God-Consciousness as a Solution for Fraud

 

I have been reading the book "Billion Dollar Whale" recently which is on the debacle of a sovereign investment fund, 1MDB, which was created in my country Malaysia, and how billions were siphoned out by the now fugitive, Jho Low. The magnitude of the fraud is unprecedented. The world has witnessed many other cases of corporate frauds over the years, some resulting in enormous effects on the economy. The 2008 Financial Global Crisis is a case in point, when investments in subprime mortgages, led to the failure of investment banks like Bear Stearns and Lehman Brothers which triggered the global financial crisis. Enron was once heralded as “America’s Most Innovative Company” is now a popular symbol of wilful corporate fraud and unethical accounting practices. Similarly Worldcom was another darling of Wall Street until it filed for bankruptcy in 2002. It was found the directors were using fraudulent accounting methods to push up the stock price. In the case of Baring Bank, the 233 year old bank was brought to its knees by a single rogue trader named Nick Leeson. Parmalat an Italian global producer of UH milk and food products, was engulfed in scandal when its founder Calisto Tanzi diverted the company funds’ elsewhere. 

These stories of greed, bribery and fraud lead to the popularity of the field of corporate governance. It became the new buzzword that all corporate leaders and business schools harped on. The onslaught of scandals also introduced new regulations like the Sarbanes-Oxley Bill (also known as the Corporate Oversight Bill) into law. This law imposes a number of corporate governance rules on all public companies with stock traded in the United States. The UK Corporate Governance Code is a set principles of good corporate governance aimed at companies listed on the London Stock Exchange. Audit committees were established and independent directors and non-executive directors were appointed to ensure oversight and proper governance. Unfortunately it did not stop the unethical behaviour. The current demands on banks and corporations to show enormous profits push some of the corporate leaders towards fraud despite the many laws and regulations in place.

This brings to mind the story of Caliph Umar Al Khattab (R.A) who was travelling from Madinah to Makkah, and on the way he saw an African boy tending to his lambs. The Caliph asked the boy if he could sell one of the lambs to him. The boy replied he can’t do so because the lambs didn’t belong to him. The Caliph further prodded him by asking him to lie to his master that a wolf ate the lamb. The boy said he could cheat his master but could he cheat the Great Master who was listening to both of them? Sayyidina Umar (R.A) was so impressed that he bought the slave boy and set him free. The African slave boy was illiterate, he was not taught by scholars nor did he read books of knowledge but he had God- consciousness that made him do the right thing.

Being in the state of God- consciousness, believing that God is overseeing our actions, is a very simple act but the consequences of this belief is enormous. Human resource management can be very efficient because everyone would fulfil the duties of his or her job without supervision. There would be less need for scrutiny, oversight, laws and regulations. Although the concept of God- consciousness has eroded in our societies and the advent of crime has increased rampantly including white collar crimes; each one of us can still make a difference. Each one of us can become the God- conscious individual and through our communication and dealing with other members of society, bring back this character which was an inborn trait (fitrah) of human beings. We can strive for a future of communities that would be renowned for their character and truthfulness.

Salam Contract and P2P Energy Trading

 

The world has progressed rapidly and has witnessed several advances that resulted in tremendous changes in how the world works. Steam engines allowed the transportation of goods across nations without relying on animal power. Machines brought about mass production and computers led to the digital era. However, the Fourth Industrial Revolution (IR4.0) is fundamentally different as it is able to infiltrate every industry and discipline, challenging the way things are done. The utility industry is not untouched by this behemoth. Industries that are traditionally centralized, owned and managed by governments, like the utilities, are facing disruption in their modus operandi. The trend of the utility industry is towards decentralization with the advancement of digitalisation and the introduction of the IR4.0. Peer-to peer (P2P) energy trading among solar prosumers are already happening which empowers them to choose their preferred source of electricity. 

