BancaTakaful in Pakistan by Abdul Jabbar Karimi

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Transcript of BancaTakaful in Pakistan by Abdul Jabbar Karimi

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Islamic Banking: How we can move on to next

  phase? by A.J. Karimi,Head HMB IB Products`

1

 Novemebr 02, 2010

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`2

Islamic Banking:

How we can move on to next phase?

Abdul Jabbar KarimiHead- HMB IB Products, Research &TrainingHMB-Islamic Banking Division

 Novemebr 02, 2010

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 Novemebr 02, 20103

Possible Outcomes..

To know that who are stakeholders of this growing childunderstanding the basic science of Islamic Banking/Finance in

order to enable the participants to appreciate the need of the

subject and look into it to make the industry as mainstream

banking sector 

To understand the minimum responsibilities and

consequently the roles being Muslim have to be played to

move on«..to next phase«

The future....of Islamic Finance is in our hands at most..

Mostly in your hands«. ³the customer«.´

Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`

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TABLE OF CONTENTS

1. What I mean by next phase?

2. How to move on?

1. Theory: one·s perception and positiontaking

2. Practice: what needs to be done?

3. Do we really want to move to next phase?4. I am optimistic for the Isl. Banking Future«

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5

TABLE OF CONTENTS

Let us look a glance on IslamicBanking Current Scenario««

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The Presence of Islamic Finance:About 1100 institutes offering Islamic Products around the

world

Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for each

country 

United States: 20- Al Manzil Financial Services

- American Finance House

- Failaka Investments

- HSBC

- Ameen Housing Cooperative

Germany: 3

- Bank Sepah- Commerz Bank

- Deutsche Bank

Switzerland: 6

UK: 26 (primarily branches of 

Gulf and glo

bal banks)- HSBC Amanah Finance

- Al Baraka International Ltd

- Takafol UK Ltd

- The Halal Mutual Investment

Company

-J Aron & Co Ltd (Goldman

Sachs)

-Britain Islamic Bank

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: 10- Al Rajhi

- S AMB A- Saudi Hollandi

- Riyadh Bank

UAE: 9- Dubai Islamic Bank

- Abu Dhabi Islamic Bank- HSBC Amanah

Qatar: 4- Qatar Islamic Bank

- Qatar International Islamic

Kuwait: 5- Kuwait Finance

House

Iran: 8

Egypt: 7- Alwatany Bank of Egypt

- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 5

India: 3Bangladesh: 3

Turkey: 7- Faisal Finance

Institution

- Ihlas Finance

House

 Yemen: 5Planning to go for Islamic

Banking

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1100 institutions are offering Islamic Financial Products/Services

Growth Rate @ 28% since 2006

According to µThe Banker¶s 2009 survey, the volume of theShariah Compliant Assets of the top 500 Islamic FinancialInstitutions grew by 28.6% rising to US$822bn from $639 in

2008 at a time when the top 1000 World Banks¶ assets slumped to6.8% from 21.6% from the previous year.

The Shariah Compliant Assets are projected to grow to US$1.60 trillion by 2012.

Sukuk (Islamic Bond) Issuance expected to hit US$200 Billion by2010

Global Scenario

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The United Kingdom has emerged as a leading centre for offeringIslamic Financial Services (IFS) as at present there are 22 banks in

UK offering Islamic Financial Services, out of which 05 are fullyShariah Compliant (4 wholesale & 1 retail bank).

Lloyds TSB Bank PLC (LYG ), Britain's fourth-largest, recentlyintroduced Islamic mortgage products to cater to Britain's 2.5

million Muslims.

France by indicating the adjustments in its legal and fiscalframework aims to the development of Islamic Finance to cater thefaith-based clientele in the country in addition to gain attention of Middle Eastern Investors holding abundant liquidity. (report by

Standard & Poor, 2009)

German state became the first European government body to issuean Islamic bond last year -- a $121 million.

Global Scenario««.

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The opportunities to tap the surplus funds of oil rich Muslim nationsis strong as many non Muslim countries are trying to tap it

including, Japan, UK, Singapore, France, Hong Kong US,Germany, Australia, Thailand, etc.

