USIM-Actuarial Finance

Food Myths

2011-10-11T11:28:00.001+08:00

I got this from my son Faeez and would like to share it with my readers. I must caution you that this has nothing to do with actuarial science or finance.

Every other week, new research claims one food is better than another, or that some ingredient yields incredible new health benefits. Couple that with a few old wives' tales passed down from your parents, and each time you fire up your stove or sit down to eat a healthy meal, it can be difficult separating food fact from fiction. We talked to a group of nutritionists and asked them to share the food myths they find most irritating and explain why people cling to them. Here's what they said.

Pension Funding Deficit Reaches 50-Year High — Should You Be Worried?

2011-10-10T12:06:00.002+08:00

In light of the recent Malaysian 2012 Budget, this article is relevant not only for consideration of private pension planners but also to the Malaysian Government Pension Department (Bahagian Pasca Perkhidmatan JPA). Defined Benefit plans give pensioners guarantees of income during retirement until death but the ability to pay depends on mortality and investment return.

The market swoon in last month didn’t just hurt your portfolio, it also clobbered corporate pensions. The total deficit of U.S. pension liabilities increased by $134 billion to $512 billion as of September 30, according to worldwide HR consulting firm Mercer. The reported deficit compares pension liabilities to assets in pension trusts for defined benefit retirement plans sponsored by S&P 1500 companies. The increase in the deficit results from a combination of stock market declines and decreases in yields on high-quality corporate bonds during the month. (Pension liabilities rise when interest rates fall, due to reduced expectations for future investment earnings).

Read more: http://moneywatch.bnet.com/retirement-planning/blog/money-life/pension-funding-deficit-reaches-50-year-high-should-you-be-worried/5407/#ixzz1aLgta0JB

A 4D windfall, then a death

2011-09-30T15:52:00.002+08:00

This news has been reported in many local newspapers. The gamblers who won decided to enjoy by drinking and getting themselves drunk. In the end, a tragedy resulted and I consider this as a way for Allah to remind people not to participate in gambling activities.

Alcoholic drinks and gambling are two very serious crimes in Islam and thus no one should even try to get near them. However there are many schemes that are not considered gambling but seems like gambling. I, personally consider that any scheme where you are entitled to get a substantial amount of money or can make huge monetary gains through a lucky draw should be regarded as gambling and there are many such schemes being run. Islamic scholars should study the issues of gambling very seriously and then alert Muslims to stay away from such practices.

BUTTERWORTH: An outing by five friends to celebrate their 4-digit winnings ended in tragedy when the car they were in plunged into the sea near the Bagan Dalam wharf early yesterday.

Four of them swam to safety, but the 24-year-old driver is believed to have drowned in the 12.45am incident.

His body has yet to be recovered as it is believed to have been swept away by strong currents.

It is learnt that the five -- aged between 24 and 53 -- from Tikam Batu, Kedah, had spent the evening at a nightspot in Bukit Mertajam before the accident occurred.

Deputy Seberang Prai Utara police chief Superintendent Mohd Shukri Awang said initial investigations showed the group had partied at the nightspot after two of them had a windfall in a 4D draw.

Read more: A 4D windfall, then a death http://www.nst.com.my/nst/articles//14rakans/Article/#ixzz1ZQATWnOX

Retirement Income Using the 4% Rule

2011-09-29T09:01:00.006+08:00

I recently stumbled on this rule and found out that the idea has been discussed in quite a lot of articles. This should be an area that actuarial science students can explore.

How much can I safely withdraw from my retirement funds?

Simple – use the 4% rule. This will give you a great chance of not running out of your money and it’s valid for 25+ year periods. If you are at an advanced life stage where 25 years is a dream then the 4% can be adjusted upwards.

The way the 4% rule works is that you start by taking 4% out of your portfolio in the first year – this includes dividends, interest, withdrawals. The next year you take out the same figure you took out the first year plus inflation. So if you start by taking $40,000 out and then inflation is 3% then the second year you take out $40,000 + 3% ($1200) = $41,200. Every year after that you adjust the previous year’s withdrawal amount by the inflation rate.

... Read more here and this article The 4% Rule—At What Price? by
Jason S. Scott, William F. Sharpe, and John G. Watson
April 2008

Kweko Adoboli and the UBS Fiasco

2011-09-28T14:35:00.002+08:00

By CARRICK MOLLENKAMP, PAUL SONNE and DEBORAH BALL

LONDON—An alleged trading scheme at UBS AG went undetected for three years before it was finally discovered, triggering a $2 billion loss, U.K. authorities indicated Friday as they charged a 31-year-old trader at the Swiss bank with fraud.

Read more here

The shit waiting in the derivatives market: After UBS, who could be next

2011-09-28T14:26:00.002+08:00

The article contains a lot of information useful to students who are analyzing the derivatives market. My apologies for the crude title but I suppose it attracts attention.

Noramfaizul 'was insured'

2011-09-05T09:08:00.002+08:00

The news article mentioned that "all Bernama employees were covered by term life and personal accident insurance policies which were applicable worldwide". This would mean that Allahyarham Noramfaizul was covered by term life and personal accident insurance policies. I hope the term insurance policy does not have an exclusion clause for death by shooting in a war zone which normally is included in most policies. Also can this death be considered as death due to an accident? If the said exclusion clause is included in the term life policy and the death is not considered as an accident, then the family of the deceased will not be able to claim any benefit from both the policies mentioned. So it is necessary that other forms of compensation be considered. SOCSO should provide compensation for death while in the course of employment. Other than that, BERNAMA itself must provide some form of compensation. If the compensations provided are not enough, Malaysians need to pitch in and donate to provide much needed finance for the wife and children of the deceased Allahyarham Noramfaizul. The need is a long-term one and must be looked into immediately.

New Semester

2010-07-25T18:17:00.003+08:00

The new semester has started at USIM and this time I will be busier than before. There are ten students who will be doing their project papers under me with titles from mortality rates for diabetes to designing syariah-compliant life annuities. The students presented their proposals last Friday and I have asked each of them to present a more detailed proposal next Friday.

What strikes me most last Friday was that the students kept pronouncing the word "determine" as "deter" and "mine", and not "deter" and "min" as I learned in school before. I wonder where they got this pronunciation from. It is not specific to the current group of senior students. Previous students also used the same pronunciation. I would be very pleased if others can comment on this.

Retirement Calculators

2010-06-09T10:41:00.005+08:00

It has been a long time. I have been busy with teaching and other official business of the university. However an article in Moneywatch.com on retirement compels me to write in this blog.

It says, "Every major financial services company has an online tool to estimate how much money you need to save for retirement. But a recent study by the Society of Actuaries says many popular calculators have serious flaws. These potential hazards could lead to serious miscalculations when you’re plotting your financial future."

The first problem is in assuming the rate of return of your savings. Most calculators use fixed rates of return. In order to be realistic, calculations should allow users to assume different rates of return on investment and even use probabilistic rates with reasonable standard deviations.

The next issue is how to handle life expectancy. Most calculators use the life expectancy figures. This figure is only useful if you die at the age according to the average person assumed in the calculation. If you live slightly longer, you will end up with very little money when you need it most.

The next problem is how to handle inflation. Inflation rate assumption plays a very important role in determining whether you will be able to live your retirement years according to your plan. It is necessary to allow users to look at different scenarios using different inflation rates.

Revised Pension Policy

2009-11-09T14:38:00.002+08:00

The following news item from The Sun attracts my attention. There should be some explanations to all concerned. Was there a misunderstanding of the provisions in the revised pension policy announced 14 years ago, or is someone being very inefficient?
Pensioners fed up with PSD turn to PM for help
By Himanshu Bhatt

SEBERANG PRAI (Nov 8, 2009): Retired government officers disgruntled by the Public Services Department’s (PSD) failure to implement a revised pension policy - announced 14 years ago - are appealing to the Prime Minister to intervene.

The pensioners, many of whom are aged and debilitated, have come together in an informal network currently stretching across five states in the peninsula to submit a memorandum on the matter to Datuk Seri Najib Abdul Razak.

The group’s coordinator, former teacher Arumugam Suppiah, 65, said it had collected 814 signatures from pensioners supporting the memorandum.

According to the policy, introduced in a PSD circular dated Jan 30, 1996, government servants were to be entitled to pension calculated on the number of years served.

The policy was supposed to retroactively come into effect for pension payments issued from Jan 1, 1995 onwards.

“It has not been implemented till today despite countless appeals,” Arumugam told a press conference organised by the group at the Inderawasih Rukun Tetangga centre here today.

Currently, all government retirees are paid on the same scale, their pensions rounded up to similar figures, without consideration given to the numbers of years served.

“We, the poor pensioners who are drawing a few hundred ringgit of pension have been deprived of our rights in getting this revised pension formula and arrears,” he said.

Retired Malayan Railway staff Athimulam Rengasamay, 75, said the group had previously sent two letters to the prime minister’s office in 2005 and 2008.

The matter was referred to the PSD’s pensions section for action, but it had yet to take any action.

A copy of the letter sent last year was also sent to Cuepacs but the union has also yet to act on it.

Arumugam, however, said they were grateful to the prime minister for approving a RM500 bonus for government pensioners in the 2010 Budget.

Visit to ETIQA

2009-10-22T09:25:00.003+08:00

Yesterday (21 October 2009) the third year students of the Actuarial Science and Risk Management (ASRM) program at USIM visited ETIQA Insurance and Takaful in Bangsar. They were welcomed by the management of ETIQA and given briefings on the actuarial and risk management aspects of insurance and takaful.

Thank you ETIQA for the contributions to enriching the knowledge of ASRM students at USIM. Thank you Mr. Nik Rahmat, Head of Takaful Corporate Actuarial for your explanation on the role of actuaries in family takaful. Thank you Mr. Rudie Erman, Head of Risk Management for explaining the various aspects of risk management and how ETIQA view risk management. Thank you Mr. Effendy Norazman, Head of Non-Life Corporate Actuarial for highlighting the importance of actuarial science in general insurance and takaful.

There is a lot of opportunities for actuarial science and risk management graduates from USIM to be involved in the fields of risk management and general insurance and takaful. So there is no reason for them not to work hard at their studies because the world out there need their expertise very much.

Once again I would like to thank ETIQA for their willingness to accommodate a group of eager USIM students and look forward to more cooperation between USIM and ETIQA especially in the areas of actuarial science, risk management and general insurance and takaful.

Allow workers to revert to 11% deductions, says MTUC

2009-10-19T09:44:00.002+08:00

The call by MTUC for the contribution from employees to EPF to be increased from 8% (suggested by the government) to the original 11% need careful study and analysis.

First of all how has the reduction of the contribution rate affected the economy of the country? How much spending money has been released to the retail sectors? Have they played any part in boosting our economy? Should such reduction be recommended again in the future when the situation requires it?

Secondly, how has it affected the employees' retirement benefit? Surely the amount at retirement would be less than if the contribution rate has not been reduced. Can this be overcome by an increase in the contribution rate when the economy has improved? Maybe EPF can increase the dividend rates in the future years with some help from the government. After all, the employees (EPF contributors)have played their part in helping the government to boost the economy when it was required by the government. So if the economy has improved as a result of the sacrifice made by the contributors, the government can help by providing subsidies to increase the dividend rates in the future.

Monday October 19, 2009
PETALING JAYA: The Malaysian Trades Union Congress (MTUC) yesterday called on the Government to allow the 2.2 million workers, who opted for the 8% Employees Provident Fund (EPF) deductions, to revert to 11% with immediate effect.

As the economy is recovering, MTUC vice-president A. Balasubrmaniam said EPF contributions were savings for old-age for private sector workers and it was important that the savings percentage be maintained.

Due to the economic downturn, the Government, in November last year, gave employees the option to either maintain the deductions at 11% or reduce it to 8% for a period of two years from Jan 1 this year.

According to the EPF, a total of 2.2 million or 40% of workers opted to reduce it to 8%.

Balasubramaniam said MTUC was now concerned for these 2.2 million workers as they were losing in terms of dividends and final pay out when they reach the retirement age.

He said that although the option was for two years, the Government should allow them to revert to the previous deductions now. — Bernama

CUEPACS: PENSION MORE BENEFICIAL THAN EPF

2009-10-06T10:40:00.000+08:00

This is one of the many articles on pension planning that appears in the news recently. I will also post the other articles shortly.

Isnin, 2009 Oktober 05
CUEPACS: PENSION MORE BENEFICIAL THAN EPF
Malaysian Insider
By Shazwan Mustafa Kamal
5/10/2009

KUALA LUMPUR, Oct 5 — Cuepacs president Omar Osman said civil servants stand to lose more under the current Employees Provident Fund (EPF) scheme.
That is why Cuepacs, together with the workers’ unions in seven government agencies, will be submitting a memorandum to the prime minister in an effort to ensure the welfare of these civil servants after they retire.
“We are pushing the government to look at the current status of government employees who have been allotted separate retirement plans from other government agencies,” he said referring to the seven government bodies.
There are about 60,000 employees in the seven agencies. They are Socso, the, EPF, Lembaga Tabung Angkatan Tentera, Tabung Haji, Perbadanan Hal Ehwal Bekas Angkatan Tentera (KEBAT), Bank Simpanan National and the Inland Revenue Board.
These agencies have been accorded different retirement schemes from other government bodies because they “have been given the task of managing and handling the country’s finances.”
“We want our workers’ welfare guaranteed. Even though these bodies are separate, there should be equal benefits for them, and sadly the benefits are not the same,” explained Omar.
He said that under the EPF formula, the future of these workers is not guaranteed after they reach the retirement age of 58 unlike other government employees.
Instead of handing over a lump sum of money, a pension-based model would be more conducive and realistic as they would then be able to get a steady income every month, and would be able to use their money wisely.
“Getting RM300,000 won’t be worth anything in the year 2020. Even now, everything is so expensive, people end up spending everything they have instead of saving,” he added.
According to Omar, Cuepacs has also 10 more issues which it will be taking up with the prime minister.
Among these is a call to reduce the housing loan interest for civil servants from four per cent to one per cent.
“We are like barking dogs. We will bark until they hear us.”
The barking has apparently received the attention of Datuk Seri Najib Razak, as Omar has stated that he has personally met with the prime minister regarding the matter and that he is aware of the situation.
He also expressed confidence in Najib‘s administration, saying that the 60,000 affected workers will always remain loyal to the ruling government.
Posted by CUEPACS at 17:30

Marriage

2009-08-18T12:10:00.004+08:00

This posting is a little bit different from my previous postings in this blog. I suppose everyone should be interested in this discussion whether you are pro or against the institution of marriage.