So how does it work ? Consumers become prosumers by installing solar panels, meters with sensors and smart digital technology on their rooftops.  Information on energy production, consumption and excess energy are measured by the digital smart meters and the information is relayed to a mobile application. The surplus energy is then sold by the prosumer to the energy market via an online trading platform. The transactions are fully automated with smart contracts using blockchain-based networks to record the transactions. The smart energy grid then delivers the purchased energy to consumers or other prosumers. 

How does Islamic finance fit into this scenario? The Salam contract can be an excellent choice of contract for P2P energy trading. Basically the Salam contract is a forward sale where the full price is paid in advance before delivery of the specified quality and quantity of product, where the delivery date is determined It was a contract used by farmers with liquidity problems as usury was prohibited. It had a dual benefit of providing advance money for the farmers and also locking in a lower price for the buyer as payment was made in advance.

The Salam contract has several conditions to be fulfilled in terms of sale object, price, delivery of sale object, seller, buyer and the contract. There must be certainty about the sale object in terms of quantity and quality. Payment price must be paid in full at the time of the sale. The purchase price is lower than spot price because of the advance payment. The time and place of delivery is fixed. The seller need not be the manufacturer or producer of the asset. The buyer has the right to demand security or collateral from the seller to ensure prompt delivery of sale object on the agreed date.The Salam contract is binding in that neither party has the right to annul it without the consent of the other. 

The proposed model for P2P energy trading using the Salam contract is discussed. The buyer purchases a fixed amount of energy in kilowatts (kW).The buyer selects the best price for energy that is offered by sellers. The buyer locks the price by paying in advance. The transaction is made on a blockchain platform.The sale object is energy and the amount of energy purchased is measured by kW and the data of the energy transferred can be measured by smart digital meters that feed the data into the blockchain platform. The energy sold will be transferred to the buyer through the participating network. A certain amount is paid to the grid provider to physically transfer the energy. The delivery is fixed at an agreed timing. The seller need not be a producer as long as he/she can deliver the product at agreed date. In the case, the seller is unable to deliver the agreed amount at agreed time, it is the prerogative of the seller to obtain the kW at market price and deliver to the buyer at no extra cost. Thus, the buyer will obtain the energy at the paid price. The buyer is given the security that seller has to deliver the energy even if he/she needs to buy from the open market to deliver to the buyer.Although the contract is binding, it can be altered or terminated by mutual consent.

As a conclusion, the P2P energy trading encourages usage of more renewable energy and less of fossil fuel. It decreases the price of electricity and the electricity tariff as we know it may cease to exist. New revenue streams for large organisations and private homes can be generated, which did not exist before. This will allow greater participation of consumers in the production and redistribution of energy evolving from merely being one-way energy consumers to multi-directional energy prosumers.The government will be forced to develop policies to embrace these changes and these are positive changes that will greatly benefit the consumers.This is a great opportunity for Islamic finance instruments to be used in innovative ways to incorporate it into the digital economy and not just as banking products. 

Water Disputes and The Majelle

 

The Cauvery River dispute between the states of Karnataka and Tamil Nadu in India has been a bane since the 19th century.The dispute arises due to growing demand for water in each state and the prolonged droughts. Despite the court orders there has been protests and violent demonstrations. There is also the rising tensions between India and Pakistan regarding the water in the Indus Basin. Nearer to home there is the dispute on the water prices between Malaysia and Singapore. Climate change is bound to cause water disputes around the world. It is interesting to study the hadith of how the Prophet (pbuh) resolved the water dispute in the Mahzuz Valley , the Prophet (pbuh) decreed, “water over the depth of two ankles cannot be withheld by the owner of the higher [ground] from the owner of the lower lands”. He objected to hoarding of water by saying “He who withholds water in order to deny the use of pasture, God withholds from him His mercy on the Day of Resurrection”.

The Muslim jurist have written extensively on water laws. In fact, books on water laws dedicate whole chapters to the Islamic water laws. Dante Caponera’s Water Laws in Muslim Countries (1972) is a comprehensive book that compiled the Islamic water laws in the Sunni and Shia schools of thought. The Majalla al-Ahkam al-Adliyyah (The Majelle) , which is the digest of legal rules and principles used during the Ottoman empire, based on the Hanafi school of Law, covered water laws extensively from Articles 1234 till 1291 which covered the classification of water, defined ownership of water rights, the right of use of water for irrigation, drinking purposes and the right to sell land with or without water rights. 

