Applied Islamic Banking

By:
Prof. Dr. Mohd. Ma’sum Billah
masum@applied-islamicfinance.com
masum2001@yahoo.com
+6019-3699542

E-commerce is about the exchange of the digitized information between two or more parties. This electronic exchange represents an agreement made by parties with goods and services are sold. The transaction can be between organization, business, individual, buyers, sellers and suppliers. It begins with negotiating contract based on any advertisement and promotion displayed in the Internet. The coordination both parties made after customer placed an order through online and payments can be made whether online or offline. It is a great way for manufacturers to sell direct to public, for start up business to sell their products or for existing retailers to expand their presence beyond their geographical location ( http://www.cba.bgsa.edu/ejec ). E-commerce has technology enabled where the basis of this transaction is using technology-enabled transaction. By providing any information on the Internet such as the used of Internet browser in the World Wide Web (www), e-commerce become as an electronic billboard that can be widely showed to the entire world. E-commerce can be divided into two, which involves consumer-oriented online transaction where credit cards and digital money are used. The second type is business-oriented involving purchasing orders and invoices.

E-commerce at Islam comes from two perspectives; firstly, in what way it affect syariah legal values, namely the wajib, halal, sunnat, mubah, makhruh and haram. Secondly is from the moral or akhlaq perspective which is how it can introduce greater efficiency and transparency in business transaction (Rosly, 1997)

There are four categories that can be identified in e-commerce. There are business to business (B2B), business to consumer (B2C), consumer to consumer (C2C), and consumer to business (C2B).

A B2B activity refers to an e-commerce that occurs between two organizations including purchasing and procurement, supplier management, inventory management, channel management, sales activities, payment management and service and support. Some organizations are emerging together in business productivity through the global network in order to obtain a great result and encourage business cooperation.

B2C provides exchange between business and consumer. For example, Amazon.com and Yahoo.com involve sale activities, consumer search, frequently asked question, service and support dedicated to consumers. Airasia.com is also one of the businesses to consumer transaction in which it sells tickets to the passengers through online.

C2C involves transaction between and among consumers, which is consumers sell directly to other consumers. This exchange may or may not include third party involvement. For example, web based communications (www.leq.com) and personal services (Yahoo! Personals), it also includes selling residential property, cars, knowledge and expertise online.

The C2B is where consumer band together to present their business in a certain web site. The consumers use the Internet to sell their products or service to organizations, as well as individual also seek sellers, interact with them and conclude transactions online (Turban E, 2002).

E-COMMERCE MECHANISMS

Availability of commercial transaction

There must be a commercial transaction in order to made e-commerce exists. This commercial transaction represents an agreement made by parties with goods and services are sold via electronic exchange. The transaction can be between organization, business, individual, buyers, sellers and suppliers.

Execution of transaction in electronic and digital medium

Transaction must be made in electronic and digital medium which mean goods and services are sold electronically and digitally rather than traditional transaction

The most common is to use a credit card, and the customer enters the card number, name of the card and expiry date.

At this stage the web site should switch to secure mode. The technology normally used is called SSL (Secure Socket Layer). This means that all communication with the server is encrypted in such a way that eavesdroppers cannot steal the credit card information.

The customer will get visual warning from the web browser that they are in secure mode, a blue key and blue line in Netscape or padlock symbol in Internet Explorer.

However, in a review of a number of sites, we found that only a minority offered credit card payment over a secure link. Other options are:

Credit cards over an insecure link
Purchase orders only
Purchase contacted later by phone or post
Purchaser prints form and faxes it

Printing an order form and faxing it to the seller is feasible and reasonably secure. The form can be the secure order form

Customers have the option to order, using the order form as a prompt. Many will prefer this, and the order form will be useful in confirming product codes and price.

No prerequisite for physical presence of the parties to the transaction

Traditionally the presence of seller and buyer in a transaction is important in order to make the transaction execute. But executions of transaction via e-commerce do not need the existence of seller and buyer in one place at a time. The offer and acceptance is made virtually.

From Islamic point of view, the offer and acceptance must have mutual consent between parties, the seller and buyer. In one Hadith, the Prophet Muhammad (PBUH) said:

“It is not lawful to take the property of a Muslim Except by his consent” .

Existence of the system by which the transaction is made in public network

The transaction must be made in an open system such as the Internet or World Wide Web. The true electronic commerce site will have three components:

Marketing and added value information : This is aimed at attracting customers, giving them a feel of contents and confidence in the retailer.

The catalogue : Detailed information on product benefits, specifications, and pricing.

