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Exploratory Research into Islamic Financial Literacy in Brunei Darussalam

Research · October 2015

DOI: 10.13140/RG.2.1.4815.1765

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 EXPLORATORY RESEARCH INTO ISLAMIC FINANCIAL LITERACY IN BRUNEI
DARUSSALAM

Dr Hjh Rose Abdullah1

rose@unissa.edu.bn

Ahmad Lutfi Haji Abdul Razak2

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.

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 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
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
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 well-
being”.

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.

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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 shariah-
compliant 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
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
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

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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

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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 (7th 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.

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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.”

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 (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
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
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 2015. 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
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.

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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
 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
 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 31st January 2015, and at an interviewer recruitment session for financial
literacy held on the 7th February 2015. 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 25 18.8%
Working 52 39.1%
Not Working 56 42.1%
Student

Gender 16 12.0%
Male 117 88.0%
Female

Age 89 66.9%
16 – 25 34 25.6%
26 – 35 4 3.0%
36 – 45 2 1.5%
46 – 55 0 0.0%
55 and above 4 3.0%

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 No answer

Has Had Formal

Education in Finance
Related Subjects 80 60.2%
Yes 48 36.1%
No 5 3.8%
No answer

Financial Situation 6 4.5%

Excellent 11 8.3%
Very Good 60 45.1%
Good 39 29.3%
Satisfactory 11 8..3%
Poor 4 3.0%
Very Poor 0 0.0%
Unacceptable 2 1.5%
No answer

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 16-35 (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.

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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:

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 Table 2: Knowledge and Understanding of Islamic Finance Related Terms

Zakat
Islamic Islamic Zakat on
Finance Banking Muamalat Fitrah wealth Nafkah Waqf Faraid Wasiyyah Sadaqah
0.44 0.41 0.47 0.54 0.48 0.52 0.50 0.40 0.33 0.6

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
0.41 0.45 0.35

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
0.35. The level of knowledge and understanding of conventional banks or financial institutions is
0.41. 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

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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
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
 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.

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  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. 2015. The Director of Education Curriculum Department, interview 28
January 2015.

Ahmad, M. 2010. Why Islamic financial literacy is important. Personal Money. Retrieved from
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Aisha Stacey. 2009. Education in early Islamic history. Retrieved from

http://www.islamreligion.com/articles/2837/)23/1. [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: 2047-2528 Vol. 2 No. 10 [38-50]. Retrieved from www.ajbms.org [20/1/2015]

Fitri Shahminan. 2012. Many Muslim Lack of Zakat Knowledge: Imams, The Brunei
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knowledge-imams

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Hasnol Alwee Salleh. 2013. 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, 21 – 22 May 2013.

Kayed, R. N. 2008. Appraisal on the Status of Research on Labor Economics in the Islamic
Framework Retrieved from http://www.kantakji.com/media/6418/op49.pdf [31 January
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Mohammad Ma’sum Billah, 2012. Islamic Financial Planning, Retrieved from

http://drmasumbillah.blogspot.com/2012/08/islamic-financial-planning-aims-to.html
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Mohamad Azhar bin Hashim. nd. Retrieved from http://www.ikim.gov.my/index.php/en/the-

star/8571-the-significant-of-financial-literacy-in-islam. [23 January 2015]

OECD INFE. 2011. Measuring Financial Literacy: Core Questionnaire in Measuring Financial
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Rose Abdullah. 2012. Zakat Management in Brunei Darussalam: Funding the Economic
Activities of the Poor, Universiti Islam Sultan Sharif Ali, Brunei Darussalam.

Rose Abdullah. 2014. The Model of Cash Waqf Based Islamic Microfinance, Thematic
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on Business Models in Islamic Microfinance, organized by International Islamic
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Zaheer, K. nd. Islamic Economics: An Emphasis on Spending and Utilisation of Resources.
http://www.khalidzaheer.com/essays/kzaheer/economic%20issues/spending_and_utilisati
on_of_resources.html

Zeti Akhtar Aziz (2006) speech at the official launch of Affin Islamic Bank Berhad, Kuala
Lumpur
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http://www.financialeducatorscouncil.org/financial-literacy-definition/, [23 January 2015]

http://www.bibd.com.bn/resource-centre/financial-planning/

http://www.ambd.gov.bn/my-takaful-and-insurance-book

www.bis.org/review/r060615e.pdf [31 January 2015]

http://www.bt.com.bn/business-national/2013/11/15/financial-literacy-key-takaful-growth-
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http://www.bt.com.bn/business-world/2015/02/14/getting-know-takaful-and-insurance

Appendix

Activities organized by BIBD 2012 - 2014

Year: 2012 2013 2014

No of Talks: 32 43 42

Category:

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 Private sector 18 3 6

Government sector 3 14 15

School and Higher Institution 3 12 6

Financial Planning Workshop 2 1 3

Others such as pre-wed couples programs, Explorace, SeDex, Global week 8 14 15

activities, etc

source: BIBD

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