"The article 1234 in the Majallah begins with the hadith “Water, grass and fire are free to be used by all. In these three things, mankind are partners.” Articles 1235-1239, classifies the different types of water and defines the ownership rights. Running water that is not appropriated or groundwater are common property and owned by no one. However, Articles 1248-1251 defines the right of ownership due to appropriation of water. Articles 1262-1269 recognized the right of use of water for irrigation and drinking purposes. The sale of irrigation rights is allowed in connection with sale of land. It is also permissible to sell water as subject to water pipes (Article 216). The right of irrigation can be unbundled from the land. An owner of a land can sell his land without the right to take water. The right to take water can remain with the owner or co-owners (Article 955). Other laws in the Majalla include the maintenance of water courses (Article 1326) and the harim, which is a protected buffer zone around water sources (Articles 1281 to 1291)."

The Majelle was very comprehensive on the water laws to ensure equitable distribution of water. We may have to study the Islamic water laws in detail to ensure policies made are just. The fundamental principle in Islamic water law is the Right of Thirst  that is the right to quench thirst for humans, followed by animals and finally plants.

Is Water Cheap?

 There is a real problem of water scarcity around the world but there is also another phenomenon known

 as non-revenue water (NRW), that is treated water that is lost in the water distribution system due to

leakages in the pipe or theft. It is really ironic that although we need more water, water is lost because it 

is assumed it is cheaper to waste the water than to fix the pipes. The real question is water cheap? It is 

viewed as cheap based on the water tariff however the true cost of water is hidden in every aspect of the

 economy in terms of manufacturing, generation of electricity, and production of food. This article 

highlights some excerpts from my thesis to illustrate the problem of water loss and how much can be

 saved by saving water.

"The global population from 2011 to 2050 is estimated to increase by 33 percent, growing from7.0 billion to 9.3 billion. Moreover, populations in urban areas are projected to double from 3.6 billion in 2011 to 6.3 billion in 2050. Water demands are increasing by 64 billion cubic meters (2.2 trillion cubic feet) per year (UNDESA, 2016)and it will increase throughout all sectors of the economy, while, at the same time, water supplies will become more variable and less predictable. In fact, estimates suggest that within the next three decades, the global food system will require between 40 to 50 % more water; municipal and industrial water demand will increase by 50 to 70 %; the energy sector will see water demand increase by 85%; and the environment, already the residual claimant, may receive even less (World Bank, 2016).

Despite the looming water scarcity, an overwhelming amount of treated water is lost in the water supply distribution system around the world each year due to leaks in water pipelines, as high as 32 billion cubic meters (Kingdom, Liemberger & Marin, 2006). It is estimated that about 30 percent of global water abstraction is lost through leakage (Kingdom et al., 2006; Danilenko et al., 2014). Developed countries were not spared from this problem (Mackenzie and Seago, 2005), with water loss in cities like London reaching 25% and the leakage rates for Malta, Norway, England and Wales, Australia and California were recorded as 43, 32, 26,15 and 6% respectively (Lambert, 2002). The World Bank estimated water utilities worldwide loose an estimated US$ 14 billion of water through leakages every year (Kingdom et al., 2006). Bahrain, as a country on the top of the list of most water scarce countries in 2040, had NRW of 40% in 2010. Other countries like Algeria (54%, 2010), Pakistan (57%, 2012), Kyrgyzstan (77%, 2011), Turkey (59%, 2008), all had high NRW percentages despite having water crisis (IBNET, 2014).

The water that is lost has negative environmental impacts and no economic benefit. Ironically, it is in the developing countries that already suffer from poor water quality and infrequent supply, that most water is lost. By reducing water leakage by half of the current level, water utilities in developing countries could provide 90 million people with eight billion cubic meters of treated water, without stressing water resources. It is not necessary to build other water infrastructure to meet water demands as an addition of US$2.9 billion can be gained by just fixing the leaks. (ibid).

