Exploring an Inclusive Islamic Financial Planning Framework in Brunei Darussalam

Abstract

The 1970s has witnessed two novel developments in the realm of personal finance and Islamic finance. Within personal finance, the decade saw a growth in the demand for financial planning, moving from a sector that prior to the 1970s catered exclusively to the wealthy, to one that provides services to the middle-income class. In the field of Islamic finance, the decade is remembered for the establishment of the first Islamic bank and takaful (insurance) company that laid the foundations of an industry that is now reported to be a trillion dollar industry. This study is designed to explore if Islamic financial planning, which falls within the purview of Islamic finance, can be developed further to include those with low incomes and in poverty. The aim of this study is to examine the needs of the poor and non-poor households in order to identify, describe and establish an inclusive Islamic Financial Planning (IFP) framework for both groups in Brunei Darussalam. This suggested framework integrates historical institutions such as zakat and awqaf, with contemporary financial concepts and approaches such as financial exclusion and financial planning.
In order to achieve the research aim, primary data was collected using structured interviews/questionnaire-based surveys and semi-structured interviews. The former, quantitative method, involved interviews with 431 Muslim heads of households in the Brunei-Muara district, composed of 216 non-welfare recipients (non-poor or net surplus households) and 215 welfare recipients (poor or net deficit households). The data was analysed using statistical techniques, which include Pearson’s chi-square test and logistic regression. Meanwhile, the qualitative information gathered from semi-structured interviews with 39 net deficit respondents was coded and reported.
The findings of the study display a hierarchical form of financial planning, for the poor and non-poor in Brunei. For net deficit households, the hierarchical structure involves moving individuals from the bottom of the hierarchy, that is the money management level, to emergency planning, and finally to the top of the hierarchy, that is investing for goals. For net surplus households, their role relates to the supply-side of the inclusive IFP framework, whereby they provide funds necessary in the form of zakat and awqaf to implement the approaches associated with money management, emergency planning and investing for goals.
The study also found instances of financial exclusion in Brunei for net deficit respondents in opening bank accounts and accessing credit facilities. In terms of financial planning practices and financial knowledge, the findings highlight net deficit respondents were more likely to fare poorly than net surplus respondents. Further, in terms of zakat and awqaf, both groups of respondents appear to have low-level understanding of these concepts. Overall, the study provides the conceptual framework for an inclusive IFP approach in Brunei. Thereby, it provides a different paradigm towards combating poverty, through the lens of financial planning, alongside the added components of zakat, awqaf, financial literacy and financial inclusion.