Sharia builds on conscience, not desperation

Second of three parts

Brian Henry – The burden of penalty interest- Brian Henry

The first and most important point to recognise is that the principles of Islamic finance are a moral or ethical code, hence our trading name Amanah Ethical.

The Sharia rules are a strict ethical code and is at this time very contrary to western financial philosophy, the classic example being the use by western financial institutions of interest based products. Under the Western model, if your KiwiSaver scheme is invested in borrowing transactions then your scheme will prosper.

If, as is presently occurring, the farmer suffers, his equity is lost as the farm is sold to recover not just the interest due but interest at a penalty rate. The Western banking conscience has no difficulties with this consequence to growing their wealth.

Personally, I find this lack of conscience troubling; it is also bad business.

It is better to work through the hard times keeping the farmer productive, then to prosper together as the market recovers.

When a bank finances a farmer it should understand the risks of the market and be prepared to work with the farmer. The problem is that the bank assesses the risk on its ability in bad times to sell out the farmer’s hard earned equity and profit whilst charging penalty interest rates.

For Web-Sharia builds-Sir Anand, Peseta Sam, Winston Peters and others

Ethical code

I believe that Amanah KiwiSaver Plan applied its ethical code to provide a good return to its investors. I was the first investor to join Amanah KiwiSaver Plan and have invested in AmanahNZ – the unit trust.

The returns from AmanahNZ – where the Amanah KiwiSaver Plan invests its funds – has been good. It started at US$3.75 in December 2012, was US$4.38 in December 2013 and was US$4.61 in December 2014. This is an annual average growth of 10.93% after fees, expenses and taxation.

The results of Amanah KiwiSaver Plan have been enhanced by the decision to invest in US listed stock as the USD/NZD exchange rate has worked in Amanah KiwiSaver Plan’s favour taking the growth for the first full twelve months to 16.16% after fees expenses and taxation (at 28% Prescribed Investor Rate-PIR).

Differing fortunes

Each year will be different. The extreme height of the NZD/USD exchange rate is unlikely to be seen again for a very long time as in my opinion it was the result of the US Fed quantitative easing, combined with excessive interest rates being maintained by the Reserve Bank in New Zealand, creating an international opportunity for overseas investors to seek the benefit of the interest returns we allowed. The damage to our manufacturing sector has been huge.

Those who survived will hopefully now be able to prosper and recover the losses they have sustained.

I believe that the ethical mandate will not affect the long term investor, indeed it can be argued that long term it will exceed the use of western interest type products.

The risk for interest based products is not that the interest will not be paid but also that the capital will be lost.

The New Zealand finance company collapse showed this. Investors forgot if the company paying the high interest rates failed, the risk of losing their capital was substantial.

The investors often did not realise that their investment also secured leverage borrowing from banks and other large institutions. In other words, the companies borrowed more money from the banks secured on the money the investor was lending.

I have always been appalled at the practice of leverage. Leverage is contrary to Sharia law.

$1000 kicked out

I was very disappointed with the government.

I had been warning all who would listen that I believed they would be this mean spirited.

The kick start was considered a major incentive to join the retirement savings initiative. KiwiSaver was established to assist New Zealanders with long-term saving for retirement, and to assist the strain on the New Zealand Superannuation pension, the cost of which is expected to increase as a result of New Zealand’s aging population.

Approximately 2.5 million New Zealanders have already enrolled in KiwiSaver, but the removal of one of the initiative’s most enticing incentives in 2015 has already caused a significant drop in new KiwiSaver enrolments.

Opportunity denied

I believe that there are a number of New Zealanders who were not given a fair opportunity to sign up to KiwiSaver and receive the $1000 kick-start payment. Had the government continued its well stated tax policy of not retrospectively changing the rules and given those who had not enrolled, say six months to do so, then fairness would prevail.

It was not only the Islamic population who were excluded by this but also many children of low socio-economic backgrounds or solo parents. These groups missed out.

At an Iftar dinner an Australian guest pointed out that the National Party, which stands for self-reliance and good savings by the population was the Party removing the incentive to save and be non-reliant in retirement from the state.

Worse yet, Finance Minister Bill English was encouraging state dependence in retirement stating that the state funded pension would be maintainable. Common sense tells us all that reliance on the government in your retirement is an act of faith too far.

Special to Muslims

Amanah Ethical took time to evolve.

I saw a gap in the market as no KiwiSaver provider had taken the time to build a suitable investment for the Islamic community.

I also have a similar economic philosophy to the principles of Islamic finance.

To the best of my knowledge, all KiwiSaver providers are involved in the practice of Riba and cannot claim to be Halal. We can.

The gap required the establishment of a boutique KiwiSaver provider and I saw a challenge that I could not resist.

The key to Amanah Ethical however is the support of the community; we seek to attract investors who agree with the policies of participating in investments (both profit and loss) into businesses doing or making something that mankind wants, avoiding money lending, alcohol, gambling, pornography, pork, weapons of war and tobacco.

Before Amanah KiwiSaver Plan was established, no provider had taken the time or effort to build a suitable investment for the Islamic community who hold very high ethical requirements before they can enter an investment.

Major difference

The major difference between KiwiSaver schemes is where they invest; many KiwiSaver schemes offer multiple investment funds which satisfy different investor risk appetites or investment strategies.

Many New Zealanders in KiwiSaver were automatically enrolled when beginning a new job, in which case they would have been allocated to one of the nine government default providers’ conservative investment fund options unless they selected another scheme. An issue with such schemes is that it is often difficult for members to know where their money is actually being invested.

This was something that, through Amanah Ethical, I wanted to address so that the team working with me established Amanah KiwiSaver Plan.

We are the most recent entrant to the New Zealand KiwiSaver market.

Brian Henry is a well-known Barrister and Managing Director of Amanah Ethnical, the only company to offer KiwiSaver Plan that is Sharia compliant in New Zealand. This is the second part in a series of three articles to appear in successive issues of Indian Newslink. The first part appeared under the title, ‘The burden of penalty interest begins its toll’ in our August 15, 2015 issue.

 

Photo Caption: Dignitaries at the ‘Amanah KiwiSaver’ launch on January 30, 2015 (from left) Brian Henry, Sheikh Mohammed Amir, Winston Peters, Sir Anand Satyanand, Gregory Fortuin, Dr Anwar Ghani and Peseta Sam Lotu-liga

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