The pipe leakages are an indication of ageing infrastructure that reflects deferred maintenance. By 2030, the cost of maintenance and rehabilitation of water infrastructure globally will be USD 10 trillion and USD 114 billion per year is required globally to achieve the Sustainable Development Goal (SDG) 6 which is related to water and sanitation and yet only one third of the amount has been raised. (Michell,2016). Fixing leakages are one of the easiest ways to conserve water instead of expanding water supply."

Muslim Women in Governance

 There has been much research done over the years that point towards women being better as leaders as

 they are more likely to consider the rights of others and have a deep sense of justice. There is evidence

 that Muslim women had been given recognition for their leadership qualities and given important roles

 such as muhtasibah to ensure proper governance of public offices during the Prophet’s (SAW) time.

Hisba is a religious office to ensure the interest of the public is protected, an application of the Islamic principle of Al-Amr bil- Ma’ruf wa al-Nahiy ‘an al-Munkar(enjoining what is good and forbidding what is evil). The term hisba is not found in the Quran but was popularized by Islamic scholars like Abu Hasan Al-Mawardi, Imam Ghazali and Ibn Taymiyyah. According to Al Mawardi, hisba is enjoining what is right when it is found to be neglected and forbidding what is wrong when it is found to be practiced. Al Ghazali describes hisbah as a ‘comprehensive expression’ for the duty of enjoining the good and forbidding evil and improving the living standards of people. However, based on the treatises available, it showed that it went beyond the religious meaning of the “enjoining what is good and forbidding what is evil” to practical duties of public interest. It dealt with maintenance of cleanliness of roads, animal welfare so the animal is not burdened with a heavy load, health and sanitation, protecting children from abuse, controlling vices like drinking and prostitution. It also dealt with economic affairs, by controlling weights and measures, inspection of goods on sale and ensuring supply of goods. 

Upon the establishment of the state of Madinah, Rasullullah (SAW) had to reshape its institutions. He developed the Constitution of Madina to bring peace to the state by ensuring all parties are protected and given their due rights. He also laid down the norms of behavior based on the Quran, which included such mundane things as table manners to those of importance like standards of diplomacy. 

The first person to have practiced the function of hisbah in the history of Islamic civilization was Rasullullah (SAW). Abu Hurayrah (RA) narrated that Rasullullah (SAW) passed by a pile of dates and put his hand in it until he felt his fingers wet. He asked the owner regarding the wet dates. The owner replied that it became wet due to rain. Rasullullah (SAW) asked him why he did not put them on the top of the pile so people can see them. Rasullulah (SAW) further said “the one who cheats is not of me.” 

It is interesting to note that some books state that Said ibn Said ibn Al-Aas was appointed as the first muhtasib in Madinah and Sayyidina Umar (RA) was appointed in Makkah. While in other books and old treatises it was written that women during the era of the Prophet (SAW) were appointed in this position. Ibn Abdul-Barr narrated that Samra’ binti Nuhayk Al-Asadiyyah used to walk through the markets of Madinah behind Rasulullah (SAW), with a whip which she used on those who defied rules. She was called Qadae Alhisbah, where her duties were not only oversight of market deals but also as a judge between conflicting market players. When Sayyidina Umar RA became the Caliph he maintained her position as a muhtasibah in Makkah.

Another woman of substance who was given the post of market controller was Al Shifa bint Abdullah Al-Adawiyah. Al Shifa was one of the early Muslim women who migrated to Madinah with Rasulullah (SAW). She was from the tribe of Adiy of Quraish. Al Shifa was a very intelligent woman who was respected for her learning and wisdom. In a society of pre-Islamic Arabia which treated women badly, education was a luxury that not all women could aspire to. Rasulullah (SAW) asked her to teach his wife Hafsah bint Umar how to read and write. Her real name was Laylah but she was called Al Shifa because she was skilled in giving medical treatment and she continued giving treatment even after becoming a Muslim. She was married and had a son proving women with families had a career then. She attended the mosque and became a scholar in her own right. As Madinah developed, Sayyidina Umar (RA) appointed her as a market controller. She would go around the market making sure that no cheating or tricks took place and that buyer and seller conformed to Islamic values. She was later appointed as the head of health and safety in Basra. 