Order processing : This will include a method of specifying and paying for the order.

The key to a good electronic commerce site is to provide an environment that makes it easy for the customer to navigate through the catalogue of products and ultimately make a purchase. These include

Navigation : The customer must be able to find the product they need without going through endless levels of indexes or menus. The visitor should be able to get to the product they need with very few clicks. The information must be comprehensive once the customer has located the product of interest. Provide pictures and diagrams to help the customer what is being offered.

Check-out: When the shopping session is complete, the customer clicks on hyperlinks which take to the checkout page. At this stage, the customer is presented with a list of the goods marked for purchase, the total cost, shipping, handling and tax.

Transaction made globally

The transaction made through e-commerce is definitely made globally through the open system.

Security concerned

There is a widely perceived attached to payments made via the Internet, and this perception is in some circumstances justified. The information sent from the customer to the Web server may pass through many different stages before being delivered. The information is in digital form, and at any stage an unauthorized individual may scan every message looking for credit card numbers (which are easily identified).

The standard SSL protocol developed by Netscape provides a high level of protection. Browsers that support this technology indicate that a secure session is in progress by showing a blue key on the screen. Protection can be provided by either:

Encrypting the information stored on the server
Using a ‘firewall’ to protect the information. A firewall is a device (or a piece of software) which limits access to a server to specific types, such as ‘Web traffic only’.

THE STAGES IN E-COMMERCE SUGGESTED BY ISLAM

There are five stages, which suggested by Islam when dealing with the transaction in e-commerce.

Initiating a contract (al-Ta’akud)

It is the beginning of initiating a contract and assures all of the pillars as such:

The two contracting people must be there or send the representative (wakil). The people must be sound mind, adult, and meet the shariah requirements.

Subject matter must be available at somewhere in the market global. The products must be halal, can be delivered and owned.

Mode of expression: through the online transaction, the communication between two parties must be clear. Check the server to assure the transaction can be done smoothly without any interruption, virus and system work properly.

Confirming the validity (Sihah)

During the process of negotiation, the contractmust be free from the following:

No riba involved especially when doing the payment through credit card.
No deceit.
No gharar (uncertainty), the commodity and company should be certain.
No force, duress, totally willing to buy the product. For example, the price has been stated is RM1000 after discount, the seller cannot increase the price even though it is because of government impose a higher value-added tax.
No maisir or gambling, no element of gambling and not harmful for both parties.

Implementation stage (tanzif)

At this stage, should ensure two things:

The person who makes the offer must have the authority to products. It is cannot valid if the person is not really control the commodity. But, if the offer person is representing of the owner (wilayah), he has the authority of disposing selling of commodity.
The commodity is free from any liability. For example, some company may sell the commodity, which is not free and has liability to some others.

Binding stage (Luzum)

It is the signing document stage. Both contracting parties must be clear and accept all the conditions of the commodity. During the signing the contract, the witnesses must be present. In some conditions, are require the agent to confirm the goods. The agent will verify the commodity. If buy the commodity which is less expensive, there is no problem. But if the expensive, it is better to have an agent or hardcopy to refer and to avoid manipulation and exploitation.

Stage of delivery or exchange

T he producer or seller uses the price and the goods as the exchange values. Normally in e-commerce, the payment is made using credit card. If the consumer pays the entire bill before the due date that they have been agreed before, it is permissible or halal. But even with 1% interest is charged to the buyer monthly, it is consider as riba. Today only Bank Islam Malaysia Berhad has introduced Islamic credit card. The bank can become as the wakalah if there is still no credit card.

ADVANTAGES AND DISADVANTAGES OF E-COMMERCE

There are advantages and disadvantages of e-commerce to the consumers, organizations and society.

