AlHuda - CIBE

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Outline of Presentation

• Introduction and Brief Perspective of Islamic
  Banking
• Islamic Banking Products World Wide
• Mechanism of Islamic Banking
• Mode of Financing in Islam ( Musharakah
  Modarabah )
• Bai ( Buying Selling )
• Takaful
• Product of Takaful
• Presented by
• Zubair Mughal
• CEO AlHuda Centre of Islamic Banking
  Economics
• Regional Head Takaful Pakistan Limited.

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Industry Progress in Pakistan

• Currently there are 6 full fledged Islamic Banks,
  while
• 6 Full fledge Banks having 186 and 12
  Conventional Banks have 103 SAIBBS
• Total IB Branches 289

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Industry Progress in Pakistan
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City - Wise Breakup
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City - Wise Breakup
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Industry Progress in Pakistan
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Industry Progress in Pakistan
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Industry Progress in Pakistan
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Industry Progress in Pakistan
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Islamic products and services offered by 300
Financial Institutions around the world

• .

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International Overview

• The size of Islamic Financial Industry has
  reached US 300 Bln. and its growing annually _at_
  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

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International Overview

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

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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

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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

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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.

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• Islamic Banking

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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

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PRODUCT TREE
Islamic Modes
Trade Based Modes
Partnership Based Modes
Rental Based Modes

• Musharaka
• Mudaraba

• Murabaha
• Musawama
• Salam
• Istisna

• Ijarah
• Diminishing
• Musharaka

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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

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

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MUDARABAH
PROFIT
40
60
VENTURE
SERVICES
CAPITAL
RABBUL MAL
MUDARIB
ALL MONETORY LOSS
LOSS OF SERVICES
LOSS
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Bai (Buying Selling)

• Bai
• Buying Selling

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Basic Rules of Bai

• Existence of Product/Commodity
• Ownership of Product/Commodity
• Possession of Product/Commodity
• Unconditional basis
• Product have value/Price.

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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.

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Kinds of Bai

• Bai Musawamah
• Bai Murabaha
• Bai Surf
• Bai Salam
• Bai Istisna
• Bai Urboon

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Basic Kinds of Bai

• Bai Eenna
• Bai Touliya
• Bai Wadhia
• Bai Tawaruq

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Type of Bai according to Quality

• Bai Salah
• Bai Fasid
• Bai Batil
• Bai Maqoof
• Bai Majool
• Bai Muqayaddah
• Bai Muajal

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Introduction

• Takaful is the Sharia Compliant brand name for
  the Islamic alternative to conventional
  insurance. Its based on the principle of Taawan
  or mutual assistance. It provides mutual
  protection and joint risk sharing in the event of
  a loss by one of its member

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Origins of Takaful

• In the event of death caused by someone from
  another tribe, the member of the offenders tribe
  would share the blood money (Khoon Baha) to
  provide for the family of the victim.

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Why Insurance ?

• Is Some thing wrong with Concept ?
• Risk Aversion
• Assuring others
• Risk sharing

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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 years maintenance
  and residence (2.240)

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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 dont 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) ltTirmidhigt

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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)

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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

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Gharar

• Lexically it means uncertainty and technically it
  means the uncertainty of the counteract or the
  subject matter.

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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.

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Wakala-Waqf Model
Share Holder
S H A R E H O L D E R S F U N D (S.H.F.)
Mudaribs Share of PTFs Investment Income
Wakalah Fee
Investment Income
Management Expense of the Company
Profit/Loss
Takaful Operator
Investment by the Company
WAQF
Claims Reserves
Surplus (Balance)
Investment Income
Operational Cost of Takaful / ReTakaful
Participant
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.)
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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.

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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

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Types of Family Takaful

• Term Life Takaful
• Whole Life Takaful
• Endowment Takaful
• Universal Takaful
• Marriage Plan
• Education Plan

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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

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BANCATAKAFUL (Contd.)

• 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.

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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.

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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.

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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.

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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).
• NonMuslims increasingly opting for Takaful
  products for commercial benefits.

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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

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Takaful Geographical Spread

• South East Asia 56
• Middle East 36
• Africa 7
• Europe, USA Others 1

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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.

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Main Markets

• Malaysia
• Indonesia
• Iran
• GCC countries
• Other Arab countries
• Other Asia Pacific
• Pakistan ( Emerging Market )

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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 (lt1 of GDP).

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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)

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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).

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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.

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Takaful Products
Trade Based Modes
Partnership Based Modes
Rental Based Modes

• Musharaka
• Mudaraba

• Murabaha
• Musawama
• Salam
• Istisna

• Ijarah
• Diminishing
• Musharaka

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Thank You.