EXPLORATORY RESEARCH INTO ISLAMIC FINANCIAL LITERACY IN BRUNEI DARUSSALAM. Dr Hjh Rose Abdullah 1

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1 EXPLORATORY RESEARCH INTO ISLAMIC FINANCIAL LITERACY IN BRUNEI DARUSSALAM Dr Hjh Rose Abdullah 1 rose@unissa.edu.bn Ahmad Lutfi Haji Abdul Razak 2 lutfi@unissa.edu.bn Faculty of Business and Management Sciences Universiti Islam Sultan Sharif Ali Brunei Darussalam Abstract This study is an exploration into the meaning of and the need for Islamic Financial Literacy, as well as an inquiry into the extent of Islamic Financial Education and Islamic Financial Planning in Brunei Darussalam, by employing both quantitative and qualitative approach to methodology. Although Islamic Financial Literacy has been proposed before, a precise working definition is still lacking. This paper discusses the inclusion of various components into the concept of Islamic Financial Literacy, and argues for the virtues of having not only a financially literate population, but an Islamic financially literate population. In addition, this paper will also highlight the roles played by various government and non-government organizations and institutions in creating Islamic financial literacy and as well as to assess public understanding and practices of Islamic Financial Literacy in Brunei Darussalam. Keywords: Islamic Finance, Literacy, Brunei Darussalam. 1 Senior Lecturer, Faculty of Business and Management Sciences, Universiti Islam Sultan Sharif Ali, Brunei Darussalam. 2 Lecturer, Faculty of Business and Management Sciences, Universiti Islam Sultan Sharif Ali, Brunei Darussalam. 61

2 1. Introduction When the Quran was revealed, the first word was iqra read, learn, and understand (Al- Quran Surah Al-Alaq 96:1-5. Islam is a religion that is concerned with literacy. Islam holds knowledge, education, literacy, and intellectual pursuits in high regard. It was proven throughout Islamic history (Aisha Stacey, 2009). Al-Qur an places a lot of emphasis on what to do with wealth and finances. It mentions zakat, multiple times, for example in Surah at Taubah 9:60, and performing pilgrimage (Haj), for example in Surah Ali Imran 3:97. Performing Haj is conditional upon a Muslim to have not just the physical means of doing so, but also financial means, especially since performing Haj requires increasingly a lot of money. Islam also encourages Muslims to give sadaqah and waqf. In fact, Islam gives guidance in earning income, consumption, savings, managing wealth, investment, and many other aspects related to finance. In this era of globalization, many complex economic problems are faced by people not just in Brunei Darussalam, but all over the world, which stem from ignorance, or spending over the capability to pay, opting for a luxurious lifestyle, and other wrong doings in economic life. The major issue that is highlighted all over the world is the culture of debt. This problem was highlighted in the command of His Majesty Paduka Seri Sultan Haji Hassanal Bolkiah during the opening session of the Legislative Council on March 1, 2012, regarding the attitude of borrowing to meet the consumption needs without realizing that the burden of debt when it reach a high level or beyond control, then the debt will be a major catastrophe. This indebted cultural phenomena may arise as a result of various factors such as luxurious lifestyle, modern lifestyle s demands, loan facilities provided by financial institutions and others. However, one more very important factor is financial literacy. In fact, financial literacy has become a global agenda to tackle the indebted culture in this decade (OECD INFE, 2011). 62

3 For Muslims, financial literacy needs to be extended to the Islamic perspective. This does not mean to just transform transactions into Islamic way according to shariah, but it also covers a wider aspect with certain demands to be implemented. What is the meaning of Islamic financial literacy and what is actually contained in its meaning? The objectives of this paper are to explore into the meaning of and the need for Islamic Financial Literacy, as well as an inquiry into the extent of Islamic Financial Education and Islamic Financial Planning in Brunei Darussalam, by employing both quantitative and qualitative approach to methodology. Therefore, this paper discusses the inclusion of various components into the concept of Islamic Financial Literacy in section 2. In addition, section 3 of this paper will also highlight the roles of various organizations and institutions from the government, non-government and the financial sectors. Section 4 will discuss the findings from a pilot survey to assess public understanding and practices of Islamic Financial Literacy in Brunei Darussalam. Conclusion and recommendation will be given in the last section. 2. The Concept of Islamic Financial Literacy Although Islamic Financial Literacy has been proposed before, a precise working definition is still lacking. On the other hand, there are many definitions of financial literacy with more or less the same context as follows: (i) The National Financial Educators Council defines financial literacy as; Possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual s personal, family and global community goals. 63

