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.

3. Industry Progress in Pakistan
Year
2001
Meezan Bank
Al Baraka
MCB
Alfalah
SCB
Bank AlHabib
Habib AG Zur.
Metropolitan
Bank of Khyber
Soneri Bank
2002
2003 2 10
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) 18 4 3
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

4. Industry Progress in Pakistan

5. City - Wise Breakup

6. City - Wise Breakup

7. Industry Progress in Pakistan

8. Industry Progress in Pakistan

9. Industry Progress in Pakistan

10. Industry Progress in Pakistan

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
Switzerland: 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 .

12. International Overview
The size of Islamic Financial Industry has reached US$ 300 Bln. and its growing 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

13. International Overview
Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as:
Standard Chartered Bank
Citibank
HSBC
ABN AMRO
UBS

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

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

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.

17. Islamic Banking

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

19. Islamic Modes Musharaka Mudaraba Murabaha Musawama Salam Istisna
PRODUCT TREE
Islamic Modes
Partnership Based
Modes
Trade Based
Modes
Rental Based
Modes
Musharaka
Mudaraba
Murabaha
Musawama
Salam
Istisna
Ijarah
Diminishing
Musharaka

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

21. MUSHARAKAH May be in any agreed ratio PROFIT Rs. 100 Rs. 60 Rs. 40
PARTNER A
PARTNER B
VENTURE
Rs.1000
Rs.1000
Rs. 50
Rs. 50
LOSS
Rs.100
Must be according to
capital ratio

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

23. MUDARABAH PROFIT 60 % 40 % VENTURE RABBUL MAL MUDARIB
SERVICES
CAPITAL
RABBUL MAL
MUDARIB
ALL MONETORY LOSS
LOSS OF SERVICES
LOSS

24. Bai (Buying & Selling)
Bai
Buying & Selling

25. Basic Rules of Bai Existence of Product/Commodity
Ownership of Product/Commodity
Possession of Product/Commodity
Unconditional basis
Product have value/Price.

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.

27. Kinds of Bai Bai Musawamah Bai Murabaha Bai Surf Bai Salam
Bai Istisna’
Bai Urboon

28. Basic Kinds of Bai
Bai Eenna
Bai Touliya
Bai Wadhia
Bai Tawaruq

29. Type of Bai according to Quality
Bai Salah
Bai Fasid
Bai Batil
Bai Maqoof
Bai Majool
Bai Muqayaddah
Bai Mu’ajal

30. 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

31. 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.

32. Why Insurance ? Is Some thing wrong with Concept ? Risk Aversion
Assuring others
Risk sharing

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 year’s maintenance and residence” (2.240)

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 don’t 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)” <Tirmidhi>

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)

36. Riba in Insurance Direct Riba Indirect Riba
Excess on one side in case of exchange between the amount of premium.
Indirect Riba
The interest earned on interest based investments

37. Gharar
Lexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter.

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.

39. WAQF Wakala-Waqf Model S H A R E H O L D E R S’ F U N D (S.H.F.)
Wakalah Fee
Investment
Income
Mudarib’s Share of PTF’s Investment Income
Management Expense of
the Company
Profit/Loss
Takaful Operator
Investment by
the Company
WAQF
Operational Cost of Takaful / ReTakaful
Investment
Income
Claims &
Reserves
Surplus (Balance)
Participant
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.)

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.

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

42. Types of Family Takaful
Term Life Takaful
Whole Life Takaful
Endowment Takaful
Universal Takaful
Marriage Plan
Education Plan

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

44. BANCATAKAFUL (…Cont’d.)
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.

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.

46. Takaful Pioneers
Takaful started some 27 years ago in the Middle East with the launching of two companies:
The Islamic Arab Insurance Co. (IAIC) in the UAE and
The Islamic Insurance Co. of Sudan
But it took some time for the movement to take shape.

47. Takaful Pioneers
Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act).
This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asia.

48. 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.

49. Takaful Premium
Takaful is one of the fastest growing segments in insurance (at around 20% pa. on average)
World Takaful contributions are conservatively estimated at around US$ 3billions, of which:
60% General Takaful
40% Family Takaful

50. Takaful Geographical Spread
South& East Asia : 56%
Middle East : 36%
Africa: 7%
Europe, USA & Others: 1%

51. TAKAFUL - TARGET MARKET
People who do not insure due to religious reasons.
People who insure and are insensitive to religious reasons.
People who currently do not insure at all.

53. Main Markets Malaysia Indonesia Iran GCC countries
Other Arab countries
Other Asia Pacific
Pakistan ( Emerging Market )

54. Challenges Business Model Dilemma
Could create an uneven / unfair business environment to operate
Need to reach a consensus internationally on a common and standard Takaful business model
Poor Insurance penetration in the Muslim countries (<1% of GDP).

55. Takaful Best Practices
Regional Takaful institutions and organisations need to come together internationally in order to promote and standardise best practices within the industry:
Islamic Financial Services Board (IFSB)
ASEAN Takaful Group (ATG)
International Takaful Association (ITA)
Accounting and Auditing Organization of Islamic Financial institutions (AAOIFI)

56. Growth Outlook
World Muslim population is estimated at 1.5 billions, of which around 97% are based in Asia and Africa.
A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East).

57. Takaful Prospects in Pakistan
97% Muslim population.
Demand for insurance increasing with increase in per capita income.
Personal lines insurance business (leasing, health, Medicare) growing at a higher rate than other conventional classes.
Islamic banking on sound footing with support of the Govt.

58. Musharaka Mudaraba Murabaha Musawama Salam Istisna Ijarah Diminishing.
Takaful Products
Partnership Based
Modes
Trade Based
Modes
Rental Based
Modes
Musharaka
Mudaraba
Murabaha
Musawama
Salam
Istisna
Ijarah
Diminishing
Musharaka

59. Thank You.