Unveiling the importance of Islamic agro-banking in Sri Lanka by Muath Mubarak

The global financial system is progressively moving from conventional banking to pure Sharia compliant and ethical banking practices since modern Islamic banking was invented three decades ago. Currently, the Islamic banking and finance has grown tremendously leaving its legacy in each and every region.

The emergence of Islamic finance has not only brought in Islamic banking activities, but rather it contains various industry segments such as takaful (Islamic Insurance), investment banking, mutual funds, trusts,  project financing, Islamic indices, capital markets, insurance, wealth management, micro finance and many more.

Islamic finance is also keen on agriculture related financing and encourages growth in the provision of this source of financing for this purpose. There are some initiatives have been taken in Gulf Cooperation Council (GCC) countries including the Islamic Development Bank Group for agriculture sector financing but mainstream Islamic finance institutions have no direct involvement yet.

There is an increasing demand for agriculture financing globally and Islamic finance cannot escape from this market demand. Most of the big Islamic banks also consider agro-financing as one of the vital product for its portfolio.

This largely untapped market can be catered to by different Islamic finance techniques. These Islamic finance techniques will facilitate Sharia compliant transactions for the agriculture sector in any country irrespective of the race and religion. Agricultural financing could be performed under the following models (as in the diagram) of Islamic Finance principle.

• Trade based Islamic financing techniques provides financing through goods and commodities with some basic classical concepts such as Murabaha, Musawamma and Salam
• Rental-based Islamic finance products for the agriculture sector are products where the bank or financial institution will purchase assets or required equipment and offer those to customers / farmers on a rental basis via the Islamic finance concept called Ijara
• The ideal mode of financing for the agriculture sector is participatory mode of financing. This is where both the parties get involved based on participation in profit and loss. The main products are Musharaka, Mudaraba, Musaqaha, Muzara’a and Mugharasa

The ideal participatory mode of financing for the agriculture sectors can be described as follows:

Musaqaha (irrigation): This is a partnership that depends on one party presenting designated plants/trees that produce usable goods to another in order to work on their irrigation in exchange for an agreed share in fruits. This mode of financing is very effective for the agriculture (orchards / trees) sector where a specified share of output will go to the labor and the other portion will go to the institution / enterprise. The Accounting and Auditing Organisation for Islamic Financial Institutes (AAOIFI) has approved the Musaqaha related Sukuk (Islamic bond) for trading.

Muzara’a (share cropping): This partnership is in crops where primarily two or three parties are involved. One party presents land to another for cultivation and maintenance in exchange for an agreed share in the crop. In the case of three parties being involved in Muzara’a, one party will provide the land, second party will provide the input (seeds, chemicals, etc) and the third party may provide the labour for production. AAOIFI has permitted Sukuk for this and it is tradable. This can be used for a relatively short period time when financing agricultural products.

Mugharasa (Agricultural): This is a legally viable option for financing of tree cultivation. This is a partnership in which one party presents a plot of land without trees to another to plant trees on it on the condition that they share the trees and fruits in accordance to a defined percentage. Mugharasa Sukuk also can be traded and this is used for longer time period of financing where farmers need the highest duration for repayment based on the harvest.

The agriculture sector is a vast area with different sub-sectors.  This sector can be divided in to two namely, the agricultural farm sector (crops, horticulture, floriculture, etc) and agricultural-off farm sector (dairy development, livestock, poultry, water management, etc). This agriculture sector has got issues such as finance institutions being very reluctant to offer facilities due to various reasons.  One of the main issues is collateral where small farmers and business people will not have any acceptable collateral and they are not educated or illiterate in terms of financials and banking transactions.

There are many other reasons why a financial institution is not ready to deal with the agriculture sector and these are the main weakness of the agriculture sector:

• very limited access to farmers and non-availability of the right information about the financing facilities 
• collateral or security which is not acceptable
• formal financing is more expensive than the informal methods such as getting a loan from a wealthy person from villages
• lack of awareness and education about banking among village farmers
• farmers being unskilled, and the absence of usage of modern technology in production
• difficulty of obtaining basic requirements such as water, crops, proper soil, fertilizer, etc
• no market-focused approach, no communication and preference to over- produce 
• storing of the seeds, chemicals, fertilizers, harvested items  and transportation issues to areas where demand arises
• disorganised and non-documented sector. Needs / Requirements and production values not registered.
• lack of insurance policies for uncertainties and  hazards.

The end of three decades of civil conflict has resulted in new hope and incredible opportunities dawning for Sri Lanka to realize its development potential and to build a strong foundation for long term peace and prosperity.

Sri Lanka is a tiny beautiful island of 65,610 square km’s located in the Indian ocean with a population of approximately 20 million in 2010. Over 70% of the rural population in Sri Lanka is dependent on cultivation, livestock raring or fishing for food and their livelihood. Sri Lanka’s economy is dominated by agriculture (approximately 13% of GDP in 2010) where it produces plantation crops like tea, rubber, coconut, cocoa and spices for the export market.

