Trustee & Risk Management in REITs A Shari’ah Standard

1. Prof. Dr. Mohd. Ma’sum Billah www.drmasumbillah.blogspot.com Trustee & Risk Management in REITs A Shari’ah Standard

2. Key Issues • Preview • Central Idea of Trustee • Divine Rulings on Trustee • Role of Trustee Company Under Shri’ah Principles • Role of Trustee Company in Malaysia in Asset Management and Estate Administration Process • Existing Regulatory Frameworks • Recommended Regulatory Frameworks • Al-Hibah • The Way Forward

3. Preview • Understanding the Essence of Asset Management Considering the Contemporary Socio-Economic Reality of the Ummah • Total Compliance of the Divine Authorities and Authenticities for the Asset Management and Estate Administration of the Ummah • Wisdom + Tolerance + Respect = Achievement • Cooperation with Rationalism for a Global Success

4. Central Idea of Trustee • The word trustee is in Arabic called “Al-Ameen”, which means a person or a body or corporation, is to be in charge for the something entrusted with (See Mejelle at article 762). • Etymologically, trustee means: reliable, trustworthy, loyal, faithful, upright, honest, safe, secure, authorized, representative, curator, custodian, guardian, keeper, chamberlain. Hence, the entrusted property shall be wisely taken care with honest management by the trustee. In case the property is damaged or destroyed negligently, the trustee shall be responsible (See Mejelle at article 769) • In the contemporary reality, a trustee means a corporation which is registered as a trust company under the trust company Act 1949. • But there is no specific definition of trustee given by the above legislation nor any other legislation in Malaysia to manage the Muslim assets or estates under the Shari’ah regulatory frameworks • Nevertheless, certain trust companies in Malaysia do provide Muslims property management services relying on the general principles of different state Islamic laws, Fatwa and also the opinion of the respective Sharia’h councils.

5. Divine Rulings on Trustee As regards to the rights and obligations of a trustee under the Shari’ah priciples, there are numerous Qur’anic authorities and prophetic rulings are evidentially exist. For example, the followings are among them: • “And those who of their trusts and convenant are keepers” (Al-Qur’an 23:8) • “Behold. God bids you to deliver all that you have been entrusted with unto those who are entitled thereto, and justice. Verily, most excellent is what God exhorts you to do: Verily, God is all-hearing, all-seeing!” ( Al-Qur’an 4:58) • “You do not argue on behalf of those who false to their ownselves: Verily Allah does not love those who betray their trust and persist in sinful ways” (Al-Qur’an 4:107) • “O you who believe, betray not the trust of Allah and the prophet, nor misappropriate knowingly things entrusted to you” (Al-Qur’an 8:27) • The holy prophet (S.A.W) said “There are three attributes of a hypocrite namely: whenever one speaks, prefers lying, whenever is entrusted with something betray it and whenever one promises does not fulfill it”.

6. Role of Trustee Company Under Shri’ah Principles The following roles of a trustee under the Shari’ah principles are identified: • Shall be bound by the Shari’ah principles in all aspects be in operation, management or decision making. • The subject matter undertaken as trust shall be recognized by the Shari’ah principles. • For each trust company shall be closely supervised by a qualified Shari’ah supervisory board. • A trust company under the Shari’ah principles shall manage the entrusted property with utmost good faith • The trust company shall always be ready to transfer back the entrusted property to the right beneficiary without any form of unreasonable delay. • The trust company shall also prepare a Shari’ah justified guidelines and be bound by it.

