outline of presentation international overview of islamic finance. product tree of islamic...

46

Upload: madeleine-fleming

Post on 25-Dec-2015

219 views

Category:

Documents


3 download

TRANSCRIPT

Page 1: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance
Page 2: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 3: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

International Overview of

Islamic Finance

Page 4: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 5: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 6: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

International Overview

Leading foreign Banks have opened

Islamic Banking windows or

subsidiaries such as:

• Standard Chartered Bank

• Citibank

• HSBC

• ABN AMRO

• UBS

Page 7: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 8: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 9: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 10: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 11: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Takaful Geographical Spread

• South& East Asia : 51%• Middle East : 32%• Africa: 12%• Europe, USA & Others: 5%

Page 12: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance
Page 13: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Islamic Microfinance

Page 14: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

PRODUCT TREE

Islamic Modes of Microfinance

Trade Based Modes

Partnership Based Modes

Rental Based Modes

MusharakaMudaraba

MurabahaSalamIstisna

IjarahDiminishing Musharaka

Page 15: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Partnership Based Modes

Page 16: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 17: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 18: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 19: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 20: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

MUDARABA

RABBUL MAL MUDARIBVENTURE

SERVICES CAPITAL

PROFIT

LOSS

50 %50 %

ALL MONETORY LOSS LOSS OF SERVICES

Page 21: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

MUDARABA

RABBUL MAL MUDARIBVENTURE

SERVICES CAPITAL

PROFIT

LOSS

40 %60 %

ALL MONETORY LOSS LOSS OF SERVICES

Page 22: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Trade Based Modes

Page 23: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 24: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 25: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Bai

There are many type of Bai’s but usually following are using in Islamic Microfinance.

• Murabahah• Salam• Istisna’

Page 26: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 27: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 28: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 29: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 30: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 31: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 32: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Rental Based Modes

Page 33: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 34: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 35: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 36: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 37: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 38: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 39: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 40: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

. .

Page 41: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

MicroTakaful

Page 42: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 43: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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.

Page 44: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

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

Page 45: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

.

MicroTakaful Products for IMF’s Institutions

Trade Based Modes

Partnership Based Modes

Rental Based Modes

MusharakaMudaraba

MurabahaMusawamaSalamIstisna

IjarahDiminishing Musharaka

Page 46: Outline of Presentation International Overview of Islamic Finance. Product Tree of Islamic Microfinance Partnership Based Modes in Islamic Microfinance

Thank You.