Islamic Banking Financial Institutions and Markets Final Project
Submitted to:
Maa’m Mahira Rafiq
Submitted by:
Aysha Azfer
Saira Razaq
Humaira Kanwal
ContentsINTRODUCTION TO FAYSAL BANK...............................................................................................................2
GROUP INFORMATION:...............................................................................................................................2
VISION, MISSION AND VALUES:...................................................................................................................3
BOARD OF DIRECTORS:................................................................................................................................4
MANAGEMENT TEAM:................................................................................................................................6
BARKAT ISLAMIC BANKING:.........................................................................................................................7
PRODUCTS:..................................................................................................................................................7
BARKAT CURRENT ACCOUNT:......................................................................................................................8
BARKAT KAMIL BUSINESS ACCOUNT:..........................................................................................................9
BARKAT ISLAMIC - SAVING ACCOUNT:......................................................................................................10
MUDARABA:..............................................................................................................................................11
BARKAT ISLAMIC – AUTO FINANCE:...........................................................................................................12
BARKAT HOME FINANCE:..........................................................................................................................14
BARKAT ISLAMIC - INVESTMENT CERTIFICATE (BIIC):................................................................................16
BARKAT ISLAMIC - FOREIGN CURRENCY ACCOUNT:..................................................................................17
MURABAHA:..............................................................................................................................................18
TAKAFUL:...................................................................................................................................................22
SWOT ANALYSIS.........................................................................................................................................25
References:................................................................................................................................................26
INTRODUCTION TO FAYSAL BANKFaysal Bank Limited (FBL) was incorporated in Pakistan on October 3, 1994, as a public limited
company under the Companies Ordinance, 1984.
Faysal Bank started operations in Pakistan in 1987, first as a branch set-up of Faysal Islamic
Bank of Bahrain and then in 1995 as a locally incorporated Pakistani bank under the present
name of Faysal Bank Limited. On January 1, 2002, Al Faysal Investment Bank Limited, another
group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger, stronger
and much more versatile institution. Faysal Bank Limited is a full service banking institution
offering consumer, corporate and investment banking facilities to its customers. The Bank's
widespread and growing network of branches in the four provinces of the country and Azad
Kashmir, together with its corporate offices in major cities, provides efficient services in an
effective manner. The strength and stability of Faysal Bank Limited is evident through the Credit
Rating assigned by JCR-VIS Credit Rating Company Limited of "AA" (Double A) for long to
medium term and "A-1+" (A One Plus) for short term. The majority share holding of Faysal
Bank Limited is held by Ithmaar Bank B.S.C an investment bank listed in Bahrain
GROUP INFORMATION:Ithmaar Bank B.S.C. (stock code "ITHMR") is licensed by the Central Bank of Bahrain and
listed on the Bahrain Stock Exchange and the Kuwait Stock Exchange. It has a paid-up capital of
US$598 million, total equity of US$1.1 billion and is a full service investment bank with its
direct business covering the Middle East and North Africa (MENA) region, as well as South
Asia, Asia-Pacific and Europe. Besides holding significant investments in the banking and
financial service sectors in different markets, the main direct activities of the Bank include
underwriting (equity and other financings), private equity (structuring, participation and portfolio
management), Islamic financing and advisory services covering project financing, investments,
capital markets and mergers & acquisitions.
Ithmaar Bank's flagship subsidiaries and associates include Shamil Bank of Bahrain
(headquartered in Bahrain), Ithmaar Development Company, Faysal Bank Limited (Pakistan),
Faisal Private Bank (Switzerland), Sakana Holistic Housing Solutions, Solidarity (an Islamic
insurance company), BBK B.S.C., Bahrain based First Leasing Bank, and Ithraa Capital (Saudi
Arabia).
VISION, MISSION AND VALUES:
OUR VISION:
Excellence in all that we do
OUR MISSION:
Achieve leadership in providing financial services in chosen markets
through innovation.
OUR VALUES:
Our daily code of conduct is exemplified by eight core values:
Four threshold values — values at the heart of our brand.
Four differentiator values — values that set our brand apart.
Threshold Values
We function as a team. Within functions, we
cooperate.
Between functions, we collaborate.
Together, we aim for excellence and leadership
in our chosen markets.
Our Team: Our Asset.
We hold our customers, investors and
regulators in high esteem.
We uphold our customers’ rights to demand
efficient service.
