Published on March 6, 2014
Islamic products and services offered by 400+ Financial Institutions around the world . Germany:4 UAE: 13 - Bank Sepah - Dubai Islamic Bank - Commerz Bahrain: 26 Abu Dhabi Islamic Bank9 Kuwait: United States: 20 Bank - HSBC Amanah - Bahrain Islamic Bank - Kuwait Finance - Deutsche - Al Manzil Financial - Al Baraka House UK: 26 Qatar: 4 Bank Services - ABC Islamic Bank - HSBC Amanah - Qatar Islamic Bank - American Finance House Switzerlan - CitiIslamic Investment Finance - Qatar International - Failaka Investments Bank d: 6 - Al Baraka Islamic - HSBC Iran: 8 International Ltd Pakistan: - Ameen Housing - Takafol UK Ltd 21 Cooperative - The Halal Mutual India: 3 Turkey: 7 Investment Company Bangladesh - Faisal Finance Egypt: 12 - J Aron & Co Ltd :9 Institution - Alwatany Bank of Egypt (Goldman Sachs) Malaysia: 49 - Ihlas Finance - Egyptian Saudi Finance 2 - Pure Islamic Banks Arabia: 17 Sudan: 9 SaudiHouse (Bank Islam, Bank - Al Rajhi Muamalat) - SAMBA Rest - conventional - Saudi Hollandi Indonesia: 4 banks - Riyadh Bank Yemen: 5 ASA
International Overview • The size of Islamic Financial Industry has reached US$ 800 Bln. and its growing annually @ 15% per Anum. • 71 countries have Islamic Banking Institutions • 37 Muslim countries including Qatar, Kuwait, Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan • 34 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia ASA
International Overview Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as: • Standard Chartered Bank • Citibank • HSBC • ABN AMRO • UBS ASA
International Overview • In Feb 1999, Dow Jones introduced the Dow Jones Islamic Market Index (DJIM) of 600 companies world wide whose business complies with Islamic Shariah laws • At present there are more than 105 Islamic Funds operational through out the world with a total fund base of over USD 8.50 billion ASA
International Overview • Governments of many Islamic countries have issued Islamic Bonds (Sukuk) in order to facilitate Islamic Banks in managing their liquidity. • Issuance of these bonds has also paved the way for Shariah compliant Government borrowings ASA
International Overview • Institutions like Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Finance Services Board (IFSB) have been formed. • These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions. • Due to these collective efforts Islamic banking is now recognized by IMF, World Bank and Basel Committee. ASA
Islamic Banking ASA
Important Elements of Islamic Economics • • • • • • • Bai ( Sale & Purchase ) Ijarah ( Islamic Leasing ) Basic Mode of Financing ( Musharkah & Modarabah) Takaful ( Islamic Insurance ) Sukuk ( Islamic Bonds ) Qard Zakat & Ushar ASA
PRODUCT TREE Islamic Modes Partnership Based Modes Musharaka Mudaraba Trade Based Modes Murabaha Musawama Salam Istisna ASA Rental Based Modes Ijarah Diminishing Musharaka
Musharakah • Characteristics – All parties share in the capital – All parties share profits as well as losses – Profits are distributed as per agreed ratio – Loss is borne by the parties as per capital ratio – Every partner is agent of other ASA
MUSHARAKAH PROFIT Rs. 100 Rs. 60 Rs.1000 PARTNER A Rs. 40 Rs.1000 VENTURE Rs. 50 Must be according to capital ratio May be in any agreed ratio PARTNER B Rs. 50 LOSS Rs.100 ASA
Mudarabah • One partner (Rab al Mal) contributes capital and the other (Mudarib) contributes his skills or services to the venture • Venture may for a fixed period or purpose • Both share profit in pre-agreed ratio • Loss is borne by Rab al Mal only, Mudarib loses his services ASA
MUDARABAH PROFIT 60 % 40 % SERVICES CAPITAL RABBUL MAL VENTURE ALL MONETORY LOSS MUDARIB LOSS OF SERVICES LOSS ASA
Bai (Buying & Selling) Bai Buying & Selling ASA
Basic Rules of Bai • Existence of Product/Commodity • Ownership of Product/Commodity • Possession of Product/Commodity • Unconditional basis • Product have value/Price. ASA
Basic Rules of Bai • Bai on Such product which is permissible in Islam. • Product Must be Identify, clear with all demanding Qualities. • Not based on any incident, struggle etc • Price must be clearly identified. ASA
Kinds of Bai • • • • • • Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna’ Bai Urboon ASA
Basic Kinds of Bai • • • • Bai Eenna Bai Touliya Bai Wadhia Bai Tawaruq ASA
Type of Bai according to Quality • • • • • • • Bai Salah Bai Fasid Bai Batil Bai Maqoof Bai Majool Bai Muqayaddah Bai Mu’ajal ASA
Introduction “Takaful” is the Sharia Compliant brand name for the Islamic alternative to conventional insurance. Its based on the principle of Ta’awan or mutual assistance. It provides mutual protection and joint risk sharing in the event of a loss by one of its member ASA
Origins of Takaful In the event of death caused by someone from another tribe, the member of the offender’s tribe would share the “ blood money” (Feediah) to provide for the family of the victim. ASA
Why Insurance ? Is Some thing wrong with Concept ? • Risk Aversion • Assuring others • Risk sharing ASA
From the Holly Quran • The need for insurance is shown in the following verse of The Quran. “ Those of you who die and leave widows should bequeath for their widows a year’s maintenance and residence” (2.240) ASA
From the Hadiths • By Anas-bin-Malik, One day Prophet Muhammad(PBUH) notced a bedouin leaving his Camel without tying it. He asked the bedouin, “Why don’t you tie down your camel”? The Bedouin answered, “ I put my trust in Allah (SWT)”. The Prophet (PBUH) then said,” Tie your camel first, then put your trust in Allah(SWT)” <Tirmidhi> ASA