An article in the local Malay newspaper (Utusan Malaysia) attracted my attention and the topic was also discussed by a local radio station (Radio IKIM) that I listened to while driving to work. Below is the article in Bahasa Melayu. For those who do not understand the language, I would be willing to translate the gist of the article upon request.

However, another article in the Daily Mail (June 17)in London, entitled "Only Marriage can mend broken Britain" also attracted my attention. I read it from one of the blogs I read regularly (Malaysian Insider). I post this article followed by the article from Utusan Malaysia.

Only marriage can mend broken Britain, says top judge

LONDON, June 17 — Marriage should be promoted by the government to end the ‘social anarchy’ of family breakdown, a senior judge said last night.

Justice Coleridge accused mothers and fathers who fail to commit to each other of engaging in a game of ‘pass the partner’ that has left millions of children ‘scarred for life’.

In a hard-hitting speech in Parliament, he called for a change of attitude that would attach a ‘stigma’ to those who destroy family life and said a National Commission should be established to devise solutions for the ‘epidemic’ of broken homes.

Currently, one in three marriages ends in divorce. One in ten children lives with cohabiting parents and a quarter live with a single parent. Children from single-parent families are far more likely to do badly at school, suffer poor health, fall into crime, drug abuse, binge drinking and teenage pregnancy.

Sir Paul Coleridge, 60, who is married with three adult children, is a leading family judge, having presided over the divorce of Sir Paul McCartney and Heather Mills. He also made the ruling in Britain’s largest divorce settlement in which Beverley Charman received £48million (RM277.6 million) when she divorced insurance magnate John Charman.

The judge’s comments stopped short of condemning the government or any other political party for the breakdown of family life. But his support for marriage will be music to the ears of Conservative leader David Cameron, who has made clear that a Tory government would support marriage through the tax system.

By contrast, Labour ministers insist alternative family set-ups are equally valid. In his speech to the Family Holiday Association charity of which he is a patron, Justice Coleridge said: “I am drawing attention to the endless game of ‘musical relationships’, or ‘pass the partner’, in which such a significant portion of the population is engaged.”

Condemning the “endless and futile quest for a perfect relationship”, he said many parents were in ‘a complete and uncontrolled free-for-all where being true to oneself and one’s needs is the only yardstick for controlling behaviour’.

He added: “The children are caught up in the conflict of their parents unresolved relationship issues and it can leave them scarred, sometimes severely scarred, for life.”

The judge also said government should support “those who chose not to marry but live a committed life with a partner”, since they provide stability for children.

Calling for “a fundamental change in individual attitude and behaviour”, he said: “What is a matter of private concern when it is on a small scale becomes a matter of public concern when it reaches epidemic proportions.

“I am not suggesting that all relationship breakdown and termination can be avoided in all cases. Of course it cannot.” But he concluded: “The time has come for a major examination of all the issues surrounding family life, its support and maintenance, and especially the mechanisms and laws of its termination.” – Daily Mail

Ubah stigma tentang cari jodoh

Oleh NOOR FAZRINA KAMAL

MENCARI jodoh di Internet telah menjadi lumrah masa kini sama ada dari pihak perempuan atau lelaki. - Gambar hiasan

ADA rupa, ada gaya, berkerjaya dan berharta tetapi kenapa masih bersendiri? Itu antara soalan klise kerap menghujani lelaki mahu pun wanita yang pada pandangan kasar sudah memiliki hampir segalanya - kerjaya, wang ringgit, kediaman sendiri, kenderaan yang selesa, penampilan bergaya dan sebagainya - namun memilih untuk mengekalkan gelaran bujang atau solo.

Status solo memang menjadikan seseorang bebas tanpa sebarang ikatan untuk melakukan apa saja tanpa perlu meminta izin daripada suami atau isteri.

Tetapi benarkah 'kebebasan' alasan mutlak untuk memilih gaya hidup sebegitu ataupun mereka sebenarnya memang cerewet dalam memilih teman atau mungkin juga mereka hidup bujang kerana tiada pilihan.

Bagi golongan ini insiden ahli keluarga menjodohkan atau mengatur janji temu dengan seseorang yang mereka rasakan layak sudah menjadi perkara biasa.

Namun disebabkan berasa ego tercabar kerana dianggap tidak berupaya mencari pasangan sendiri 'niat murni' ahli keluarga akhirnya putus di tengah jalan.

Ramai juga di kalangan mereka ini percaya pada 'pertemuan yang tidak dirancang' dengan pasangan dan yakin itulah jodoh terbaik buat mereka. Dek kerana terlalu berpegang kepada prinsip itu juga mereka sanggup menunggu dan terus menunggu biarpun semakin dipanjat usia.

Pengurus Smart Builder Consultant Sdn. Bhd., Azhar Awang berkata, selain menunggu sebenarnya ada alternatif lain yang boleh dilakukan contohnya dengan bantuan agensi mencari jodoh.

Begitupun untuk berbuat demikian terlebih dahulu stigma masyarakat Malaysia tentang apa yang dikatakan dengan mencari jodoh perlu diubah.

"Ini kerana apabila bercakap tentang perkara cari jodoh, ramai menganggap bahawa mereka yang terlibat adalah golongan yang terdesak, sedangkan hakikatnya bukan begitu.

"Sejak portal mencari jodoh secara Islam ini dilancarkan saya mendapat banyak maklum balas positif daripada wanita golongan berkerjaya dan profesional.

"Rata-ratanya mengatakan sebab untuk kekal solo kerana masih belum berjumpa pasangan yang sesuai," ujarnya yang ditemui ketika hadir ke pejabat Utusan Malaysia, baru-baru ini.

Katanya, pencarian jodoh bukanlah satu perkara baru atau asing di negara luar.

Azhar yang pernah menuntut di Universiti Purdue, Indiana, Amerika Syarikat berkata, idea untuk mewujudkan program cari jodoh di Malaysia diambil ketika berada dalam satu majlis perjumpaan pelajar-pelajar Islam di sana.

"Dalam Islam 'takruf' bermakna perjumpaan antara calon yang bertujuan mengenali rupa, personaliti dan perbincangan yang makruf, dengan niat untuk berkahwin, calon wanita mesti ditemani oleh wali atau muhrim, di tempat awam yang sesuai.

"Kami tidak menggalakkan dating. Sebaiknya calon wanita hadir ditemani muhrim atau kawan baik yang sama jantina. Tempat perjumpaan pula mereka boleh tentukan sendiri tetapi mestilah di tempat terbuka seperti di restoran atau masjid.

"Kami juga menggalakkan calon wanita agar menutup aurat. Apabila peraturan asas telah diberi, cara perkenalan dan perjumpaan antara ahli portal adalah tanggungjawab mereka sendiri," jelasnya.

Beliau yang juga pengurus portal program cari jodoh Islam Almuslimin berkata, mencari jodoh atau jodoh yang diaturkan adalah sebagai satu usaha yang digalakkan dalam Islam untuk mencari pasangan.

"Sudah tentulah sebagai orang Islam kita perlu sentiasa berdoa, melakukan solat hajat dan istikharah dan yang berusaha untuk mendapatkan jodoh yang baik.

Dalam program cari jodoh Islam yang beliau jalankan, Azhar berkata, pihaknya sekadar menjadi pemegang amanah dan tanggungjawab yang diberikan oleh calon yang hendak mencari pasangan.

Proses pencarian dilaksanakan dengan bijaksana dan mengikut kehendak syariat Islam dengan syarat calon-calon memberikan butir peribadi yang sebenarnya agar tidak timbul masalah kelak.

"Calon terdiri daripada gadis iaitu wanita belum pernah berkahwin, teruna atau lelaki belum pernah berkahwin, duda, balu, janda, ibu tunggal, dan juga lelaki yang berhasrat berpoligami.

"Kebanyakan calon yang mendaftar terdiri daripada mereka yang berpendidikan tinggi, profesional, guru dan pendidik, usahawan, kakitangan kerajaan, tentera, polis dan ahli akademik. Ada juga ahli yang terdiri daripada ahli portal kami iaitu http://almuslimin.net/JODOH," ujarnya.

Tidak sesuai

Dalam pada itu melalui kajian yang dijalankan oleh sebuah agensi pencari jodoh berpusat di Singapura, Lunch Actually, mendapati jawapan paling popular yang menjadi sebab utama golongan profesional di Malaysia memilih untuk kekal bujang ialah kerana tidak bertemu dengan orang yang sesuai.

Ini bermakna mereka tidak bertemu dengan pasangan yang boleh berkongsi pendapat dan minat yang sama dengan mereka. Alasan kedua yang diberikan ialah orang yang mereka minat kebanyakannya sudah berkahwin atau tidak berminat terhadap mereka.

Menurut pengasas Lunch Actually, Violet Lim, dalam kajian yang diberi nama Regional Dating Survey 2009, menariknya, penemuan yang dibuat pada tahun ini adalah sama dengan yang pernah dibuat pada tahun 2005.

"Ini bermakna, walaupun tempoh empat tahun berlalu sebab musabab untuk individu kekal solo masih sama walaupun kini terdapat begitu banyak saluran untuk bersosial secara online mahupun perjumpaan terus," jelasnya ketika ditemui pada sesi pembentangan penemuan kaji selidik tersebut di Sri Hartamas, Kuala Lumpur, baru-baru ini.

Kaji selidik ini membabitkan tiga negara iaitu Malaysia, Singapura dan Hong Kong untuk mendapat jawapan lebih tepat tentang persepsi mereka yang solo terhadap temu janji dan perhubungan secara amnya.

Kajian ini juga telah berlangsung selama sebulan dan responden yang dipilih bukanlah klien atau pelanggan yang pernah berhubung dengan agensi pencari jodoh.

Trend temu janji

"Responden sasaran dipilih kerana kami mahu mendapatkan jawapan yang tulen dan realistik tentang mengapa mereka kekal solo dan juga trend temu janji di tiga negara yang dipilih," kata Violet.

Lebih menarik, dengan penemuan berharga menerusi kaji selidik ini, Lunch Actually akan lebih mudah mencari pasangan yang sepadan dengan apa yang diingini pelanggan mengikut trend di negara masing-masing.

"Kami mencari penyelesaian terbaik untuk klien bertemu pasangan mereka, demi memenuhi matlamat tersebut kami bukan saja perlu memahami diri mereka tetapi juga keadaan sekeliling yang mereka hadapi setiap hari. Kami begitu prihatin dan memberikan kualiti dan menepati keperluan klien kami," tambah Violet.

Justeru, tidak perlu bersikap tabu dengan perkhidmatan mencari teman kerana siapa tahu cara aturan janji temu yang mereka buat untuk anda adalah penyelesaian untuk apa yang anda cari.

Kata Violet, tempat makan lazimnya menjadi medan pertemuan paling ideal kerana sambil menikmati juadah mereka boleh berbual tentang apa saja dalam suasana yang amat tenang dan santai.

"Kebanyakan klien menyatakan mereka terlalu sibuk untuk bertemu calon pasangan, tapi tidak akan menolak jika pelawaan makan tengah hari.

"Apa pun kami akan menapis, merancang koordinasi dan temu janji, apa yang klien perlu lakukan ialah hanya menghadiri temu janji tersebut.

"Klien akan dipadankan dengan pasangan mengikut kriteria pilihan dan mereka boleh menandatangani pakej enam kali perjumpaan selepas bersetuju dengan pilihan dan syarat yang telah dibuat," ujarnya.

Ramadhan

2009-08-18T11:53:00.002+08:00

The month of Ramadhan is fast approaching. I would like to wish all Muslim readers of this blog a happy and fruitful Ramadhan. May the upcoming month of Ramadhan bring us closer to our creator and make us more conscious of His blessings.

USIM students will start Ramadhan with their loved ones because of the mid-term break. They will then come back for four weeks of classes before they take another one week break for Eidulfitri. This makes the semester very well balanced between classes and breaks.

The semester started on 6 July for six weeks followed by a one week break and then four more weeks of classes during the month of Ramadhan and after one week break for Eidulfitri classes will carry on for four more weeks before the exam break and finally the exams (6-4-4). So students should be very well prepared for the upcoming exams and thus perform much better than the previous semesters.

Congratulations - USIM's 7th Convocation

2009-08-03T12:20:00.002+08:00

Universiti Sains Islam Malaysia (USIM) held its 7th convocation on 1 August 2009. This was the second convocation of USIM that I attended. In this convocation, 27 students from the BSc program in Actuarial Science and Risk Management (ASRM) were awarded their degrees. They were the first graduates from this program.

Firstly, I would like to congratulate all the ASRM graduates who received their scrolls on Saturday. They are now competing with other actuarial science graduates form other universities in Malaysia and overseas. They should be able to compete with these other graduates and maybe have a little bit extra. These graduates have more knowledge about Islam and Arabic compared to other actuarial science graduates, by virtue of their courses taken while at USIM. They have also undergone six months of industrial training which few other graduates from other universities went through.

Finally, I would like to encourage all the graduates from USIM ASRM program to look at the risk management aspect of whatever they are involved in and to learn how they can apply risk management in their everyday lives.

Private Pension Plans

2009-07-24T22:27:00.003+08:00

This is very good news for actuarial science students. Any pension scheme would require actuarial expertise. In fact, a large percentage of actuaries work with companies that manage pension schemes. With the introduction of private pension plans, there would be less dependent on the EPF to provide income to retirees.

To encourage the setting up of private pension schemes, amendments can be made to the law concerning contributions to EPF by employers as well by employees. Employers and employees involved in pension schemes can be allowed to reduce the contributions to EPF.

