roadshow islamic banking

8/8/2019 Roadshow Islamic Banking

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Zubair MughalChief Executive Officer

AlHuda : Centre of Islamic Banking & Economics

Editor in Chief.

Islamic Banking and Finance News , True Banking.

An Introduction to

Islamic Banking & TakafulAwareness Road show on Islamic Banking and Takaful

From

Khyber to Karachi


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Outline of Presentation

About Nationwide Awareness Compaign on Islamic Banking &Takaful

Introduction to Islamic Banking Riba ( Interest ) Difference between Islamic & Conventional Banking Product of Islamic Banking. Progress of Islamic Banking in Pakistan & Worldwide Takaful Shariah Mechanism of Takaful

Family & General Takaful.


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Islam

Aqidah

(Faith & Belief)

Shariah

(Practices & Activities)

Akhlaq

(Morality & Ethics)

IBADAT

(Man to God Worship)

Muamalat

(Man to Man Activities)

Political Activities Economic Activities Social Activities

Banking & Financial Activities

Islam and Shariah


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Sources of Fiqh in Islam (Islamic Finance)

Quran

Sunnah

Ijtehad / Qiyas

Ijamae Ummah


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Basic Difference between Islamic and Conventional Banking

ConventionalBank ClientMoney

Money + Money(interest)

Bank ClientGoods &

Services

money

Islamic Banking


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Riba in Quran

... God has permitted trade and forbidden interest...

(Sura Al-Baqara 2:275)


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Fulfillment of Financial Needs

Own Capital Others Capital

Equity Financing Debt Financing

Murabahah Ijarah

Salam & Istisna etc

Musharakah Modarabahah

Other Products

Human Financial Needs


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PRODUCT TREE

Islamic Banking Modes

Trade BasedModes

Partnership BasedModes

Rental BasedModes

Musharaka(Joint Venture Profit Sharing )

Mudaraba( Trustee Profit Sharing)

Murabaha(Cost Plus Profit Sale)

Musawama(Bargain sale )

Salam(CommoditySale)

Istisna(Sale on Order)

Ijarah( Leasing )Diminishing

Musharaka( Transfer of Ownership)


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ONUSSHIFTS!!

CustomertoHalal Restaurant Owner

Halal Restaurant Owner

toHalal Meat Supplier

Halal Meat SuppliertoHalal Abattoir / Butcher

Customer to Islamic Banker

Islamic Bankerto Shariah Scholars


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Industry Progress in Pakistan

6 Full fledge Islamic Banks

13 Conventional Banks havingSAIBBS

Total IB Branches = 600 +

Year 2001

Meezan Bank

Al BarakaMeezan Bank

Al Baraka

MCB

Alfalah

SCB

Bank AlHabib

Habib AG Zur.

Metropolitan

Bank of KhyberSoneri Bank

2002 2003

Meezan Bank

Al Baraka

MCB

Meezan Bank

Al Baraka

MCB

Alfalah

2 10

2007- 09

Meezan Bank (201)

Al Baraka (30)

MCB (8)

Alfalah(48)

SCB (11)

Bank AlHabib(4 )

HMB(4)

Bank of Khyber(16)

Soneri Bank ( 5)

HBL(1)Bank Islami(102)

DIB (25)

EGIBL (55)

Dawood(32)

NBP(5)

RBS (3)

Askari(22)

UBL (5)

2004 - 06

1843


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Industry Progress & Mkt. Share

174870150289519**No. of Branches

379121212*

Conventional Banks withIslamic Banking Branches

122666*Full Fledge Islamic Banks

0.5%1.3%1.8%2.4%3.6%4.7%%age of Banking Industry

10304872166185Financing. & Invest.

0.4%1.2%1.9%2.8%4.1%5.2 %%age of Banking Industry

8305083169198Deposits

0.5%1.4%2.1%2.9%4.2%5.3 %%age of Banking Industry

134472118235271Total Assets

Dec-03Dec-04Dec-05Dec-06Dec-07Dec-08@Description

(Rs. in Bn)


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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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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

Switzerland:

6UK: 26- HSBC Amanah Finance-Al Baraka InternationalLtd- Takafol UK Ltd- The Halal MutualInvestment Company- J Aron & Co Ltd(Goldman Sachs)

Bahrain: 26- Bahrain Islamic Bank-Al Baraka-ABC Islamic Bank

- CitiIslamic Investment Bank

Malaysia: 492 - Pure Islamic Banks(Bank Islam, BankMuamalat)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 FinanceHouse

Iran: 8

Egypt: 12- Alwatany Bank of Egypt

- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 21

India: 3

Bangladesh:9Turkey: 7- Faisal FinanceInstitution

- Ihlas FinanceHo

use

Yemen: 5


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International Overview

The size of Islamic Financial Industry has reached US$ 300 Bln. and its

growing annually @ 15% per anum.