What wrong with practice ? The contract between the insurer & the insured is technically wrong from the sharia perspective because of • Gharar (Uncertainty)) • Gambling (Qamar & Maisir) • Interest (Riba) ASA
Riba in Insurance • Direct Riba Excess on one side in case of exchange between the amount of premium. • Indirect Riba The interest earned on interest based investments ASA
Gharar • Lexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter. ASA
Different Models of Takaful • Pure Mudarabah Model : The participants and operator enter into modarabah Contract. • Wakalah Model : An Agency Agreement is made between participants and Operators on the basis of Wakalah ( Agency agreements) • Wakalah Based on Waqf Model : The participant's donate the fund and operator charge an agency fee. ASA
Wakala-Waqf Model SHARE Share Holder Wakalah Fee H O L D E R S’ F U N D (S.H.F.) Mudarib’s Share of PTF’s Investment Income Investmen t Income Management Expense of the Company Profit/Loss Takaful Operator Investment by the Company WAQF Participant Operational Cost of Takaful / ReTakaful Investment Income Claims & Reserves Surplus (Balance) P A R T I C I P A N T S’ T A K A F U L F U N D (P.T.F.) ASA
Shariah Compliance • Shariah compliance is an essential element in Takaful . • It is ensured through a Shariah Supervisory/ Advisory Board at the level of each Takaful company. • The role of the Shariah Board is vital in meeting the specific demand of a public who would not insure otherwise. ASA
General Takaful Types • General Takaful – offers all kinds of non-life risk coverage. It is normally divided into following classes: – Property Takaful – Marine Takaful – Motor Takaful – Miscellaneous Takaful ASA
Types of Family Takaful • Term Life Takaful • Whole Life Takaful • Endowment Takaful • Universal Takaful • Marriage Plan • Education Plan ASA
BANCATAKAFUL • Background • Range of Products • Savings → Personal Accident, Homeowners’ Comprehensive, Credit Cards, etc. • Financing, Individuals → Car Ijarah, Housing Musharika, Mortgage Takaful. • Financing, SMEs → Trade Credit Takaful, Business, Office, Equipment, Assets. • E-Commerce ASA
BANCATAKAFUL (…Cont’d.) Advantages of BancaTakaful: • Facilitation Desk / Equipment. • Fast Turnaround Time. • One-Stop shop for Clients. • Concept of Islamic Financial Supermarket. • Value Added Services. • Law of Large Numbers. »Lower Contribution Rates. »Attraction for Depositors. ASA
ReTakaful • Currently few ReTakaful companies worldwide offering a relatively small capacity: – – – – – – – – Sudan (1979) National Reinsurance. Sudan (1983) Sheikhan Takaful Company. Bahamas (1983) Saudi Islamic Takaful and ReTakaful Company. Bahrain/Saudi Arabia (1985) Islamic Insurance and Reinsurance Company. Tunisia (1985) B.E.S.T. Re Malaysia (1997) ASEAN ReTakaful International. Dubai (2005) TakafulRe by ARIG. Lloyds of London to have a ReTakaful Syndicate in 2007. ASA
Takaful Pioneers • Takaful started some 27 years ago in the Middle East with the launching of two companies: – The Islamic Arab Insurance Co. (IAIC) in the UAE and – The Islamic Insurance Co. of Sudan • But it took some time for the movement to take shape. ASA
Takaful Pioneers • Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act). • This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asia. ASA
Takaful Operators • The number of Takaful operators worldwide is now estimated at: • 108 Takaful companies • 6 Retakaful companies • In 35 Countries. • Average growth rate higher than conventional insurance companies (around 25%). • Non–Muslims increasingly opting for Takaful products for commercial benefits. ASA
Takaful Premium • Takaful is one of the fastest growing segments in insurance (at around 20% pa. on average) • World Takaful contributions are conservatively estimated at around US$ 3billions, of which: – 60% General Takaful – 40% Family Takaful ASA
Takaful Geographical Spread • • • • South& East Asia : Middle East : Africa: Europe, USA & Others: ASA 56% 36% 7% 1%
TAKAFUL - TARGET MARKET • People who do not insure due to religious reasons. • People who insure and are insensitive to religious reasons. • People who currently do not insure at all. ASA
Main Markets • • • • • • • Malaysia Indonesia Iran GCC countries Other Arab countries Other Asia Pacific Pakistan ( Emerging Market ) ASA
Challenges • Business Model Dilemma • Could create an uneven / unfair business environment to operate • Need to reach a consensus internationally on a common and standard Takaful business model • Poor Insurance penetration in the Muslim countries (<1% of GDP). ASA
Takaful Best Practices • Regional Takaful institutions and organisations need to come together internationally in order to promote and standardise best practices within the industry: – – – – Islamic Financial Services Board (IFSB) ASEAN Takaful Group (ATG) International Takaful Association (ITA) Accounting and Auditing Organization of Islamic Financial institutions (AAOIFI) ASA
Growth Outlook • World Muslim population is estimated at 1.5 billions, of which around 97% are based in Asia and Africa. • A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East). ASA
Takaful Prospects in Pakistan • 97% Muslim population. • Demand for insurance increasing with increase in per capita income. • Personal lines insurance business (leasing, health, Medicare) growing at a higher rate than other conventional classes. • Islamic banking on sound footing with support of the Govt. ASA
. Takaful Products Partnership Based Modes Musharaka Mudaraba Trade Based Modes Murabaha Musawama Salam Istisna ASA Rental Based Modes Ijarah Diminishing Musharaka
Thank You. ASA
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