The above would then reduce the amount of fund handled by the EPF. A well-managed pension scheme should be able to provide a better retirement income than that provided by the EPF scheme.

Friday July 24, 2009
Private pension go-ahead
By YVONNE TAN and FLORENCE A. SAMY

KUALA LUMPUR: The much talked about private pension funds will kick off by the middle of next year.

Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop, who announced this, said the new scheme would target the two million self-employed and those who were outside the current pension scheme.

He said the new pension funds could either be operated by new fund management firms to be licensed by the Securities Commission, or by existing firms.

The funds would be regulated by the Securities Commission.

“Several fund managers have already shown keen interest,” he told a press conference after delivering his keynote address at the Forum on Private Pension Industry Retirement Funds here yesterday.

Nor Mohamed said the scheme would target self-employed individuals who currently did not contribute to the Employees Provident Fund or those who wanted to contribute more than the EPF’s statutory requirements.

“We have to ensure it is well managed as it is a pension fund, a fund for individuals in their old-age,” he said.

He said the EPF had a government guarantee of 2.5% return.

“The private pension funds should be able to provide a ‘market return’ at any point of time,” Nor Mohamed said when asked on investment returns.

“The EPF has RM340bil in assets now. These private pension funds have huge potential,” he said, adding that there were currently 5.7 million active EPF members.

Nor Mohamed said the funds were part of the Government’s effort to reform the pension fund industry.

“This is crucial as Malaysia moves towards a developed and high income nation,” he said, adding that such funds would be a boost to the nation’s capital markets.

He said the SC had been tasked to prepare a report containing further details within the next six months.

“The Government at the same time will look at its own pension scheme and the Employees Provident Fund (EPF), and head a committee to coordinate all aspects of the pension reform,” he said.

In a survey by the EPF, it was found that around 90% of members have less than RM100,000 in their accounts and more than 70% would have exhausted their money within three years of withdrawing the lump sum upon retirement.

“This underlying trend reflects the sole dependence of retirees on their EPF savings as a safety net and as such, the inadequacy of sustainable levels of income after retirement,” he noted.

He said Malaysia had pension coverage via EPF, the Public Sector Pension Scheme and Lembaga Tabung Angkatan.

“However, there are gaps in the existing pension framework,” he said.

SC chairman Tan Sri Zarinah Anwar said the regulator would make capital preservation and investor protection top priorities when it came to the funds.

“We are gathering input from successful private pension funds models in other countries. We will then try and adopt the best practices to start off on the right footing,” she said.

Areca Capital Sdn Bhd chief executive officer Danny Wong said it “would take some time” to see the impact of the funds on the capital market.

“It all depends how individuals respond,” he told The Star.

Bank Islam Malaysia Al-Awfar Scheme

2009-07-10T15:36:00.010+08:00

When I opened the website for this scheme the first thing that I noticed was the big sign that said "DEPOSIT RM100 AND YOU MAY GET RM100,000!"

http://www.bankislam.com.my/About_Al-Awfar.aspx

My immediate reaction was that this was gambling. If you paid some money with the hope of getting a much bigger amount of money through a lucky draw, I would classify it as gambling. Gambling is definitely not permitted in Islam. However reading further, I saw that there is no bet involved because your RM100 is not lost if you do not win, like you would if you buy a lottery ticket.

So the question is what is gambling? Is it the bet or the lucky draw or both? Definitely you will not have a gambling situation if you just have a bet and there is no lucky draw for determining the winner of the prizes. However, in the case of Al-Awfar, there is a lucky draw to determine the winner of the prizes but there is no bet involved. Is this the case?

Normally, lucky draws are done to determine who get prizes that are not substantial financially. For example, lucky draws determine who gets a hamper worth around RM250. If a lucky draw is carried out to determine who would get 1 million ringgit among a million or more hopeful people, this would bring it closer to an act of gambling.

One of the reasons for prohibiting gambling is so that people will work to earn the money and not hope for luck. If I have RM1000 to save, I should deposit it in a bank and hope that the bank will invest the money and I will agree to share some of the profit with the bank, but if I deposit the money in the hope that I will get RM100,000 through a lucky draw which the bank conducts periodically, I feel it is a wrong objective of depositing the money. It would be worse if I do not expect the bank to give me any profit (or I do not mind getting a lower than the normal profit given by the bank for a normal deposit without lucky draws involved), as long as I am eligible for the draw, and I would deposit more money so that my chance of winning the substantial prize is increased.

Looking at it superficially, it seems there is no bet involved because the money you deposited will still be there whether you win the prizes or not. So who pays for the prizes and where is the money obtained from? The bank says that the prizes are paid from the bank's fund and that it does not involve the deposits by the depositors. So where does the bank get the money to pay the substantial amount of prizes from, and at regular intervals?

There is also an explanation that since this scheme is similar to that of Skim Sijil Simpanan Premium (SSSP) of Bank Simpanan Nasional (BSN) and that the National Fatwa Council has declared that this scheme is "harus", therefore the Al_Awfar scheme must also be syariah-compliant.

A similar scheme is advertised by Ar-Rajihi bank (i-Zamzam) where lucky depositors can win a free trip to do the Haj or the umrah. I find this scheme very similar to that of the Al-Awfar scheme, the difference being the nature of the prizes.

Lucky draws have been practiced during the time of the Prophet (pbuhahf) but they were not to determine who would win a financial reward that was substantial. They were used mainly to decide who would do some good deeds if there were several people who wanted to do the deeds concerned. In the case of the drawing of lots to determine who (among them Nabi Yunus) should be thrown into the sea, I do not agree that this is a justification for making drawing of lots to make decisions permissible, and thus legitimizing the drawing of lots for winning substantial monetary prizes. The objectives of the two are very different.

I hope the Syariah Advisory Councils appointed by various financial institutions in Malaysia will re-look at this scheme as well as the SSSP, and determine its status with respect to being syariah compliant. I have read many fatwas online that consider schemes like this as similar to gambling. One such fatwa is from Islam-On-Line at

http://www.islamonline.net/servlet/Satellite?pagename=IslamOnline-English-Ask_Scholar/FatwaE/FatwaE&cid=1119503544118

Don: You don’t need RM1mil to retire well

2009-04-28T16:52:00.003+08:00

It has been quite sometimes since I posted anything on this blog. This is very busy time with exams being the most urgent. However, the Dean of Faculty showed me this news which attracted my attention. From The Star of Wednesday 24 April:

THE middle class and lower-income earners do not need savings of up to RM1mil to retire comfortably if spending is well planned, Kosmo! reported.
It quoted Universiti Sains Malaysia social science lecturer Associate Prof Dr Kamaruzaman Askandar as saying that the golden seven-digit figure would be difficult to achieve but it was not needed if they knew how to spend their income well.
He said there was also the culture of children helping their parents.
Economic specialist Datuk Prof Is¬¬mail Mohd Saleh said RM120,000 would be enough.
“For civil servants, they will get their pension as well as free medical coverage,” he added

The Star's report was on a news item from Kosmo of 23 April 2009 which is in Bahasa Melayu:

KUALA LUMPUR - Orang ramai daripada kelas bawahan dan pertengahan masih boleh mengekalkan taraf kehidupan sederhana dan selesa selepas persaraan walaupun mereka tidak ada simpanan sehingga RM1 juta.
Pensyarah Pusat Pengajian Sains Kemasyarakatan Universiti Sains Malaysia, Prof. Madya Dr. Kamaruzaman Askandar berkata, jumlah RM1 juta itu tidak perlu jika seseorang bijak mengatur perbelanjaan tanpa pembaziran.
Menurutnya, nilai simpanan tujuh angka itu memang sukar dicapai oleh golongan kebanyakan dan hanya dimiliki oleh mereka yang sudah biasa hidup mewah dan mempunyai pendapatan tinggi semasa masih bekerja.
"Walaupun pesara tiada lagi pendapatan tetap, bagi orang Malaysia, sudah menjadi budaya anak-anak akan membantu ibu bapa dan ini sedikit-sebanyak dapat membantu meringankan beban kewangan,'' ujarnya ketika dihubungi semalam.
Kamaruzaman mengulas laporan sebuah akhbar kelmarin bahawa rakyat Malaysia daripada golongan sederhana memerlukan sekurang-kurangnya RM1 juta untuk hidup selesa semasa bersara.

The Professor was commenting on a news item from Utusan Malaysia of 21 April 2009 which is also in Bahasa Melayu:

RM1 juta tidak cukup selepas bersara

JOHOR BAHRU 20 April - Rakyat Malaysia daripada golongan sederhana memerlukan sekurang-kurangnya RM1 juta ketika bersara sekiranya mahu mengekalkan gaya hidup semasa.
Pengurus Negara ESG Direct Asia Pte. Ltd. bagi Malaysia, K. Sasitharan berkata, bagaimanapun jumlah itu sebenarnya hanya sekadar 'cukup makan' jika diambil kira kos perubatan dalam tempoh berkenaan.
Beliau berkata, berdasarkan tinjauan yang dijalankan mendapati hanya 10 peratus rakyat Malaysia yang memiliki simpanan yang baik untuk menghadapi zaman persaraan mereka nanti.
''Namun, simpanan tersebut bukan hasil daripada tabiat menabung tetapi sebaliknya disebabkan mendapat gaji besar sehingga menyebabkan simpanan dalam Kumpulan Wang Simpanan Pekerja mencukupi," katanya kepada Utusan Malaysia selepas mengadakan Seminar Khas Perancangan Kewangan sempena Minggu Saham Amanah Malaysia 2009 di sini.
Beliau berkata, sejumlah 10 peratus didapati menjadikan amalan menyimpan untuk menghadapi persaraan manakala 80 peratus lagi tidak bersedia langsung dan terpaksa bergantung kepada anak-anak.
Sasitharan berkata, walaupun amalan menabung masih lagi rendah di kalangan rakyat Malaysia tetapi ia adalah perkara normal bagi negara yang memiliki populasi muda.
Bagaimanapun, situasi itu perlu diperbaiki sebelum menimbulkan masalah kepada negara kerana dalam tempoh 15 hingga 20 tahun lagi Malaysia berpotensi untuk mempunyai majoriti penduduk dewasa.
Beliau berkata, rakyat Malaysia sepatutnya menukar persepsi yang ada dan menjadi lebih bersedia dalam mengharungi dunia persaraan tanpa perlu mengurangkan gaya hidup sedia ada.
''Di Malaysia, pesara secara automatik akan mengubah gaya hidup kebelakang berikutan kekangan wang untuk meneruskan gaya hidup selesa semasa bekerja.
''Sebab itu, pesara akan balik ke kampung selepas bersara dengan harapan dapat mengawal perbelanjaan harian, sekali gus mengurangkan beban kos hidup,'' jelasnya.
Beliau menafikan bahawa amalan menabung hanya berupaya dilakukan oleh golongan yang memiliki gaji yang lumayan.
''Dakwaan ini tidak benar kerana golongan pekerja yang memiliki gaji RM1,000 pun menabung, secara perlahan-lahan kerana gaji yang diperoleh akan mengalami kenaikan seiring tempoh bekerja,'' jelasnya.
Sasitharan menegaskan, masalah di Malaysia adalah kebanyakan rakyatnya lebih mengutamakan gaya hidup berbanding menabung.
Sambil memberi contoh, katanya, rakyat Malaysia sekarang dilihat lebih cenderung berbelanja terlebih dahulu sebelum mendapat gaji.
''Sekarang ini, kad kredit telah mengawal perbelanjaan rakyat Malaysia, ini memang budaya bahaya kerana setiap kali mendapat gaji, kita akan mendahulukan hutang,'' katanya.
Ditanya apa yang perlu dilakukan jika tabungan pekerja masih tidak mencukupi pada usia 55 tahun, Sasitharan berkata: ''Pekerja itu perlu terus bekerja kerana usia persaraan 55 tahun adalah masih muda berbanding negara maju pada usia 65 tahun. Ini bukan bermakna pesara yang tidak mempunyai cukup simpanan masih mempunyai 10 tahun lagi untuk menabung,'' kata beliau.

Surely, these news items need to be clarified by people who are more thorough so that the public who are the most affected can have a clearer picture of how to plan for their retirement. The public should not be left wondering whether you have to save up to 1 million Malaysian Ringgit or you can survive with only RM120,000 for your retirement. More explanations as to the level of retirement expenditure that each retiree wants and the effect that inflation would have on retirement income when one retires, must be clearly given.

PNB declares lowest ASM dividend

2009-03-18T11:31:00.002+08:00

The effect of the fall in the stock market is now showing in dividends declared by unit trusts. After the EPF declared dividends of 4.5% (lowest in so many years), PNB now declares its lowest ever payout for the ASM. However PNB has been able to declare a reasonable dividend rate for its fixed-price equity income fund. The 6.25% dividend declared is so much higher than that offered by fixed deposit takers.

KUALA LUMPUR: Permodalan Nasional Bhd (PNB) declared the lowest ever payout for Amanah Saham Malaysia (ASM), 6.25 sen per unit for fiscal 2009, as it decided to keep some money for a rainy day.
It could have paid 7.92 sen but decided on the lower figure, ASM's lowest since the fixed-price equity income fund was launched in 2000.

The payout is still more than double the current 12-month fixed deposit rate of 2.5 per cent.

"We still have a reasonable amount of cash. The ASM fund size is 7.6 billion, of which 2.1 billion is in cash and this can be used to buy good stocks," said PNB president and group chief executive Tan Sri Hamad Kama Piah Che Othman yesterday.

PNB had to contend with a stock market that fell some 40 per cent last year as investors worried a recession would hurt corporate earnings.
Hamad declined to predict how PNB would fare for the year till March 31 next year, but said it would strengthen its investment portfolio. Since last year, the purchase of ASM units has risen by a quarter.

PNB chairman Tun Ahmad Sarji Abdul Hamid said 402,513 unit holders who subscribed to 7.21 billion units of ASM would benefit from the total payout of RM407.58 million.

Last year, a record payout for ASM was declared with income distribution of 7.8 sen, compared with 6.8 sen in 2007. ASM made a gross income of RM440.73 million for fiscal 2009.

