Alhuda CIBE - Presentation on Agriculture Finance by Zubair Mughal

2. Outline of Presentation
 Introduction and Brief Perspective of Islamic Banking
 Islamic Banking in the Global Prospectus
 Product Tree of Islamic Agricultural Finance
 Mode of Financing in Islam ( Musharakah & Modarabah )
 Bai ( Buying & Selling ) – Murabaha , Salam, Istisna
 Takaful – Islamic Insurance
 Takaful Products for Agricultural Finance
 Crop Takaful
Presented by
Zubair Mughal
CEO – AlHuda : Centre of Islamic Banking & Economics
Regional Head – Takaful Pakistan Limited.

3. Industry Progress in Pakistan
 6 Full fledge Banks having
228 and 12 Conventional
Banks have 103 SAIBBS and
10 Sub Branches till August,
08
 Total IB Branches = 341
Year 2001
•Meezan Bank
•Al Baraka
•Meezan Bank
•Al Baraka
•MCB
•Alfalah
•SCB
•Bank AlHabib
•Habib AG Zur.
•Metropolitan
•Bank of Khyber
•Soneri Bank
2002 2003
•Meezan Bank
•Al Baraka
•MCB
•Meezan Bank
•Al Baraka
•MCB
•Alfalah
2 10
2006 - 07
•Meezan Bank (113)
•Al Baraka (20)
•MCB (8)
•Alfalah(32)
•SCB (8)
•Bank AlHabib(4 )
•HMB(4)
•Bank of Khyber(17)
•Soneri Bank ( 4)
•HBL(1)
•Bank Islami(37)
•DIB (20)
•EGIBL (24)
• Dawood(14)
•NBP(3)
•RBS (3)
•Askari(14)
•UBL (5)
2004 - 05
1843

4. Industry Progress in Pakistan

5. Industry Progress in Pakistan

6. Industry Progress in Pakistan

7. City - Wise Breakup

8. City - Wise Breakup

9. Industry Progress in Pakistan

10. Industry Progress in Pakistan

11. Industry Progress in Pakistan

12. Industry Progress in Pakistan

13. Islamic products and services offered by 300+
Financial Institutions around the world
.United States: 20
- Al Manzil Financial
Services
- American Finance House
- Failaka Investments
- HSBC
- Ameen Housing
Cooperative
Germany:4
- Bank Sepah
- Commerz
Bank
- Deutsche
Bank
Switzerlan
d: 6
UK: 26
- HSBC Amanah
Finance
- Al Baraka
International Ltd
- Takafol UK Ltd
- The Halal Mutual
Investment Company
- J Aron & Co Ltd
(Goldman Sachs)
Bahrain: 26
- Bahrain Islamic Bank
- Al Baraka
- ABC Islamic Bank
- CitiIslamic Investment Bank
Malaysia: 49
2 - Pure Islamic Banks
(Bank Islam, Bank
Muamalat)
Rest - conventional
banks
Saudi Arabia: 17
- Al Rajhi
- SAMBA
- Saudi Hollandi
- Riyadh Bank
UAE: 13
- Dubai Islamic Bank
- Abu Dhabi Islamic Bank
- HSBC Amanah
Qatar: 4
- Qatar Islamic Bank
- Qatar International Islamic
Kuwait: 9
- Kuwait Finance
House
Iran: 8
Egypt: 12
- Alwatany Bank of Egypt
- Egyptian Saudi Finance
Indonesia: 4
Sudan: 9
Pakistan:
21
India: 3
Bangladesh
:9
Turkey: 7
- Faisal Finance
Institution
- Ihlas Finance
House
Yemen: 5

14. International Overview
 The size of Islamic Financial Industry has reached US$ 300 Bln.
and its growing annually @ 15% per anum.
 51 countries have Islamic Banking Institutions
 27 Muslim countries including Bahrain, UAE, Saudi Arabia,
Malaysia, Brunei and Pakistan
 24 non-Muslim countries including USA, UK, Canada,
Switzerland, South Africa and Australia

15. International Overview
Leading foreign Banks have opened Islamic
Banking windows or subsidiaries such as:
• Standard Chartered Bank
• Citibank
• HSBC
• ABN AMRO
• UBS

16. 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 3.50 billion

17. International Overview
 Governments of Bahrain ,Malaysia and now Pakistan
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

18. 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.