4 The National Financial Educators Council official web site also mentioned several definitions on financial literacy by other organization as follows: (ii) The Government Accountability Office (GAO) defines financial literacy as: the ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as a job loss, saving for retirement, or paying for a child s education. (iii) Jump$tart provides the following definition: Personal finance describes the principles and methods that individuals use to acquire and manage income and assets. Financial literacy is the ability to use knowledge and skills to manage one s financial resources effectively for lifetime financial security. Financial literacy is not an absolute state; it is a continuum of abilities that is subject to variables such as age, family, culture, and residence. Financial literacy refers to an evolving state of competency that enables each individual to respond effectively to ever-changing personal and economic circumstances. (iv) According to the OECD INFE (2011) has defined financial literacy as; a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing. From the above, it can be summarized that the definitions of financial literacy refer to not only awareness and knowledge but also attitude and behavior which transform into decisions and actions. Therefore, there is importance of having the skill sets and knowledge to make informed decisions is emphasized. 64

5 On the other hand, what is Islamic financial literacy? Some might simply argue that Islamic financial literacy is merely an extension of financial literacy, with shariah compliant elements in it. There are many papers available discussed Islamic finance, Islamic banking products and services, Islamic finance institutions, takaful, and capital market. Many papers also discuss the instruments and shariah compliant of the Islamic financial institution s products. However, very few papers discuss Islamic financial literacy and its coverage. Sharief Bashir (nd) studied the indirect effects of service quality and product quality on satisfaction of Islamic bank s customers in Brunei Darussalam. He found that consumers were aware of Islamic banking products and services to a certain degree and the reasons for preferring them were profitability and religious principles. There are certain obligations which must be implemented in Islamic finance such as zakat, sharia-compliant transactions and investments, endowments, the execution of will, orphan's property management and property management according to the principles outlined in the tenets of Islam. In this paper, the authors will argue that Islamic financial literacy covers a wider aspect of finance. This includes (i) basic money or wealth management such as savings for future use and emergencies, (ii) financial planning this involves takaful, pension schemes, and shariahcompliant investments (iii) charity donation, waqf and sadaqah, (iv) zakat, law of inheritance (faraid) and wasiyah. (i) Basic wealth management earning, consumption and saving Earn halal income Islam urges and requires Muslims to earn income and be independent to fulfil the family and their needs. Allah (SWT) said in the Quran Surah Al-Baqarah 2:172: "O you who have believed, do not eat riba, doubled (and) redoubled, and be pious to Allah that possibly you would prosper." [Surah Ali Imran 3:130]. He also said in Surat Al Baqarah: "O you who believe! Eat of the good 65

6 things that We have provided you with (that is halal), and give thanks to Allah, if you serve only Him." The importance of halal income was also highlighted in a hadith. Prophet Muhammad (Peace Be Upon Him) said: "O people, Allah is good and He therefore, accepts only that which is good". The importance of earning halal and spending in halal ways is paramount in Islam. Consumption Islam also requires the Muslim to spend within their means in fulfilling their requirements and needs. Islam does not accept an action of extravagance in spending. Allah (Subhanahu Wa Talala) said in the Quran Surah al-isra 17:26-27: "And give to the near of kin his due and (to) the needy and the wayfarer, and do not squander wastefully. Surely the squanderers are the fellows of the Shaitans and the Shaitan is ever ungrateful to his Lord." Overspending or extravagance consumption as usually happens in luxurious lifestyle may bring to debt culture. It was narrated that the Prophet (peace and blessings of Allah be upon him) used to say in his prayer: "O Allah, I seek refuge with You from sin and heavy debt)." Someone said to him: "How often you seek refuge from heavy debt!" He said: "When a man gets into debt, he speak and tells lies, and he makes a promise and breaks it." Narrated by al-bukhaari (832) and Muslim (589). This gives us the significance emphasize of being debt-free. In fact, it is a heavy responsibility to pay back debt although Allah allows it. Therefore, Surah Al-Baqarah 2:282-3 mentioned the importance of writing the debt or credit transactions. Savings Conventional economic theories put forth that savings is beneficial, which should be practiced by all. Although Islam frowns upon extravagant spending, savings is ignored as an act of virtue (Zaheer 2008) and Islam emphasizes more on the significance of infaq (spending to earn the 66