Meanwhile, ASM transactions nationwide will be halted from March 25 to 31 for the calculation of income distribution.

Global meltdown hurt performance, says EPF

2009-03-17T11:19:00.003+08:00

This article is from The New Straits Times. The lower rate of dividends declared will cause the amount at retirement of contributors to be reduced.

This dividend rate is however better than most other saving institutions but not as good as those declared by some other investment vehicles such as PNB and government bonds. Contributors who moved their EPF savings into Unit Trusts suffer paper losses instead of getting any dividend.

KUALA LUMPUR: The Employees Provident Fund (EPF) has declared a dividend of 4.5 per cent for 2008, its lowest since 2003, and warned members not to expect more than that for this year.

The EPF's dividend was 5.8 per cent for 2007, 5.15 per cent in 2006, five per cent in 2005, 4.75 per cent in 2004 and 4.50 per cent in 2003.

"Up until September last year, the EPF was doing well in equities. However, with the global financial meltdown, our performance in equity investments recorded a drop of less than 20 per cent, which impacted our dividend pay-out.

"This, however, compares better with that of the Kuala Lumpur Composite Index, which was down approximately 40 per cent from the end of December 2007 to December 2008," EPF chairman Tan Sri Samsudin Osman said in a statement.

Net income for the year was RM14.26 billion, after deducting allowances for the diminution in value of equities and doubtful debts, dividends for withdrawals, investment expenses, operational expenses, and death and incapacitation benefit payments. This represented a decrease of 15.47 per cent over 2007's net income of RM16.87 billion.

EPF made allowances of RM4.69 billion for the diminution in value of both overseas and local equities, compared to only RM520 million in 2007. Of the 2008 provision, RM3.20 billion was allocated for overseas equities.

"The fundamentals of the companies we invested in remain strong and we are confident that this provision will be written back once recovery takes place," said Samsudin.

As at Dec 31 2008, the EPF's total investment funds had grown by RM28.99 billion to RM342 billion compared to RM313.01 billion a year ago.

The three main contributors to EPF's record gross income of RM20 billion in 2008 were loans and bonds (RM6.78 billion), equities (RM6.67 billion), and Malaysian Government Securities (RM4.94 billion).

Dividends will be credited to members' accounts on March 23.

"We are bracing ourselves for a tough year ahead as the effects of the global financial crisis continue to be felt.

"However, we believe that in every crisis, there is opportunity to be seized. The key is to remain vigilant and continue delivering results for the benefit of our members through our prudent investment strategy."

Problems in Compound Interest

2009-03-01T14:53:00.002+08:00

This article from The Star interests me from the point of view of students at USIM who are taking The Actuarial Science & Risk Management Program and The Financial Mathematics Program. It involves practical problems in compound interest. Students can prepare spreadsheets showing the numerical computations involved and provide arguments to support or disagree with the proposal. They can even provide mathematical solutions.

Sunday March 1, 2009
It pays to continue paying the same amount

PETALING JAYA: Should houseowners take advantage of the lower base lending rate (BLR) and enjoy more disposal income with lower monthly home loan repayments? Or should they pay the same amount and complete their loan repayments faster?

Financial planners urge homeowners to opt for the second option if their income level has not been affected by economic downturn.

By shortening the tenure of their loan repayment period, they pay significantly less interest in the long run.

Based on the expected reduced BLR of 0.4% which comes into effect next week, a borrower with a RM200,000 home loan over a tenure of 20 years stands to save more than RM19,000 if he continues to pay the same amount.

On the other hand, he will save only close to RM11,000 if he reduces his monthly payment in keeping with the lower BLR (see chart).

Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) from 2.5% to 2% on Tuesday to allow for more disposable income in the hands of the public, which translates into a lower BLR. This follows a cut in OPR by 75 basis points to 2.5% last month.

Financial planner with MAAKL Mutual Rajen Devadason says individuals who still have their jobs and normal income levels should maintain their monthly repayment sum as each ringgit channelled towards the home mortgage will reduce the interest component.

“However, for those in dire straits, maintaining the loan tenure while reducing the monthly payments will help them reduce their monthly outflow of cash. So, what to do depends upon the current circumstances of the individual,” he adds.

The World's Economy

2009-02-26T07:37:00.003+08:00

I got this from another website. This kind of warning about the world's economy have been going on for quite sometimes. Many take them seriously but most ignore them. They would go about their lives as if everything is normal and things would go back to normal at the end of each cycle.

To me it is just like one of those Ponzi schemes. One day it will just collapse. The only thing is we do not know when it will collapse. We cannot really picture what will happen when the whole thing (the economy of the world) collapses. Perhaps, this together with global warming, and the strange movements of the planets will be the end of the world as promised by Allah in the Quran.

The Monetary Domino Effect

Wednesday, 25 February 2009 23:46
Do not believe what our homespun economists predict about the domestic economy; in fact, don’t believe what any economists predict at all, period.

Consider this scenario. The biggest creditor in the entire world has never ever had a balanced budget before. This is because a central government will not risk stagnating a robust economy just to show that it is capable of balancing its budget. Neither will it risk turning a bullish market bearish. A small deficit is always good for the economy because it exhibits a potential for further growth, money well spent one would say.

Look at the US of A, the biggest importer of finished goods and raw material the world has ever seen. To finance this venture, the banks have to extend credit to the importers as one need to sell off its wares before showing a profit on the bottom line. We are not talking about a couple of billion greenbacks here. American import figures exceed the trillion mark every year. Now, having understood this, one would ask just where do these financial institutions get the money to loan it to these importers? The answer is the US Federal Reserve.

Money does not grow on trees and a government cannot just run it off the printing press as need be. There is after all such a thing called inflation. The more cash flooding the market, the higher the purchasing power and when demand outstrip supplies, the intrinsic value of goods escalates and henceforth inflation. So, in order to finance this endeavor without inflating the economy, the US Federal Reserve created Treasury Securities (TS), which are in fact governmental public debt financing instruments. There are four types of TS, namely Treasury Notes, Treasury Bills, Treasury Bonds and Treasury Inflation Protected Securities (TIPS). All in all, money is suddenly created from debt.

First, we look at T-Bills. Maximum one-year maturity zero-coupon bonds (no interest upon maturity) that are traded at a discount to create a positive yield. T-Notes and T-Bonds have a longer maturity period but these possess a market-controlled coupon payment twice a year. TIPS are basically inflation-indexed bonds whereby the constant coupon rate is adjusted to the Consumer Price Index.

So, who buys these TS to create the money for the US Federal Reserve to loan to the banks? In the US, it is these same banks that purchase them. The other major investment firms that acquire them also finance these purchases through their banks. All national central banks also invest in them to hedge their currencies against the US Dollar. Suddenly un-backed money is literally created from thin air. Not too bad a thing because these debts are created to expand the economy and to generate more income.

TS are also the means for the government to finance their budgetary deficits and here is the start of all our current troubles. When we mention US Budget Deficits, we are looking not at a few tens of billions US dollar but rather something like 800 billion greenbacks for 2008 alone. To provide a perspective of what USD800B is like, the entire Malaysian Budget for the last decade (2000-2009) is only worth RM1,290.3 billion or USD368.7 billion – less than half of what the US 2008 Budget Deficit is. Still cannot visualize it? Imagine winning the Big Sweep (RM3 million) every month without fail for the next 77,778 years. Get it now? Imagine just how big a hole the US Government had dug for themselves and in the same process, for the rest of the world as well.

Because of these baseless funds used to finance their imports, the exporters from all over the world enjoyed more profits. Trade surpluses are evident once a nation exports more to a country than it imports from. When a nation earns more than it spends, the monetary value of its currency grows stronger and inflation creeps up as well. To offset this, more new local money is introduced into the system to balance things up a bit and to ensure that the value of its exports remain low and stable. This mirrors exactly what the US is doing, albeit for different reasons, but with the same consequences.

Come one fine day and the US faces an Economic Tsunami because there is only so much “unwarranted” money that the system can withstand before it breaks down. Well, that day has arrived and henceforth the credit crunch, and when the US economy goes downhill, all global economies follow suit. Domestic economist might say that the Malaysian economy is decoupled from the US economy and henceforth the impact will be minimal. BS! During those years of trade surpluses and high growth, the Ringgit became stronger. Bank Negara Malaysia (like all other central banks in Asia) had to keep it low to sustain the growth rate that was primarily propelled by exports. This is achieved by the introduction of new money into the Malaysian market. Now that the exports are no longer there, this “new money” is still floating around, fiat money not backed by gold, an almost exact scenario replicating the US economy. Will it affect Malaysians the same way it affected the Americans? Definitely so because the Laws of Economics follow the same principles no matter where it is applied and doubly so because BNM would have also invested in these American TS instruments – the major factor because US Dollars are the defacto international trading currency.

The ultimate conclusion is that there is no avenue of escape from the impact of the US credit crunch and its thereafter consequences no matter what anybody tells you. It is akin to a domino effect whereby the first toppled domino will take out the next in line and so forth. Malaysia might be way down the line but the effects will be encountered here nonetheless. It is just a matter of time. Subsequently, what are the consequences?

Next stop, hyperinflation.

- Hakim Joe

Ponzi Scheme Victim

2009-02-19T11:11:00.002+08:00

This article, also from The Time Magazine tells of one case where a person and his family got wiped out financially through participation in the Ponzi scheme created by Bernie Madoff. The interesting thing is that, even with the tight regulatory situation in the US and the supposedly highly educated nature of the rich there, such scheme is still able to operate and convince people to participate in it.

Beware Malaysians!!! Such schemes are also going on in Malaysia.

How I Got Screwed by Bernie Madoff
By Robert Chew Monday, Dec. 15, 2008

The call came at 6 p.m. on Thursday, Dec. 11. I had been waiting for it for five years. When the call finally arrived, it was my wife Sarah who answered. What the person said on the other end of the phone was both simple and devastating: we were financially wiped out.

Of course, I knew this instantly from the look on my wife's face. Her words to the caller, the person handling our financial matters, grew insistent: "You're joking? This is a joke, right?"

We didn't know it yet, but we had been playing in the Bernard Madoff Investment Securities LLC Fantasy Financial League. It began when we sold our home at the peak of the market, collected what was left from an old divorce, found other monies and then, with a combination of pleasure and trepidation, handed over our life savings to someone named Stanley Chais, the Los Angeles network organizer for a man named Bernard Madoff.

Of course, we never heard the name Madoff — which has a peculiarly Dickensian ring now — and had no idea how he achieved such fantastic returns over the past 40 years. All we knew was that my wife's entire family had been in the fund for decades and lived well on the returns, which ranged from 15% to 22%. It was all very secretive and tough to get into, which, looking back, was a brilliant strategy to lure suckers. Unlike the usual Ponzi mechanics, the fund even stopped investments into accounts a few years back, at least in our network. There were the usual warnings prior to investing — we all knew it was a risk, we were told to make sure we were diversified, blah-blah — but, my God, it had been going strong for so long and with such fantastic returns, we had to get in. The Securities and Exchange Commission even gave Madoff a clean bill of health several years ago, we now find out. Well, maybe not a clean bill, but it didn't shut him down either. In the topsy-turvy world of investment, we were quietly, richly safe. Until the call. (See the top 10 worst business deals of 2008.)

I think everyone knew the call would come one day. We all hoped, but we knew deep down it was too good to be true, right? I mean, why wasn't everyone in on this game if it was so strong and steady? We deluded ourselves into thinking we were all smarter than the others. When it came to the investment game, we had it figured. And what was the game anyway? The way it was vaguely described to us was that the "New York people" had a system whereby they placed a series of instant trades — at once with futures, currencies and stocks — and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return. Man, these guys were good.

But of course the call did come, as it always does with such things. It was not an ordinary Ponzi scheme we were all part of; it was the biggest in the history of the world, valued at some $50 billion. Lucky us. Small investors, institutions, hedge funds, global banks, pension funds — all fell victim to usual suspects: a smooth huckster and greed.

You never want to hear the words that come with such a phone call. "We are all wiped out." But they came, and we went numb. We lost, on paper, $1.2 million. My wife's family's combined losses are close to $30 million. We're talking old ladies and men, lawyers, children with Madoff trusts, students in college and an array of others who thought they had the world beat — and they did, at least for a time.

Now, we, they, everyone in this fraud, are all wiped out. Even Stanley says he's lost everything. It's the kind of news that's been known to cause shortness of breath, sudden cardiac arrest, revolvers pulled from bedside drawers. It harks back to December of 1929 and the image of bodies falling from buildings. But what can you do? (See the top 10 scared stock traders.)

There's a line from The Shawshank Redemption that is apropos. It's spoken by Tim Robbins' character: "Get busy living or get busy dying." We've lost it all, but we're choosing to get on with living.

Robert Chew, a former Madoff investor, lives in Colorado

Ponzi Schemes

2009-02-19T10:43:00.002+08:00

The following article from Time Magazine has hit the limelight recently. It should be read by all Malaysians who have been known to participate in similar schemes in Malaysia. My previous posting told of Malaysian government servants being involved in such schemes.

There are, however genuine multi-level marketing schemes that encourage participants to market genuine products. These would be similar to setting up stalls to sell the products. However schemes that promise extremely high returns are definitely designed to attract a larger crowd and the final outcome is usually the benefit of the few at the expense of the many.

Ponzi Schemes
By Alex Altman Monday, Dec. 15, 2008

The $50 billion Ponzi scheme allegedly masterminded by former Nasdaq chairman Bernard Madoff punctuated a miserable year for Wall Street in the worst possible way: by underlining, yet again, that savvy market-makers can harness arcane financial instruments as weapons of mass destruction. Left in Madoff's wake are bankrupt investors, mortified regulators and a raft of unnoticed red flags. Madoff's methods previously had been investigated by the SEC, and in 2001, a prescient article raised questions about his inscrutable strategies: "Madoff's investors rave about his performance — even though they don't understand how he does it," wrote Barron's Erin Arvedlund, who quoted a "very satisfied investor" as conceding, "Even knowledgeable people can't really tell you what he's doing." But for investors pocketing windfalls, the lure of easy money outstripped suspicions raised by Madoff's shroud of secrecy. When that shroud was lifted, however, Madoff's investment fund stood revealed as a classic Ponzi scheme: a con game in which the illusion of solvency was created by paying off early investors with capital raised from later entrants. As long as new investment continued to come in the door, the earlier adopters reaped fat rewards; once markets tumbled and investors withdrew, however, the whole thing collapsed like a house of cards.