7. Role of Trustee Company in Malaysia in Asset Management and Estate Administration Process • Existing Regulatory Frameworks • Recommended Regulatory Frameworks

8. Existing Regulatory Frameworks As regards to the regulatory frameworks on the role of a trustee under the Shari’ah principles for the Muslims asset management the following scenario: • In the global scenario, no specific legislation exists. • In Malaysia, the Muslim asset management, the conventional legislations are adopted. Though in enforcement, traditional Shari’ah principles are taken into consideration

9. Recommended Regulatory Frameworks For the purpose of a proper asset management and estate administration under Shari’ah principles, the followings are recommended: • An exclusive Shari’ah justified legislation • On wealth as well as income, only Zakat can be imposed but not income tax (See the ninth schedule of the Federal Constitution)

10. Cont. • On the creation of Hibah or Wasiat, no stamp duty shall be imposed, as they are gift of intervivos. • As regard to the agricultural land, the National Land code shall be amended to allow more than one person to enjoy over a single acre. • As regard to the dispute on the Muslim asset management or estate administration the Shari’ah courts shall be empowered to handle the cases. • As regard to the development to the Muslim asset management and estate administration, the government should give an equal emphasis like what has been given for the development of Islamic banking, finance, and Takaful.

11. The Way Forward • As far as the asset management and estate administration of Muslim are concerned, an exclusive Shari’ah-based company (s) is required to be recognized • In Order To Have A Proper Muslims Asset Management And Estate Administration, A Proper And Relevant Shari’ah Based Legislation Is Needed To Be Exist • Shari’ah Court May be Empowered to Decide the Cases Involving Muslim’s Asset Management & Estate Administration. • An Arbitration May also be Established for a Short-cut Mitigation of Dispute Involving Muslim’s Asset Management & Estate Administration • Intensive Training, Research and Education Programs on Muslim’s Asset Management & Estate Administration Are Needed to be continued nation wide. • Propagation Through Various Medias is Essential for the Public Awareness

12. Al-Hibah: A potential Instrument of Asset & Wealth Management • Understanding of al-Hibah Considering the Contemporary Socio-Economic Reality • Tolerance + Wisdom = Achievement • Cooperation for a Global Achievement

13. Emergence of al-Hibah Towards Socio-economic Success Emergence of al-Hibah is for the Following Goals: • Protection and Securities for all concerned • Better Management of Wealth and Property • Reducing the Risk of Unexpected Material Challenges • Rediscovery of new Dimension for Property and Wealth Management

14. Identification of Potential Wealth and the Adaptation of al-Hibah Identification shall be of total compliance with the Shari’ah Principles. However, the following wealth are an example: • Movable Property • Immovable Property • Crops and Cattle • Miscellaneous Wealth • Banking Products • Financial Products • Takaful Products • Shares • Unit Trusts • EPF • Services • Other Classes of Shari’ah based Legitimate Properties, Wealth and Products

15. Appreciation of al-Hibah in Wealth Management: Current Phenomena, Problems and Solutions • Current Phenomena • Traditional Application • Move Towards Betterment • Problems • Misconception • Narrow Interpretation • Lack of Guidelines and Mechanisms • Lack of Support and Cooperation • Solutions • Reinterpretation of al-Hibah Applying the Golden Rule • Enrichment with Knowledge • Friendly Forum for Discovering the Model • Respect, Acceptance and Exchange with Rational Views • The Establishment of Regulatory Structure • Code of Ethics • Cooperation

16. Possible Recommendations Towards Application of al-Hibah for a Better Management of Wealth • The Issue May Be Discussed at the National Fatwa Board With a Possible Positive Result. • The Decision of the Fatwa Board Could be Submitted before the Relevant Regulatory Authorities for Their Endorsement. • Required Regulatory Frameworks (Legislation on al-Hibah) Needed to be Enacted • The Trustees’ Act 1949 May be Amended to Incorporate the Relevant Provisions Affecting the Application of al-Hibah.

17. ........Continue • Shari’ah Court May be Empowered to Decide the Cases Involving al-Hibah. • An Arbitration May also be Allowed for a Short-cut Mitigation of Dispute Involving al-Hibah • Intensive Training, Research and Education Programs on al-Hibah Could be continued nation wide. • Propagation Through Various Medias is Essential.

18. Thank Youالسلام عليكم ورحمة الله و بركا ته