry dynamics in which Islamic banks have a pretty low share in the banking industry.

It must be understood that the use of KIBOR as a benchmark to determine the profit is only for indicative purposes and this does not make the transaction impermissible if all the conditions of a valid sale are fulfilled. 

It is quite frequently observed that every trader whether large multinational trading corporations or a roadside store decide on their profit margin rates based on various factors of which a major variable is the competitive environment in which the trader operates his business.

If a rice trader or a cloth merchant uses KIBOR as the basis of adding profit margins to the cost of their commodities and arriving at the price, this would not tantamount to interest or Riba and would not make transaction impermissible. 

Similar is the case with Islamic banks when they arrive at the selling price of their commodities using the KIBOR. In contrast conventional banks price their loans based on the KIBOR, which does result in Riba since it is an exchange between money and money and not a sale transaction in which commodities are exchanged with money.

It is being questioned in some circles whether Islamic banks could price their commodities by applying some other benchmark rate. The rationale behind using KIBOR is the banking environment dominated by conventional banks, which discourages the development of an Islamic benchmark rate. However, as more and more Islamic banks come into the operation, an inter-bank market between Islamic banks will be created and a new benchmark for the Islamic banking industry can be developed.

The writer is general manager, corporate and business development, Meezan Bank

Sunday, December 12, 2010 SCAM DO NOT DONATE

This poll is a mere scam. Please do not donate to it and forget about voting as well. They are just playing on the people feelings to get more vote (in fact more hits for their ads).

Some people are donating as well as if this money will free the violated land. DO NOT DONATE because this is all a game to get people's money and to attract their hits.

Google has nothing to do with it as well. Look at their domain name registry and you will understand why it is all scam.

Thursday, December 02, 2010

CMHC report on Islamic home finance

The Canadian Mortgage & Housing Corporation (CMHC), the Canadian national housing agency commissioned a study a couple of years ago, which has recently been completed by law firm Gowlings Lafleur Henderson LLP. The CMHC reiterates at the beginning of the report that "CMHC Insurance business has no plans to insure Shari'a mortgages, nor is CMHC making changes to legislation or administrative practices". The prominence of this disclosure is probably, at least in part, a reaction to the small but loud reaction from critics of Islamic finance when the study was announced.

The study describes how Islamic finance works and in particular how Islamic mortgages work. The report provides one of the most comprehensive and detailed overviews of the Islamic mortgage markets in a number of countries including Western secular democracies, secular republics with Muslim majorities and Islamic republics.

The most interesting section of the report, of course, is the focus on Canada. This section, however, begins with an interesting observations:
"Little empirical evidence based on a sound methodology assumptions exists to accurately project what portion of the Canadian population would be interested in [using] Shari'a-compliant financing"
This point is relevant beyond just the narrow focus of the Canadian report because there is little evidence about what factors--either within Muslim populations or within the Islamic finance industry--lead to demand for Shari'ah-compliant financial products. This is clearly a much larger issue than I can cover in this short blog post, but it suggests a promising area for research about what issues in Islamic finance matter for Muslim consumers of financial products.

Returning to the Canadian market, the market structure of the market has limited the ability to provide Shari'ah-compliant home financing to those Muslims who demand them. The market has for most of the past 25 years, been dominated by small cooperatives reliant upon member's investments to finance new home purchases. UM Financial entered the market in 2005 and used mudaraba financing from Credit Union Central of Ontario for $120 million, which has been used to finance home purchases and refinancing. Until UM receives addition financing, which it has reportedly been working on, it is limited in the financing it can provide. As the CMHC report notes, of the Canadian banks and other mainstream financing institutions, which represent 60% of the mortgage market, "none of them have actually offered Shari'a-compliant housing finance, not even on a pilot-project basis".

Whether these banks enter the market on their own or through specialized Islamic home finance companies, there will continue to be a limit on the availability of Islamic home finance in Canada. This problem is accentuated by the lack of certain numbers on the size of the market in Canada. While there are expected to be between 0.98 million to 1.30 million Muslims in Canada by 2011 and between 1.23 million and 1.78 million Muslims by 2017 according to Statistics Canada, there is no clear estimate about how many of these will be homebuyers and of those buyers how many will opt for Shari'ah-compliant mortgages over conventional alternatives.

The study does cite one statistic that probably impacts the rate of Muslims who choose Islamic mortgages rather than conventional alternatives. They cite a story in the Financial Post from May 2007 which said that Shari'ah-compliant mortgages are between 100 and 300 basis points more expensive than conventional mortgages (versus a similar spread of 40 to 100 basis points in the United States). Whatever a study of Muslims in Canada would say if one were conducted, the cost of the mortgage will make the difference between whether the indifferent consumer will choose one over the other. Muslims are often subdivided into three groups (not necessarily of equal size): those that only use Islamic finance, those that would prefer Islamic finance if the cost is equivalent (or close) and those who will not use Islamic finance. The middle group will be the group that determines the size of the market in Canada for Islamic finance.

In Canada this is likely to be assumed by one or more of the big five banks. This study could provide the foundation for Islamic finance products to be placed on equal footing in tax and regulatory treatment to conventional mortgages through changes in laws. It has also been reported that there are several Islamic bank applications that have been held up pending the completion of this report. Their approval would add to the pressure for the Canadian government to reform tax and regulatory laws (probably in line with changes made in the past decade in the UK).

The broader points that this report raises is that Islamic finance (particularly retail Islamic finance) is limited if:
  1. it is not competitive in price with conventional alternatives; 
  2. regulatory uncertainty; and, 
  3. significant uncertainty over the size and characteristics of demand for Islamic finance.

These limitations can be reduced if:
  1. Islamic financial institutions have greater access to capital; 
  2. regulatory and tax restrictions that add cost are removed to put Islamic finance on equal footing with conventional finance; and 
  3. the factors that determine whether the marginal Muslim financial consumer will opt for Islamic or conventional finance is better understood.