Though a Boston businessman named Charles Ponzi was the scam's namesake, he wasn't its original practitioner. According to Mitchell Zuckoff, a Ponzi biographer, the reigning king of the "rob Peter to pay Paul" scam was a New York grifter named William Miller, who bilked investors out of $1 million — nearly $25 million in today's dollars — in 1899. After drumming up interest by claiming to have an inside window into the way profitable companies operated, Miller — who earned the nickname "520 percent" due to the astonishing rate of return he promised investors over the course of a year — salted his scam by paying out the first few investors. After his racket was exposed by a newspaper investigation, he was sentenced to 10 years in prison. According to Zuckoff, his creditors got just 28 cents back for every dollar they'd invested. (See the top 10 scandals of 2008.)

Ponzi was a charismatic Italian immigrant who, in 1919 and 1920, coaxed thousands of people into shelling out millions of dollars — including a staggering $1 million in a single three-hour period — to buy postage stamps using international reply coupons. This strategy, Ponzi promised, enabled one to purchase postage at European currencies' lower fixed rates before redeeming them in U.S dollars at higher values. "For instance," Zuckoff explained in a Dec. 15 article for FORTUNE, "a person could buy 66 International Reply Coupons in Rome for the equivalent of $1. Those same 66 coupons would cost $3.30 in Boston," where Ponzi was based. But there weren't enough coupons in circulation to make the plan workable. The ploy bore the hallmarks of both Miller's scheme and others to follow it: it trumpeted the possibility of massive gains (Ponzi promised a 50% return in just 90 days), parried questions about its legitimacy by paying out the first few investors, and collapsed when Ponzi couldn't rustle up enough fresh marks to keep up with the money going out the door.

Ponzi, who was released from prison and deported back to Italy in 1934, set the standard in the genre. But the golden age of Ponzi and pyramid schemes didn't arrive for decades. (The two highly similar cons are often conflated, though in Ponzi schemes, a ringleader facilitates the entire enterprise; in a pyramid scheme, rungs of collaborators recruit new investors.) In the boom years of the 1980s and '90s, as traders developed increasingly sophisticated investment vehicles, the cons cropped up with increasing regularity. In 1985, a San Diego currency trader named David Dominelli was revealed to have fleeced more than 1,000 investors to the tune of $80 million. During the 1990s, a Florida church called Greater Ministries International bilked nearly 20,000 people out of $500 million in a pyramid scheme hatched by leader Gerald Payne, who claimed God would double the money of pious investors. (Dominelli pleaded guilty and was sentenced to 20 years in prison, while Payne was convicted and sentenced to 27.) The spate of incidents wasn't limited to the U.S., either. When communism crumbled in Eastern Europe, one of the earliest side effects of free-market capitalism was the proliferation of people looking to get rich quick. In Albania, under Communism the poorest nation in Europe, citizens sank some $1.2 billion dollars into pyramid schemes in 1996. When they collapsed the following year, investor outrage brought down the government.

This ignominious group has had some high-profile recent entrants, including Democratic fundraiser Norman Hsu, who was charged in October with operating a $60 million Ponzi fraud, and former boy-band impresario Lou Pearlman, who in addition to foisting N'Sync on an unsuspecting public also stole $300 million in investor capital over two decades. Earlier this month, Minnesota businessman Tom Petters was indicted by a federal grand jury on 20 counts of fraud, conspiracy and money laundering stemming from his alleged role in a 13-year, $3.5 billion Ponzi ring. Still, the $50 billion fraud Madoff allegedly perpetrated is the most egregious Ponzi scheme to date—unless you subscribe to an argument advanced by financial consultant Janet Tavakoli. In a neat summary of the anger millions of people are channeling toward Wall Street, Tavakoli wrote on her company website: "The largest Ponzi scheme in the history of the capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors—a Ponzi scheme by every definition applied to Madoff." By comparison, she wrote, the fallen fund manager is just "a piker."

Britain's First Islamic Motor Insurance

2009-02-18T19:18:00.003+08:00

This article appears on Islamonline.net and should interest many students of insurance. The Islamic insurance product is marketed online as many insurance products nowadays are. In Malaysia, more and more people are turning to Islamic insurance for their motor insurance and many insurance companies now offer takaful (Islamic insurance) motor insurance.

Britain's First Islamic Motor Insurance

By IslamOnline.net & Newspapers

CAIRO — A London-based Islamic insurance firm has hit UK roads with a Shari`ah-compliant car insurance product that immediately attracted Muslim and non-Muslims for its ethical nature.
"There has been a lot of interest," Kaye Pimblett, motor insurance manager at the price-comparison Moneysupermarket.com site, told The Independent on Sunday, February 15.

"During its first seven days on Moneysupermarket.com, Salaam Halal returned more than 37,000 quotes," she added.

"And when they returned a quote, they appeared in the top three positions on over a third of occasions."

Salaam Halal Insurance has launched the new motor policies through Moneysupermarket.com and its own website.

The new product is based on the Takaful principle, which requires all participants to share risk equally and addresses key features associated with conventional insurance that is incompatible with Shari`ah.

Instead of premiums, people taking out a policy with Salaam Halal pay contributions into a pool and that money is then put into Shari`ah-compliant investments.

The central pool of funds is used to pay any claims that arise, and at the end of the year, if the pool is over-funded, the surplus will be redistributed to policyholders through a discount on their next premium.

But if claims outweigh contributions, shareholders pay excess claims and they recover their money in times of profit.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Ethical

The new product has been a great welcome to British Muslims, who were longing for insurance product that complies with their faith.

"Salaam Halal car insurance appealed to me as it is competitively priced, but most importantly, it's compliant with the Muslim faith, something a have never had before," said Hassan Ahmed, a Muslim client.

Britain is home to a sizable Muslim minority of nearly two millions.

Salaam Halal Insurance, Britain's first Shari`ah-compliant insurer, was launched last July to offer policies in line with the Muslim faith.

The nascent firm also plans to launch home insurance policies shortly.

The ethical nature of the Salaam Halal product has proved appealing to non-Muslims as well.

"What is unique is the ethical nature of what we do," Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance, told The Independent.

"It's a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike."

Emile Abu-Shakra, a spokesman for Lloyds Banking, said the new product attraction is part of the popularity of Islamic finance services.

"Although as a market UK Islamic finance is in its infancy, it's still set to become big business," notes Abu-Shakra, whose bank has pioneered Islamic finance in the UK.

"We offer Islamic current and business accounts, mortgages and investment funds," she added.

"We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year."

In recent years, London has established itself as a hub of Islamic finance.

There are four licensed wholesale Islamic banks - the only ones in the European Union - in Britain.

There are also 21 conventional banks offering Islamic banking products, the newest of which is Gatehouse, which has received its license in April.

Retirement Plan

2009-02-15T10:56:00.002+08:00

It is not the intention of this posting to promote this retirement plan, but this article is related to what is being taught in most actuarial science programs. The idea is to have a program that guarantees an income for life after retirement, that is funded by contributions during the working years. Students in actuarial science would be able to work out the monthly contribubtions to be made during the working years that would provide a guaranteed monthly income during the retirement years. Provisions should be made for inflation because this planning involves a very long period of up to 50 years and inflation can eat up all the savings and potential income from the plan. To give a rough idea, at an inflation rate of 7%, an amountof money now will double in ten years time. So, RM1,000 in ten years time will buy approximately the same thing as RM500 would buy now.

Individuals have to plan for their retirement years and a guaranteed income for life will go a long way to providing financial security during those years. Insurance and takaful companies should design the most appropriate plans to be marketed to consumers. At the same time, individuals who are working now must be made aware of the importance of making contributions now so that they will have enough income during their retirement years.

These savings for retirement will create a huge pool of capital for investment.

Surah Yusuf verses 43 to 55 in the Quran tells the story of Prophet Yusuf who interpreted the dream of an Egyption king to mean that the country must work diligently for 7 years and save some of the harvests to be used during the next 7 dreadful years. This can be likened to the retirement planning required by each individual.

Below is the article:
Malaysia: Prudential Launches New retirement Plan
Business 2008-11-13 16:37
KUALA LUMPUR, MALAYSIA: Prudential Assurance Malaysia Bhd has launched its latest regular premium investment-linked plan designed for retirement.

The plan, the PRUretirement accumulator, offers a guaranteed monthly income to customers on retirement besides capital protection.

Its chief executive officer, Bill Lisle said the new plan is ideal given the current economic backdrop and high inflationary prices.

"Our recent independent survey, the Prudential Retire-Meter 2008, found that 48% of Malaysians fear they might not have enough money to take care of retirement needs in view of the current high inflation," he told reporters when unveiling the new plan Thursday (13 Nov).

The PRUretirement accumulator functions in two distinct stages - the accumulation and payout stages, where terms for both are determined by the customers at policy inception.

In the accumulation stage, the monthly premium paid by the customer will be invested for a fixed period ranging from five to 40 years.

Premiums for the plan start from RM100 per month.

At the end of the accumulation stage, the customer will begin to receive a stream of guaranteed monthly income over a specific number of years known as the payout stage.

The plan also gives customers greater control over their funds by providing the flexibility to make withdrawals during both the accumulation and payout periods as well as the option to top up premiums to match growing retirement goals.

Beyond its savings benefit, the Pruretirement accumulator also ensures that the customer is covered for misfortunes such as death or total and permanent disability.

The PRUretirement accumulator is the second retirement specific product developed by Prudential after the launch of the highly successful PRUlink income, a single premium investment-linked plan at the end of last year. (Bernama)

MySinchew 2008.11.13

Get-rich Schemes

2009-01-30T16:18:00.003+08:00

This news item is very disturbing indeed. The question I would like to ask is why do these people believe in such schemes? I understand that the promoters of these schemes are very convincing even to the extent of taking prospective members on trips to see their economics projects that they claim are the sources of their income that they distribute to the members. Some even claim that they have rich donors from the middle east who would help them to make the payments to members.

If so many people are influenced by such promises, studies must be made to expose the flaws of the claims.

Efforts must also be made to expose the false claims made by the operators and to show to each individual how these schemes are actually just victimizations of the many to benefit the few. This could be done in a mathematical way so that no one will believe that these schemes are viable.

50,000 civil servants involved in get-rich-quick schemes

KUALA LUMPUR: More than 50,000 government employees are believed to be actively involved in promoting dubious “get-rich-quick” schemes.

Worse, many senior officers and heads of department were encouraging their subordinates to participate in such schemes, which promised quick and multiple returns for a small investment, said Cuepacs secretary-general Ahmad Shah Mohd Zin.

He said that Cuepacs was very concerned with the development as it eroded the people’s confidence in the civil service.

He said that the problem was so serious that the Public Services Department (PSD) had issued a special circular banning civil servants from joining such schemes.

Circular 2/2009, signed by PSD director-general Tan Sri Ismail Adam, took effect on Jan 13 and bans all categories of civil servants from promoting, participating or investing in such schemes.

The circular, which also covered those in statutory bodies, local authorities and state government authorities, also instructed those involved in such schemes to cease their activities immediately or face disciplinary action.

It said that the participation by a large number of civil servants in such schemes could mislead the public into thinking that the schemes were approved by the Government.

The circular described get-rich-quick schemes as a marketing method which promised high returns with a small investment while the organisations that promoted such schemes were not registered with any licensing authority.

The Federation of Malaysian Consumers Associations (Fomca) fully supported the Government’s move to ban civil servants from these activities.

Its secretary-general, Muhammad Shaani Abdullah, said the schemes were not only promoted by Malaysians but also foreigners through the Internet.

The schemes were usually based on the multilevel marketing model where early entrants gained more than those who join later.

Muhammad Shaani described the schemes as a “victimisation of the majority by the minority early birds.”

He said these schemes thrived on greed and eroded the true business value of honesty and fair play.

Ahmad Shah said that although the Government had given permission to some civil servants to engage in business on a part time basis, it did not mean that they should get involved in dubious activities. -- Bernama

EPF Conversion to Pension

2009-01-19T21:46:00.003+08:00

My comments are posted at the end of the article

Published: Monday January 19, 2009 MYT 4:43:00 PM
EPF conversion to pension not viable

KUALA LUMPUR: The proposal to convert the Employees Provident Fund (EPF) scheme to a monthly pension scheme for private sector employees is not viable as individual savings are too small.

Malaysian Trades Union Congress (MTUC) secretary general G. Rajasegaran said that on average, savings of the majority of the seven million private sector employees in the EPF upon retirement was less than RM50,000.

"Assuming the retiree lives for the next 20 years and if this savings was given to him in monthly installments instead of one lump sum, he would receive about RM214 monthly as pension," he told Bernama on Monday.

He said this amount was definitely insufficient for the retiree to sustain himself.

Rajasegaran was commenting on a statement by Human Resources Minister Datuk S. Subramaniam that the cabinet had given the green light to the ministry to study the possibility of converting the EPF scheme to a pension scheme for private sector employees.

Public sector employees in Malaysia are already enjoying a pension scheme, including free medical treatment at government hospitals for life.

Rajasegaran said the proposal was nothing new, as this was discussed between the MTUC and EPF Board more than 15 years ago and no viable solution had been found, so far.

Meanwhile, the Malaysian Employers Federation (MEF) suggested that to make it viable, the government should give the employees an option either to withdraw their savings in a lump sum or on a monthly instalment basis.

Its executive director, Shamsuddin Bardan, said savings in the EPF rightly belonged to the employees and they had a right to do what they wanted and the government could not decide for them. - Bernama

It looks like a brick wall here. If the savings are too small to be converted to a pension, does allowing the retirees to draw all the money at retirement help them? Assuming the figures given are correct, and the retirees use the savings for spending during retirement at a higher monthly rate of RM1000, the savings would be finished within 55 to 60 months. What would this retiree do for his expenditure for the rest of his life?

