Outline of Presentation Introduction and Brief Perspective of Islamic Banking Islamic Banking...

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Slide 2 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. Slide 3 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 Year2001 Meezan Bank Al Baraka Meezan Bank Al Baraka MCB Alfalah SCB Bank AlHabib Habib AG Zur. Metropolitan Bank of Khyber Soneri Bank 20022003 Meezan Bank Al Baraka MCB Meezan Bank Al Baraka MCB Alfalah 210 2006 - 07 Meezan 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) 2004 - 05 1843 Slide 4 Industry Progress in Pakistan Slide 5 City - Wise Breakup Slide 6 Slide 7 Industry Progress in Pakistan Slide 8 Slide 9 Slide 10 Slide 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 Cooperative Germany:4 - Bank Sepah - Commerz Bank - Deutsche Bank Switzerlan d: 6 UK: 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 Bank Malaysia: 49 2 - Pure Islamic Banks (Bank Islam, Bank Muamalat) 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 Finance House Iran: 8 Egypt: 12 - Alwatany Bank of Egypt - Egyptian Saudi Finance Indonesia: 4 Sudan: 9 Pakistan: 21 India: 3 Bangladesh: 9 Turkey: 7 - Faisal Finance Institution - Ihlas Finance House Yemen: 5 Slide 12 International Overview The size of Islamic Financial Industry has reached US$ 300 Bln. and its growing annually @ 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 Slide 13 International Overview Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as: Standard Chartered Bank Citibank HSBC ABN AMRO UBS Slide 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 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 Slide 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 Slide 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. Slide 17 Islamic Banking Slide 18 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 Slide 19 PRODUCT TREE Islamic Modes Trade Based Modes Partnership Based Modes Rental Based Modes Musharaka Mudaraba Murabaha Musawama Salam Istisna Ijarah Diminishing Musharaka Slide 20 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 Slide 21 MUSHARAKAH PARTNER APARTNER B VENTURE Rs.1000 PROFIT Rs. 100 LOSS Rs.100 Rs. 60 Rs. 40 Rs. 50 May be in any agreed ratio Must be according to capital ratio Slide 22 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 Slide 23 MUDARABAH RABBUL MALMUDARIB VENTURE SERVICES CAPITAL PROFIT LOSS 40 %60 % ALL MONETORY LOSSLOSS OF SERVICES Slide 24 Bai (Buying & Selling) Bai Buying & Selling Slide 25 Basic Rules of Bai Existence of Product/Commodity Ownership of Product/Commodity Possession of Product/Commodity Unconditional basis Product have value/Price. Slide 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 etc Price must be clearly identified. Slide 27 Kinds of Bai Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna Bai Urboon Slide 28 Basic Kinds of Bai Bai Eenna Bai Touliya Bai Wadhia Bai Tawaruq Slide 29 Type of Bai according to Quality Bai Salah Bai Fasid Bai Batil Bai Maqoof Bai Majool Bai Muqayaddah Bai Muajal Slide 30 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 Slide 31 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. Slide 32 Why Insurance ? Is Some thing wrong with Concept ? Risk Aversion Assuring others Risk sharing Slide 33 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) Slide 34 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) Slide 35 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) Slide 36 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 Slide 37 Gharar Lexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter. Slide 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. Slide 39 Investment Income Operational Cost of Takaful / ReTakaful Claims & ReservesSurplus (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.) Mudaribs Share of PTFs Investment Income Wakalah Fee Investmen t Income Management Expense of the Company 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 by the Company Slide 40 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. Slide 41 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 Slide 42 Types of Family Takaful Term Life Takaful Whole Life Takaful Endowment Takaful Universal Takaful Marriage Plan Education Plan Slide 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 Slide 44 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. Slide 45 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. Slide 46 Takaful Pioneers Takaful started some 27 years ago in the Middle East with the launching of two com