Agriculture finance training

Outline of Presentation

Introduction and Brief Perspective of Islamic Banking Islamic Banking in the Global Prospectus Product Tree of Islamic Agricultural Finance Mode of Financing in Islam ( Musharakah & Modarabah ) Bai ( Buying & Selling ) – Murabaha , Salam, Istisna Takaful – Islamic Insurance Takaful Products for Agricultural Finance Crop Takaful

Presented by Zubair Mughal

CEO – AlHuda : Centre of Islamic Banking & EconomicsRegional Head – Takaful Pakistan Limited.

Industry Progress in Pakistan

6 Full fledge Banks having 228 and 12 Conventional Banks have 103 SAIBBS and 10 Sub Branches till August, 08

Total IB Branches = 341

Year 2001

•Meezan Bank•Al Baraka

•Meezan Bank•Al Baraka•MCB•Alfalah•SCB•Bank AlHabib•Habib AG Zur.•Metropolitan•Bank of Khyber•Soneri Bank

2002 2003

•Meezan Bank•Al Baraka•MCB

•Meezan Bank•Al Baraka•MCB•Alfalah

2 10

2006 - 07

•Meezan Bank (113) •Al Baraka (20) •MCB (8) •Alfalah(32) •SCB (8) •Bank AlHabib(4 ) •HMB(4) •Bank of Khyber(17) •Soneri Bank ( 4) •HBL(1) •Bank Islami(37) •DIB (20) •EGIBL (24) • Dawood(14) •NBP(3) •RBS (3) •Askari(14) •UBL (5)

2004 - 05

1843




City - Wise Breakup

City - Wise Breakup





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 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


Leading foreign Banks have opened Islamic

Banking windows or subsidiaries such as:

• Standard Chartered Bank

• Citibank

• HSBC

• ABN AMRO

• UBS


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


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


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.

PRODUCT TREE OF ISLAMIC AGRI FINANCE

Islamic Modes of Agricultural Finance

Trade Based Modes

Partnership Based Modes

Rental Based Modes

MusharakaMudaraba

MurabahaMusawamaSalamIstisna

IjarahDiminishing Musharaka

Partnership Based Modes of Islamic Agricultural Finance

( Modarabah & Musharakah)

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

MUSHARAKAH

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

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

MUDARABAH

RABBUL MAL MUDARIBVENTURE

SERVICESCAPITAL

PROFIT

LOSS

40 %60 %

ALL MONETORY LOSS LOSS OF SERVICES

Bai (Buying & Selling)

Trade Base Mode of Islamic Agricultural

Finance

Basic Rules of Bai

Existence of Product/Commodity

Ownership of Product/Commodity

Possession of Product/Commodity Unconditional basis

Product have value/Price.

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.

Kinds of Bai Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna’ Bai Eenna Bai Touliya Bai Wadhia

Takaful (Islamic Insurance )

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.

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.

Why Insurance ?

Is Some thing wrong with Concept ?

Risk Aversion Assuring others Risk sharing

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)

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>

What wrong with practice ?

The contract between the insurer & the insured is technically wrong from the sharia perspective because of

Interest (Riba) Gharar (Uncertainty)) Gambling (Qamar & Maisir) Risk Transfer Issue

Riba in Insurance

Direct RibaExcess on one side in case of exchange

between the amount of premium.

Indirect RibaThe interest earned on interest based

investments

Gharar

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

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 Income

Wakalah Fee

InvestmentIncome

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

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.

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

Types of Family Takaful

Term Life Takaful

Whole Life Takaful

Endowment Takaful

Universal Takaful

Marriage Plan Education Plan

Takaful Operators The number of Takaful operators worldwide is

now estimated at: 152 Takaful companies 9 Retakaful companies In 39 Countries. Average growth rate higher than

conventional insurance companies (around 25%).

Non–Muslims increasingly opting for Takaful products for commercial benefits.

INTRODUCTION OF TAKAFUL PAKISTAN LIMITED

Takaful Pakistan is a joint venture of prestigious local & foreign institutions, including:

Emirates Investment Group (Sharjah). Al-Buhaira National Insurance Co. (U.A.E.) Al Raji Bank - KSA House Building Finance Corporation. Emirates Global Islamic Bank. Arif Habib Securities. Sitara Chemicals.

Large initial paid-up Capital.

INTRODUCTION OF TAKAFUL PAKISTAN LIMITED

Managed by dedicated professionals, committed to

the cause.

Only A rated Takaful Company in Pakistan

ReTakaful arrangements with a consortium of

internationally reputed ReTakaful operators.

Shariah Board comprises of eminent scholars.

BancaTakaful, Crop Takaful and MicroTakaful

products

We intend to be the trend-setter for excellent Clients’

Servicing, Operational bench marks and prudent

Underwriting practices.

Thank You.

Documents

Agriculture finance training