There may be some retirees who have RM200,000 to RM300,000 in their account at retirement. Would allowing these retirees withdraw the lump sum at their retirements help them?

Efforts must be made to increase the amount in their savings at retirement. One way is to increase the monthly contribtions from the current 11% for employees and 12% for employers. A more reasonable rate would be 15% for employees and 20% for employers. This may seem a big burden to both employees and employers but we have to make this choice if we want to plan so that the retirees have enough money at their retirements.

Next the retirement age for private sector employees will have to be raised to 60 or 65. In this way, there will be more years for the contributions to be made,thus accumulating to a higher amount and less years in which to spend the savings, resulting in a higher monthly pension.

ASRiM Seminar

2009-01-19T15:14:00.006+08:00

The Actuarial Science and Risk Management (ASRiM) seminar was successfully held on 12 January 2009. Three papers were presented. They are

1. Financial Planning and Wealth Management by En. Ahmad Sanusi Hussain
2. The Prospect and Challenges in Takaful: The need to Reinsure the Risk on a Conventional Basis by Jefferey Zain, FSA
3. Watson Wyatt Integrated Financial Planning by Prof. Jeyaraj Vadiveloo PhD, FSA

The participants include those from industry and students from USIM, UM, UKM, and UiTM.

Improved pension benefits

2008-12-26T15:32:00.002+08:00

This news article from The New Straits Times tells us that the government can afford to pay an extra RM1.3billion next year to pensioners because of revision in the rules pertaining to pension payments to retired government servants and their family members, after their deaths.

Among the changes made are that the maximum amount of pension is increased from half of last drawn salary to six tenth of last drawn salary. Also the payment to spouses and eligible children of deceased pensioners after 12.5 years, will be increased from the current 70% of the retiree's pension to a full 100% of the retiree's pension.

These are very good improvements to an already excellent pension benefits to civil servants.

The only setback to the government pension scheme is the lack of vesting and guarantee. A government servant who decides to leave the government service after a substantial number of years will not get any pension benefit and neither will benefit from contributions to EPF for his/her past services. This may not encourage staff with good opportunities to serve outside the government to leave. Also if the retiree falls foul of the law to the extent that the pension benefits can be withdrawn the whole pension benefit is withdrawn and the family members will suffer during their years of needs.

Additional RM1.3b for pension benefit

PUTRAJAYA: The government will spend an additional RM1.3 billion on remunerations, gratuities and other benefits for more than 500,000 retirees and dependants next year.

This year, the pension benefit payout is estimated at RM7.6 billion.

Pension Department director Datuk Yeow Chin Kiong said additional expenditures would have to be incurred following the implementation of several new benefit and derivative pension schemes as well as revised pension formula as endorsed by the government.

Beginning January, under a revised formula, pension will be computed based on a maximum of 30 years of service as opposed to the current 25 years.

The government has also agreed to restore derivative pension to 100 per cent to those who receive 70 per cent after 121/2 years from the date of retirement or death of a civil servant.

Also from January, a mother or father of an unmarried civil servant who died while in service will be paid an ex-gratia in one lump sum.

"This is the best offer pensioners or their dependants could ever have hoped for. Pension is like a lifetime gratuity.

"The government, taking into account affordability, could pay the significant increases despite the current economic climate," Yeow told a press conference in his office yesterday.

The department also anticipated a "change in heart" in some 66,000 civil servants who had opted for the Employees' Provident Fund prior to the implementation of the revised pension perks.

"I believe more than half of them will opt for pension scheme in view of the better and improved benefits," he said, adding that civil servants have until Feb 1 to do so.

"The government would also spend about RM32 million on 1,989 retirees who had migrated next year. "In the past, we did not pay non-resident retirees."

Yeow said most of the retirees migrated to follow their children or work overseas.

Retirees or dependants who have doubts or queries can call the department at its hunting line at 03-88854906, or Yeow's assistant director Ahmad Nizam Norati at 03-88854125.

They can also surf its website at www.jpapencen.gov.my or go to the department's branch office on the fifth floor of the Maju Junction Hall in Jalan Sultan Ismail or the Public Service Department headoffice at Presint 1 here.

These "goodies" were among improved pension perks revealed by Prime Minister Datuk Seri Abdullah Ahmad Badawi at a public sector Workers' Day gathering in May.

Among others, Abdullah had said the government decided to raise the retirement age from 56 to 58 in view of the longer life span of Malaysians.

In recognition of their contributions to the country, Abdullah had also said retirees with at least 25 years of service would be given RM720 in pension, also effective January.

Visit to Bank Negara Malaysia

2008-12-26T12:14:00.002+08:00

On Wednesday 24th December 2008 the third year students of the Actuarial Science and Risk Management (ASRM) program at Universiti Sains Islam Malaysia (USIM) visited Bank Negara Malaysia (BNM). They were given a briefing on career opportunities for ASRM students at BNM. According to the speaker, graduates in ASRM can apply for employment at BNM throughout the year. They must obtain a cumulative grade point average of at least 3.0 before they can be considered for selection. This is an opportunity for students who are interested in a career at BNM and for those who are still below the qualifying requirements of 3.0, they can start improving their grades from now - they still have two semesters of coursework to improve their grades.

BNM is a very good employer and has excellent facilities for their staff. Their requirements for graduates in actuarial science and risk management could be met by ASRM students from USIM.

At the end of the visit students were treated to a nice tea and cakes at the executive cafeteria.

Research in Islamic Finance

2008-12-11T09:11:00.002+08:00

This is an area for USIM to show its capabilities. The Actuarial Science and Risk Management Program combined with the Financial Mathematics program can develop substantial research expertise. USIM also has within its campus the World Fatwa Management and Research Institute (INFAD) and the Faculty of Economics and Muamalat that can help strengthen research in Islamic Finance.

KFH Research bags Islamic finance award

KFH Research Ltd, a wholly owned subsidiary of Kuwait Finance House (KFH), won the recognition as the "New Provider for Islamic Finance Research" from an Islamic finance conference organisers. It received the award from Dow Jones Islamic Market Indexes (DHM), International Institute of Islamic Finance (IIIF) and the Kuala Lumpur Islamic Finance Forum (KLIFF) 2008. Second Finance Minister Tan Sri Nor Mohamed Yakcop presented the award in conjunction with the 5th KLIFF. The team's research coverage includes economics and financial analysis in the GCC, Asia and US/Europe, currency strategies, GCC sectoral coverage and research advisory in Islamic finance, KFH Research said in a statement. KFH Research is led by Baljeet Kaur Grewal (picture) who is its managing director and vice chairman.

BBA vs Musyarakah Mutanaqisah

2008-12-11T09:01:00.004+08:00

The following article by Habhajan Singh is related to his previous article which I posted in this blog. There seems to be some differences in method of implementation but I wonder whether the financial commitments of purchaser and financier are any different.

http://islamicfinanceasia.blogspot.com/

Monday, December 8, 2008
RHB Islamic phases out ‘disputed’ BBA financing
By HABHAJAN SINGH
RHB Islamic Bank Bhd has completely phased out Al-Bai Bithaman Ajil (BBA) in favour of the musharakah mutanaqisah concept for its home financing products. This probably makes it one of the first local Islamic subsidiaries of local banks to move away completely from BBA which has been under increasing scrutiny over the years.
The move by RHB Islamic, one of the 17 Islamic banks including Al Rajhi Banking & Investment Corporation (Malaysia) Bhd and Maybank Islamic Bhd licensed by Bank Negara Malaysia (BNM), signals a shift in the local Islamic home financing front away from BBA.
"RHB Islamic has taken a stance of phasing out products and services based on BBA or bai al-inah with effect Oct 1. This is based on (its) Shariah committee's advice to adopt globally accepted Shariah principles," RHB Islamic Head of Shariah Division Ahmad Suhaimi Yahya told The Malaysian Reserve.
He added that the move is in tandem with the bank’s strategy to position itself as the banker of choice for local and international customers looking for Shariah-compliant financial products and services. This is in reference to the fact that BBA, with underlying concepts of bai dayn (debt trading) and bai inah (sale with imediate repurchase), are shunned in jurisdictions like the Middle East and Pakistan. BBA, which may involve the two concepts, is a deferred sale contract for a sale price that includes the profit, with a repayment period agreed beforehand.
For so many years, local Islamic banks have made BBA the linchpin when carving out Islamic financing, which now stands around RM143.4 billion.
The Islamic banking assets, according to latest statistics from the central bank, have expanded by 23% to RM234.9 billion compared to a year ago. The Islamic banking industry now accounts for 16.7% of total assets in the industry. It is understood that other banks are also in the midst of preparing to put on the shelf more home financing offerings that are not based on BBA contracts.
The recent major trigger for the move away from BBA was the July 18 written judgment by High Court judge Justice Datuk Abdul Wahab Patail in Arab-Malaysian Finance Bhd vs Taman Ihsan Jaya, first reported by The Malaysian Reserve on Sept 8.
The judgment, a collective ruling on 12 cases now pending an appeal, sent shockwaves in the local Islamic banking fraternity as they began deciphering its impact.
For starters, the judge had ruled that the application of the BBA contracts in those cases were contrary to the Islamic Banking Act 1983 (IBA). The judge ruled that since some BBA contracts were structurally faulty, defaulters need not pay more than the original financing amount that they received, depriving banks of the profit they would have otherwise booked from the transaction.
Bankers fear that this judgement could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion.
Following the High Court ruling, BNM sent a circular dated Sept 8 to heads of Islamic financial institutions to "strongly advise" them to review their heavy reliance on the BBA concept in their transactions.
The circular noted the industry's seeming over dependence on BBA, adding that BBA is a Shariah concept introduced more than 20 years ago to facililtate growth and development of Islamic finance.
At its end, RHB Islamic is offering Equity Home Financing-i to its customers based on diminishing musharakah or musharakah mutanaqisah as an alternative to the earlier BBA home financing.

EPF is affected by the Stock Market too

2008-12-04T09:44:00.004+08:00

This article in The Star shows that performance of EPF's investment is affected by the ups and downs of the stock market too. Thus the return that EPF can provide for its members can be affected by the performance of the stock market. This is because the EPF invests quite substantially in the stock market.

Risks due to investment in the stock market is substantially reduced if the amount that is allowed to be withdrawn from the EPF is invested in a well managed unit trust fund. It has been shown in the past that the performance of a good unit trust fund has always exceeded that of the EPF over the long term.

Thursday December 4, 2008
EPF Q3 income dips 60%
By YVONNE TAN

PETALING JAYA: The Employees Provident Fund’s (EPF) total investment income for the third quarter (Q3) fell 60.4% to RM2.06bil from RM5.2bil in the previous quarter (Q2) as its investments, especially equities, were affected by the global economic uncertainty.

The EPF said in a statement yesterday income from equities in the June to September period fell by more than half to RM1.26bil from RM2.54bil in the preceding quarter.

In line with accounting best practices and as a conservative provisioning policy, the EPF also made allowances amounting to RM2.29bil for diminution in the value of equity investments due to the deterioration in market value compared with RM416.7mil in Q2.

“The outlook in the fourth quarter is likely to reflect the full-scale impact of the global meltdown, although there is still hope for the Malaysian equity market to bounce back,” chief executive officer Datuk Azlan Zainol said yesterday.

Azlan believed Malaysia’s competitive edge would help sustain the economy during these difficult times.

The EPF said due to the current global economic uncertainty, stock markets across the globe had fallen significantly, including the local equity market.

Bursa Malaysia’s market capitalisation during Q3 shrank by about RM200bil to RM770bil.

In the same period, the KL Composite Index fell 243.81 points, or 19.3%, to 1,018.68.

On the investment income of RM2.06bil in Q3, the EPF said it was predominantly driven by Malaysian government securities (MGS) and loans and bonds.

In the quarter under review, the EPF received 3.1% higher returns from loans and bonds, raising income to RM1.71bil which was an increase of 3.14% or RM52.05mil from Q2’s RM1.66bil.

Its investment income in MGS rose 1.38% to RM1.217bil against the preceding quarter’s RM1.2bil.

EPF said the most of Q3 investments were in the trade and services sector and the finance sector comprising 38% and 33.9% of total equity investments respectively.

The next largest Q3 equity investment was in the plantations sector, representing 8.5% of total equity investments.

Money market instruments provided an income of RM142.25mil, down 49.21% from RM191.46mil in Q2.

Investments in properties yielded returns of RM21.53mil, down from RM22.66mil in Q2.

“The EPF will always maintain a policy of low-risk investment decisions. As a national premier pension fund, we cannot afford to take on high risk investments,” Azlan said.

Actuarial and Financial Mathematics Seminar at USIM

2008-12-03T15:32:00.003+08:00

The Faculty of Science and Technology at University Sains Islam Malaysia (USIM) will be holding a seminar in Actuarial Science and Financial mathematics on 12 January 2008. One of the presenters will be Prof. Dr. Jeyaraj Vadiveloo who is a Watson Wyatt Professor at The University of Connecticut, Storrs, USA.

This seminar is being organized by the final year students of the BSc Honours in Actuarial Science program at USIM.

EPF better than stock Market?

2008-12-03T15:24:00.001+08:00

See if this article from The Star makes any sense to you.

Wednesday December 3, 2008
EPF better than stock market

It never gives negative returns

IN general, most people have the impression that the money placed in the Employees Provident Fund (EPF) always generates lower returns compared with the returns from their own investments.

In this article, we will look into the returns from EPF versus returns from the KL Composite Index (KLCI). We assume that investors are able to generate their own returns equivalent to the returns from the KLCI.

Based on our 23 years of data compilation, it is generally true that the average returns generated from EPF are lower than KLCI returns. From 1986 to 2008, the average return of EPF was 6.7%, 2.3 percentage points lower than the average return of 9% from the KLCI (see table).

However, most people do not understand the risks they need to undertake when they invest by themselves. The standard deviation of EPF is only 1.5%, 22.2 percentage points lower than the standard deviation of 23.7% from the KLCI.