Advantages	Disadvantages
Reduce cost: For example, the sales cost. We can reduce the sales process as the customers can access the Internet to buy the products. The cost of hiring salesman or sales girl can be reduced. The Internet connection cost is also quite low, so the companies can afford the connection cost	The disadvantages will affect either buyer or seller side. The disadvantage for the seller is no personal contact since the business dealings are done virtually. If there’s any problem arises either with the customer or with the supplier, the seller has to bear in order to detect the problems and the investigation is quite difficult. For example, the customer lied about their personal data while the products have been sent to them. The sellers need to have high tech facilities to handle this type of problem.
Worldwide and global: A person either buyer or seller can access to the worldwide market. This will give us more information about a particular product or service. At the same time, it can reduce our time as we can access to many products simultaneously. The seller might get ideas to improve his or her business. They can also promote other products to the customers while the customers access to their website.	The sellers are also have to get people know and access to their site. They must attract people with many alternatives such as producing the products that attract customers most, providing best product delivery and many more.
Availability and informative: The customer can get full information of that product before buying it just by access through the web site. All information and condition of products, price and sample are clearly stated. This will lead to customer satisfaction and improve the customer service. The customer might not find these collections at their place except in that particular location. The customer can also compare the price of the particular products without have to go to each sale store to make a cost-comparison.	The disadvantages for buyers or customer’s side might include the uncertainty of the product. They cannot see or feel the product before making decision to buy it. With the technology that we have now, the customer can easily being cheated. When the product is delivered, it is not similar as they saw on the net.
Opportunity to enlarge the business: It is an advantage for small business as they can compete with the larger companies. They might not a big company with a big name, but the way they do the promotion might attract customers to purchase their products. The companies also can have a better opportunity in order to widespread their partnership through globalization available in the Internet.	The customers have to pay the shipping cost and wait for the delivery of the product. The product deliver might take long time duration before the customers receive the products. The products also cannot being easily returned and get their money back if the customers are not satisfied. It is because the time taken to returned that product. For example, the product can be returned within 30 days. If the customers returned the product within the time but there’s problem with shipping process and the returned process is being delayed, the seller might not accept that returnable product and the customers cannot get back their money

COMPANY: UMMIKU SAYANG SDN. BHD. (DOT COM COMPANY)

Objective

"Children are Amanah from ALLAH Subhannahu Wa Ta'ala.
They are born in a complete fitrah. It is our duty to protect, nurture, and educate them so they grow up as strong Muslimin and Muslimah"

Mission
To provide Islamic books to parents in order to help them in teaching their children about Islam and nurturing their children to be strong Muslims in the future. We also aim to build a strong community of Muslim mothers who can support each other in building a stronger Ummah of the future.

Vision
To be a "one-stop" center for Muslim mothers for their needs during pregnancy until their children's childhood years, all based on the Islamic way.

E-Community
On-Line Bookstore and Rozanne –The Muslim Doll

To pay by cash, the customer can contact the person in charge at the contact number given to make necessary arrangement or payment to Ummiku Sayang bank account.
Bank name: Malayan Banking Bhd
Account no. : 564191006958

Payment by Cheque

If the customers choose to pay by cheque, they must make the cheque in Malaysia Ringgit payable to UMMIKU SAYANG SDN. BHD. Books ordered will be delivered as soon as the cheque clears.

Payment by Malaysia Money or Postal Order

Delivery
They can arrange delivery for purchases above RM 50.00 in the following areas only - Subang Jaya, USJ and Shah Alam (not including Shah Alam 2 area). For the customers in other areas, they can make arrangements to pick up the books from their center at Section 27 Shah Alam, or add another 10% for postage (for orders within Malaysia only).

According to our interview, they didn’t use the credit card as their method of payment because of the security concerned.

1) Is the contract valid if the offer and acceptance is not physically present?

When the seller and buyer are in each other presence, the contract is valid considering other matters related to the contract validation. One of the issues in the e-commerce is when the parties are not actually in each other’s presence. This will include the situation when the instantaneous of communication is used. When the method of communication is by using the telephone, the acceptance will be completed at the time and place it is heard by the offeror. This is because telephone communication is instantaneous hence the ordinary principle of verbal communication is applicable. This principle also can be applied to acceptance sent by telex and telemessage. For the Internet service such as IRC, Yahoo chat, voice chat, ICQ, Netmeeting and online instant message, the principle applicable to telephone communication shall be applicable as when these means used, the offeree will be directly notified if his acceptance is not completely heard or known to the offeror. It is to be distinguished that the idea of unity of meeting for transaction under Islamic contract of law does not require the contracting parties to be physically at one place. So long there is a means of communication between the two, the offer may still valid to be accepted. When people are connected by telephone or other means of instantaneous communication, the meeting place will obtain so long as the line is open or the contract is uninterrupted. There is still the requirement that acceptance must be communicated. The contract will still be concluded at the place where the offeror hears the acceptance.