7 pleasure of Allah) as one of the most significant acts of piety. The case against savings mentioned in al-qur an Surah at-taubah 9:34-35 translated as: To those who accumulate gold and silver, and do not spend in the way of Allah, announce the news of painful punishment. On the day when heat will be produced out of that (wealth) in the fire of Hell, and with it will be branded their foreheads, their flanks, and their backs (and it will be said): This is the (treasure) which you stored up for yourselves, so now taste of what you had stored. Spending requires balance, not in excess, and it should be done to earn the pleasure of Allah. On the other hand, savings should also not be in excess as it potentially deprives others. However, Islam absolutely does not reject man to find a treasure and does not deny their right to be rich. In fact, many of the companions of the Prophet as Uthman al-affan and Abd Rahman bin Auf were rich people who have great wealth. Nevertheless, Islam warned about the dangers of wealth accumulation either personally or collectively exaggerated to the extent of producing properties greedily. It can cause man to eventually forget the purpose of human life is paramount in this world that is to be submissive and obedient to God Almighty. This is because it is a human tendency to drift into the temptation of material possessions. So, it requires jihad as shown by the companions of the Prophet. They were wealthy, but they spent their wealth for Islam in the path of Allah SWT. Islam also encourages reasonableness and moderation. Wealth should not be abused or misused as Allah SWT has laid down very clear injunctions on how wealth is to be acquired and spent. Indeed, wealth is a form of trial by Allah SWT towards His servants whether men will follow His injunctions regarding wealth acquisition and disposal and as such the owners are to be fully accountable on the Day of Judgment for what they do with their wealth. In Islamic financial planning, an individual must understand the discipline of how to protect, to accumulate, to preserve and to distribute the wealth according to the Islamic Shari'ah (Ma sum Billah, 2012). (ii) Financial Planning takaful, pension scheme and investment. Planning on Current and Future Finance 67

8 Ma sum Billah (nd) pointed that in Islam, financial planning is not only a process of acquisition and accumulating wealth but is has a broad definition which relates to the concept of vicegerent (khalifah). He also mentioned that financial planning is a discipline of wealth management to meet the needs of human and it involve everyone even those who does not possess any form of wealth. Everyone commits with the process of financial planning as it started with earning an income to the stages of spending and growing the wealth. Meanwhile, Hasnol (2013) pointed that financial planning includes the basic management of income or wealth which covers budgeting income against expenses, credit and savings. Whilst, in the future planning may include takaful and retirement planning. Saving for future is necessary to meet the cost of their children/grandchildren s education and other emergency purpose. Nevertheless, financial planning is not only for those with money but should be extended to the poor. Micro takaful was suggested to be incorporated with various schemes of financing for the poor including microfinance (Rose, 2014). Shariah Compliant Investments Most of people have the knowledge about finance but lack the confidence to make the right decision and take action in a decisive manner. Therefore, educating and create awareness programs are necessary to familiarize public with shariah compliant investments opportunities available in the market. Talks on sukuk, certificates of investment, shares market etc. would be useful to boost up the interest and public understanding on Islamic investment. At the same time, all the investment concepts, the contracts involved and the operation of the products must be made clear to the customers to gain their trust on the Islamic financial institutions. (iii) Zakat, law of inheritance (faraid) and wasiyah Zakat 68

9 The obligatory nature of zakat is firmly established in the al-qur an and ahadith. The al-qur an clearly mentioned, in many verses, the responsibility of the rich to pay zakat and in fact, this is always mentioned after the injunction of solat (prayer). In the Qur an, Surah Al-Taubah 9:103, Allah ordered the Prophet to collect zakat: Take alms out of their property in order to cleanse and purify them, and invoke Allah for them; surely this is a relief for them. To those who refuse to pay zakat, Allah states the penalty in Surah Al-Taubah 9:34-35: O ye who believe! There are indeed many among the priests and anchorites, who in Falsehood devour the substance of men and hinder (them) from the way of Allah. And there are those who bury gold and silver and spend it not in the way of Allah. Announce unto them a most grievous penalty. On the Day when heat will be produced out of that (wealth) in the fire of Hell, and with it will be branded their foreheads, their flanks, and their backs: "This is the (treasure) which ye buried for yourselves: taste ye, then, the (treasures) ye buried!" Although zakat is the third pillar of Islam and a responsibility of Muslim to perform, many people still confuse by referring zakat to zakat fitrah (on individual) which liable to all household to be paid once a year during Ramadhan before the offering of Eid ul fitri prayer only. The data show that zakat collection for year 2002 until 2010 was around 0.1% of Gross Domestic Product of Brunei Darussalam, which was still far from the potential of 4% (Rose Abdullah, 2012). The Brunei Times (7 th April 2012) reported that Imams, during the Friday sermon, expressed their concern over the poor knowledge the Muslim community in the country has for zakat (tithe) and reminded Muslims of their Islamic obligation by paying the zakat on wealth once they meet the requirements. It was also reported that the knowledge of the Muslim community about the zakat laws is still relatively low. Many still do not know the type of properties and wealth which are liable to zakat and also lack the knowledge about nisab, haul and the calculation method of zakat payments. 69

