Outline of Presentation

2. Outline of Presentation • Introduction and Brief Perspective of Islamic Finance • Product Tree for Islamic Microfinance Institutions • MicroTakaful • MicroTakaful Products for Islamic Microfinance Institutions. Presented by : Zubair Mughal zubair.mughal@alhudacibe.com zubair.mughal@takaful.com.pk

3. Year 2001 2002 2003 2004 - 05 2006 - 07 2 3 4 10 18 • 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) • Meezan Bank • Al Baraka • Meezan Bank • Al Baraka • MCB • Meezan Bank • Al Baraka • MCB • Alfalah • Meezan Bank • Al Baraka • MCB • Alfalah • SCB • Bank AlHabib • Habib AG Zur. • Metropolitan • Bank of Khyber • Soneri Bank Industry Progress in Pakistan • 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. Industry Progress in Pakistan

6. Industry Progress in Pakistan

7. Germany:4 • - Bank Sepah • - Commerz Bank • - Deutsche Bank • Switzerland: 6 • UAE: 13 • - Dubai Islamic Bank • - Abu Dhabi Islamic Bank • - HSBC Amanah • Bahrain: 26 • - Bahrain Islamic Bank • - Al Baraka • - ABC Islamic Bank • - CitiIslamic Investment Bank • Kuwait: 9 • - Kuwait Finance House • United States: 20 • - Al Manzil Financial Services • - American Finance House • - Failaka Investments • - HSBC • - Ameen Housing Cooperative • UK: 26 • - HSBC Amanah Finance • - Al Baraka International Ltd • - Takafol UK Ltd • - The Halal Mutual Investment Company • - J Aron & Co Ltd (Goldman Sachs) • Qatar: 4 • - Qatar Islamic Bank • - Qatar International Islamic • Iran: 8 • Pakistan: 21 • India: 3 • Bangladesh:9 • Turkey: 7 • - Faisal Finance Institution • - Ihlas Finance House • Egypt: 12 • - Alwatany Bank of Egypt • - Egyptian Saudi Finance • Malaysia: 49 • 2 - Pure Islamic Banks (Bank Islam, Bank Muamalat) • Rest - conventional banks • Sudan: 9 • Saudi Arabia: 17 • - Al Rajhi • - SAMBA • - Saudi Hollandi • - Riyadh Bank • Yemen: 5 • Indonesia: 4 Islamic products and services offered by 300+ Financial Institutions around the world .

8. 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

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

10. 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

11. 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

12. 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.

13. Takaful Companies in Pakistan There are Four Takaful Companies now Operating in Pakistan • Takaful Pakistan Limited • Pak Kuwait Takaful Company Limited. • Pak Qatar General Takaful • Pak Qatar Life Takaful.

14. Sukuk Development in Pakistan. • Motorway Sukuk - • Wapda 1th & 2nd Sukuk • Pakistan Shipyard Sukuk • Pakistan Industrial Park Sukuk • PIA Sukuk • Sui soturen • PASSCO • Liberty Energy • Sitara Chemicals • PEL • Amtex Textile • HBFC Sukuk • Arzo Textile • Dawood Hercules etc

15. PRODUCT TREE Islamic Modes of Microfinance Partnership Based Modes Trade Based Modes Rental Based Modes • Musharaka • Mudaraba • Murabaha • Musawama • Salam • Istisna • Ijarah • Diminishing Musharaka

16. Micro Takaful

17. 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

18. 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.

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

20. 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)

21. 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>

22. 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)

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

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

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

26. . MicroTakaful Products for IMF’s Institutions Partnership Based Modes Trade Based Modes Rental Based Modes • Musharaka • Mudaraba • Murabaha • Musawama • Salam • Istisna • Ijarah • Diminishing Musharaka

27. 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.

28. 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.

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

31. Thank You.