70 countries have Islamic Banking Institutions

37 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia,

Brunei and Pakistan

34 non-Muslim countries including USA, UK, Canada, Switzerland,

South Africa and Australia


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Leading foreign Banks have opened Islamic

Banking windows or subsidiaries such as:

Standard Chartered Bank

Citibank

HSBC

ABN AMRO

UBS


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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 ofover USD 3.50

billion


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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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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 standardizingShariah , 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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It is almost risk free banking anddepositor has no risk of losing itsmoney because interest isguaranteed.

No right of profit if there is no riskinvolved.

It can charge additional money in

case of defaulters

Islamic banks have no provision to

charge any extra money from thedefaulters

Do not Deal in Zakat ( Non MuslimCountries )

Deal in Zakat

Conventional banking Islamic banking


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TAKAFUL(Islamic Insurance )

The Shariah Compliant Alternative to Conventional

Insurance


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Meaning of Takaful

Takaful is the Sharia Compliant brandname for the Islamic alternative toconventional insurance. Its based on theprinciple of Taawan or mutual assistance.

Takaful comes from the Arabic root-word

kafala guarantee.


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Takaful means mutual protection and joint

guarantee.

Operationally, takaful refers to participantsmutually contributing to a common fund

with the purpose of having mutualindemnity in the case of loss.

Meaning of Takaful


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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 ProphetMuhammad(PBUH) notced a bedouin

leaving his Camel without tying it. Heasked the bedouin, Why dont you tie

down your camel? The Bedouinanswered, I put my trust in Allah (SWT).

The Prophet (PBUH) then said, Tie yourcamel first, then put your trust in

Allah(SWT)


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What wrong with practice ?

The contract between the insurer & insured istechnically wrong from the sharia perspectivebecause of

Interest (Riba)

Gharar (Uncertainty))

Gambling (Qamar & Maisir)

Risk Transfer Issue


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Basic Elements of Takaful

Mutuality and cooperation.

Takaful contract pertains to Tabarru as against Aqd

e-muawadat in case of conventional insurance.

Payments made with the intention of Tabarru

(contribution) Eliminates the elements of Gharrar, Maisir and Riba.

Wakalah/Modarabah basis of operations.

Joint Guarantee / Indemnity amongst participants

shared responsibility. Constitution of separate Participants Takaful Fund.

Constitution ofShariah Supervisory Board.

Investments as per Shariah.


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Main drivers of Takaful

Piety (individual purification)

Brotherhood (mutual assistance)

Charity (Tabarru or contribution)

Mutual Guarantee

Community well-being as opposed to profit

maximization.


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Comparing Takaful to Conventional Insurance

Issue Conventional

Insurance

Takaful

Organization Principle Profit for shareholders Mutual Benefit for

Participants

Basis Risk Transfer Risk sharing

Value Proposition Profits maximization Affordability and spiritual

satisfaction

Laws Regulations Sharia plus regulations

Ownership Shareholders are Owners Participants

Management status Managed by Company Management Operator

Form of Contract Contract of Sale Islamic contracts of Wakala or

Mudarbah with Tabarru(contributions)

Investments Interest based Sharia compliant, Riba-free

Surplus Profit of Insurance Company. Distribution to Participants on

pro rata basis.


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Takaful through Time

Origins in the First Constitution of Madina.

Serious efforts were made in modern times, in 1970s tocome up with an Islamic alternative to the conventionalinsurance.

The first Takaful company was set up in Sudan in 1979,almost simultaneously followed by another one set upin Bahrain.


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Takaful through Time (Contd.)

Poor Insurance penetration in the Muslim countries(


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Takaful Operators

The number of Takaful operators worldwide is now

estimated at:

150+ Takaful companies

9 Retakaful companies

In 38 Countries.


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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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People who do not insure due to religious reasons.

People who insure and are insensitive to religiousreasons.

People who currently do not insure at all.

TAKAFUL - TARGET

MARKET


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InvestmentIncome

OperationalCost 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.)

MudaribsShare of PTFs

InvestmentIncome

WakalahFee

Investment

Income

ManagementExpense of

theCompany

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 bythe Company


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About AlHuda

Centre of Islamic Banking and Economics

Forum for the Development of Islamic Banking and Finance.

Training & Education of Islamic Banking and Finance.

Advisory Services & Shariah Certification.

Publication & Research.

Research Section of AlHuda CIBE

Join us as Volunteer

Distance Learning Programs

For Further details

www.alhudacibe.com, www.sukuk.com.pk


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