10 Law of inheritance It is mentioned in Al-Quran Surah An Nisa 4:5-6, translated (English translation by Abdullah Yousuf Ali) as: To those weak of understanding make not over your property, which Allah hath made a means of support for you, but feed and clothe them therewith, and speak to them words of kindness and justice. Make trial of orphans until they reach the age of marriage; if then ye find sound judgment in them, release their property to them; but consume it not wastefully, nor in haste against their growing up. If the guardian is well-off, Let him claim no remuneration, but if he is poor, let him have for himself what is just and reasonable. When ye release their property to them, take witnesses in their presence: But all-sufficient is Allah in taking account. Mohamad Azhar bin Hashim (nd) commented that these verses gave some guidance of wealth management and promotion of financial literacy. It emphasised on how the wealth of orphans should be managed, that the wealth or property should only be managed by people with sound judgment and Islam views financial literacy as one of the vital aspects in wealth management. He interpreted the verses emphasized that the wealth must be carried out properly and efficiently by someone who is of being financial literate (not only of sound mind but is apt in financial knowledge and skills). That is why the orphans need to be tested before the properties can be released to them. This command emphasise Islam s standpoint on the significance of financial literacy. Muslims need to be financially literate as financial literacy is one of the important aspects in their life as to fulfil the religious duties. Wasiyah Wasiyah is a legal written documentation which outlines the wish of a person on to whom (other than the heirs) his/her assets to be distributed after his death. It is like a gift but given only after the death of the benefactor and it must not be exceeded than one third of the total assets. Legitimacy of wasiyah mentioned in al-qur an Surah al-maidah 5:106: O you believe! When death approaches any of you, and you make a bequest (then take) the testimony of two just men of our own folk or two others from outside, while you are travelling through the land and death befalls on you. 70

11 (iv) charity donation/sadaqah, and waqf Charity donation (hibah)/sadaqah Hibah or gift for charity donation is a transfer of existing assets made voluntarily and without any consideration by the donor and the done and accepted by or on behalf of the donor during his life time. Al-Qur an mentioned it in Surah al-baqarah 2:177:. and gives his wealth in spite of love for it, to the kinsfolk, to the orphan and to al-masakin (the poor), and to the wayfarer and to those who ask. Waqf A waqf (plural-awqaf) is an endowment of property of permanent nature by a Muslim as an ongoing charity. The concept of waqf was established by the Prophet (PBUH) as a means of introducing inter-generational social investments in society with the objective of achieving equitable distribution of income and wealth. Since the earliest days of Islam, awqaf has featured prominently in the social and economic development of Muslim societies through the development of dedicated assets for a wide range of charitable purposes. Muslim scholar always refer the legitimacy of waqf to al-qur an Surah al-qasas 28:77: But seek the abode of the hereafter in that which Allah has given thee. As discussed in this section, Islamic financial literacy is a wide concept which covers many aspects. It has to be developed and disseminated by various parties and sectors. The next section will highlight the activities of various institutions and organization in promoting the Islamic financial literacy in Brunei Darussalam. 3. Roles of various organizations and institutions in Islamic Financial Literacy. 71

12 Zeti Akhtar Aziz (2006) gave opinion that enhanced financial literacy on Islamic financial products will facilitate the process for consumers to make well-informed and effective decisions on their financial transactions. The Islamic financial literacy would also help the consumers to have a clear understanding and appreciation of the unique characteristics and features of Islamic finance and its real economic value. Therefore, the industry should actively create awareness and be transparent in providing information regarding the process and Islamic transactions concepts used in their operations. This section will highlight the activities of some institutions in the Islamic financial industry in Brunei Darussalam such as Authority Monetary Brunei Darussalam (AMBD), Bank Islam Brunei Darussalam (BIBD), Centre for Islamic Banking, Finance and Management (CIBFM), and higher education institutions. AMBD (Islamic Banking division) AMBD is a body that monitoring the running and activities of Islamic banks in Brunei Darussalam. The attractiveness of Islamic Finance does not only capture the muslim population but rather the mass population at large, muslims and non-muslims. The level of Islamic finance penetration on Islamic Banking assets is around 40% with only 2 players in the market (AMBD, 2015). AMBD leave it to the industry to do promotion and hold creating awareness acitivities to ensure the understanding of public on the operation and shariah compliantness of the products offered by the banks. AMBD (Insurance and Capital Market division) Islamic Capital Market Sector AMBD does have intentions to create awareness in finance especially with regards to capital market which includes both conventional and Islamic capital markets. Although plans have not yet been initiated or implemented as it will involve other relevant agencies, for example the Ministry of Education and other private institutions. This is perhaps a major-scale plan in efforts to provide early finance education and foster a financial-savvy population. In a minor-scale, 72

