This document provides an overview of Islamic banking and takaful (Islamic insurance) globally and in various countries. It discusses the key principles, products and modes of Islamic banking including mudarabah, musharakah, murabaha, ijarah, and sukuk. For takaful, it explains the origins and alternatives to conventional insurance, such as the mudarabah, wakalah and waqf models. It also outlines the major markets for Islamic banking and takaful, including Malaysia, GCC countries, Pakistan and the challenges and future growth prospects of the industry.

1. ASA

2. Islamic products and services offered by 400+
Financial Institutions around the world
.
Germany:4
UAE: 13


- Bank Sepah
- Dubai Islamic Bank
- Commerz
Bahrain: 26 Abu Dhabi Islamic Bank9
Kuwait:
United States: 20
Bank
- HSBC Amanah
- Bahrain Islamic Bank
- Kuwait Finance
- Deutsche
- Al Manzil Financial
- Al Baraka
House
UK: 26
Qatar: 4
Bank
Services
- ABC Islamic Bank
- HSBC Amanah
- Qatar Islamic Bank
- American Finance House
Switzerlan
- CitiIslamic Investment
Finance
- Qatar International
- Failaka Investments
Bank
d: 6
- Al Baraka
Islamic
- HSBC
Iran: 8
International Ltd
Pakistan:
- Ameen Housing
- Takafol UK Ltd
21
Cooperative
- The Halal Mutual
India: 3
Turkey: 7
Investment Company
Bangladesh
- Faisal Finance
Egypt: 12
- J Aron & Co Ltd
:9
Institution
- Alwatany Bank of Egypt
(Goldman Sachs)
Malaysia: 49
- Ihlas Finance
- Egyptian Saudi Finance
2 - Pure Islamic Banks

Arabia: 17
Sudan: 9 SaudiHouse
(Bank Islam, Bank
- Al Rajhi
Muamalat)
- SAMBA
Rest - conventional
- Saudi Hollandi
Indonesia: 4
banks
- Riyadh Bank

Yemen: 5

ASA

3. International Overview
• The size of Islamic Financial Industry has reached US$ 800 Bln. and its
growing annually @ 15% per Anum.
• 71 countries have Islamic Banking Institutions
• 37 Muslim countries including Qatar, Kuwait, Bahrain, UAE, Saudi Arabia,
Malaysia, Brunei and Pakistan
• 34 non-Muslim countries including USA, UK, Canada, Switzerland, South
Africa and Australia
ASA

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

5. 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 8.50
billion
ASA

6. International Overview
• Governments of many Islamic countries 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
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7. 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.
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8. Islamic Banking
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9. 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
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10. PRODUCT TREE
Islamic Modes
Partnership Based
Modes
Musharaka
Mudaraba
Trade Based
Modes
Murabaha
Musawama
Salam
Istisna
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Rental Based
Modes
Ijarah
Diminishing
Musharaka

11. 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
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12. MUSHARAKAH
PROFIT
Rs. 100
Rs. 60
Rs.1000
PARTNER A
Rs. 40
Rs.1000
VENTURE
Rs. 50
Must be according to
capital ratio
May be in any
agreed ratio
PARTNER B
Rs. 50
LOSS
Rs.100
ASA

13. 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
ASA

14. MUDARABAH
PROFIT
60 %
40 %
SERVICES
CAPITAL
RABBUL MAL
VENTURE
ALL MONETORY LOSS
MUDARIB
LOSS OF SERVICES
LOSS
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15. Bai (Buying & Selling)
Bai
Buying & Selling
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16. Basic Rules of Bai
• Existence of Product/Commodity
• Ownership of Product/Commodity
• Possession of Product/Commodity
• Unconditional basis
• Product have value/Price.
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17. 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.
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18. Kinds of Bai
•
•
•
•
•
•
Bai Musawamah
Bai Murabaha
Bai Surf
Bai Salam
Bai Istisna’
Bai Urboon
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19. Basic Kinds of Bai
•
•
•
•
Bai Eenna
Bai Touliya
Bai Wadhia
Bai Tawaruq
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20. Type of Bai according to Quality
•
•
•
•
•
•
•
Bai Salah
Bai Fasid
Bai Batil
Bai Maqoof
Bai Majool
Bai Muqayaddah
Bai Mu’ajal
ASA

21. 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
ASA

22. 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”
(Feediah) to provide for the family of the
victim.
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23. Why Insurance ?
Is Some thing wrong with Concept ?
• Risk Aversion
• Assuring others
• Risk sharing
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24. 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)
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25. 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>
ASA

26. 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)
ASA

27. 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
ASA

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

29. 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.
ASA

30. Wakala-Waqf Model
SHARE
Share
Holder
Wakalah
Fee
H O L D E R S’
F U N D (S.H.F.)
Mudarib’s
Share of PTF’s
Investment
Income
Investmen
t
Income
Management
Expense of
the
Company
Profit/Loss
Takaful
Operator
Investment by
the Company
WAQF
Participant
Operational
Cost of Takaful
/ ReTakaful
Investment
Income
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.)
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31. 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.
ASA

32. 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
ASA

33. Types of Family Takaful
• Term Life Takaful
• Whole Life Takaful
• Endowment Takaful
• Universal Takaful
• Marriage Plan
• Education Plan
ASA

34. 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
ASA

35. 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.
ASA

36. 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.
ASA

37. 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.
ASA

38. 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.
ASA

39. 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.
ASA

40. 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
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41. Takaful Geographical Spread
•
•
•
•
South& East Asia :
Middle East :
Africa:
Europe, USA & Others:
ASA
56%
36%
7%
1%

42. 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.
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43. ASA

44. Main Markets
•
•
•
•
•
•
•
Malaysia
Indonesia
Iran
GCC countries
Other Arab countries
Other Asia Pacific
Pakistan ( Emerging Market )
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45. 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).
ASA

46. 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)
ASA

47. 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).
ASA

48. 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.
ASA

49. .
Takaful Products
Partnership Based
Modes
Musharaka
Mudaraba
Trade Based
Modes
Murabaha
Musawama
Salam
Istisna
ASA
Rental Based
Modes
Ijarah
Diminishing
Musharaka

50. Thank You.
ASA