We appreciate and respect our profession and,
Differentiator Values
We bring zeal and enthusiasm for banking to
work.
We are excited to provide customers with the
best or the best-suited.
We go the extra mile in legitimate, acceptable
ways.
Our Passion: Our Worth.
Innovation
We pioneer novel and more efficient ways to
deliver solutions.
We are dedicated to a culture of improvement
and modernization.
above all, our bank.
Our Respect: Our Duty.
I
We are recognised by our reliability, credibility
and character.
We believe in ethical, honorable, time-proven
principles of uprightness.
We stand for and abide by honesty, truth and
transparency.
Our Integrity: Our Identity.
Professionalism
We are proficient and efficient in all that we
do.
We provide banking services knowledgeably
and skillfully.
We uphold regulatory obligations.
Our Professionalism: Our Competence
We stand for originality, in thought, in action and
in belief.
Our Innovation: Our Strength.
Responsiveness
We are receptive to the need for change and
improvement.
We are proactive and anticipate our customers’
needs and wants.
We act quickly to modify, adjust or prepare for
new realities.
Our Responsiveness: Our Distinguisher.
Compassion
Our concern for our colleagues, our customers,
our communities, and our country sets us apart.
To each other, we are a family.
For each other, we are a meaningful source of
shared humanity.
Our Compassion: Our Gift.
BOARD OF DIRECTORS:
Lt.Gen. Muhammad Maqbool (Retd)
Director
Hassan Mohammed Mahmood Hassan
Director
Graham Roderick Walker
Director
Syed Naseem Ahmad
Chairman
Naved A. Khan
President & CEO
Farooq Rahmatullah
Director
Mohamed A. R. Hussain
Director
Shahid Ahmad
Director
Company Secretary
Faysal Bank Limited
Faysal House,
ST-02, Shahrah-e-Faisal,
Karachi.
MANAGEMENT TEAM:
Naved A. Khan
President & CEO
Nauman Ansari
Head Corporate & Investment Banking
Aarij Ali
Head Retail Banking
Salman Ahmed Usmani
Head Treasury
Mehreen Amin
Head Human Resources
Nasir Islam
Head Compliance
Yousaf Hussain
Head Special Asset Management
Syed Majid Ali
Chief Financial Officer
Suhail Khan
Chief Risk Officer
BARKAT ISLAMIC BANKING:Faysal Bank introduces Barkat Islamic Banking, with branches dedicated to purely Shariah
compliant banking transactions which offer Shariah compliant banking products and services for
all segments of the market through 44 plus full-fledge Barkat Islamic branches situated in 20
major cities of Pakistan. Faysal Bank’s growing distribution network of more than 245 online
branches and over 205 ATMs allow our Barkat Islamic Banking customers to Access their
accounts with ease and convenience.
All products and processes of Barkat Islamic Banking are developed and operated under strict
supervision of our experienced Shariah Advisor Mufti Muhib-Ul-Haq who is a qualified Islamic
Scholar having vast experience in Islamic Banking and a specialization degree in “Iftaa & Fiqh”
from the esteemed Jamia Dar Ul Uloom Karachi and Shariah Consultant Mufti Mohammad Abu-
Bakar.
Barkat Islamic Banking offers a wide range of Shariah compliant products and services in order
to meet customers’ demand of Shariah compliant banking. Some are mentioned below:
PRODUCTS:
Barkat Current Account
Barkat Kamil Business Account
Barkat Auto Finance
Barkat Investment Certificate
Barkat Murabaha
Barkat Saving Account
Barkat Foreign Currency Account
BARKAT CURRENT ACCOUNT:
Current Account is a value added product which enables the customerto derive maximum benefits from
your deposits. It is a suitable solution for individuals as well as business entities looking for a checking
account based on Islamic Financing principles. This flexible account is based upon Qard, (loan on
demand). This makes it free of interest and the principle is guaranteed to you, the depositor. The
customercan rest assured your funds will be utilized in strict adherence to Shariah principles, as all
deposits are allocated in a specific pool of funds which are further invested in Islamic assets.
