Durham E-Theses Exploring an Inclusive Islamic Financial Planning Framework in Brunei Darussalam PG-MD-SALLEH, AK,MOHD,HASNOL,ALWEE How to cite: PG-MD-SALLEH, AK,MOHD,HASNOL,ALWEE (2013) Exploring an Inclusive Islamic Financial Planning Framework in Brunei Darussalam, Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/8501/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk 2 SCHOOL OF GOVERNMENT AND INTERNATIONAL AFFAIRS DURHAM UNIVERSITY Title of the Thesis: EXPLORING AN INCLUSIVE ISLAMIC FINANCIAL PLANNING FRAMEWORK IN BRUNEI DARUSSALAM By: AK MD HASNOL ALWEE PG MD SALLEH Thesis submitted in fulfilment of the requirements for the award of the degree of Doctor of Philosophy at the School of Government and International Affairs, Durham University 2013 ABSTRACT Exploring an Inclusive Islamic Financial Planning Framework in Brunei Darussalam Ak Md Hasnol Alwee Pg Md Salleh 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. i ACKNOWLEDGEMENTS Dedicated to my beloved parents and grandparents. My sincere gratitude and deepest appreciation to: My main supervisor, Professor Habib Ahmed for his insights and guidance. The Director of Durham Centre for Islamic Economics and Finance, Dr Mehmet Asutay for his support and encouragement. My sponsor, the Government of Brunei Darussalam and Universiti Brunei Darussalam. Lastly, I would like to thank individuals from the Brunei Islamic Religious Council, Community Development Department and Yayasan Sultan Haji Hassanal Bolkiah, for their cooperation and involvement towards the betterment of my research. ii DECLARATION I hereby declare that this thesis is a result of my original work. All references, citations or quotes which are not my original work have been duly acknowledged. None of the materials in this thesis has previously been submitted for any other degrees in this or any other university. COPYRIGHT The copyright of this thesis rests with the author. No quotation from it should be published without the author's prior written consent and information derived from it should be acknowledged. iii Table of Contents ACKNOWLEDGEMENTS ............................................................................................................ ii DECLARATION .............................................................................................................................. iii COPYRIGHT ..................................................................................................................................... iii LIST OF TABLES ........................................................................................................................... ix LIST OF FIGURES ......................................................................................................................... ix LIST OF ABBREVIATIONS .................................................................................................. xviii LIST OF APPENDIX .................................................................................................................... xix CHAPTER 1 INTRODUCTION 1.1 RESEARCH BACKGROUND ........................................................................................ 1 1.2 RESEARCH AIMS AND OBJECTIVES ..................................................................... 3 1.3 RATIONALE AND SIGNIFICANCE OF THE RESEARCH ............................... 7 1.4 RESEARCH DESIGN ........................................................................................................ 8 1.5 OUTLINE OF THESIS CONTENTS ............................................................................ 8 CHAPTER 2 FINANCIAL PLANNING 2.1 INTRODUCTION ................................................................................................................... 11 2.2 OVERVIEW OF FINANCIAL PLANNING .................................................................. 12 2.2.1 The Financial Planning Process .............................................................................. 12 2.2.2 The Life Cycle Hypothesis ....................................................................................... 16 2.3 A FINANCIAL PLANNING MODEL ............................................................................. 18 2.3.1 Money Management ................................................................................................... 20 2.3.2 Emergency Planning ................................................................................................... 22 2.3.3 Investing For Goals ..................................................................................................... 25 2.4 BEHAVIOURAL STUDIES ON SAVINGS AND DEBT ........................................ 28 2.4.1 Behavioural Studies on Savings .............................................................................. 28 2.4.2 Behavioural Studies on Debt .................................................................................... 34 2.5 EMPIRICAL STUDIES ON SAVINGS, DEBT AND PLANNING ...................... 36 2.5.1 Empirical Studies on Savings .................................................................................. 36 2.5.2 Empirical Studies on Debt ........................................................................................ 38 2.5.3 Empirical Studies on Financial Planning .............................................................. 39 2.6 FINANCIAL LITERACY .................................................................................................... 43 2.6.1 Financial Literacy and Planning .............................................................................. 43 2.6.2 Who Is Financially Illiterate? ..................................................................................