The Sri Lankan budget for 2012 has highlighted many incentives and tax benefits for the agriculture sector (KPMG, 2011). These include the following:

• having a vision towards becoming a self sufficient economy by improving agriculture productivity in terms of rice, coconut, tea, rubber and spices
• depreciation of the currency by 3% in order to increase the price competitiveness in the global market
• tax removed for rice mills using modern technology and for production of coconut, palmyrah and Kithul
• developing four rice exporting centres (South, East, Rajarata and North).

It is clear there is an untapped demand for agricultural financing and the government is also very optimistic in this regard, so it is highly advisable that Islamic Finance Institutions (IFIs) in Sri Lanka concentrate in this area rather than depending only on basic transactions and products.

The policy makers and finance service providers must create an opportunity for farmers throughout the country by active participation of IFIs for agricultural financing. This will definitely create some success stories and bring changes in the farmer’s lives whilst enhancing cultivation.

http://www.cimaglobal.com/Thought-leadership/Newsletters/Regional/The-CIMA-Edge-South-Asia-and-Middle-East/January--February-2012/Unveiling-the-importance-of-Islamic-Agro-banking-in-/

New report on Shariah scholars released

Failaka Advisors, in partnership with Paris-based Grapes Market Research & Advisory, has released the second edition of The Shariah Report.

The 2012 version of the report is the world's first comprehensive report on Shariah scholars, with detailed profiles of more than 120 of the top scholars in the Middle East and from around the globe highlighting Islamic Finance’s global reach.

“Spanning from East to West, the report profiles Shariah scholars from Asia, Middle East, Africa, Europe and North America, providing insight into the depth and breadth of the industry”, said Anne-Sophie Gintzburger, founding director at Grapes.

Each scholarly profile comprises country of birth, academic qualifications, a cross-referenced list of institutions where each scholar serves as a Shariah board member, and a list of their important works on Islamic finance.

Mark Smyth, managing director of Failaka, said: “It was a long and diligent process, which will surely help to improve still further the openness and transparency of the industry.”

Standard & Poor’s Islamic finance outlook projects that the current value of the Islamic financial services industry is more than $1 trillion and that the industry is predicted to grow to $4 trillion by 2020 at a rate of 10 per cent per annum.

In addition, there is $50 billion in existing managed funds invested in equities according to Islamic principles, according to Ernst and Young Islamic Funds and Investment Report 2010.

With an impressive annual growth forecast over the next eight years, the role of scholars will become increasingly important as more pressure is placed upon Shariah board members to ensure that the operations and activities of the banking institutions comply with Shariah principles.

“We expect strong demand for the second edition as the industry continues to expand and new scholars and institutions enter the field,” added Smyth.

The Shariah Report 2012 is published in book form and can be ordered from the company’s website. – 

TradeArabia News Service

Questionable Islamic banking principles

Two brothers who borrowed RM264,317 from RHB Islamic Bank to buy an apartment saw the loan balloon to RM624,263.42 in three years.

Bank Negara Malaysia must immediately investigate the practice of banks charging interests on loans under the Islamic banking principles as this is tantamount to borrowing money from loan sharks, claims Sarawak DAP.

According to party secretary Chong Chieng Jen, under the Islamic banking principles, a borrower who defaults on his loan payment would be charged future interests on the period of the loan, if, for instance, it is a 30-year loan.

He cited two brothers surnamed Chang who suffered as a result of the Islamic banking principle.

The Changs in October 2006 borrowed RM264,317 from RHB Islamic Bank Bhd to part-finance the purchase of an apartment.

After paying the loan for a year, sometime in October 2007, the borrowers defaulted and in July 2009, the RHB Islamic Bank entered judgment against the borrowers for a sum of RM624,263.42.

According to Chong, on Jan 6, 2011, the apartment which was the security for the facility was auctioned off for about RM200,000. After deducting expenses, a net RM192,750.31 was paid towards part-settlement of the outstanding amount owed by the borrowers, leaving an outstanding sum of RM431, 513.11.

RHB Islamic Bank has now filed a bankruptcy notice on the RM431, 513.11 claiming the borrowers owed them the amount.

“In a short span of three years, the borrowers’ loan of RM264,317 has ballooned to RM624,263.42.

“The borrowers requested for their statements of account from the bank, but it refused to give them one.

“From the figures above, it is obvious that RHB Islamic Bank is charging future interest for 30 years on the amount owed and all future interests are now debited into the present account of the borrowers.

“The effect is similar to loan sharks’ interest rate,” said Chong, who is also the Kota Sentosa assemblyman and Bandar Kuching MP.

‘Courts have different views’

According to the letter of offer in the Chang case, the interest rate for the first year is 1.25% per annum, the second year 3.5% per annum and thereafter 7.6% per annum.