Product Features & Benefits:
Nationwide access to your account through any Faysal Bank branch
24-hour access to your account through Faysal Bank’s Call Centre and ATM network, as
well as all other 1-Link / MNET ATMs country-wide
Online access to your account through any Faysal Bank branch
A host of conveniences through the Faysal Bank ATM network:
Instant funds transfer
Utility Bill Payment
Cash deposit (at selected Faysal Bank ATMs)
SMS Alert facility
BARKAT KAMIL BUSINESS ACCOUNT:
An account that not only provides return on your investments but offers the option to avail a
wide variety of free of charge banking services to suit your banking needs. A suitable solution
for business men as well as individuals that are looking for free banking services due to their
business banking needs.
Opened on the basis of ‘Mudarabah’, where Barkat Islamic Banking is the ‘Mudarib’ (manager
of the funds) and you, the customer are the ‘Rabb-ul-Maal’ (owner of funds). These deposits are
deployed in Shariah compliant modes such as Murabaha and Musharakah.
Product Features & Benefits:
Minimum balance of Rs. 100,000 required to avail free of charge services.
A range of FREE services:
Cheque books
Payorders
Duplicate account statements.
Online banking services.
Account balance and maintenance certificates.
Online intercity clearing including same day clearing.
Visa Debit card.
Unlimited transaction facility.
Profit calculated on monthly average balance and paid monthly.
Online access to your account through any Faysal Bank branch.
24-hour access to your account through Faysal Bank’s Call Centre, ATM network, and
all other 1-Link / MNET ATMs country-wide.
A host of conveniences through the Faysal Bank ATM network:
Instant funds transfer
Utility Bill Payment
Cash deposit (at selected Faysal Bank ATMs)
SMS Alert facility.
Dedicated Relationship Manager to advise you, as per your needs.
BARKAT ISLAMIC - SAVING ACCOUNT:An account that provides greater returns on your investments and is a suitable solution for
individuals as well as business entities that are looking for competitive returns on their savings
based on Islamic Financing principles.
Opened on the basis of ‘Mudarabah’, where Barkat Islamic Banking is the ‘Mudarib’ (manager
of the funds) and the customer is the ‘Rabb-ul-Maal’ (owner of funds). In saving account we
make pool of funds, and then invest that money and earn profit. It may be 40% and 60%, 50%
and 50% or others.
MUDARABA:This is a kind of partnership where one partner gives money to another for investing it in a
commercial enterprise. The investment comes from the first partner who is called "Rabb-ul-
maal" while the management and work is an exclusive responsibility of the other, who is called
"Mudarib" and the profits generated are shared in a predetermined ratio.
Mudaraba means a business in which a subscriber participates with his money and the manager
participates with his knowledge and skill, and profits on investment made out of the Mudaraba
funds are distributed among the subscribers. Thus, it is a concept of Islamic finance through
which one partner or more participate with the funds and another with his skill and efforts in
some trade, business and industry permitted by Islam. They who participate with their efforts
assume the role of manager, while the provider of funds becomes the beneficial owner.
These deposits are deployed in Shariah compliant modes such as Murabaha and Musharakah.
The rate of profit on deposits will be determined through a Shariah approved mechanism for
calculation of weightages which will be announced at the beginning of each calendar month and
shall be applicable for that month only. Barkat Islamic Saving deposits will share in the profit
earned by the Islamic Banking Branches of Faysal Bank. Losses, if any, will be shared in the
proportion of investment by each depositor.
Product Features & Benefits:
Account can be opened with as low as Rs. 100.
No average deposit balance required to earn profit.
Unlimited transaction facility.
Profit calculated on monthly average balance and paid monthly.
Tiered profit structure: the higher the tenor and balance of your deposit, the higher your
expected profit amount.
Online access to your account through any Faysal Bank branch.
24-hour access to account through Faysal Bank's Call Centre, ATM network and all other 1-
Link / MNET ATMs country-wide.
A host of conveniences through the Faysal Bank ATM network.
Instant funds transfer
Utility Bill Payment
Cash deposit (at selected Faysal Bank ATMs)
SMS Alert facility
How Savings Account works for customer’s benefit:
Dividend Rates:
The bank is allowed to pay discretionary 'hibah' to Savings Account customer based on the
performance of the return of investment.
Shariah Compliant:
Customer’s money will be invested in activities approved by the Shariah Consultant to ensure all
investment activities are in accordance to Shariah principles.
Monthly Statement:
Every month, a statement is sent to customer, helping them keep track of all transactions. If
customer have more than one account with bank, then bank send a consolidated statement to the
customer for an all-in-one monthly report.
Convenience access to funds:
Customer can enjoy Phone Banking, Online Banking and SMS Banking 24 hours a day, 7 days a
week. And also have access to over one million ATM outlets in more than 150 countries.