13 AMBD may from time to time, give out talks to the public on specific occasions. At the moment, the educational arm of AMBD, the Centre of Islamic Banking, Finance and Management (CIBFM) has provided learning programs and training in this field for professionals as well as students. AMBD plans to create awareness for the following (non-exhaustive list):- Understanding the relevant legislations, Securities Markets Order 2013 (SMO) Financial planning Asset management Investing in collective investments schemes (CIS) products Capital market products, e.g. sukuk, bonds (Islamic & conventional) Trading in (Stock) Exchanges Professional qualifications, e.g. dealer representatives, financial planners (Continuous Development Programs (CDP)) Target groups may range from the public (retail), institutional and government clients, working professionals and students. Certain subjects may require conducting continuous programs to keep up to date, e.g. CDP. Others may be one off, e.g. conducting roadshows or awareness. Takaful Sector One of the projects that AMBD had come up with was My Takaful and Insurance Book. Although it was a mixture of both conventional and Takaful, we separated the sections to give better understanding and comparison between the two concepts. Whilst, AMBD Day with one of the focus areas is on finance in Islamic perspective which may also include spending culture, debt management, pension, etc. However, this need to be finalized. On the industry side, both Takaful operators have outlined their promotional activities and roadshows to be conducted throughout They focus on family Takaful products to increase the portfolio, which includes family planning. Example is, Insurans Islam TAIB Family Takaful Sdn Bhd has published valuable layman information on family financial planning in the newspaper recently as the target group would be the general public. Takaful Brunei Keluarga intended to actively 73

14 promote their Takaful Nur Savings, Takaful Retirement, Takaful Education and Takaful As Syifa. Bank Islam Brunei Darussalam (BIBD) The information collected shows that BIBD through its Wealth Management Unit (WMU) has been actively conducting continuous talks and workshop on financial planning and other activities in collaboration with other government and financial institutions. The financial planning talk and workshop include the Islamic financial planning such as Wealth Distribution and Zakat. BIBD's Shariah Department also collaborated with the Seri Begawan Religious Teachers University (KUPU SB) on a Forum Pendidikan Kewangan Islam in conjunction with KUPU SB's Third Convocation. The target groups are the employees from both the government and private sectors, graduates of higher institutions, students from secondary and primary schools. WMU has also been invited to deliver a Financial Planning talk by Tabung Amanah Pekerja to the Pre-Marriage Couples Program at mosques in Brunei and by Civil Service Institute for government's new officers and staff from Ministries and its Departments. Activities organized and ran by BIBD can be referred to the Appendix. The Centre for Islamic Banking, Finance and Management (CIBFM) The Centre for Islamic Banking, Finance and Management (CIBFM) was established with aims to develop and support center of excellence in Islamic banking and finance. CIBFM has ran programs and training programs related to Islamic banking and finance with target audience are more towards the working spectrum of the local demographic. Therefore, CIBFM has never ran a program specifically for children/school-children however the participants have included graduate students from Universiti Brunei Darussalam and Universiti Islam Sultan Sharif Ali. CIBFM has recently (2014) created the Knowledge Management Centre (KMC). This center has acquired printed materials and resources related to Islamic finance, economics and management including 150 books published and donated by Islamic Research and Training Institute, Group of Islamic Development Bank, Jeddah. 74

15 Higher Education Institutions Demand for highly qualified personnel in Islamic banking and finance is increasing. According to Edbiz Consulting, a London-based Islamic financial think tank, by the end of 2014, the global size of Islamic financial services industry will surpass $2 trillion. With this, it is expected that demand for human resources will also increase, globally as well as in Brunei Darussalam. Therefore, the tertiary education institutions play important roles in producing skillful human resources who are knowledgeable in Islamic finance, Shariah law, and financial systems. In Brunei Darussalam, there are few institutions offer first degree and master program and few others only offering few subject related to Islamic finance in their programs as follows: Universiti Brunei Darussalam is running a minor program at first degree level and a program in Islamic Banking and Finance at master level. ITB offers few first degree program in management and each has a subject on Islamic economics. Kolej Universiti Perguruan Ugama Seri Begawan (KUPUSB) has several programs with subject muamalat each at masters, first degree, higher national diploma and diploma level. Universiti Islam Sultan Sharif Ali is running first degree in Islamic Finance program under Faculty of Business and Management Sciences. While under Faculty of Shariah and Law, there are 4 subjects related to Islamic finance taken by first degree in Shariah program s students. At higher national diploma level, Polytechnic Institute is offering business management program and is having a subject Introduction to Islamic Economic and Finance. 75

