Islamic finance (Revolution in the Making) 2014


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Revolution in the making in Global Finance...
everyone's products... It is a Reality...
Bai ( Sale & Purchase )
Ijarah ( Islamic Leasing )
Basic Mode of Financing ( Musharkah & Modarabah)
Takaful ( Islamic Insurance )
Sukuk ( Islamic Bonds )
Zakat & Ushar

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Islamic finance (Revolution in the Making) 2014

  1. 1. ASA
  2. 2. 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
  3. 3. 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
  4. 4. International Overview Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as: • Standard Chartered Bank • Citibank • HSBC • ABN AMRO • UBS ASA
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. Islamic Banking ASA
  9. 9. 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
  10. 10. PRODUCT TREE Islamic Modes Partnership Based Modes Musharaka Mudaraba Trade Based Modes Murabaha Musawama Salam Istisna ASA Rental Based Modes Ijarah Diminishing Musharaka
  11. 11. 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
  12. 12. 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
  13. 13. 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
  15. 15. Bai (Buying & Selling) Bai Buying & Selling ASA
  16. 16. Basic Rules of Bai • Existence of Product/Commodity • Ownership of Product/Commodity • Possession of Product/Commodity • Unconditional basis • Product have value/Price. ASA
  17. 17. 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
  18. 18. Kinds of Bai • • • • • • Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna’ Bai Urboon ASA
  19. 19. Basic Kinds of Bai • • • • Bai Eenna Bai Touliya Bai Wadhia Bai Tawaruq ASA
  20. 20. Type of Bai according to Quality • • • • • • • Bai Salah Bai Fasid Bai Batil Bai Maqoof Bai Majool Bai Muqayaddah Bai Mu’ajal ASA
  21. 21. 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
  22. 22. 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
  23. 23. Why Insurance ? Is Some thing wrong with Concept ? • Risk Aversion • Assuring others • Risk sharing ASA
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. Gharar • Lexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter. ASA
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. Types of Family Takaful • Term Life Takaful • Whole Life Takaful • Endowment Takaful • Universal Takaful • Marriage Plan • Education Plan ASA
  34. 34. 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
  35. 35. 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
  36. 36. 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
  37. 37. 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
  38. 38. 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
  39. 39. 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
  40. 40. 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
  41. 41. Takaful Geographical Spread • • • • South& East Asia : Middle East : Africa: Europe, USA & Others: ASA 56% 36% 7% 1%
  42. 42. 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
  43. 43. ASA
  44. 44. Main Markets • • • • • • • Malaysia Indonesia Iran GCC countries Other Arab countries Other Asia Pacific Pakistan ( Emerging Market ) ASA
  45. 45. 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
  46. 46. 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
  47. 47. 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
  48. 48. 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
  49. 49. . Takaful Products Partnership Based Modes Musharaka Mudaraba Trade Based Modes Murabaha Musawama Salam Istisna ASA Rental Based Modes Ijarah Diminishing Musharaka
  50. 50. Thank You. ASA