Islamic vs. Conventional IFP

Financial Planning: Islamic vs. Modern By: Prof. Dr. Mohd. Ma’sum Billah masum2001@yahoo.com applied-islamicfinance@yahoo.com

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There are lots of differences can be discussed in details regarding the Islamic and conventional financial planning which varies among each other. In the Islamic financial planning, wealth or resources are gift from God, it has no scarce. As we understand, all resources that exist in the whole universe come originally from nobody but Allah, The Almighty.( refer to appendix 1) In this sense, all form of wealth and resources should be equally utilized by all human being, as every single human being in this world has equal rights on resources given by Allah.

In fact, Allah sees everybody as equal or same regardless of our races, languages, tribes, origins, colors, nations, and so on so forth. Allah does not look at the human looking but He looks or evaluates human being from their heart, and there is where men are considered as believers or the other way around. In addition, Allah creates every thing on the earth, in the sea and simply any part of the world as facility for human being to survive in the world[1]. As mentioned by Allah; “O ye people! Eat of what is on earth, lawful and good; and do not follow the footsteps of the evil one, for he is to you and avowed enemy.”[2] (Surah Al-Baqarah; 168) According to this verse, men are encouraged to utilize what is given by Allah as long as it is legal and good.

In so doing, men are not allowed to use the resources given by Allah for the purpose of destruction that may cause harm to the Ummah. Instead, men should use the gifts subjected by Allah to them according to the Shariah and always use those resources and wealth in a way that can benefits the whole society for their betterment of life. In addition, Islam considers wealth as a bounty of God. That is what we mean it is not scarce. As Allah says, “Behold, ye are those invited to spend (of your substance) in the way of God: but among you are some that are niggardly.

But any who are niggardly are so at the expense of their own souls. But God is free of all wants and it is ye that are needy .If ye turn back (from the path), he will substitute in your stead another people; then they would not be like you.”[3] (Surah al Muhammad:38) This verse explains that scarce is actually the ability of man to utilize the bounties of God. It describes Allah as Rich, and his gifts or bounties and wealth has no limitation at all. Thus, Islamic financial planning must be made according to Shariah and it must be done just for the sake of Allah.

On the other hand, in the conventional financial planning, the wealth and resources are scarce, which also mean the sources are limited and insufficient. Scarcity from the perspective of conventional is a study of human behavior in relation to the use of scarce resources to fulfill the unlimited wants.(refer to appendix 1) The concept of utilization of wealth and resources in the conventional point of view differs from Islamic perspective in a manner that it is not necessarily to be equally utilized by the people or society.

According to the conventional financial planning, people tend to be more individualistic and pursue self interest rather than the shared interests of whole society. This kind of phenomena can be seen clearly as it has been widely practiced especially by the Western people who survive for the sake of worldly purpose only. Thus, financial planning in the conventional part is more to personal budgeting in every of stage of creation, accumulation, protection and distribution of wealth. Another difference between the two is in Islamic financial planning, the ownership is based on trust.

Islam views ownership as a trust from Allah, which must be observed according to the teaching of Islam. Trust or in the Arabic word “amanah”, is something that is very sensitive and must be hold by the muslim as best as possible. Every trust that is given by Allah carries a high responsibility that cannot be ignored at all because we will be questioned for it in the hereafter. It is an important thing that must be concerned by Muslims because it denotes that we are the true believer of Allah. Muslims must always remember that they will be accountable for every of their actions towards the trust.

If they break the trust given to them, they will be punished; however, if they take a good care of the trust, their good deeds will be rewarded by Allah, as been promised by Him. On the contrary, in the conventional financial planning process, ownership is assumed as individual freedom. In this concept, they regard ownership as their free choice and possession. Anything that they obtain is considered by them as their own ownership and it does not have any connection with God. The goal of those people who follow the conventional side is only to obtain and acquire as much property or possession as possible for their own purposes.

In fact, they assume that they are owner of those resources or wealth. This is because their ignorance from Tawhid which is believes in Allah, The Creator of the Universe, and all the resources and wealth within it. According to the Islamic financial planning, the goal of their lifestyle is for achieving falaah (prosperity)[4]. It shows that muslims goal of life is not confined to fulfilling the temporary needs and want as well as the basic needs for life, but also for prosperity that contribute to the a good life both in the world and hereafter.[5] In Islam, [6]every Muslim must have a faith in Allah, and believe that the life after the world do exists where nobody could escape from it.

Islam teaches Muslims to do good deeds in the world as a terminal and preparations before reaching to the next life which is eternal. Thus, Muslims must build a very strong faith and stand in their heart as to ensure that they will always remember that this life is just temporary and full with tests and trials. Thus, they will not dare to do something beyond permissible which may put them in the group of ignorant if they do so. Therefore, in the Muslims should follow the guidance of Shariah in planning their financial matters especially in the creation, accumulation and distribution of their wealth.

