Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic...
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Outline of Presentation• International Overview of Islamic Finance.• Product Tree of Islamic Microfinance • Partnership Based Modes in Islamic Microfinance• Trade Based Modes in Islamic Microfinance• Rental Based Modes in Islamic Microfinance• MicroTakaful• MicroTakaful Products for Islamic Microfinance Institutions.
Presented by :
Prof. Dr. Khawaja Amjad SaeedPrincipal: Hailey Collage of Banking & FinanceThe University of Punjab.Director Research: AlHuda: Centre of Islamic Banking & Economics
International Overview of
Islamic Finance
Islamic products and services offered by 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 BankSwitzerland: 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: 492 - 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: 21India: 3Bangladesh:9
Turkey: 7- Faisal Finance Institution- Ihlas Finance House
Yemen: 5
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
International Overview
Leading foreign Banks have opened
Islamic Banking windows or
subsidiaries such as:
• Standard Chartered Bank
• Citibank
• HSBC
• ABN AMRO
• UBS
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
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
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.
Takaful Operators
• The number of Takaful operators worldwide is now estimated at:
• 108 Takaful companies• 6 Retakaful companies• In 35 Countries.• Average growth rate higher than
conventional insurance companies (around 25%).
• Non–Muslims increasingly opting for Takaful products for commercial benefits.
Takaful Geographical Spread
• South& East Asia : 51%• Middle East : 32%• Africa: 12%• Europe, USA & Others: 5%
Islamic Microfinance
PRODUCT TREE
Islamic Modes of Microfinance
Trade Based Modes
Partnership Based Modes
Rental Based Modes
MusharakaMudaraba
MurabahaSalamIstisna
IjarahDiminishing Musharaka
Partnership Based Modes
MUSHARAKA
•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
MUSHARAKA
PARTNER A PARTNER BVENTURERs.1000 Rs.1000
PROFIT Rs. 100
LOSSRs.100
Rs. 60 Rs. 40
Rs. 50 Rs. 50
May be in any agreed ratio
Must be according tocapital ratio
MUSHARAKA
PARTNER A PARTNER BVENTURERs.2000 Rs.3000
PROFIT Rs. 100
LOSSRs.100
Rs. 50 Rs. 50
Rs. 40 Rs. 60
May be in any agreed ratio
Must be according tocapital ratio
MUDARABA
• 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
MUDARABA
RABBUL MAL MUDARIBVENTURE
SERVICES CAPITAL
PROFIT
LOSS
50 %50 %
ALL MONETORY LOSS LOSS OF SERVICES
MUDARABA
RABBUL MAL MUDARIBVENTURE
SERVICES CAPITAL
PROFIT
LOSS
40 %60 %
ALL MONETORY LOSS LOSS OF SERVICES
Trade Based Modes
Basic Rules of Bai (Trade Base Mode )
• Existence of Product/Commodity
• Ownership of Product/Commodity
• Possession of Product/Commodity• Unconditional basis
• Product have value/Price.
Basic Rules of Bai (Trade Base Mode )
• 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.
Bai
There are many type of Bai’s but usually following are using in Islamic Microfinance.
• Murabahah• Salam• Istisna’
Murabahah
• Murabaha is a particular kind of sale where the seller discloses its cost and profit charged thereon.
• The price in this sale can be both on spot and deferred.
Murabahah
It is a contract wherein the institution, upon request by the customer, purchases a asset from the third party usually a supplier/vendor and resells the same to the customer either against immediate payment or on a deferred payment basis.
Murabahah
• Basically, it’s not a mode of financing but a source to avoid interest Dealing
• It’s not a type of loan, but a deal (Bai)• Murabahah can be used as source of
financing when client needs funds to purchase any product/Machinery etc.
Murabahah
• Product Must be bought from third party for avoid buy back transaction
• Roll over is not Valid in Murabahah• If actual cost can not be identified then
Murabahah deal not possible.
Salam
• Pay 100% amount in Advance.• Product must be quantified, identified and
Measured with quality.• Date of delivery, Time, Place must be
mentioned clearly in advance.• Salam is not valid for a specific
farm/land/garden.
Istisna’
• Not necessary to pay the 100% amount in advance Like Bai salam.
• Price must be decided on beginning of the contract.
• Qualities, features of that product must be clearly identified.
Rental Based Modes
IJARAH (LEASING)
Ijarah is to offer for a consideration the usufruct of a thing of value from which benefit can be derived without consumption, while retaining the ownership of the leased assets and assuming risks pertaining thereto.
IJARAH (LEASING)
- The leased commodity remains in the ownership of the lessor and only its usufruct is transferred to the lessee.- Any thing which cannot be used without consuming the same cannot be leased out like money, edibles, fuel, etc. - Only such assets which are owned by the lessor can be leased out except that a sub-lease is effected by the lessee with the express permission of the lessor.
IJARAH (LEASING)- During the entire term of the lease, the lessor must retain title to the assets, and bear all risks and rewards pertaining to ownership. - If any damage or loss is caused to the leased assets due to the fault or negligence of the lessee, the consequences thereof shall be borne by the lessee.
IJARAH (LEASING)- The lessee is also responsible for all risks and consequences in relation to third party liability, arising from or incidental to operation or use of the leased assets. - The insurance of the leased asset should be in the name of lessor and the cost of such insurance borne by him. - A lease can be terminated before expiry of the term of the lease but only with the mutual consent of the parties.
IJARAH (LEASING)
- Either party can make a unilateral promise to buy/sell the assets upon expiry of the term of lease.
- Alternatively, the lessor may make a promise to gift the asset to the lessee upon termination of the lease.
IJARAH (LEASING)
- The amount of rental must be agreed in advance- Contract of lease will be considered terminated if the leased asset ceases to give the service for which it was rented. However, if the leased asset is damaged during the period of the contract but is capable of being repaired, the contract will remain valid.
IJARAH (LEASING)
- Late Payment Plenty
- The banks can also approach competent courts for award of damages.
- Also, security or collateral can be sold by the bank (purchaser) without intervention of the court.
IjarahIjarah
•The Bank leases the asset to the customer
•The customer makes periodic payments as per the contract
•The asset title transfers to the customer based on the method disclosed in the agreement
•The Bank leases the asset to the customer
•The customer makes periodic payments as per the contract
•The asset title transfers to the customer based on the method disclosed in the agreement
GENERAL MECHANICS
CUSTOMERISLAMIC
BANK
AgreementVENDOR
. .
MicroTakaful
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
Origins of Takaful
In 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.
InvestmentIncome
Operational Cost 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.)
Mudarib’s Share of PTF’s Investment IncomeWakalah
Fee
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
Operating Model in Pakistan
Investment by the Company
.
MicroTakaful Products for IMF’s Institutions
Trade Based Modes
Partnership Based Modes
Rental Based Modes
MusharakaMudaraba
MurabahaMusawamaSalamIstisna
IjarahDiminishing Musharaka
Thank You.