The duty of the muhtasib involved protection of humans, animals and the environment. The right of each one of these categories should be protected according to Shariah law, order and norms (urf) and socially accepted practices. He or she is responsible to provide proper facilities for society to perform ibadah. The maintenance of the masjid and the observance of people to the call of azan is also part of the job description of the muhtasib. The management and control of the economy in particular market behaviour is an important duty of the muhtasib.Other functions include maintaining the infrastructure like roads and removing garbage ensure the smooth running of a society.

Maybe more women should be given the responsibility to lead and govern public offices just as the Prophet (SAW) had done.

Reference

Ibn Tamiyah “Public Duties in Islam : The Institution of the Hisba” 

Yassine Essid “A Critique of the Origin of Islamic Thought” 

Ragheb ElSergany, “ Enjoining Good Forbidding Evil” 

Abdul Azim Islahi “Works on market supervision and Shariah governance (al-hisbah wa al-siyasah al shari’yah) by sixteenth century scholars” Islamic Economic Research Centre, Jeddah, 2006   

The Malaysian leaky pipe story

Monday, February 3rd, 2020 at , Opinion

pic by TMR GRAPHIC

THE recent World Economic Forum in Davos centred on climate change. It is clear that a warming planet is a concern among the movers and shakers of world economies.

There are fires in Australia and heatwaves around the world. In the US alone, climate-related costs have reached US$525 billion (RM2.15 trillion) in the last five years. The extreme weather is bound to lead to droughts and water security issues that would require governments to take major steps to tackle the risks posed.

In Malaysia, the rising national demand for water and the changing climate will stress the country’s water resources. However, the water industry in Malaysia is mired with inefficient water management issues.

Inefficiency of water management has allowed water loss through pipe leakages to reach as high as 50% in Pahang, while the national average at present is at 35% nearly thrice that of developed countries as estimated by the World Bank and nowhere near the government’s target to reduce non-revenue water (NRW) to 25% by 2020.

According to the National Water Services Commission (SPAN), three quarters of NRW are due to physical losses through leaking pipes. There are about 41,560km of asbestos cement (AC) pipes as of 2018 which is estimated to be about 30% of total pipes’ length.

The AC pipes are beyond useful life because they were installed over 60 years ago during the colonial times, pose health risks and have been banned in the US since 1995 and in Japan in the 1970s.

It will cost about RM76.91 billion in working capital to upgrade pipelines and reservoirs to ensure uninterrupted water supply in the country for the next 30 years and RM13 billion to reduce loss due to ageing equipment.

The government through the National NRW Reduction Programme 2018/2020 has allotted RM1.39 billion until 2020 where its main scope is to change and replace the pipes on a large scale. However, it is not sufficient for a nationwide pipe replacement programme.

There is a solution to this problem. Allowing people to contribute to the replacement of the pipes will enable them to feel empowered over the water security of the country. Giving “waqf” or endowment for the provision of water is embedded in Islamic history.

People will be willing to contribute if they had a specific cause to contribute to and we witnessed it first-hand with the Tabung Harapan which collected RM200 million in seven months.

All industries that are heavily reliant on the water like the energy utility, agriculture industry and manufacturing industries can also contribute as part of their CSR contribution.

It could be a good example of government-corporation-community collaboration to solve a pressing issue.

All funds should be channelled into the Water Industry Fund which already exists and was established to ensure the sustainability of water supply, to protect and preserve watercourses.

Contributors to this fund are confined to water supply licensees and authorised persons at the moment. Opening the fund for contributions from consumers, corporations and government grants will enable it to grow faster. It should become a revolving fund managed by financial intermediaries to grow the fund value.

