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ISLAMIC FINANCIAL PLANNING Haliza Abu Bakar Royal Bank of Canada

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... Save WHY SHOULD I SAVE Basic Needs Pilgrimage Umrah Korban Peace of Mind Financial Independence Aid for Others Charities ZAKAT ZAKAT FITRAH Can be paid in the ... – PowerPoint PPT presentation

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Title: ISLAMIC FINANCIAL PLANNING Haliza Abu Bakar Royal Bank of Canada


1
ISLAMIC FINANCIAL PLANNING Haliza Abu
Bakar Royal Bank of Canada
2
CONTENTS
  • Islamic Financial Planning includes
  • Savings
  • Zakat Planning
  • Debts Financing Credit Cards
  • Investment
  • Takaful
  • Estate Planning

3
ISLAMIC FINANCIAL PLANNING
  • Discipline of wealth management
  • Protect
  • Preserve
  • Accumulate
  • Distribute
  • Main differences with conventional financial
    planning?

4
SAVINGS
  • Main difference between saving in Islamic banking
    conventional banking? ABSENCE OF INTEREST!
  • Profit instead of interest!
  • So how does it work?

5
SAVINGS
  • Concept of Guaranteed Custody or Profit Sharing
  • Profit rate is not fixed depends on the returns
    of the investment
  • Profit rate for the Islamic bank ranges from
    1.45 - 4 in 2004

6
INTEREST VS PROFIT
INTEREST PROFIT
Rate based on the amount of money involved Rate based on the amount of profit obtained
Payment is fixed Distribution depends totally on the profitability
Amount does not increase even if profit obtained manifold Distribution of profit increases in accordance to the amount of profit obtained
7
SAVINGS ISLAMIC PERSPECTIVE
  • Islam does not favour excessive spending
  • Nor does it favour hoarding of money
  • Therefore we need to find the right balance
    Spend, Donate, Save

8
WHY SHOULD I SAVE
  • Basic Needs
  • Pilgrimage
  • Umrah
  • Korban
  • Peace of Mind
  • Financial Independence
  • Aid for Others
  • Charities

9
ZAKAT
10
ZAKAT FITRAH
  • Can be paid in the form of staple food rice, or
    in the form of money
  • For 1425H/2004, the rates were
  • 2.268 kg
  • 2.84 (according to the value of fragrant rice)
  • 1.93 (according to the value of Thai rice)
  • (Source www.muib.gov.bn, Brunei Islamic
    Religious Council)

11
ZAKAT ON WEALTH
  • Depends on the amount of wealth that you have and
    how long you had it for
  • Your wealth has to reached its nisab (the
    minimum amount upon which Zakat is payable) and
    reached its haul (one lunar year)

12
ZAKAT ON WEALTH
  • The minimum amount payable for 1426H/2005 is
    2023.00, upon which 2.5 of Zakat is taxable
  • Islamic calendar (354 Days) 2.5
  • Normal calendar (365 Days) 2.577
  • Changes according to price of 21K gold in the
    market

13
HOW TO CALCULATE
DATE DEBIT CREDIT BALANCE
01.01.04 5,000 5,000
05.02.04 1,000 4,000
04.04.04 5,000 9,000
15.11.04 4,000 5,000
31.12.04 200 5,200
  • Say in 2004, minimum limit 2023
  • Take minimum amount in account 4000. Why?
  • Hence zakat 2.577 x 4000 103.08
  • Need not be from the account itself

14
THE MEANING BEHIND ZAKAT
  • Affects three areas
  • Morale
  • Economy
  • Social Surroundings
  • Protection for the Hereafter
  • Wealth do not belong to us
  • The More You Give, The More You Receive

15
ZAKAT IN THE QURAN
  • 30 places in the Quran stressing the importance
    of Zakat
  • And Allah said I am with you if you perform
    Prayer and give Zakat and believe in My
    Messengers honour and assist them, and lend a
    good loan to Allah, verily, I will expiate your
    sins and admit you to Gardens under which rivers
    flow (in Paradise). But if any of you after this,
    disbelieved, he has indeed gone astray from the
    Straight Path. (Al-Maidah 12)

16
IN THE RED
  • From an Islamic perspective, being in debt is not
    encouraged
  • Greatest sin is to die in a state of debt no
    asset to pay it off
  • Conventional loans interest bearing and can
    increase the burden of the person!
  • However, Islam encourages us to help one another

17
FINANCING
  • hence under Islamic Banking Financing!
  • Profit rate again replaces interest rate
  • So why is the profit rate under Islamic financing
    usually higher than the interest rate for a
    conventional loan?

18
FINANCING
  • Under Islamic financing, the customer is not
    usually penalized for late payment
  • Under the Reducing Balance concept, if you
    settle your loan before the maturity of the
    period, you do not have to pay the profit due to
    the bank for the remaining years
  • Financing restructure depends on the financial
    capability of the client

19
CREDIT CARDS
  • Different models used one is Guarantee Agency
    Concept Card issuer (bank) is nominated to
    guarantee the cardholders payment to the
    acquirer in any transaction undertaken
  • Monthly repayment usually deducted automatically
    from your account

20
CREDIT CARDS
  • No interest but the Islamic banks are allowed to
    charge the appropriate fees e.g. administration
    fees annual fees
  • Some transactions are not allowed e.g. purchasing
    of alcohol, gambling purposes etc

21
INVESTING
  • Why invest? Can get higher return than savings
    BUT higher risk!
  • Limited Islamic investment vehicles compared to
    conventional nevertheless GROWING!

22
INVESTING
  • Investing is encouraged in Islam
  • Why? Asked to make an effort to provide a
    comfortable and good life for ourselves and those
    depending on us
  • BUT there are guidelines that need to be follow

23
SUKUKS
  • Islamic Bonds
  • Interest-free
  • Asset-backed securities
  • Different concepts underlying the bonds contract,
    which are in line with Shariah law

24
EQUITIES
  • Must undergo a screening process to comply with
    Shariah guidelines usually done by the Shariah
    Supervisory Board
  • Example, the primary activities of the companies
    must not deal with gambling, alcohol, pork etc

25
UNIT TRUSTS
  • Must also undergo the same screening process
  • Diversification Reduce Risk
  • Your portfolio will be managed on your behalf by
    professionals of investment expertise

26
TAKAFUL
  • Concept? Based on a financial transaction of
    mutual cooperation
  • Therefore structured using the concept of
    Profit-sharing
  • Aimed not only as a protection device, but also a
    savings scheme

27
ESTATE PLANNING
  • Distribution in Islam clear definitive
  • Before distribution to heirs, ALL debts must be
    paid
  • Only 1/3 of estate can be given out through a
    will
  • Final balance will be distributed according to
    Faraidh, Islamic law of estate distribution

28
CONCLUSION
  • Possible to do Financial Planning with the
    available Islamic products
  • Benefits not only in this world, but also the
    Hereafter

29
  • A Muslim should prepare himself for the next
    world
  • as if he is going to die tomorrow, but at the
    same time work hard to improve all his worldly
    comforts as if he is going to live forever
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