BARKAT ISLAMIC – AUTO FINANCE:
Barkat Auto Finance based on Diminishing Musharkah
Under Islamic jurisprudence, Musharkah means a joint enterprise formed for conducting some
business in which all partners contribute financially and share the profit as per pre agreed upon
ratios, while the loss is shared according to the ratios of financial contribution of each partner.
The Musharkah is an ideal alternate to replace interest based lending with far reaching effects on
both production and distribution of capital. Profit sharing ratios in a Musharkah depend entirely
on the estimated profit the business is able to generate. The Musharkah is a relationship
established, by the parties, by mutual contract and therefore all necessary ingredients of a valid
contract must be present. The risk of loss inherent in this mode of financing ensures that the
Bank fully satisfies itself as to the profitability and feasibility of the business venture as well as
to the integrity of its Musharakah partners.
In Diminishing Musharakah, customer participates with Barkat Islamic Banking in joint
ownership of vehicle, where the Bank will provide a certain amount of financing. Customer
agrees to a monthly payment to the Bank of which one component is rent for use of the vehicle,
and the other is for to increase the customer’s ownership in the vehicle. When customer have
made the full payment, which had been agreed upon, customer become the sole owner with a
free and clear title to the vehicle.
Product Features & Benefits:
Avail the financing of new, used and imported vehicle for personal use.
Quick processing with minimum documentation
No Limit on financing amount, starts from as low as Rs. 100,000 and minimum equity
requirement as low as 20%
Multiple options for tenor with maximum of 5 years
Installment repayment to start ONLY after delivery of the vehicle and no processing fee
until approval of financing
Built-in Takaful (Islamic Insurance) expense for the entire financing tenor. The bank will
arrange Takaful for the vehicle from a reputable Takaful company and will facilitate
customer in claim processing
Maximum safety of your vehicle ensured due to tracker installation
Faysal Bank Limited - Barkat Auto Finance
EMI CALCULATION SHEET
TOTAL COST OF VEHICLE Rs.1,800,000
CUSTOMER'S MUSHARKA SHARE (in
RS)Rs.630,000
TENURE IN YEARS 5
BANK'S MUSHARKA SHARE % 65%
CUSTOMER'S MUSHARKA SHARE % 35%
BANK'S MUSHARKA SHARE (in RS) Rs.1,170,000
Amount that will pay every year 292500
Ready Delivery/Booking BOOKING GREATER THEN 2 MONTHS
Payments:
(A) DOWN PAYMENT / CUSTOMER'S MUSHARKA SHARE Rs.630,000
(B) DOCUMENTATION CHARGES Rs. 5800
--------------
PAYABLE IN FORM OF CROSS CHQ. OR PAY-ORDER Rs.635,800
---------------
BARKAT HOME FINANCE:
It based upon Diminishing Musharkah, in which customer participate with Barkat Islamic
Banking in the joint ownership of home, where the bank will provide a certain amount of
financing. Customer agrees to a monthly payment to the bank of which one component is rent for
the use of the home and the other is for the customerto increase ownership in the home. When
customer has made the full payment, which had been agreed upon, customer becomes the sole
owner with a free and clear title to the property.
Product Features & Benefits:
Various product options suit the customer’s need:
Home Buyer – Purchase a readymade home of your choice.
Home Refinance – Transfer an existing Mortgage to Barkat Islamic Banking.
Home Renovation – Give a new look to your existing home.
Maximum convenience with a range of tenures from 1 to 20 years.
Easy to make partial prepayments.
Minimal documentation & processing fee.
Quick processing time.
Property takaful coverage.
Accidental death takaful coverage .
BARKAT HOME FINANCE CALCULATOR
Write 1 for salaried and 2 for
businessmen / SEP 1
Year of birth 1965
Net Income 80,000
Applied Tenure in Years 13
Required Financing Amount 2,068,705
Entitlement of Facility
Applicant Age 47 (Yrs
)
Max: Facility Tenor Entitlement 13
(Yrs
)
Finance amount Entitlement 2,066,905
Installment Amount Entitlement 32,000
Monthly Approx Installment of Finance
Amount 32,028
BARKAT ISLAMIC - INVESTMENT CERTIFICATE (BIIC):
This is a suitable solution for investors who are looking for high returns on their investments,
with absolute Shariah compliance. Whether customer is individual account holder or a business
entity seeking to capitalize on opportunities, Barkat Islamic Banking Investment Certificates
offers convenient and secure financial solutions under a hybrid arrangement of Musharakah and
Mudarabah Islamic modes of financing. Customer’s deposit is allocated to a specific pool of
funds that are invested in Islamic assets that could be any government schools, hospitals bridges
etc.