If the fund is managed well, it can have sizeable net returns that will be able to finance maintenance of water infrastructure without the need to raise the water tariffs and at the same time, look for alternative water resources, for example, groundwater exploration.

Thus, the fund can have the potential to fund projects in perpetuity and this would satisfy the original objective of the fund which is to ensure water sustainability and security for all without only relying on the budget allocation of the government of the day.

Previously, all efforts to replace the pipes were done piece-meal under the jurisdiction of different states. It has not been effective so far as not all the state governments have dedicated teams and resources to perform these tasks.

A concerted effort to just replace the AC pipes will result in the completion of the task nationwide, faster and at lower costs. This was successfully practised in Japan and all AC pipes were replaced within 20 years.

Climate change is not something we can take lightly and with the variability in rain, we have to take serious measures to ensure water security for the nation, and the responsibility falls on everyone.

This would include managing our water resources sustainably and not just resort to channelling water from other states to the states that demand more.

We should be thinking about limiting the usage of water per capita. However, the low hanging fruit that requires our immediate attention is plugging the leaks of our distribution pipes starting with the replacement of the AC pipes.

Benjamin Franklin once said, when the well is dry, we will know the worth of water. Let us not wait for that to happen.

Dr Kulsanofer Syed Thajudeen
Petaling Jaya

Communities as custodians
LETTERS
Saturday, 07 Sep 2019
THE fourth Industrial Revolution (IR 4.0) roles inexorably on. Artificial intelligence, machine- learning, big data and blockchain are some of the jargon words widely used now. IR 4.0 is enabling innovation and “disrupting” existing business models.
However, while these are exciting times, the world is still reeling from the aftermath of previous industrial revolutions. Pollution, mass destruction of natural resources and climate change are some of the side-effects of industrialisation, and only time will tell the downfalls of IR 4.0 – the widening gap between those with access to knowledge and those without, perhaps, or the loss of many menial jobs to machines?
Meanwhile, there is another revolution brewing quietly. Technology is connecting people globally, allowing the sharing of thoughts and ideas through social media. Those with similar interests are banding together to create impact.
This connectivity is helping communities that want to right the damage done. There are zero-waste communities trying to stop the use of plastics and encourage recycling; minimalists groups

Green thumbs: The letter-writer (left) in a wefie with the community garden’s committee members. – Supplied

that advocate against gross consumption that is the bane of societies surrounded by shopping malls, and others greening concrete jungles to fight climate change.
It was based on these ideas that a small group of neighbours in Taman Subang, Petaling Jaya, decided to grow our own food in a community garden. We are living in a world where our food is genetically modified and contaminated with pesticides. We are disconnected from our food sources, not knowing where it comes from or how it is grown or processed.
Our objective was simple: to learn how to grow food the natural way and to maintain our garden sustainably by selling our organic produce to fellow residents.
Although the community garden was started with a seeding fund from the Resident Association of Taman Subang, soon neighbours started to join in with their own plants.
We have planted brinjal, ladies fingers, papaya, and spinach as cash crops. Our herbal garden is ever expanding with a myriad of herbs. The idea is to name these plants and their medicinal properties to ensure this knowledge is not lost to the younger gene-ration.
The overall experience has been enjoyable, as we work the land together, experimenting with germinating seeds and learning about potting soil and effective microorganisms.
We were also lucky to get expert advice from the Agriculture Department on the type of soil to use and composting.
Although the garden is still growing and we have yet to harvest our first produce, it has definitely created a friendly camaraderie among us neighbours as we reach for our cangkul in the evenings.
To reiterate my points earlier, we are always enamoured with the latest technology and the next revolution and we forget to value what is most important, like clean air, water and food. These fundamental needs may soon become scarce if we continue to exploit the earth.
To quote a native Indian American saying, “When the last tree is cut down, the last fish eaten and the last stream poisoned, you will realise that you cannot eat money”.

DR KULSANOFER