19. PRODUCT TREE OF ISLAMIC AGRI FINANCE
Islamic Modes of
Agricultural Finance
Trade Based
Modes
Partnership Based
Modes
Rental Based
Modes
Musharaka
Mudaraba
Murabaha
Musawama
Salam
Istisna
Ijarah
Diminishing
Musharaka

20. Partnership Based Modes of
Islamic Agricultural Finance
( Modarabah & Musharakah)

21. 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

22. MUSHARAKAH
PARTNER A PARTNER BVENTURE
Rs.1000 Rs.1000
PROFIT
Rs. 100
LOSS
Rs.100
Rs. 60 Rs. 40
Rs. 50 Rs. 50
May be in any
agreed ratio
Must be according to
capital ratio

23. 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

24. MUDARABAH
RABBUL MAL MUDARIBVENTURE
SERVICESCAPITAL
PROFIT
LOSS
40 %60 %
ALL MONETORY LOSS LOSS OF SERVICES

25. Bai (Buying & Selling)
Trade Base Mode of Islamic
Agricultural Finance

26. Basic Rules of Bai
 Existence of Product/Commodity
 Ownership of Product/Commodity
 Possession of Product/Commodity
 Unconditional basis
 Product have value/Price.

27. 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.

28. Kinds of Bai
 Bai Musawamah
 Bai Murabaha
 Bai Surf
 Bai Salam
 Bai Istisna’
 Bai Eenna
 Bai Touliya
 Bai Wadhia

29. Takaful
(Islamic Insurance )

30. 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.

31. 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” (Khoon Baha)
to provide for the family of the victim.

32. Why Insurance ?
Is Some thing wrong with Concept ?
 Risk Aversion
 Assuring others
 Risk sharing

33. 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)

34. 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>

35. What wrong with practice ?
The contract between the insurer & the
insured is technically wrong from the
sharia perspective because of
 Interest (Riba)
 Gharar (Uncertainty))
 Gambling (Qamar & Maisir)
 Risk Transfer Issue

36. 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

37. Gharar
 Lexically it means uncertainty and
technically it means the uncertainty of
the counteract or the subject matter.

38. Investment
Income
Operational
Cost of Takaful
/ ReTakaful
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.)
Mudarib’s
Share of PTF’s
Investment
Income
Wakalah
Fee
Investmen
t
Income
Management
Expense of
the
Company
Profit/Loss
S H A R E H O L D E R S’ F U N D (S.H.F.)
Participant
WAQF
Takaful
Operator
Share
Holder
Wakala-Waqf Model
Investment by
the Company

39. 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.

40. 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

41. Types of Family Takaful
 Term Life Takaful
 Whole Life Takaful
 Endowment Takaful
 Universal Takaful
 Marriage Plan
 Education Plan

42. Takaful Operators
 The number of Takaful operators worldwide is now
estimated at:
 152 Takaful companies
 9 Retakaful companies
 In 39 Countries.
 Average growth rate higher than conventional
insurance companies (around 25%).
 Non–Muslims increasingly opting for Takaful
products for commercial benefits.

44. INTRODUCTION OF TAKAFUL
PAKISTAN LIMITED
 Takaful Pakistan is a joint venture of prestigious local
& foreign institutions, including:

Emirates Investment Group (Sharjah).

Al-Buhaira National Insurance Co. (U.A.E.)

Al Raji Bank - KSA

House Building Finance Corporation.

Emirates Global Islamic Bank.

Arif Habib Securities.

Sitara Chemicals.
 Large initial paid-up Capital.

45. INTRODUCTION OF TAKAFUL
PAKISTAN LIMITED
 Managed by dedicated professionals, committed to the cause.
 Only A rated Takaful Company in Pakistan
 ReTakaful arrangements with a consortium of internationally
reputed ReTakaful operators.
 Shariah Board comprises of eminent scholars.
 BancaTakaful, Crop Takaful and MicroTakaful products
 We intend to be the trend-setter for excellent Clients’ Servicing,
Operational bench marks and prudent Underwriting practices.

46. Thank You.