The Barkat Islamic Investment Certificates (BIIC) is a ‘Riba Free ‘investment based on the
principles of Mudaraba Mushtarika with the customers being the ‘Rabb-ul-Maal’ (owner of
funds) and Faysal Bank as the ‘Mudarib’(manager of funds).The BIIC holder shall be eligible for
a share of profit which the Barkat Islamic Banking Branches of Faysal Bank will earn (after
deduction of expenses) through investing funds in various modes of Islamic finance. Losses, if
any, shall be shared strictly in proportion of Depositors’ and Faysal Bank’s capital contribution.
Monthly weights for profits distribution shall be calculated and displayed at the Barkat Islamic..
Product Features & Benefits:
Minimum investment amount Rs. 25,000/-.
A range of tenures: 1 month, 3 months, 6 months and 1 year.
Monthly as well as maturity profit payment options available.
Options for automatic renewal.
Premature withdrawal option available with no penalty charge.
Dedicated Relationship Manager to advise you, as per your needs.
Zakat and withholding tax to be deducted as per applicable rules.‘
BARKAT ISLAMIC - FOREIGN CURRENCY ACCOUNT:
A value added product which enables the customer to derive maximum benefits from your
foreign currency deposits. This flexible account is based upon Qard, (loan on demand). This
makes it free of interest and the principle is guaranteed to you, the depositor. The customer can
rest assured your funds will be utilized in strict adherence to Shariah principles, as all deposits
are allocated in a specific pool of funds which are further invested in Islamic assets.
Product Features & Benefits:
Choice of currency - US$, GBP and Euro
Minimum Balance required US $ 500 or equivalent.
Nationwide access to your account through any Faysal Bank branch.
24-hour access to your account through Faysal Bank’s Call Center.
Service Charges are as per Faysal Bank’s Schedule of Charges
MURABAHA:Murabaha is derived from the Arabic word Ribh that means profit. It is one of the most common
modes used by Islamic banks. In this form of sale the seller is obligated to disclose the cost of the
commodity and amount of profit to be charged therefore it is not a loan given on interest rather it
is a sale of profit. It is also known as the Trust sale.
The mechanism of Murabaha is that Faysal bank purchases the article of trade as per the
customer`s requirement and sells him on cost-plus-profit. Under this arrangement, the bank is
bound to disclose cost and the profit margin to its customer. All in all rather than advancing
money to a borrower, the bank buys the goods and sells the goods to the customer on profit. A
question may arise be raised that selling goods on profit (under Murabaha) and charging interest
(as per the practice of conventional banks) appear to be one of the same thing and also produce
the same results. The answer to this query is that there is a clear difference between the
mechanisms/structure of the product. The basic difference lies in the contract being used.
Murabaha is a sale contract whereas the conventional mechanism is an interest based lending
agreement and transaction. In case of Murabaha, the bank sells an asset and charges profit which
is a trade activity declared halal (valid) in the Islamic Shariah. Whereas giving loan and charging
is pure interest-based transaction declared haram (prohibited) by Islamic Shariah. The payment
in the case of Murabaha may be on the spot or it may be deferred, as agreed upon by the parties.
Rules of Murabaha:
Since Murabaha is a kind of sale, the basic rules of sale are applicable to all Murabaha
transactions (without which this transaction is not valid).
These rules are:
The subject matter of the sale must exist at the time of sale. Thus anything that may not
exist at the time of sale cannot be sold and its non-existence makes the contract void.
The subject matter should be in the ownership of the seller in the time of sale. If he sells
something that he has not acquired himself then the sale becomes void.
The subject matter should be in the possession of the owner (physically or constructively)
at the time of sale.
The sale must be instant and absolute. Thus a sale attributed to a future date or a
contingent sale event is void. E.g. ‘A’ tells on ‘B’ 1st October 2009 that he will sell his
car on 1st November 2009 to ‘B’, the sale is void because it is accredited to a future date.
The subject matter should be an asset having value.
The subject matter of sale should not be a thing used for an un-Islamic purpose.