16 It is interesting to note that Faculty Shariah and Law students are having shariah background from Arabic school. However, they only have 4 subjects related to Islamic finance. The market need more skillful Islamic finance human resources with shariah background. School s Curriculum Education curriculum in Brunei Darussalam does include materials on basic savings and budgeting in Social Studies subject for primary school and Principle of Accounts for secondary school. Inclusion of Islamic financial perspective is not explicit in the curriculum. It needs both training for teachers and resources development (Hj Abd Rahman Hj Nawi, 28 January 2015). Islamic financial literacy in the education s curriculum should also cover the aspect of educating school children to save money and nurturing the habit to become a regular saver. Experience of other country like Malaysia, Mohamad Azhar bin Hashim (nd) mentioned that initiative emphasis on empowering financial consumers through effective financial education and strengthened consumer protection frameworks had been included as one of the nine focus areas in Malaysia s financial landscape for the next decade. Therefore, Brunei Darussalam must not be left behind in preparing strategy in this industry. 4. Public understanding and practices of Islamic Financial Literacy. A pilot study was conducted to measure the level of Islamic financial literacy among the population in Brunei Darussalam. The survey was based on the OECD INFE definition that financial literacy is a combination of awareness, knowledge, skills, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing, but adds that Islamic financial literacy also includes the beliefs, teachings and objectives of the Islamic faith. The questionnaire was divided into four parts, which included: 1) socio-demographic information; 76

17 2) knowledge and understanding of finance-related terms in Islam; such as Islamic Finance, Islamic Banking, Muamalat, Zakat Fitrah, Zakat on wealth, Nafkah, Waqaf, Faraid, Wasiyah and Sadaqah; 3) knowledge and understanding of products offered by conventional banks or financial institutions, Islamic banks or financial institutions and Brunei Islamic Religious Council (MUIB); as well as 4) financial practices The survey was distributed by convenience sampling to students of UNISSA, attendees to a public talk held on the 31 st January 2015, and at an interviewer recruitment session for financial literacy held on the 7 th February A total of 133 responses were received, and a profile of respondents is provided in Table 1 below: Table 1: Socio-Demographic Profile Characteristics Frequency Percentage (%) Current Employment Status Working Not Working Student % 39.1% 42.1% Gender Male Female % 88.0% Age and above % 25.6% 3.0% 1.5% 0.0% 3.0% 77

18 No answer Has Had Formal Education in Finance Related Subjects Yes No No answer % 36.1% 3.8% Financial Situation Excellent Very Good Good Satisfactory Poor Very Poor Unacceptable No answer % 8.3% 45.1% 29.3% 8..3% 3.0% 0.0% 1.5% According to Table 1, the majority of the respondents are either students (42%) or not-working (39%), and only a minority of them are working (19%). Most of the respondents are female (88%), and between the ages of (91%) A majority (60%) of the respondents reported to have some form of formal financial education, while only a minority did not (36% did not have any form of financial education and 4% did not answer). When asked to describe their financial situation, 58% of the respondents reported to have a good or better financial situation (Good, Very Good, Excellent), 29% of the respondents felt they had a satisfactory financial situation, and 15% of the respondents reported to have a poor or worse financial situation (Poor, Very Poor, Unacceptable). This suggests that 85% of the respondents are not financially constrained. 78

19 Zakat Despite this, surprisingly only 64% of respondents reported to have paid Zakat Fitrah in the last 12 months, either by themselves, or on their behalf (16% did not pay Zakat Fitrah, while 18% said that Zakat Fitrah did not apply to them). Perhaps even more strikingly, only 15% of respondents reported to have paid Zakat on wealth in the last 12 months, either by themselves, or on their behalf (36% did not pay Zakat on wealth, while 39% said that Zakat on wealth did not apply to them). This represents a relatively low level of response to one of the five pillars of Islam. Savings In terms of savings, a majority 87% of the respondents reported to have saved or set aside some money over the past 12 months, but 13% did not. However, only 16% of respondents reported to have saved specifically for Haj even though only 11% reported to have already been on Haj. This also represents a low level of commitment towards achieving another one of the five pillars of Islam, though this could be attributed to the fact that the majority of the respondents are students or not working. Nevertheless, saving for Haj could still be prioritized more and for example start with a small amount. The majority of respondents saved for emergencies and big purchases. Banking In terms of banking, 33.8% report to have an account with a conventional bank or financial institution, but 88.7% has an account with an Islamic bank or financial institution. 65.4% has an account only with an Islamic Bank or Financial Institution, 9.0% has an account only with a conventional bank or financial institution, 24.1% has an account at both and 1.5% report to not have an account. This indicates that the use of Islamic banking or Islamic financial institutions among the respondents is relatively high. Knowledge and Understanding of Terms In terms of the knowledge and understanding of Islamic Finance related terms, a 0-1 index is formed from a 4-point Likert scale (not knowledgeable to very knowledgeable) where 0 represents not knowledgeable and 1 represents knowledgeable. The results are presented in Table 2 below: 79