We use standard deviation to measure risks. Most investors only look at how to generate the extra 2.3 percentage point returns, forgetting that they need to undertake a much higher risk to generate the extra returns. The extra return is unable to compensate for the extra risks that investors need to take.

Let’s assume one investor invested RM10,000 in the EPF and the KLCI respectively at the beginning of 1986. Logically with the average KLCI return higher than the average EPF return, the fund in KLCI should be higher than the fund in EPF in most periods.

However, as the table shows, by the end of 2008 (we assume that EPF will only be able to generate a return of 4.25%), the fund placed in KLCI would have reached RM40,000 versus RM43,946 generated by EPF, a shortfall of RM3,946.

The main reason behind this shortfall is that the EPF never gives negative returns whereas the KLCI generated negative returns eight times over the past 23 years.

There is a market saying that out of 10 people who invest in the stock market, only one can make money, the others will lose money. Warren Buffett says if you want to win, you don’t lose. Hence, we disagree with some people who advise others not to place money in EPF because it generates lower returns.

In most periods, the money in EPF gets lower return than the money placed in KLCI. However, the main reason for the lower fund value in KLCI by the end of 2008 was the market crash during 1998.

The money in KLCI dropped by 47.1% to RM18,105 in 1998 from RM34,246 in 1997 whereas the money placed in EPF increased further to RM26,594 in 1998 from RM24,924 in 1997. After 1998, it took nine years for KLCI to catch up with the fund value in EPF.

Last year the fund value in KLCI (RM46,000) finally surpassed the fund value in EPF (RM42,154). However, as a result of the recent market crashes, we are anticipating the fund value in EPF to overtake KLCI again this year.

It will take a few years from now for the KLCI to catch up with the EPF again. Unless investors are constantly monitoring their own investments and are able to avoid most of the negative returns, we think it is safer to put money in the EPF rather than withdraw it for their own investments.

Government Pension Scheme

2008-11-28T09:00:00.004+08:00

Friday November 28, 2008
Pak Lah: Civil servants can go back to pension scheme
By SIM LEOI LEOI

PUTRAJAYA: Some 40,000 civil servants, who had opted for the Employees Provident Fund, can now revert to the pension scheme.

Prime Minister Datuk Seri Abdullah Ahmad Badawi said these civil servants can exercise their option to revert to the pension scheme in January.

“Their decision will take effect from Feb 1, and they will be able to enjoy all the facilities currently entitled to pensioners, such as free medical treatment. Parents of civil servants, who have passed away and were single at that time, will also receive ex-gratia payments.

“These are some of the decisions that were made following a recent meeting by the Cabinet committee on appointments and salaries for civil servants,” he said in his speech before presenting the Public Sector Quality Awards at the Putrajaya International Convention Centre here yesterday.

Other decisions taken by the committee included upgrading the salary schemes for investigating officers under the Anti-Corruption Agency and for senior, low-ranking officers and constables in the police force, and a 20% increase in pay for maritime officers.

“All these decisions will be effective from Jan 1,” he said, adding that the Government would work out the actual amount of financial allocation involved in the upgrading and salary increase later.

Cuepacs welcomed the move to allow civil servants on the EPF scheme to opt for the pension scheme, said its secretary-general Ahmad Shah Mohamad Zain.

Last week, Cuepacs president Omar Osman complained that civil servants who opted for EPF scheme did not enjoy benefits such as free medical treatment in government hospitals and gratuity payments upon their retirement.
The Star

The reason for allowing civil servants to choose the EPF sccheme was to reduce the government's long term liability for future pension payments. Now that all the civil servants who chose to be in the EPF scheme are allowed to go back to the pension scheme, has there been any calculation on how much more the government need to pay for the pensions? There should be some figures given on the long term liabilities calculated by qualified actuaries.

The idea of allowing civil servants to opt for the EPF scheme has many advantages. It allows for freer movements of civil servants to the private sector. It also protects civil servants who might run foul of the law and get their pensions cancelled. The retirees also will get one lump sum payment on retirement and if the money is managed properly will result in a prosperous retirement.

The disadvantages of the EPF scheme could be easily overcome to allow the civil servants who choose the EPF scheme to enjoy similar benefits to those who choose the pension scheme. The same medical benefits and other related benefits given to those who choose the pension scheme could be given to those who choose the EPF scheme.

The amount of money withdrawn at retirement could be increased if the contribution of the government to EPF for each employee could be increased from the current 12% to 17.5%. This would not increase the government's expenses because, as it is, the government has to contribute an amount equal to 17.5% of each employee's salary to the Kumpulan Wang Amanah Pencen for every employee who choose the pension scheme.

Muslim Gold Standard

2008-10-28T09:38:00.013+08:00

http://www.worldfutures.info/Analysis/Islamic-World/Islamic-World-Wither-a-Muslim-Gold-Standard.html
Islamic World: Wither a Muslim Gold Standard?
Written by Kazi Mahmood
Saturday, 25 October 2008

The last few times we heard of the Muslim world using Gold to replace currency was during the time of Prime Minister Tun Mahathir's reign. He was sure and certain that Gold cold bring the downfall of the paper money era.
Since then, the idea fizzled amid a few attempts at promoting Gold itself as a currency and as a means to make payments internationally. The business of gold minting in Malaysia, which started with a few companies minting gold for sale locally, went bust.

A type of Gold Dinar from UK

One wonders how doing business with gold can go bust but it is a reality in Malaysia since the people involved in the business were after the quick profit, not after the long haul of becoming rich and solid after years of patience and perseverance.

Though it is relevant to sell gold coins, it must be done with much publicity and the right approach. Trying to impose gold as the currency to be carried around does not work in the modern age. People need cards, gold cards that can help carry thousands of dollars around like in credit cards. We are in the age of the digital money too, and the gold coins providers could shift their businesses more into the cyberspace.

Now what about the gold as Islamic currency?

During that period, writing for Islamonline.net, I suggested that we use gold as the standard, not as the currency necessarily and that this will mean backing the currency we use with pure, existing gold stocks. This idea did not take up since it does not bring ready, quick bucks to any of the would be investors in this business.

Now let me tell you about the US. The much hated and much criticized US governments over the years did one right thing. They used gold as the standard and created a unique type of gold currency investment.

This gold currency investment sores in price after gold prices rise. The profit can be huge and dramatically turn the investments into windfall gains, unexpected and much wanted.

How do they do it?

Everybody knows that gold is a safe investment in times of economic chaos--that's why the U.S. mint recently ran out of gold bullion coins to sell to investors (source: The Los Angeles Times).

The US print money, paper money, to pay for its follies and yet the more it prints, the better it is for Gold prices. In that case, you do not need to own gold itself to earn the benefits of the current US policies. What you need is follow the price of gold on the market and invest in gold currencies that exists for decades in the US.

What about the Islamic world?

What the Mahathir followers in the gold coins business failed to understand is how to use a gold standard system to back the Muslim world's currencies. What the US did was to back their currency with gold standards = the US remains one of the major gold hoarding nations on earth.

Simply follow the US principle and integrate gold in the modern currency system by backing one's entire currencies on gold would have created support for gold currency standards but no one will do that since there is no 'profit' to be made by 'brokers'. That is the real problem faced in the Muslim world and it has escaped the promoters of gold currencies in countries like Malaysia.

The question is will there be a gold standard for the Muslim world? There can be such a standard only if the Arab world with the Asians and Africans in the Organization of Islamic Conference (OIC) pushes for gold to become the standard currency to be used to back the existing paper money.

Its a long shot and it may not see the light not with this generation of Muslims anyway.

BBA Financing

2008-10-06T15:12:00.005+08:00

Wednesday, September 10, 2008
BBA: Banking sector braces for impact from ruling

By HABHAJAN SINGH

The Islamic banking fraternity is bracing to face a fallout from the recent High Court rulling that the application of the Al-Bai' Bithaman Ajil (BBA), a widely used Islamic home financing contract, is contrary to the Islamic Banking Act 1983.

At the heart of the written judgement by Datuk Justice Abdul Wahab Patail is that since some BBA contracts were structurally faulty, defaulters need not pay more than the original financing amount that they received, depriving banks of the profit that they would have otherwise booked from the transaction.

Bankers also fear the judgement could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion.

The home financing facilty extended under the BBA concept runs into billions of ringgit. "It will impact (the industry) in a big way. Bankers and financiers are used to the idea that when a default takes place, they are entitled to recover the full balance of the sales price. This and the previous judgement by Justice Wahab has altered that," said a local lawyer who ranks among the pioneers in the field of Islamic finance.

Wahab's latest judgement, dated July 18, encompassed 11 separate cases involving Bank Islam Malaysia Bhd and Arab-Malaysian Finance Bhd as the plantiffs.

It is understood that the banks are appealing to the Court of Appeal to overturn the judgement which was received by lawyers involved in the case only last month.

Industry experts estimate that close to 70% of Islamic financing has been granted under the BBA concept which essentially is a deferred payment sale (the sale of goods on a deferred payment basis) at an agreed selling price, which includes a profit margin agreed on by the customer and the bank.

The BBA concept is widely used in various Islamic financing instruments, including for bridging finance, cash line facilities, contract financing, project financing and letters of credit.

Among the big local players on this front are CIMB Bank Bhd, Malayan Banking Bhd, Bank Islam Malaysia Bhd and Public Bank Bhd, all of whom have home financing facilities based on the BBA concept. Local banks like CIMB and Maybank now have full-fledged Islamic subsidiaries that handle such financing.

"Banks are worried this judgement will set off alarm bells with regard to confidence with BBA locally. As for foreign investors, they fear its potential ramification on Malaysia's efforts in becoming a global hub for Islamic finance.

"Our whole industry has been BBA-driven. Banks are fervently trying to find a solution," said an industry executive.

It is understood that the legal departments of some these banks are now trying to get their hands on Abdul Wahab's latest judgement which has yet to be published by any of the local regular sources for the legal fraternity.

On Monday, The Malaysian Reserve ran a report on Abdul Wahab's ruling followed by excerpts from the 54-page judgement the next day.

The judgement on the appplication of BBA, popular at home but much criticised abroad, is set to be another widely discussed judgement after Abdul Wahab's earlier ruling in the case of Affin Bank Bhd vs Zulkifli Abdullah, in which he passed a ruling on the calculation of the amount to be paid in the event of a foreclosure.

The 2006 case attracted much attention, and is still the subject of seminars today, as it turned on its head the way bank practitioners calculated the outstanding amount to be repaid by borrowers who had defaulted on their BBA contracts.

Some banks had calculated the amount up to the full period of the facility, even though the borrowers may have defaulted only a few years into the financing. to be fair, though, banks usually have a defaulter rebate, which is at their sole discretion.

"The effect of this judgement is that customers are obliged to pay only the principle that had been extended to them.

"Since the court holds this contract null and void, Section 66 of the Contract Act will apply," said a lawyer. Section 66 of the act states that "when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

(The Malaysian Reserve, Sept 11, 2008)
Posted by HABHAJAN SINGH at Wednesday, September 10, 2008
Labels: Bank Islam, BBA, Islamic finance, judiciary

A New Take on Riba

2008-08-15T11:38:00.003+08:00

Interview: A new take on riba
01 July, 2008

Dr Azeemuddin Subhani spent nearly three decades working as a financial advisor in the Saudi oil ministry. Though he worked in a conventional financial environment, he nevertheless harboured a passion for Islamic finance and law. When he retired in 1999, he took the opportunity to study it at McGill University in Canada. He finished a PhD in Islamic Law and Finance in April 2007. He has since presented his thesis, in which he provides a new definition of the concept of riba, at Harvard Law School in the US, where it is currently being edited for publication. Dr Subhani has been publicising it for a couple of months now, in which time Sheikh Nizam Yaqubi, a prominent Shari’ah scholar, has offered to translate it into Arabic and distribute it to libraries across the Arabic world. Others have offered to translate it into Turkish and Urdu. Here, Dr Subhani explains to NewHorizon what he thinks the true meaning of riba is all about.

NewHorizon: What is the background of your thesis?

Dr Subhani: If you survey Islamic literature, you find that the whole question of the prohibition of riba has been dealt with at a very cursory level. None of the scholars have really gone into the depths of the issue as to what the real meaning of ‘riba’ is, and why there is such a strict idea of the prohibition of riba in the Quran. This sin is treated as the greatest of all sins, and the Quran lays down very graphic punishment for any human indulgence in riba. But nobody gives us an exact explanation as to why the financial or economic act of riba carries such characterisation as the greatest of sins. The Quran threatens humankind with eternal hellfire for those who indulge in any act of riba. So my question became, why? What is at stake here? Is riba just a financial and economic sin?

There are more serious economic crimes, but they do not attract such punishment in the Quran. If riba, or interest, is usurpation of wealth from the poor to the wealthy, at least there is consent from both parties. You can have a usurpation of the same wealth from poor to rich by fraud or deception, which is theft. But theft does not carry such serious punishment in the Quran. You can do even worse – you can rob by force, or by murder – but this most grievous of impacts on a fellow human being does not attract such serious punishment as riba does in the Quran.

The punishment is clearly out of line with the gravity of the perceived sin – perceived as it is as an economic or financial sin. This plainly goes to show, at least to me, that the act of riba is not solely an economic paradigm. It does not belong in that category.

So what is your answer for the discrepancy?

I asked myself, what is the intrinsic characteristic in the process of riba? For this I used a linguistic analysis of the Quran which has not been attempted before in this area. My conclusion is that, if you analyse the act of interest taking and some other verbal applications of riba in the Quran, you will find that the Arabic term ‘riba’ basically means growth from a process of self generation. ‘Riba’ is one agent acting on itself to produce growth. Money begetting money, as Aristotle might say, is the obvious example. Without the intervention of any other agent, money can just keep on growing. You just put it in a bank account, and even if the bank does nothing with that money, you can come back at the appointed time each month and collect the interest. That process theoretically can continue for an eternity.

It is this element of self generation which is the conspicuous characteristic underlying riba. When we talk of self generation, we are close to talking of self emanation, of self subsistence, and eventually eternity. And these ideas are absent in other economic crimes. This explains the discrepancy, and if you look at these attributes, they are clearly, and very obviously, divine attributes. They are not in the human gift.

