- The Musharakah Model in the system promotes equitable risk-sharing and fairness
Interview with Mr. Shaham Ahmad — Honorary Secretary, ICMA Pakistan
PAGE: Tell me something about yourself, please.
Shaham Ahmad: I am a Fellow member of ICMA and a member of the current National Council of the Institute for the three-year term from 2021 to 2023. The Council has nominated me as the ‘Honorary Secretary’ of the Institute in which capacity I am responsible for looking after those affairs of the Institute as envisaged in the CMA Act and Regulations. Furthermore, I have been nominated by the ICMA National Council to the Board of Governors of the Pakistan Institute of Public Finance Accountants (PIPFA), on which I am serving as its Joint Secretary.
I held the office of the Chairman of the Karachi Branch Council (KBC) of ICMA during 2013 and 2014 and have also been heading the CPD Committee of KBC for quite a long time. In this role, I took several initiatives to promote and strengthen the Institute’s relationship with the corporate sector.
Currently, I am visiting faculty at several renowned business schools and academic institutions like SZABIST, MAJU and PAF-KIET and playing a role in imparting professional education to the younger generation. The CMA professional degree, coupled with my practical experience of working for almost twenty years in the private sector, has helped me to perform the role of a teacher and mentor. I am presently working in a senior executive finance position in Pakistan’s leading automobile manufacturing company where I have been employed since 2002.
PAGE: Consumer Finance Solutions improve lifestyle with flexible terms and easy installments. Your views?
Shaham Ahmad: Yes, I do agree with this. In today’s fast-paced world, consumer finance options have changed the way people handle money and improve their lives. I strongly believe these options are a great help to individuals because they offer flexibility and ease in managing money matters. Consumer finance solutions let people buy things and access services they might not afford otherwise because of money limitations. These solutions cover various needs, like buying essential household items, funding education, travel, or starting a business. What makes them appealing is the option to pay slowly over time with small monthly amounts. One big advantage is that these solutions help people make smart financial choices without giving up their quality of life. With manageable payments, people can afford valuable things and experiences while staying financially stable. This way, they can lead a better life and feel more secure. Moreover, consumer finance solutions encourage good money habits like careful spending and budgeting. When you can pay in small parts, you become more aware of your money responsibilities and are less likely to borrow too much and get into debt trouble. This encourages a culture of financial responsibility and long-term financial safety.
Businesses also benefit because these solutions attract more customers and boost sales. When people can pay flexibly, they are more likely to buy, which helps companies earn more money and grow.
But it’s crucial to use these solutions wisely by understanding their terms, interest rates, and fees. Responsible borrowing and timely repayments are important to get all the benefits of consumer finance options without causing financial problems. In conclusion, consumer finance solutions have a big impact on people’s lives by offering flexibility, convenience, and access to what they need. They can change lives for the better and help people achieve their dreams. However, using them sensibly is key to making the most of these options and securing your financial future.
PAGE: Islamic consumer finance is a Shariah-compliant & Musharakah-based financing facility. Could you dilate upon it?
Shaham Ahmad: Islamic consumer finance, in accordance with Shariah (Islamic law), operates on a Musharakah-based financing model. This financial product adheres to specific principles and practices that distinguish it from conventional finance. In Islamic consumer finance, the concept of Musharakah, which translates to “partnership” or “joint venture,” is fundamental. It defines the financial relationship between the customer and the financial institution. Under this model, both parties come together in a partnership for a specific purpose, such as acquiring an asset or accessing a service.
In this partnership, both the customer and the financial institution contribute capital to fund the chosen venture. Ownership of the asset is shared jointly based on the contributions made by each party. Importantly, both parties share not only in the potential profits but also in any losses that may arise, according to a predetermined ratio agreed upon at the outset. Rather than employing traditional interest-based lending, Islamic consumer finance adopts a deferred payment structure. This means that the customer agrees to purchase the financial institution’s share in the asset over time at an agreed-upon price. This price includes a profit margin for the institution. The customer makes periodic payments until they eventually attain full ownership of the asset. As the customer continues to pay off the financial institution’s share, ownership gradually transitions from shared ownership to sole ownership. When the customer completes the payments, they become the exclusive owner of the asset.
Islamic consumer finance, with its Musharakah-based approach, aims to provide financial solutions that align with Islamic ethics and legal guidelines. It prioritises equitable risk-sharing and fairness in financial transactions. This framework enables individuals to access financing while upholding their religious beliefs, offering a popular option for Muslims seeking Shariah-compliant financial alternatives.
PAGE: How would you comment on Diminishing Musharakah (Joint Ownership)?
Shaham Ahmad: Diminishing Musharakah, also known as Diminishing Partnership or Joint Ownership, is a widely used financial concept in Islamic finance. It is a structure that allows for shared ownership of an asset between a financial institution and an individual, with the ultimate goal of the individual gaining full ownership over time. It is designed to comply with Islamic principles and avoid interest-based transactions, making it an attractive option for Muslims seeking financing while adhering to their faith.
In a Diminishing Musharakah arrangement, the individual and the financial institution jointly own an asset, typically real estate or a large item like a vehicle or equipment. The ownership is divided based on the capital contributions of both parties. Profits generated from the asset are shared between the individual and the financial institution based on their ownership percentages. Conversely, if there are any losses, they are shared proportionately as well. The unique aspect of Diminishing Musharakah is that the individual’s goal is to gradually buy out the financial institution’s share in the asset. This is done through regular payments over time. With each payment, the individual’s ownership stake increases, while the financial institution’s share decreases.
Instead of charging interest, Diminishing Musharakah relies on a deferred payment structure. The individual agrees to buy the financial institution’s share at an agreed-upon price, which includes an element of profit for the institution. This price decreases as the individual makes periodic payments. This financial structure promotes risk-sharing between the individual and the financial institution. Both parties share in the potential gains and losses associated with the asset, reflecting the principles of fairness and equity in Islamic finance. Throughout the partnership, the individual typically has full use and benefits of the asset, even though ownership is shared. This can be especially important in cases where the asset serves a practical purpose, such as a home or a vehicle.
PAGE: What is your standpoint on a loan for a consumer good?
Shaham Ahmad: I believe that loans for consumer goods can be a practical solution for individuals in certain situations. They provide the flexibility to acquire essential items or services when immediate payment in full isn’t possible. For instance, loans can help people purchase a home, a car, or fund their education, spreading the cost over manageable installments. However, it’s essential to approach consumer loans with careful consideration and responsible financial planning. While loans offer convenience, they also come with interest and fees, which can increase the overall cost of the item or service. Therefore, it’s crucial for individuals to thoroughly understand the terms and conditions of the loan, including the interest rates, repayment schedules, and any associated charges. Moreover, taking on debt for non-essential purchases or when one’s financial situation is unstable can lead to financial stress and potential debt traps. It’s advisable to assess whether the purchase is a necessity and whether the loan fits within one’s budget comfortably.
In summary, consumer loans can be a useful tool for achieving important goals and acquiring necessary goods or services. However, responsible borrowing and a clear understanding of the loan terms are key to ensuring that loans serve as a beneficial financial resource rather than a burden.