While doing the transaction via e-commerce, the most common mode of payment is through credit cards. The issue rise here regarding to the using of credit card especially by using conventional credit card to settle all the payments, is it permissible or halal, or in line with the Islamic teaching? The following description reflects and answers the situation:

“Consumer-oriented e-commerce is significantly lagging behind its business-to-business segment (Zwass, 2000). The settlement phase of transaction on Web is often pointed to as one of the limiting factors. The consumer should be able to pay for purchase on the Web easily and with a perception of security. However, today, the most common mode of payment for purchase on the web is via credit cards. To say that e-commerce is in line with Islamic teachings then assumes that using conventional credit cards to settle payments is permissible or halal. It could be halal if the customer pays the entire bill before the due date. If, however, the customer only pays the 15% minimum requirement, the issuing bank will charge him /her 2% monthly interest rate on the remaining balance. Here, the Islamicity of e-commerce is suspect as it depends on the credit card as a payment mechanism (Rosly, 1997)” (Hussin, Husnayati).

From the above statement, it indicates that the all the payment via the credit cards are permissible or halal as long as the buyer settles the all payments before the due date that has been agreed by both of buyer and seller before.

From the survey, the implementation of e-commerce in Malaysia is still in the growth stage. Almost people are still using the common business transaction. The people who use e-commerce are from different races, religions, ages, educational backgrounds and status. The people who transact via e-commerce deal with e-commerce mechanisms. The products that are mostly bought by the people are such as book, ticket, flower, computer and etc.

The respondents of the survey are almost female, which indicate about 83% and 17% are male.

There are 70%respondents are around 20-30 years old and only 30% around 31-40 years old.

Almost of the respondents are Malay which represent 97% and the other 3% are Chinese.

Highest Educational Level

30% of the respondents finished their secondary school, certificate or diploma and bachelor respectively. Only 10% of the respondents’ highest educational level is Master / PhD.

Employment Status

Almost of the respondents are employed – full time which is 85%. 5% of the respondents are employed – part time, self employed and others respectively.

Industry of Employment

Half of the respondents involve in education industry which is 50%. 30% of the respondents involve in other industries. Only 5% of the respondents involve in advertising industry, financial industry, information technology industry and telecommunication industry respectively.

How do you doing the transaction?

Majority of the respondents are doing the transaction at the shop, which represent 97% and only 3% using the Internet.

Do you know about e-commerce?

Have you use e-commerce? (If you do not use e-commerce, skip the Question 4,5,6)

What do you buy via e-commerce?

From the respondents who use e-commerce, 90% buy books and 5% buy gifts and flowers each.

How often you use it?

How long do you take to complete the order?

52% stated that they are taking 15-30 minutes to complete their order, 32% taking less than 15 minutes and 16% more than 30 minutes.

From your knowledge, what do you think about e-commerce?

57% respondents stated that it is easy to do transaction via e-commerce, 22% stated fast, and other respondents claimed it is difficult and time consuming to do transaction via e-commerce which represent 4% and 17% each.

Do you agree that the price offered is reasonable?

The respondents who agree that the price offered is reasonable are 67%, and another 33% disagreed.

Do you agree that the products offered are variety?

The respondents are almost agreed that the products offered are varieties, which represent 94% and only 6% disagree.

Do you think that e-commerce is legal according to the Islamic Business ethics?

71% respondents stated that e-commerce is legal according to the Islamic Business ethics and 29% stated that it is illegal.

In your opinion, how e-commerce works?

Most respondent said that, the Internet, product offered, payment method and delivery service are the basic elements e-commerce work.

How payment made via e-commerce transaction?

What is your opinion about the implementation of e-commerce in Malaysia?

For this question, there are many opinions and answers given by the respondents. Some respondents stated that the implementation of e-commerce is still not widely used and not popular, it is because e-commerce is quite new and it takes time to be implemented and not all people are familiar with e-commerce except corporate sector. Some other respondents stated that the implementation of e-commerce in Malaysia still at the growth stage and only certain level of people are suitable to use it such as business people or big organizations which need to buy the products or goods in large number and amount.

What is your suggestion to improve the implementation of e-commerce in Malaysia?

For this question, there are varieties of suggestion given by the respondents in order to improve the implementation of e-commerce in Malaysia are as such:

Government should encourage public and private sector to involve in this kind of business.
Increase the awareness of people about the benefits, advantages and security level when using e-commerce.
Practice or implement the Islamic business transaction in e-commerce since today so many companies are lack of that.
Provide the more facilities that will encourage especially the public people to change and using e-commerce instead of traditional transaction.

From the survey that has been conducted, it can be concluded that, although they are many people still do not use e-commerce, but they know and realize what electronic commerce is. The issue of security while transact via e-commerce is still cannot convince some people. The government and corporate sector play the big roles to change the perceptions and to convince the public people about e-commerce which has many advantages.