These institutions are playing a key role in setting up and

standardizing Shariah , Financial and Accounting standards for 

Islamic Financial Institutions.

Major business schools such as Oxford, Harvard, Rice and Durham

has started post graduate programs in Islamic Finance

Harvard University has developed a major database by the name of 

Harvard Islamic Financial Information Program HIFIP) for Islamic

Banking.

Global Scenario««.

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Islamic Banking In Pakistan: An OverviewThe Islamic banking market in Pakistan continued to expand during

the last year as well and the assets growth has registered 59% p.a.growth since 2005 as stated by Deputy Governor SBP.

Assets = about PKR 411 bn + (Industry Share constitute 6.10%)

Deposits = about PKR 330bn + (Industry Share constitute 6.40%)

Financing and Investment=

about PKR 230 bn +(Industry Shareconstitute 4.30%)

Projected growth for the next 5 years of Islamic Banking is 15%to 20% per annum.

The Islamic Banking Market share would reach 12% by 2012 as per strategy plan of SBP

In 2008 the assets of Islamic Banking increased by 34% ascompared to the assets of overall industry by 8.8%. (SBP Bulletin)

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 Novemebr 02, 201011

A FEW SAYINGS BY KEY PLAYERS FOR ISLAMICBANKING«««

"There is a segment within the current market that wouldswitch to Islamic if the quality and benefits offered were asgood as conventional financial products," says RayFerguson, CEO of Standard Chartered Bank UAE inDubai.

³ A conservative approach to risk and a close link betweenthe financial sector and real assets has helped shield thesector from the worst of the credit crisis,´ said. BrianCaplen, An editor of a London-based magazine

"Islamic banking isn't just for conservative or radicalMuslims. It's mainstream business now, "That's why everybank wants a bigger piece of it."says Ross Mohamad Din, director of HSBC AmanahMalaysia

Islamic Banking: How we can move on to next phase?

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`12  Novemebr 02, 2010

TABLE OF CONTENTS

1.What I mean by next phase?

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`13  Novemebr 02, 2010

Next Phase shall be starting«..

o Islamic banking must be able to become domestic

 player with an international quality in services and performance, i.e. first best choice that caters equally the

here (Dun¶ya) on the same competitive conventional

 banking lines«

o Positioning Islamic Banking as a beyond banking ,i.e.

more than just a bank«..

o 20% + Country Business /(deposits+ Assets) to be done

through Islamic Banking «

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Islamic Banking: How we can move on to next phase?

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TABLE OF CONTENTS

2. How to move on?

Theory:

one·s perception and

position taking

Practice:

what needs to be done?

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Islamic Banking: How we can move on to next phase?

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The Position of Banking And Finance Within Islam

ISLAM

SHA IA

practices & activities

AQIDAH

faith & belief 

AKHLAQ

morality & ethics

IBADAT MUAMALAT

man-to-Allah worship man-to-man activities

SOCIAL

ACTIVITIES

OTHER ECONOMIC

ACTIVITIES

BANKING & FINANCIAL

ACTIVITIES

POLITICAL

ACTIVITIES

ECONOMIC

ACTIVITIES

How to move on? Theory:

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 Novemebr 02, 2010

Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`16

How

to move on?

Theory:

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³O you who believe, Fear  Allah and give up what remains of your ³O you who believe, Fear  Allah and give up what remains of your 

demand for Interest, if you are indeed a believer. If you do not, then youdemand for Interest, if you are indeed a believer. If you do not, then you

are warned of the declaration of war from Allah and His Messenger; Butare warned of the declaration of war from Allah and His Messenger; But

if you turn back you shall have your principal: Deal not unjustly and youif you turn back you shall have your principal: Deal not unjustly and youshall not be dealt with unjustly.́shall not be dealt with unjustly.́

 Al Al BaqarahBaqarah 278278 -- 279 (Fourth Revelation)279 (Fourth Revelation)

How to move on? Theory:

