FINANCIAL PLANNING IN ISLAM

Definition The development and implementation of a systematic and comprehensive financial plan with the objective of achieving one’s personal & financial goals Generally, financial planning involves taking a broad view of one’s financial affairs covering many areas of wealth management, and then going through a step-by-step process to solve financial problems and achieve financial goals

1.Conventional financial planning model 2.Primary sources Al-Quran Sunnah /Hadith 3.Secondary sources Ijtihad – evaluation of existing financial instruments Ijma - consensus of the Muslim scholars on Islamic laws Qiyas - analogical deduction Uruf – custom or usages that are not contradicting with Syariah Sources : Developing IFP

Why Financial Planning? – Islamic View Islam as a comprehensive religion – emphasizes worldly life and hereafter. Concept of Allah’s bounty – very important in Islam as a good Muslim is required to have a proper balance between the fulfillment of his spiritual and worldly obligations. Muslims are encouraged to plan their life and put effort to achieve the goal setting before proceeding to “tawakal”. A Muslim still has to commit to financial planning because either he would leaves debt or children to the trusted one.

The Prophet stated; “A Muslim should prepare himself for the next world as if he is going to die tomorrow, but at the same time work hard to improve all his worldly comforts as if he is going to live forever” (narrated by Al-Dailani) ~ As Muslims, we are not discourage from acquiring wealth, but we must know how to earn and spend it in accordance with the Islamic principles. ~A Muslim should not forgo wealth, neither should he be greedy or avaricious in the pursuit of wealth. Islam encourages reasonableness and moderation. Financial Planning – Islamic View

In Islam, Muslims are discouraged to be in debt. Greatest sin is to die in a state of debt and no asset to pay it off. Therefore in Islam, financial planning can be used as a tool in managing one’s wealth. In this perspective, financial planning is therefore a must and is not only for the high-income earner and rich but applies to all.

Pillars of Financial Planning Wealth protection Wealth accumulation Wealth preservation Wealth distribution Wealth Purification

Concept of protection in Islam – TAKAFUL Takaful means joint guarantee, whereby a group of participants agree to jointly guarantee among themselves against a defined loss. Based on the principle of “Ta-awun” (mutual assistance) and Tabarru (donation, gift or contribution) where the risk is shared collectively by the group voluntarily. Takaful provides guarantee against loss or damage & with Takaful, Muslims can plan ahead for any unwanted/unfortunate events. E.g. – General Takaful & Family Takaful Wealth Protection

Accumulation of Wealth Achieving a reasonable capital growth with the objective of preserving accumulated wealth. Involves asset allocation strategies, investment policy and others. Channels of investment must be Syariah compliant – free from elements of gharar (uncertainty), Riba (usury), maisir (gambling) and free from haram products such as pork, alcohol etc. Can be done through - Family Takaful plans, Shares, Sukuks, Property, Wadiah & Mudarabah Saving Plans etc.

Protecting wealth against every conceivable financial risks and treats through sound wealth management – quality investment etc. No one should suffer unnecessary losses due to the quality of investment advice they receive or to a failure to protect one’s assets. Islamic view – wealth as a trial and man are responsible as the trustee to the wealth that ALLAH has given to him. Man are required to work hard if he wants to acquire wealth. Examples of Islamic products that can help to preserve wealth : Family Takaful, Wadiah & Mudarabah Savings, Islamic shares. Wealth Preservation

Important discipline in IFP – proper wealth distribution after death. Death is inevitable, but many tend to ignore. Danger of leaving a mess to family members –disputes etc. Instruments of estate distribution - Faraid, Wasiyah and Hibah. Wealth Distribution

Faraid, Wasiyah & Hibah Faraid - Distribution of estate after one’s death according to the Quran. Guidelines of estate distribution can be referred in verses 12 and 176 surah An-Nisa. Wasiyah - basically means giving a gift to others in term of wealth, debt and beneficence of one’s property after his death. However, not for legal heirs & allowable at maximum of 1/3 of total assets. Hibah - Giving one’s wealth to others without the expectation of any replacement or exchange with the transferring effect on the ownership during lifetime or executed upon death. Applicable either to family members (legal heirs) or members who are not entitled to inheritance. Hibah can be used during lifetime for executed upon death. Therefore a very useful estate planning tool if faraid and wasiyyat do not allow some heirs to get the right of inheritance

Wealth Purification Fundamental concept in IFP. Spending on those in need is a highly commendable form of ibada or worship. The Prophet declared: “A generous person is close to Allah, close to Paradise, close to people, and far from Hell. However, a miserly person is far from Allah, far from Paradise, far from people, but close to Hell. Allah loves more an ignorant man who is generous than a worshipper who is miserly. (Narrated by At Tarmizi)” Sadaqa (almsgiving) and Infaq (spending in the service of God) are voluntary wheras Zakat is obligatory.

Zakat The third pillar of Islam. Compulsory in Islamic jurisprudence. Have the capability to purify our wealth, protects our soul from miserliness, selfishness and greed. Acts as an instrument to clean poverty in the society. Can be performed easily through most Islamic Banks’ counters or at Zakat counters.

Islamic Products & Services For IFP ProtectionDistributionPurification Family Takaful Takaful Plans for: Medical needs Motor Vehicle Fire Financing / Mortgage plan Etc. Al-Wadiah Savings BBA Investment Property Etc. Takaful Plans for: Haji & Umrah Education Marriage Housing Family Takaful Shares Sukuks Unit Kutipan & Agihan Zakat Majlis Ugama Islam Brunei Amil-amil nominated by MUIB Counters at all Islamic Banks Waqaf plan offered by Islamic Insurance companies Refer to Accumulation & Preservation

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