The subject matter of sale must be specifically known and identified to the buyer. E.g.
‘A’ owner of an apartment says to ‘B’ that he will sell an apartment to ‘B’. Now the sale
is void because the apartment to be sold is not specifically mentioned or identified to the
buyer in a contract.
The delivery of the sold commodity to the buyer must be certain of the outcome and
should not depend on chance.
The certainty of price is a valid condition of the sale.
Steps of Murabaha:
A Murabaha transaction is to be completed in two steps. The first step is the customer or client
goes to the bank and requests them to undertake a Murabaha transaction and promises to but the
commodity specified by him if the bank acquires it. A point to note here is that the promise is not
a legal binding and the client can default at any time. If he/she does so then the bank does bear
the risk of loss it has spent on acquiring the commodity.
In the second stage, the client purchases the commodity and agrees to a payment schedule. Also
another factor is that the two sale contracts, one through which the bank acquires the commodity
and the other through which it sells to the client must be separate transactions.
What is Murabaha used for in Islamic banks:
Murabaha is commonly used to facilitate the short-term financing requirements of the customers.
The uses of Murabaha are the following:
Purchase of raw material, goods and merchandise of all kinds and description
Purchase of equipments
Import of goods and merchandise
Export financing (pre-shipment)
Other financing of working capital nature
Who can benefit from Barkat Murabaha and for what purposes?
Barkat Murabaha can be used by individuals, sole-proprietorships, partnerships and bodies corporate
Purchase of inventories, raw materials, semi-finished / finished goods, stores & spares and all kinds of
consumables can be made through Barkat Murabaha
Barkat Murabaha is an ideal mode for short term credit (up to 12 months) as it offers flexible credit
terms to match the Customers’ cash-flows
Document Required:
For Individuals:
Brief profile of business
Copy of CNIC of the individual / proprietor (original must be shown)
06 month bank statement
Bank certificate, if proprietorship concern
Proof of income
Audited/Management accounts, if proprietorship concern
Details of facilities availed from other Financial Institutions
Copy of NTN certificate (original must be shown)
Facility request letter duly signed & stamped
Full details of proposed assets to be purchased
For Partnership / Corporate / Commercial:
Company Profile
Facility request letter
Audited financial statements with financial projections
Banking details and facilities availed from other banks
Net worth statement of all directors (not applicable For Public Limited Companies)
Basic Customer Fact Sheet
Copy of CNIC of all partners / directors (original must be shown)
Copy of NTN certificate (original must be shown)
Export Performance Certificate (for Exporters Only)
Form ‘3’ (for Public Limited Companies Only)
Copy of Memorandum and Articles of Association
Certificate of incorporation and commencement of Business
Certified copy of partnership deed
Barkat Murahaba Documentation (For Local Purchases):
After the credit approval, the customer has to sign the following documents:
MMFA - Master Murabaha Facility Agreement
Agency Agreement, if appointed as an agent
Purchase requisition
Declaration, including evidence of purchase
Offer & Acceptance
Payment Schedule, if price is deferred
Demand Promissory Note
Barkat Murahaba Documentation (For Imports):
After the credit approval, the customer has to sign the following documents:
MMFA - Master Murabaha Facility Agreement
Agency Agreement
Application for opening the letter of credit
TAKAFUL:Takaful is considered to be an Islamic insurance. It is derived from an Arabic word meaning
“joint guarantee”. The ‘tabarru’ is the main core of the takaful mechanism. Tabarru means
charity or donation.
History of takaful:
Islamic scholars have noted that the system of shared responsibility and brotherhood is the basis
of takaful as practiced between the Muslims of Makkah and Madinah. In the days of the Prophet
Muhammad (saw) travelers when on their travels used to get looted and would be left with
nothing. For those unfortunate travelers a fund was made in which all of the community
contributed. Therefore it was like a donation or charity.
Process of takaful:
Each participant that needs protection must be present with the intention to donate to others who
are in difficulty. Therefore, Islamic insurance exists where each contributes into a fund that is
used to support one another with each contributing a sufficient amount to cover expectant losses.
The objective of takaful is to pay a defined loss from a defined fund.
Principles of takaful:
The principles of takaful are as follows:
Policyholders cooperate among themselves for their common good.
Every policyholder pays his subscription to help those who need assistance.
Losses are divided and liabilities spread according to the community pooling system.