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1.1. FromFrom HazratHazrat Abu Abu HurayrahHurayrah (R A), The Prophet, peace be on(R A), The Prophet, peace be on

him, said:him, said:

""Riba has seventy segments, the least serious being equivalent to a man committing adulterywith his own mother.´ (Ref: Ibn-e-Majah)

2. From Hazrat Jabir Ibn-e-Abdullah (RA): The Prophet may

 peace be on him, cursed the receiver and the payer 

of interest, the one who records it and the witnessesto the transaction and said; ³They are all alike (in

guilt).´ Ref: (Muslim, Tirmidhi and Musnad Ahmed)

How to move on? Theory:

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 Novemebr 02, 2010Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`19

What is Islamic Banking?

³Islamic Banking is interest free Asset³Islamic Banking is interest free AssetBacked banking governed by theBacked banking governed by the principles of Islamic Shariah´ principles of Islamic Shariah´

³³The ends of the both banking systems are same but only

the means to achieve these ends are different as onesystem is God given in contrast to its rival system which

is ma made.´.´((K arimiK arimi, Abdul Jabbar , Abdul Jabbar-- µIslamic Banking :A necessary system, published inµIslamic Banking :A necessary system, published in

the Finance & Business Review, The News,the Finance & Business Review, The News, 1818th Jun¶th Jun¶ 20012001))

How to move on? Theory:

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Islamic Banking: How we can move on to next phase?

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How to move on? Practice (Practical Steps):

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Islamic Banking: How we can move on to next phase?

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Consumers

GovernmentCentralBank

StaffSponsors

Management

External

Internal

Legal Framework

Demand for Products & Services

 Vision & Leadership

Capital

Regulations/Policies guidelines

Shariah Adviser/ShariahBoard

Madrasas/

ReligiousScholars

Shariah supervision

Public opinion/ReligiousRulings

Productivity

IslamicIslamicBankingBanking

InstitutionInstitution

How to move on? Practice (Practical Steps):

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`22  Novemebr 02, 2010

Next Phase?:The minimum steps to go into next phase «

1. Perception Change: To build understanding in Islamic

 banking as Beyond Banking «various forums«moreefficient socialization and educational program for public interest «.(all)

2. Businesses to take it in their TOP priorities list (Customer)

3. Feasible Regulatory Environment , addressing the IB challenges

(Liquidity, Legal, Taxation, + ) on priority basis ..(Govt. /SBP)4. Big banks to play role/think seriously« ..(Govt. /SBP)

5. Positioning, Differentiation and Branding, positioning the IB as

the most attractive one in country and abroad (IIFS) + Shariah +Customer 

6. IB to be accessible for all kinds of people and allsegments /PLS Based Products on assets side (IIFS

+Customer)

7. HR Service quality: Professional +Religious touch (Staff)

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Islamic Banking: How we can move on to next phase?

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Next Phase?...

And«.

8. Unanimity of views of Religious Scholars (RS)«.foro the ´products and services off ered by Islamic Bankingµ,

o the prohibition of ´Banking Interestµ «Shariah Doctor

o the diff erences, if any, in terms Shariah interpretation

should remain within the circles of  scholars«.

9. CUSTOMERS¶ total commitment for Islamic banking as

the only choice to bank with.. ³ Haq-ul-Yaqeen´ 

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`24

Unanimity of views«An example«.

The Question aboutMUR ABAHA 

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`25

Murabaha «.

The basic purpose of Murabahah Sale has been described in Fiqh

 books in these words:   " the main purpose of (Murabahah) sale is to protect the innocent

general consumer lacking expertise in the various items of trade

from the wiles and stratagems of sharp traders.´

Usually there are three parties to a Murabahah transaction where

the bank is involved:

1. The one who promise to buy (Customer)2. The Bank 

3. The vendor (supplier to the Bank)

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`26

3.Do we really want to move to next phase?