20 Table 2: Knowledge and Understanding of Islamic Finance Related Terms Zakat Islamic Finance Islamic Banking Muamalat Zakat Fitrah on wealth Nafkah Waqf Faraid Wasiyyah Sadaqah Thus, despite widespread usage of Islamic banks or Islamic financial institutions, their reported knowledge of the term is just below average (0.44 for Islamic finance and 0.41 for Islamic banking). Knowledge and understanding of the terms faraid and wasiyyah are quite low (0.40 and 0.33 respectively, but sadaqah is just above average (0.60). Knowledge and understanding of other terms such as muamalat, zakat fitrah, zakat on wealth, nafkah and waqf is also at an average level (between 0.47 to 0.54). Knowledge and Understanding of Products and Services Offered Similarly, in terms of the knowledge and understanding of the products and services offered by the following institutions, a 0-1 index is also formed from a 4-point Likert scale (not knowledgeable to very knowledgeable) where 0 represents not knowledgeable and 1 represents knowledgeable. The results are presented in Table 3 below: Table 3: Knowledge and Understanding of Products and Services Offered Conventional Banks or Financial Islamic Banks or Majlis Ugama Institutions Financial Institutions Islam Overall, knowledge of the products and services offered as below average. The highest is for Islamic banks or financial institutions with 0.45 and the lowest is for Majlis Ugama Islam with The level of knowledge and understanding of conventional banks or financial institutions is Again, this could be attributed to the profile of the respondents. Although a high percentage of respondents having an account with an Islamic bank or Islamic financial institution, this does 80

21 not appear to be driven by a strong understanding of the products and services offered, but possibly due to other factors. Giving In terms of giving, 60.2% of the respondents give money to parents, children or dependents, but only 30.1% of respondents give money to others (sadaqah). This is despite the respondents answering an above average knowledge on sadaqah. On the other hand, this may not be surprising given the employment profile of the respondents. Insurance and Takaful In terms of insurance or takaful, only 32% of the respondents answered yes to having purchased insurance or contributed towards takaful. 20% of the respondents purchased insurance, while 18% of the respondents contributed takaful. Most of the respondents who purchased insurance or contributed takaful, only had car insurance or takaful which is made compulsory by legislation for driving in Brunei. Investments Only 9% of the respondents said that they had investments. However, only 12% of the respondents answered that investments are sharia compliant, whereas 16% of the respondents said that investments were not sharia compliant and another 12% were unsure. The remaining respondents did not answer the question. Waqf In terms of waqf, only 20% of the respondents reported to have donated waqf. However, this was limited to items for the mosque such as prayer mats, slippers, etc. This is consistent with the low level of understanding of products and services offered by Majlis Ugama Islam, which administers and manages waqf assets. The descriptive statistics of the pilot survey indicate that there is room for better Islamic Financial Literacy. Among the sample surveyed, the knowledge of Islamic-finance related terms and knowledge of the products and services offered by Islamic financial institutions are average 81

22 at best. In terms of financial practices, relatively low levels of adherence to Zakat Fitrah and Zakat on wealth should be a cause for concern, as well as the low priority of savings for Haj. Furthermore, there are other aspects of Islamic financial literacy that could be explored further such as sadaqah and waqf as well as takaful and sharia-compliant investments. 5. Conclusion and recommendation In this exploratory study of Islamic Financial Literacy in Brunei Darussalam, it is observed that there are many organizations and institutions involved in Islamic financial education and Islamic financial planning. Various efforts are already being made to improve not just financial literacy of the population as a whole, but also Islamic financial literacy of the Muslim population. However, there are some conclusions that can be made from the empirical part of this study. It is too early to draw any conclusions or even causal relationships from the data gathered from the pilot survey, but it does warrant further research: 1) Why is there low levels of zakat compliance, both in terms of Zakat Fitrah and Zakat on wealth? This is consistent with what was mentioned during the Friday sermon in 2012 which noted that many Muslims in Brunei lacked zakat knowledge, especially on Zakat on wealth. 2) Only few report to save specifically for Haj, despite low % having already performed Haj. This might be because they are relatively still young, with a majority of the respondents still not working. Nevertheless, saving for Haj could still be prioritized more and for example start with a small amount. 3) Low levels of people utilizing takaful, sharia-compliant investments, waqf. Understanding of waqf, although reported to be at an average level, practice is quite low and is often limited to waqf of small items such as prayer mats. 4) Methodology: Although anonymity was assured in the design of the questionnaire, it is difficult to ensure the accuracy and validity of the responses for example, due to language and survey fatigue issues. 5) Sampling: majority are youths with limited, if any, working experience and thus limited sources of income. By far, not representative of youths in Brunei, let alone the population as a whole. A national survey which is representative of the Muslim population in Brunei 82