Uncertainty is eliminated concerning subscription and compensation.
It does not derive advantage at the cost of others.
Theoretically, takaful is perceived as cooperative or mutual insurance, where members
contribute a certain sum of money to a common pool. The purpose of this system is not profits,
but to uphold the principle of "bear ye one another's burden".
Models of Takaful:
Mudaraba model:
Mudaraba is defined as the contract between one party, known as the ra’s ul mal (capital
provider), with another party known as the mudharib (entrepreneur) where the ra’s ul mal
provides the capital, and the mudharib provides the skills in a business venture. When there is
profit, it is shared between the ra’s ul mal and the mudharib in a pre-agreed manner. In this case,
the takaful operator is the mudharib, and the participants are the capital providers. The pure
mudaraba model conforms to this definition and is practiced mainly in the Asia-Pacific region.
In this mudaraba model, the Shariah committee generally approves the sharing ratio for each
year in advance. The sharing of such profit (surplus) may be in a ratio of 5:5, 6:4, 7:3, etc.
Generally, these risk-sharing arrangements allow the takaful operator to share in the
underwriting results from operations, as well as the favorable performance returns on invested
premiums.
In a pure mudaraba model, the takaful operator and the participant share direct investment
income only, and the participant is entitled to a 100% share of the surplus. This model is ap-
plicable to family takaful as the fund is entirely distributed to the participants.
It is important to note that under mudaraba, the takaful fund belongs to the participants and not
the takaful operator. The takaful operator therefore has no right to a share of the surplus.
Wakalah model:
The wakalah model, commonly used in the Middle East, distinguishes between the operating
company (wakeel) and the takaful fund. The operating company does not share in the
underwriting result, but rather it is compensated by a fee deducted from contributions made by
participants and/or investment profits generated by the takaful fund. The fee rate is fixed
annually in advance in consultation with the Shariah committee of the company. In order to give
incentive for good governance, the management fee is related to the level of performance.
The surplus of the takaful fund belongs to the members; the operating company does not have a
claim on it under any circumstances. If the takaful operator is to generate a profit from its efforts,
it must manage the operations (including salaries, overhead, selling commissions, sales and
marketing expenses, etc) entirely within the disclosed wakalah fees.
Since there is no other benefit to the takaful operator other than the declared wakalah fees, the
wakalah model “demands” that all other charges/ costs to the program be provided to the
participants at the lowest possible cost level that can be negotiated by the operator on their
behalf. The wakalah model can be viewed as transparent as fees are clearly related to the
operator’s operational costs. Mudaraba practices are usually preferred for investment aspects of
takaful, while wakalah practices are favored for risk sharing/underwriting aspects of the
operation.
Waqf model:
Waqf Fund is established by the shareholders of Takaful Company through the contribution of
‘Ceding amount’ (part of the Capital) to compensate the beneficiaries or participant of Takaful
scheme. The waqf shall work towards financial assistance to its members in the event of losses.
The Waqf Fund will lay down the rules for distribution of its funds to the beneficiaries and will
decide how much compensation should be given to a subscriber/member. The Waqf will become
owner of all contributions and has the right to act as a legal entity as per its terms for investment,
compensations and dealing with the surplus amounts.
The Takaful Company may distribute the surplus amounts on the following three bases:
a. A portion of surplus should be kept as reserve to mitigate the future losses.
b. A portion of surplus should be distributed among the participants to differentiate it from the
conventional insurance procedures.
c. A portion of surplus should be utilized for the charitable purposes every year. The Takaful
Company, while managing the waqf fund, will play two different roles simultaneously:
a. Operator/Manager
b. Mudarib
Faysal bank is currently engaged with Pak Qatar Takaful Banking, a takaful company that
provides takaful plans for family, individuals and corporate plans.
SWOT ANALYSIS
Strengths: Expansion and diversification of customers Most progressive and well networked bank in Pakistan Heavy investment in Information Technology Employee retention,customer satisfaction and high profit generation Large network of foreign correspondants all over the world Good and friendly attitude of the workers Excellent trade facilities Good credit ratings
Weaknesses: Lengthy processing time required for approval of trade related facilities Segmentation of credit approval process
Opportunities: Faysal Bank is discovering new ways of providing services to its customers Establishment of strong relationship not only with the borrowers but with bank investors
Threats: Economic conditions of Pakistan Competitors Declining trend in banking sector Moving of corporate customers to other banking
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