 Novemebr 02, 2010

Brunei, 3

Indonesia, 3 Malaysia, 38

Pakistan, 2

Sudan, 4

Quatar, 8

Bahrain, 2

Kuwait, 24

U E, 33

Saudi rabia,

00

Turkey, 9

UK, 0

Iran, 320

End 2008

The Trillion Dollar Cake

Amount in Billion of USD

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`27

 Novemebr 02, 2010

And the long way«

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 Novemebr 02, 2010

Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`28

I am optimistic for the

Islamic Banking Future«

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Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`29

Karimi says,

³I am optimistic regarding the future/tomorrow of Islamic Banking that it is going

to be the mainstream banking chosen as choiceby almost all iff We successfully provided the products thatcater the needs of the customers on equalgrounds .«..³tomorrow is of Islamic Banking«..Why??An illustration«.with comparison«..

I m optimistic for IB «.

 Novemebr 02, 2010

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Is our vision to create a MarketSegment?

T he tale of T elecom.

31Islamic Banking: How we can move on to next phase?

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Telecom Revolution«Year 2000

, 0%

306,493 ,

9%

3,056,460 ,

91%

´In theYear 2000, after 8 years

mobile phone operator·s share was only 9%µ 

No of connections

and market share

Source:

Pakistan Telecommunication Authority

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Telecom Revolution«Year 2007

 4, 4,607 ,

%

1,757,1 ,

3%

55,617,101 ,

89

´Now mobile phone operators share of the industry is89%!!!

No of connections

and market share

Source:Pakistan Telecommunication Authority

33Islamic Banking: How we can move on to next phase?

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Telecom Revolution«Year 2007

´The market segment has become larger than the basicindustry itselfµ

Mobile PhoneIndustry

Mn Connections Fixed Line

Industry

5 Mn Lines

Source:Pakistan Telecommunication Authority

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What is the inspiration«

´ Vision is to create an industry itself 

and not a segmentµ

Basic functionality with

out the wire

Financial solutions with

out Riba

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What does this Market Want?

80

10

10

³T he winning formula´ All things equal IWill prefer an

Islamic Product

I will Not bank

with an Islamic

Bank

I will only bank

with an Islamic

Bank

Research:

Source:

Oasis International research 2 6

36Islamic Banking: How we can move on to next phase? by

A.J. Karimi, Head HMB IB Products`  Novemebr 02, 2010

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What does this Market Want?An Example«

³All things equal 

I will prefer an Islamic product´ 

Launched in

an area

already

having

Conv.bankingbranches

Highest incremental

growth in the entire

banking industry

IBB

37Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`  Novemebr 02, 2010

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The road ahead«

Whom to go Shariah Doctor?

³ ..Pleasure of  AllahSW T  is only possible

when we¶ll adhere the

minimum Shariahboundaries«. Having 

business within

 prescribes lines by Quran + Sunnah ´ 

38Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products` Novemebr 02, 2010

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The Main Motivating Factor and Driver of The Main Motivating Factor and Driver of 

Islamic Banking «..Islamic Banking «..

InIn anticipationanticipation of of ROIROI (H+H),(H+H), ii..ee.. thethe investmentinvestment thatthat bringsbrings returnreturn for for 

herehere andand hereinherein after after inin anan efforteffort toto abideabide byby thethe prohibitionprohibition of of Riba,Riba, aa

surprisinglysurprisingly increasingincreasing number number of of MuslimMuslim depositdeposit holdersholders allall acrossacross thethe

world,world, havehave nonnon--interestinterest bearingbearing accountsaccounts andand theythey refrainrefrain fromfrom

InterestInterest BasedBased BankingBanking..

39Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`

³ROI´ (h+h)

Concluding Point 

 Novemebr 02, 2010

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T hanksT hanks

40Islamic Banking: How we can move on to next phase?

 by A.J. Karimi, Head HMB IB Products`

F OR FU RTHER IN F ORMATION:

 Abdul Jabbar Karimi 

Head-HMB Islamic Banking ProductsHBZ Plaza (Hirani Centre) Islamic Banking Division

Cell: +92 300 824 5995 

D/L: +9221 32639665 D/L: +9221 32644406

Email: [email protected]

 Novemebr 02, 2010