oman first islamic finance & banking conference session: takaful services and efficient market...
TRANSCRIPT
Oman First Islamic Finance &
Banking ConferenceSession: Takaful Services and
Efficient Market PresenceJanuary 24th, 2012
$10 Million - $100 Million Omani Riyal Facility
December 24th 2011
UM Financial Group (UMFG) Canada’s Premier Islamic Financial Institution Established a financing facility with a Canadian institution which approached
$120 million and a network of eight branches Since it’s inception UMFG has undertaken the research, development,
launch and implementation of Islamic financial products UMFG has been invited by government invitation to Saudi Arabia and
Kuwait to share technical skills and investments opportunities Listed in The Banker magazine's Top 500 Islamic Financial Institutions for
the last four years World Finance North American Business Leadership and Pioneering
Leadership Award in Islamic Finance Only Canadian member of Accounting & Auditing Organization for Islamic
Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB) Shariah Ethics Board formulated: Sh. Nizam Yacuby (Bahrain), Dr. Aznan
Hassan (Malaysia), Mufti Dr. Zubair Usmani (Pakistan)
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UM Financial Group Products 2003 - 2011 Residential Home Financing structured Shariah compliant in 2005
Reached close to $120 million in home financing Pioneered Deposit Accounts based on Islamic principles:
Deposit Account by Metro Credit Union in 2004 Deposit and Term Deposit Account by McMaster Credit Union in 2006
Real Estate Investment Fund Established in 2007 for Canadian Islamic community-based investments
and mortgages Project Launch of Co-branded ETF off the Toronto Stock Exchange in 2009
Managed by Jovian Capital (JOV-TSX). Compliant with Islamic principles.
Project Launch of Pre-Paid MasterCard in 2010 Partnered with Mint Technology/GE Money (MIT-TSX-V)
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Canada’s Demographics Population of over 34 Million Second Largest country in size Second Largest country in oil reserves after Saudi Arabia Seventh most traded currency - Canadian Dollar Ninth largest economy globally Toronto
Fifth largest city in North America (Population 5.4 Million)- TSX 3rd largest stock exchange in North America and 7th largest
internationally- Best educated work force in the G7- Diverse Multicultural Population with over 50% of the population
visible minorities 160 million customers are within one-day’s drive
Canada’s Muslim Demographics
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Statistics Canada Census Muslim Population
Muslim population is doubling every 10 years (86% live in 6 cities) 2001 Census Mississauga 6.9% (1 in 14) Toronto 5.5% (1 in 18)
Islamic Finance in Canada 30 years ago (1979) within Co-operatives with pooled funds funding homes. Limited resources and growth
Islamic Financial products being Usury free have attracted interest from sects within the Christian and Jewish groups. Other non-religious group on social benefit also open to accepting Islamic finance products. Future consolidation to a Multicultural bank.
1991 – 256,000 0.9% Canada Population
2001 – 597,000 2.0% Canada Population
2011 – 1,299,300 (Projection) 3.8% Canada Population
2017 – 1,784,300 (Projection) 4.9% Canada Population
Takaful Insurance
Takaful means mutual guarantee Conventional insurance is not permissible due to elements
of: Gharar (uncertainty) and riba (usury)
Solution: is to design contracts that are mutual in nature and
premiums collected are structured to be as a mutual or voluntary benefit
Premiums collected must also be invested shariah compliant
For muslims living in the west after mortgage payments the next largest expenditure is car and home insurance
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Comparison between Models
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Takaful CompaniesConventional Insurance
Companies
Based on mutual cooperation. Based solely on commercial factors.
free from interest (Riba), gambling, (Maysir), and uncertainty (Gharar).
Insurance includes elements of interest, gambling, and uncertainty.
All or part of the contribution paid by the Participant is a donation to the Takaful Fund, which helps other Participants by providing protection against potential risks.
The premium is paid to conventional insurance companies and is owned by them in exchange for bearing all expected risks.
There is a full segregation between the Participants Takaful Fund account and the shareholders' accounts.
Premium paid by the Policy holder is considered as income to the company, belonging to the shareholders.
The Plan Owners’ and shareholders’ capital is invested in investment funds that are Shari’a compliant.
The capital of the premium is invested in funds and investment channels that are not necessarily Shariah compliant.
Takaful Insurance Definition
Takaful is an Arabic word that means "guaranteeing each other".
It is a system of Islamic insurance based on the principle of Ta-Awun (mutual assistance) and Tabarru (Voluntarily) where the risk is shared collectively by the group Voluntarily.
This is a pact among a group of members or participants who agree to jointly guarantee among themselves against loss or damage to any of them as defined in the pact.
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Problems with Conventional Insurance
The participant contributes a small amount of premium in a hope/risk to gain a large sum is Khatar (similar to gambling)
The participant loses the money paid for the premium when the insured event does not occur is Gharar (uncertainity)
The company will be in deficit if the claims are higher than the amount contributed by the participants is Gharar.
The element of Riba (Interest) exists in lending or borrowing funds/investments at fixed interest, and other related practices in the investment activities.
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Objectives of Takaful
What is Insurance?A tool for Risk Mitigation and Financial Protection
A tool to enable people to save (Life Insurance)
Takaful is not only a tool to mitigate loss or to make halal profits. It is an ideology which promotes1. Solidarity and joint guarantee
2. Self reliance and self sustainability for community well being
3. Assistance to those that need it
4. Community pooling system
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Education on Takaful
Most markets launch with financing and investment products which are then followed by Takaful products
Education is needed on the nature of Takaful The Holy Quran describes how Prophet Yusuf (peace be upon him)
filled the grain store with the excess resulting from seven years of good harvests to mitigate the effects of any future crop failure.
“Tie your camel first, then put your trust in Allah (SWT)”. <Tirmidhi> “It is better for you to leave your heirs wealthy rather than poor and
asking others for their needs”. <Bukhari>
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Takaful Plans in Canada Insurance companies in Canada have been meeting our group for the last
few years to see how to launch Takaful insurance All automobile and home owners are required by law to have insurance To launch a segregated product a market size of 50,000 clients are
needed Goal will be to acquire these clients with our iFreedomplus Mastercard
and then launch Takaful products with these clients With UM various Shariah compliant investments in Canada we can now
offer diversification for premiums collected. This can be in Islamic mortgages, equity market and fixed income (sukuk), etc.
Some of the largest insurance companies are from Canada. Such as Manulife and Sunlife. Both have launched Takaful insurance in Indonesia.
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