Therefore, I submit that any human indulgence in any act of self generation, which includes interest taking, is a transgression of the divine domain. Any transgression in the divine domain is an act of shirk, an act of idolatry, an act of polytheism. And this is the only reason which can possibly explain why the Quran provides such graphic, otherworldly punishments for committing an otherwise worldly sin.

Is there anything else in the Quran that supports your definition?

Yes. This whole principle of self generation and intra-action by one agent on itself is well documented in Islamic tradition. There is a prophetic saying from the popular books of the Hadith such as Sahih Bukhari, which says that the sin of committing riba is worse than committing incest with one’s own mother. This Hadith is well received in Islamic tradition. But when scholars have been asked what this association of riba with incest means, they simply cannot explain beyond asking, ‘can’t you see the moral and ethical connotations? The Prophet is trying to create an extreme revulsion in you for the practice of riba.’

But look at it slightly more philosophically. Consider what is happening when a man commits incest with his own mother. A man is incapable of reproducing by himself, but if he commits incest with his own mother, he is coming as close as possible to becoming his own father, or fathering himself once again. The closest he can come to reproducing himself is to reproduce with the one who produced him in the first place. So the Prophet associates incest with riba to emphasise the extreme intra-activeness and self generation of the act of riba.
Any human indulgence in any act of self generation, which includes interest taking, is a transgression of the divine domain.
There is also another injunction in the Hadith, a prophetic saying which states that riba has 72 chapters and so does shirk, or idolatry. This saying establishes an equivalence between polytheism and riba, which scholars have included in their writings but never commented on.

There is more evidence if you look at the linguistic root of the word. The linguistic root of ‘riba’ is strikingly similar to that of ‘Rabb’. They are not the same but they are cognate roots. And ‘Rabb’ is the Arabic word for ‘Lord’. Moreover, nobody has commented on this but the Quran also declares riba to be ‘harrama’ (2:275). The Arabic verb ‘harrama’ in its emphatic form means, to prohibit something because it is out of bounds for you, or because it is sacred. So there is nothing intrinsically evil about riba. Yes, the practice of financial riba may have some evil effects of exploitation or injustice. But it may not in other cases. What this means is that it is not prohibited because it is an evil practice, but because it is a divine practice.

To contrast this, the practice of maysir, which is gambling, has not been declared harrama or sacred. It has simply been declared as something to be avoided because it is evil. Avoidance of gambling, which is the second foundation of Islamic finance, is not on the same religious or theoretical level as riba is. It is simply a satanic act. It has not been declared sacred like riba has.

So what impact would your definition of ‘riba’ have on Islamic banking?

When we restrictively translate ‘riba’ as interest/usury, we are narrowing the definition to a financial practice. When we analyse a financial document, we simply look for the presence of interest as such. And if there is no word ‘interest’ in the document, we are satisfied. We can declare that document to be Shari’ah-compliant. But under my more intrinsic definition, you have to look not just for interest but for any exchange of homogeneity, any exchange of homogeneous items in a business transaction where an increase is taking place. That exchange would also become riba. Any exchange of homogeneous items – money for money, commodity for similar commodity – if it involves an increase, would be under the sanction of riba.

My definition will establish the proper understanding of the concept of riba, and will explain the severity of commissioning riba. Nobody will be able to summarily dismiss it as purely a financial matter. Once you have this explanation, you’ll think twice about a dismissive reaction. But the definition will simplify the practice of Islamic finance. It will provide one guiding principle, which is that in order to look for riba you must look for any instance of self generation. That is riba, and you must stay away from it. What you shouldn’t do is get into a semantic debate about the definition of usury, what it used to be and what it is now. All that semantic debate leads nowhere. It doesn’t explain the theology of the concept. My definition gives a simple litmus test of what is riba and what is not.

Once you define riba in this broad sense, there are other acts of riba, not just financial ones. Human cloning is one act of biological riba. Incest is another easily identifiable example, the nearest one can come to self generation.

Why has the extant scholarship missed this concept?

The only plausible explanation is that scholars, especially modern scholars, have looked at the question of riba only by asking what the most likely financial practice was at the time of the revelation of the Quran. They have tried to connect all the prohibitions of riba to those perceived financial practices, on which ironically there is no historical agreement. There is complete disagreement as to what those financial practices were. Once you take a contextual approach, it becomes very shallow, and you completely ignore the deeper philosophical, metaphysical and theological aspects behind these divine injunctions.

It is generally characteristic of the tendency among interpreters of the Quran to shun philosophy. That attitude has in my opinion contributed to shutting out this whole field of philosophical thought which is behind the Hadith. The Quran invites scholars to reflect on it. Scholars should interpret it and benefit from it.

How has your theory been criticised?

The entire effort on my part has been to give hermeneutical balance between the enormity of the sin and the severity of the punishment for committing the act of riba. The only concept which balances the sin and the prescribed punishment is that riba is a transgression into the divine domain.

The implication is that anyone indulging in riba is not a monotheist, as they are transgressing in the divine domain. The question I get asked is, are you accusing us of being polytheists or idolaters? This is a delicate question. But a distinction has to be drawn between the act itself and the actor. My whole thesis is, the act of riba itself is an act of denial of monotheism. But this doesn’t mean anybody indulging in it is a polytheist. He has his own set of beliefs. Any believing monotheist would never knowingly do it, and now he is being told, ‘do not do this because it is an act of polytheism’. I’m not passing judgment. I’m just a researcher who has come up with this explanation. I repeat, the important thing is to distinguish between the act and the actor.

What is the wider impact of your definition on your beliefs?

None of the scholars have really gone into the depths of the issue as to what the real meaning of ‘riba’ is...
Interest or usury is only one instance of riba. There is a Prophetic saying which states that there are 72 chapters of riba. The financial definition is only one of them. There are therefore multiple, even if the number 72 is used figuratively, applications of riba in human behaviour. But there is also the act of bay’. This is a bilateral exchange of give and take. Procreation is an act of bay’, because it takes place between two opposite agents, male and female. The Quran is replete with assertions that humanity, indeed everything, is created in pairs, and invites man to reflect on it.

The Quran says Allah has prohibited riba and permitted bay’ (2:275). This provides a very golden rule of human behaviour. Stay away from intra-action or self generation, and indulge in interaction. Bay’ is the mother of all contracts in Islamic law. The contract of marriage is also the contract of bay’. Bay’ leads to trade, and because of this, Islam is a champion of business and commerce. The Prophet himself was a trader. The Quran is replete with commercial terms. There is nothing wrong with business and trade, and the only thing Allah demands you stay away from is self generation, in addition to certain named products. Once you do that the whole subject will become very easy to operate.

And once you start thinking along these lines – that there exist two injunctions, stay away from riba and indulge in bay’ – the whole field of human life becomes clearer, as to what you are supposed to do in this world. It explains the purpose of human creation itself. Before the creation of humanity, singularity prevailed. God, Satan and the angels are all models of singularity. The introduction of duality came in the form of Adam and Eve, or riba and bay’. God created them to see how interactively they behaved on this planet while they are here, and forbids that they indulge in any activity of singularity, which even smells of divinity. God created humanity to test the duality model on this earth, with the full interplay of free will. The very first sin of riba was committed in the Garden of Eden where, prompted by Satan, Eve and then Adam transgressed by tasting the fruit of the forbidden (sacred, out of bounds) ‘Tree of Eternity’. Consequently, humanity was consigned to this earth to prove that even under divinely granted free will it can shun riba and practice bay’ in order to eventually regain eternal entry into the Garden of Eden. This explanation makes my thesis the Grand Unifying Theory of religion.

KTM Commuter Train

2008-08-15T11:01:00.003+08:00

On the way back from USIM Actuarial Science students' visit to Syarikat Takaful Malaysia Berhad, I took the commuter train. I also took the train to Kuala Lumpur from my house in Shah Alam. This way I did not have to worry about traffic jams and parking my car. Furthermore, with the price of petrol now, this sounds like a very smart move.

The journey took about 40 minutes but if you add the time taken to walk to the station and then from the station to my house, it takes almost 1 hour. This is the same time that I take to go to work from my house to USIM everyday. So working in Nilai does not take more time than working in Kuala Lumpur but it costs more in terms of depreciation of the car, petrol, and toll.

In the train an announcement was made to inform passengers 30 seconds before arriving at a station. For example, the announcement in English was "We are arriving at Angkasapuri station", followed by the announcement in Malay, "Kita telah tiba di stesyen Angkasapuri." I agree that both announcements are right but they are not the translation of each other. A visitor to our country who does not understand Malay might not notice the difference between "we are arriving" and "kita telah tiba", but this would not be good for students who are studying the English Language.

The Aftermath of the Visit to Syarikat Takaful Malaysia Berhad

2008-08-12T11:48:00.003+08:00

We were very fortunate to have been given the opportunity to visit one of the leading Takaful companies in Malaysia. They were the first to be established in Malaysia and have maintained their position as the leading takaful company. They intend to be the insurance company of choice, thus attracting participants among non-Muslims as well as the Muslims. This would be a tough mission to achieve, bearing in mind that the Malaysian government has recently approved the establishment of a few other takaful companies that are internationally connected such as PrudentialBSN, Hong Leong Tokio Marine, and HSBC Amanah. We hope that they will be able to shine among the insurance and takaful companies in Malaysia.

Our visit was very pleasant and the hosts were very charming. One thing that strikes me most was that one major player in the insurance and takaful industry in Malaysia was not aware of the existence of our program at USIM. USIM is still not well recognized by most Malaysians whether they are corporate oraganizations, students in schools, or parents who have university going children.

Thus I am appealing to all concerned to go on a publicity drive to make USIM well known to Malaysians from all walks of lives. There should be competitions on techniques and programs on how to make more Malaysians aware of and recognize USIM and USIM students.

I would suggest that car stickers be distributed to all with USIM's name and other catchy themes that are related to USIM.

Actuarial Science and Risk Management Program at USIM

2008-08-11T10:43:00.003+08:00

This program took its first batch of students in July 2005. There are now 27 students in this group. They will be graduating in May 2009 after undergoing a six months period of industrial training starting this December. The uniqueness of this graduating batch of students is that they have to undergo a 4 years degree program rather than the normal 3 years actuarial science degree programs at other universities. They would be proficient in Engllish as well as Arabic languages and did quite a bit of advanced Islamic studies.

With their background, I would consider them to be very useful in Islamic Financial institutions when they graduate. What they need now is some confidence in themselves so that they can convince the potential employers. This is what is usually lacking in students from rural backgrounds and I hope it will not be taken against them when they apply for jobs later on. I am hoping that the final year will give them this added confidence.

I am also hoping that some of them will be brave enough to apply for jobs overseas, especially in the middle east. This would be a moral booster for the juniors and prospective applicants from the schools.

Visit to Syarikat Takaful Malaysia Berhad

2008-08-08T15:27:00.002+08:00

Syarikat Takaful Malaysia Berhad has been very kind in accepting a visit by 27 students form the final (fourth) year of the Actuarial Science and Risk Management program at USIM. The students will visit STMB on Monday 11 August. They will be given briefing by the actuarial department concerning the models used by STMB and how the actuarial department handles the different models of takaful.

I really hope that the students will benefit from this visit because there is a lot of interest in Islamic Finance all over the world now and the visit would provide an opportunity for these students to learn more about this area of finance.

Insurance and Gambling

2008-08-08T14:53:00.004+08:00

Coincidences do happen. Yesterday (Thursday) I was telling the third year Actuarial Science and Risk Management students at USIM about the differences between gambling and insurance. Today I performed my Friday prayer at Salak Tinggi mesjid and the sermon (khutbah) was about gamblling.

After the Friday prayer, I chatted with the khatib about his khutbah. I told him that I have been very interested in the topic of gambling from the perspective of Islam, ever since I got involved in actuarial science, a long time ago. I asked him whether he has a clear definition of gambling from Islamic perspective because I have not been able to get a clear and concise definition from anywhere. His answer was that gambling is anything that involves a wager (pertaruhan) and that was what he said in his sermon.

That set us on a rather lengthy discussion. One of the reasons for the Muslim jurists' fatwa declaring that insurance is not permissible in Islam is that insurance contains elements of gambling. It is not like taking a gamble but that the act involves the action of gambling that has been prohibited in Islam through several verses in the Quran and the saying of the Prophet s.a.w.

However in courses in insurance that we study in the universities in the west, lecturers have been very careful and persistent in differentiating between insurance and gambling. Books written on insurance have argued that insurance is the opposite of gambling. Insurance protects against financial losses due to the occurrences of events that are pure risks, while gambling involves games of chance where the participants gain or lose due to the occurrences of events that are created and that are also speculative risks.

The question is what are the elements in insurance that are considered as gambling by the Muslim jurists? I would like to add a further side question to this. If gambling exists in insurance and thus making it haram, are there other activities that are being carried out by Muslims that also involve gambling?

I would like to site an example that was proposed to me quite sometimes ago. In a donation drive by one charitable organization, the donor was given a ticket with a serial number for every RM10 donation. At the end of the donation drive, lucky draws are carried out and donors stand to win some handsome prizes. The argument for the lucky draw was to encourage donors to give more. The khatib I talked to at the Salak Tinggi masjid said that it would not be gambling if the prizes for the lucky draw were donated by someone else and not taken from the donations.

Here I would like to invite readers to give a clear and concise definition of gambling and then let us argue the differences between insurance and gambling from Islamic perspective.

A New Beginning

2008-08-07T14:31:00.001+08:00

This blog is set up to introduce the Actuarial Science and Risk Management (ASRM) Program at Universiti Sains Islam Malaysia (USIM). It is hoped that information concerning Actuarial Science, Risk Management, and Financial Mathematics will be made available and will be discussed for the benefit of the general public.

Being a university with Islamic background, the focus would be on Islamic aspects of the subjects mentioned above. The blog should also provide opinions on current relevant issues that may help policymakers as well as the general public.

Everyone is welcomed to contribute to the blog.