2 Outline of Presentation Introduction and Brief Perspective of Islamic BankingIslamic Banking Products World WideMechanism of Islamic BankingMode of Financing in Islam ( Musharakah & Modarabah )Bai ( Buying & Selling )TakafulProduct of TakafulPresented by :Zubair MughalCEO – AlHuda : Centre of Islamic Banking & EconomicsRegional Head – Takaful Pakistan Limited.
3 Industry Progress in Pakistan Year2001Meezan BankAl BarakaMCBAlfalahSCBBank AlHabibHabib AG Zur.MetropolitanBank of KhyberSoneri Bank20022003210Meezan Bank (100)Al Baraka (18)MCB (8)Alfalah(32)SCB (8)Bank AlHabib(4 )HMB(4)Bank of Khyber(17)Soneri Bank ( 4)HBL(1)Bank Islami(36)DIB (17)EGIBL (10)Dawood(5)NBP(3)ABN AMRO (3)Askari(14)UBL (5)1843Currently there are 6 full fledged Islamic Banks, while6 Full fledge Banks having 186 and 12 Conventional Banks have 103 SAIBBSTotal IB Branches = 289
11 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 CooperativeGermany:4- Bank Sepah- Commerz Bank- Deutsche BankSwitzerland: 6UK: 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 BankMalaysia: 492 - Pure Islamic Banks (Bank Islam, Bank Muamalat)Rest - conventional banksSaudi Arabia: 17- Al Rajhi- SAMBA- Saudi Hollandi- Riyadh BankUAE: 13- Dubai Islamic Bank- Abu Dhabi Islamic Bank- HSBC AmanahQatar: 4- Qatar Islamic Bank- Qatar International IslamicKuwait: 9- Kuwait Finance HouseIran: 8Egypt: 12- Alwatany Bank of Egypt- Egyptian Saudi FinanceIndonesia: 4Sudan: 9Pakistan: 21India: 3Bangladesh:9Turkey: 7- Faisal Finance Institution- Ihlas Finance HouseYemen: 5.
12 International Overview The size of Islamic Financial Industry has reached US$ 300 Bln. and its growing 15% per anum.51 countries have Islamic Banking Institutions27 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan24 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia
13 International Overview Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as:Standard Chartered BankCitibankHSBCABN AMROUBS
14 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 lawsAt present there are more than 105 Islamic Funds operational through out the world with a total fund base of over USD 3.50 billion
15 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
16 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.
20 Musharakah Characteristics All parties share in the capital All parties share profits as well as lossesProfits are distributed as per agreed ratioLoss is borne by the parties as per capital ratioEvery partner is agent of other
21 MUSHARAKAH May be in any agreed ratio PROFIT Rs. 100 Rs. 60 Rs. 40 PARTNER APARTNER BVENTURERs.1000Rs.1000Rs. 50Rs. 50LOSSRs.100Must be according tocapital ratio
22 MudarabahOne partner (Rab al Mal) contributes capital and the other (Mudarib) contributes his skills or services to the ventureVenture may for a fixed period or purposeBoth share profit in pre-agreed ratioLoss is borne by Rab al Mal only, Mudarib loses his services
23 MUDARABAH PROFIT 60 % 40 % VENTURE RABBUL MAL MUDARIB SERVICESCAPITALRABBUL MALMUDARIBALL MONETORY LOSSLOSS OF SERVICESLOSS
25 Basic Rules of Bai Existence of Product/Commodity Ownership of Product/CommodityPossession of Product/CommodityUnconditional basisProduct have value/Price.
26 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 etcPrice must be clearly identified.
27 Kinds of Bai Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna’Bai Urboon
28 Basic Kinds of BaiBai EennaBai TouliyaBai WadhiaBai Tawaruq
29 Type of Bai according to Quality Bai SalahBai FasidBai BatilBai MaqoofBai MajoolBai MuqayaddahBai Mu’ajal
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. It provides mutual protection and joint risk sharing in the event of a loss by one of its member
31 Origins of TakafulIn 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 othersRisk sharing
33 From the Holly QuranThe 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 HadithsBy 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 ofGharar (Uncertainty))Gambling (Qamar & Maisir)Interest (Riba)
36 Riba in Insurance Direct Riba Indirect Riba Excess on one side in case of exchange between the amount of premium.Indirect RibaThe interest earned on interest based investments
37 GhararLexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter.
38 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.
39 WAQF Wakala-Waqf Model S H A R E H O L D E R S’ F U N D (S.H.F.) Wakalah FeeInvestmentIncomeMudarib’s Share of PTF’s Investment IncomeManagement Expense ofthe CompanyProfit/LossTakaful OperatorInvestment bythe CompanyWAQFOperational Cost of Takaful / ReTakafulInvestmentIncomeClaims &ReservesSurplus (Balance)ParticipantP 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.)
40 Shariah ComplianceShariah 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.
41 General Takaful TypesGeneral Takaful – offers all kinds of non-life risk coverage. It is normally divided into following classes:Property TakafulMarine TakafulMotor TakafulMiscellaneous Takaful
42 Types of Family Takaful Term Life TakafulWhole Life TakafulEndowment TakafulUniversal TakafulMarriage PlanEducation Plan
43 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
44 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.
45 ReTakafulCurrently 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. ReMalaysia (1997) ASEAN ReTakaful International.Dubai (2005) TakafulRe by ARIG.Lloyds of London to have a ReTakaful Syndicate in 2007.
46 Takaful PioneersTakaful started some 27 years ago in the Middle East with the launching of two companies:The Islamic Arab Insurance Co. (IAIC) in the UAE andThe Islamic Insurance Co. of SudanBut it took some time for the movement to take shape.
47 Takaful PioneersLater 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.
48 Takaful OperatorsThe number of Takaful operators worldwide is now estimated at:108 Takaful companies6 Retakaful companiesIn 35 Countries.Average growth rate higher than conventional insurance companies (around 25%).Non–Muslims increasingly opting for Takaful products for commercial benefits.
49 Takaful PremiumTakaful 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 Takaful40% Family Takaful
50 Takaful Geographical Spread South& East Asia : 56%Middle East : 36%Africa: 7%Europe, USA & Others: 1%
51 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.
53 Main Markets Malaysia Indonesia Iran GCC countries Other Arab countriesOther Asia PacificPakistan ( Emerging Market )
54 Challenges Business Model Dilemma Could create an uneven / unfair business environment to operateNeed to reach a consensus internationally on a common and standard Takaful business modelPoor Insurance penetration in the Muslim countries (<1% of GDP).
55 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)
56 Growth OutlookWorld 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).
57 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.