23 should be conducted to assess the current level of Islamic financial literacy, which enable more effective policy design. However, the authors would like to give some recommendations as follows: Academics and researchers should come up with a working definition of Islamic Financial Literacy. This will enable better assessment of existing levels of knowledge and understanding, and allow policymakers, practitioners and educators to better design policies, which are more effective and better coordinated to improve the public practice of Islamic Financial Literacy among the Muslim population. Islamic financial literacy in the education s curriculum should also cover the aspect of educating school children to save money and nurturing the habit to become a regular saver. Studies on financial knowledge or literacy indicate that those knowledgeable on finance, such as knowledge on compounding, tend to make better financial decisions (Lusardi and Mitchell 2007a). Create awareness programs such as talks on sukuk, certificates of investment, shares market etc. would be useful to boost up the public interest and understanding on Islamic investment. At the same time, all the investment concepts, the contracts involved and the operation of the products must be made clear to the customers to gain their trust on the Islamic financial institutions. Frequent education and academic discussions or talks are also recommended to be held in order to answer any doubtful and find solution for any problems. 83

24 A standardized documentation and features of Islamic financial contracts should be produced by the Islamic financial institutions which will help to enhance the level of public understanding of the different types and concepts of Islamic financial products. Islamic financial institutions also need to provide consumers with the information that accurately represents the unique features, risks and returns associated with the Islamic products and services (Zeti Akhtar Aziz, 2006). A formal personal finance education is vital for a Muslim not only to fulfill his wordly affairs, but also religious duties. On larger scale, financial literacy is significant as it will lead to the prosperity of the Muslims Ummah (Mohamad Azhar bin Hashim, nd.) References: Abd Rahman Nawi The Director of Education Curriculum Department, interview 28 January Ahmad, M Why Islamic financial literacy is important. Personal Money. Retrieved from [31 January 2015] Aisha Stacey Education in early Islamic history. Retrieved from [23 January 2015) Bashir, M.S. nd. Analysis of Customer Satisfaction with the Islamic Banking Sector: Case of Brunei Darussalam. Asian Journal of Business and Management Sciences ISSN: Vol. 2 No. 10 [38-50]. Retrieved from [20/1/2015] Fitri Shahminan Many Muslim Lack of Zakat Knowledge: Imams, The Brunei Times, 7 th April Retrieved from 84

25 Hasnol Alwee Salleh Incorporating Islamic Financial Planning as a Poverty Alleviation Tool in Brunei, International Conference Poverty alleviation and Islamic Economics and Finance: Current Issues and Future Prospects, Durham University, May Kayed, R. N Appraisal on the Status of Research on Labor Economics in the Islamic Framework Retrieved from [31 January 2015] Mohammad Ma sum Billah, Islamic Financial Planning, Retrieved from [20/2/2015] Mohamad Azhar bin Hashim. nd. Retrieved from star/8571-the-significant-of-financial-literacy-in-islam. [23 January 2015] OECD INFE Measuring Financial Literacy: Core Questionnaire in Measuring Financial Literacy: Questionnaire and Guidance Notes for conducting an Internationally Comparable Survey of Financial literacy. Paris: OECD. Rose Abdullah Zakat Management in Brunei Darussalam: Funding the Economic Activities of the Poor, Universiti Islam Sultan Sharif Ali, Brunei Darussalam. Rose Abdullah The Model of Cash Waqf Based Islamic Microfinance, Thematic Workshop on Business Models in Islamic Microfinance, organized by International Islamic University of Islamabad and Islamic Research and Training Institute (IRTI/GIDB), Jeddah. 6 7 May 2014, International Islamic University of Islamabad, Pakistan. 85

26 Zaheer, K. nd. Islamic Economics: An Emphasis on Spending and Utilisation of Resources. on_of_resources.html Zeti Akhtar Aziz (2006) speech at the official launch of Affin Islamic Bank Berhad, Kuala Lumpur 6 June [23 January 2015] [31 January 2015] [31 January 2015] Appendix Activities organized by BIBD Year: No of Talks: Category: 86

27 Private sector Government sector School and Higher Institution Financial Planning Workshop Others such as pre-wed couples programs, Explorace, SeDex, Global week activities, etc source: BIBD 87