The purpose of doing this is to ensure that they gain something from good sources that will reflect to their life. If they follow the Islamic teaching accordingly, they will be having a good life which would lead them to a happy and good life in the world as well as in the hereafter. As Prophet Muhammad s.a.w mentioned: “I have not been ordained through revelation to accumulate wealth and to be among the traders, but rather I have been asked through revelation to praise your Rabb and to be among those who prostrate (offer salah) and to worship your Rabb until yaqin (the absolutely certain thing: the death or the qiyamah) approach.” This hadith emphasized on the importance of having faith in the Day of Judgment, In creating or accumulating wealth, Muslims must assess the resource of the wealth, whether it is from halal sources or from the other way around which is not allowed in Islam.

In addition, Muslims also must distribute their wealth according to the Shariah. They must pay zakat as to help the other poor or needy people. Those who refuse to do so will be punished in the hereafter and that is a promise of Allah.

However, in the conventional financial planning perspective, goal of their lifestyle is personal satisfactions which are needs and wants.[7] This point of view ignores the existence of Hereafter, and even worse, they do not believe in The Hereafter. Their main goal is just to be well satisfied in the world and they will strive very hard in order to have a very easy, comfortable and good life merely in the world. In fact, they practiced the concept of secularism which totally ignores the concept of Tawhid.

Thus, the will conventional financial planning is just concern about the goal of acquiring good position of finance to satisfy their needs and rejects the principle of Islam. Another difference between them is Islamic financial planning process consists of three stages which are preliminary, planning and monitoring stage. In the preliminary stage, new source of income is suggested, the expenses are recognized, and all the decisions are tested. Then, income, profits and expenses based on the decision in the first stage is planned in the planning stage.

Lastly, in monitoring stage, the actual income received and the money spent is checked as to ensure there is neither less nor more than what was planned. For example is Bank Islam Malaysia Berhad(BIMB). Here, we know that BIMB is one of Islamic bank that practices the Islamic banking in Malaysia. Recently, BIMB launched Wahdah, financial consolidation plan[8]. Wahdah contain a lot of advantages that are very beneficial to all BIMB customers. Actually, Wahdah is the comprehensive consumer-financing product.

This plan allows the customer to manage and distribute their debts better and also enables them to get cash as their extra income. Other than that, Wardah also can improve ones ‘quality and productivity through it economic package. All of the information is generally adopted from three level of Islamic financial planning process.

However, in the conventional financial planning, there are several two major differences found in it. Firstly, the most essential thing is plan a profit. They only will plan the expenses after they have decided on how much profit to want to earn. Lastly, they will distribute their money to “wealth generating” expenses. For the best example of conventional banking is HSBC, the world‘s local bank. Actually, HSBC is one of professional advice organization which is responsible in providing financial planning service, expert guidance on managing the wealth.

Basically, HSBC helps the customers to achieve their financial target and ambitions. After the plan is carried out, HSBC will monitor the progress of the plan to ensure that you are in the right track. Here, the function of HSBC is to give any advice to the customers when they need it in the future. Other than that, they also believe that to increase the wealth, people need to manage their saving to make them grow. And finally, to make it reality, the customers have to invest their money in this bank in order to increase their wealth[9].

Conclusion

As a conclusion, we can say that financial planning is generally divided into two in term of Islamic financial planning and conventional financial planning. Here, both planning are discussing about the resources which is each planning are describing about the term of resources in different manner.

Islamic financial planning itself are more toward the Oneness of Allah which is always remind Muslim about the power of Allah Almighty. Meanwhile, from the conventional financial planning, most of the concepts are adopted from the western terminology. Here, as a Muslim, we are encourage to use the Islamic financial planning in managing our financial. Other than that, it is the only safety ways to spend our money and currencies in the right ways, path that allowed by Allah S.W.T. As we know, Allah has prohibited us to deal with any interest ( riba) in our daily life.

So, as a good muslim we should ensure that all of our property are free from any riba elements.

Nowadays, Malaysia is one of the countries that are new with this concept. There just few local bank which dealing with Islamic transaction. So, we suggest that local bank and also foreign bank to get involved in Islamic financial planning and experienced the privileged itself from different perspective, because we believe that by experienced itself then your will know that Islamic financial planning is the best planning to adopt in managing our financial.

----------------------- [1] primary concept of Islamic financial planning by Yulyadi Arnakim [2] holy Quran; surah al Baqarah p 22 [3] Holy Quran surah al Muhammad p 507 [4] primary concept of islamic financial planning

[5] financial institutions in the Islamic political economy2.htm [6] Primary concept of Islamic financial planning by Yulyadi Arnakim [7] Financial planning for the Entrepreneur by Donald E.Vaughn [8] New Strait Times Press Ltd Aug 1, 2003 [9] Financial Plan Services.htm