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  • Author or Editor: Mohamed A. Gadhoum x
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Mohamed A. Gadhoum

The secular perspective on wealth has amply been explained in Chapter 1. This chapter is meant to clarify the meaning of wealth from the Islamic (shariah) perspective based on its main sources, the Quran and the Sunnah (Prophet’s sayings-cum-practices). Wealth is earned, accumulated and invested by its owner: contemporary perspective is that wealth is rightfully owned without much thoughts about the community in which it is held. Islam dictates wealth should be earned by permissible means, and should not be invested to harm the community in which the wealth is found. More than that, part of additions to wealth each year from investment returns must be paid as charity while wealth should be optionally be put to promote good deeds to serve the community needs. These differences create challenges to Islamic wealth management and estate planning for those who wish to fall in line with Islam’s injunctions on wealth.

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Mohamed A. Gadhoum and Shamsher Mohamad

Benchmarks serve a critical role financial markets as a point of reference for pricing the riskiness of a financial security, to indicate the relative value or opportunity cost of capital while it also serves as a yardstick for the relative performance of a portfolio. The existence of a transparent, observable, liquid, easy-to-compute and non-manipulative benchmark is vital for efficient financial markets. Islamic finance has yet to develop appropriate benchmarks and currently use LIBOR as the reference benchmark in determining expected rate of return in shariah-compliant securities. This practice has been allowed by scholars as an exception under the law of necessity. Unfortunately, despite being in practice for decades, this exception has become a general rule and the practice is so prevalent that most practitioners in the Islamic finance Industry. The key difficulty lies in obtaining a rate of return in an economy based on profit-and-loss sharing. This chapter discuss in detail the development of a benchmark for shariah-compliant investments taking into consideration the conceptual and practical issues.