“Given such interest rates and the fact that the borrowers have made regular payments in the first year, the amount outstanding plus interest up till July 2009 (date of judgment) should not be more than RM285,000.

“After deducting the proceeds of the auction sale of the apartment, the total outstanding debt should not exceed RM100, 000.

“However, under the Islamic banking principles, the total outstanding debt is now RM431,513.11,” he said.

Chong called on Bank Negara to look into the matter urgently given the gross injustice in the method of calculation under the Islamic banking principles.

He said that one of the borrowers is a government servant while the other is doing some small business.

“They are able to repay an outstanding sum of RM100,000. However, given the alleged outstanding sum of RM431,5113.11, it is impossible for them to pay and it is also highly inequitable to compel them to pay.

“If RHB Islamic Bank were allowed to proceed with the bankruptcy proceedings, the borrowers’ career and small business will be adversely affected,” he said.

Chong said that the court has different views on the issue. Some judges said that such calculation is wrong, while others said that is the purchase price, and the banks have the right to calculate as such.

“As the court has different views, Bank Negara has to step in and once and for all ensure that all banks are subject to the same ruling.

“Lots of people don’t know about these Islamic banking principles as the banks will never tell their clients. This is a serious problem affecting the banking industry,” he said.

http://www.freemalaysiatoday.com

Islamic Bank has ambitious growth plans

The Islamic Bank of Thailand plans to issue bonds worth Bt5 billion in the second quarter, launch a property fund for Bt1.5 billion in the third quarter and expand its retail borrower base, Dheerasak Suwannayos, president of the bank, said yesterday.

"The market is on our side, as interest rates have been decreasing, so we can launch Islamic bonds or sukuk in the second quarter of this year," Dheerasak said.

Ibank wants to raise long-term funds and lend to its customers, he said. The Bt5-billion bond issue and the bank's deposits of Bt15 billion will be used for lending this year.

The bank plans to advance new loans worth Bt20 billion this year, he said.

It will also launch a Bt1.5-billion property fund in the third quarter, as it plans to buy office buildings for its headquarters.

The bank will not need to raise capital this year but plans to ask for new capital of Bt4.83 billion from the Finance Ministry, he said. It has already submitted its plan to the ministry.

New lending last year rose 34 per cent, or Bt28.87 billion, leading to outstanding loans in 2011 of Bt114.97 billion, he said.

Deposits also rose by 36 per cent, or Bt35.29 billion. At the end of last year, deposits were Bt117.58 billion. Its total assets were worth Bt133.36 billion.

After making provision for loan reserves, it made a profit of Bt1.13 billion. However, non-performing loans rose to Bt7.72 billion, or 6.71 per cent of total loans. Before the massive flooding last year, bad loans were 4.9 per cent, he said. "We target bringing down NPLs to 2.5 per cent in five years."

Retail individuals and small and medium-sized enterprises currently account for 66 per cent of Ibank lending while large corporate clients account for 34 per cent. Dheerasak said that he wanted to reduce corporate clients to 22 per cent of the portfolio this year.

In the next five years, retail borrowers should represent 45 per cent of the portfolio, SMEs 40 per cent and large corporates 15 per cent, he said. Large corporate clients began contributing to its profits in 2010.

http://www.nationmultimedia.com

The stranger bits of Finance Bill 2012: from cricket to Islamic finance

THE FINANCE BILL 2012 was published yesterday by Minister for Finance Michael Noonan and among the Mortgage Interest Relief measures and tax changes for businesses, the Bill also clarified the following (more unusual) elements of Irish taxation:

1. Bread

The Finance Bill 2012 clarifies the range of bread products, including bagels and blaas, which will not be liable for VAT and will instead remain designated at a zero rate of tax.

The zero-rated breads include loaves, rolls, batch bread, bagels, baps, blaas, burger buns, finger rolls, wraps, naan breads and pitta bread.

Other flour- or egg-based bakery products are subject to VAT of 13.5 per cent.

The Department of Finance said that the breads listed above are being designated zero-rated for tax in an effort to reflect the kinds of bread currently available on the market while taking into account the development of bread for health and ethnic reasons.

2. Cricket

The Finance Bill had some good news for professional cricket players: they are being added to the list of professional sportspersons entitled to tax relief on certain income.

The move also means that the cricketers will be eligible for a higher rate of relief on pension contributions.

Other sportspersons covered by this  are: athletes, boxers, cyclists, golfers, motor racing drivers, footballers, rugby players, swimmers, jockeys, and tennis, squash and badminton players.

They must be resident in the state for the relevant tax assessment period to qualify and the deduction only applies to direct sports earnings (less expenses) and not for indirect income earned through promotional appearances or sponsorship.

3. Islamic Finance

The Finance Bill also includes enhancements to the tax regime for Islamic finance.

This area of finance in Ireland, which although faith-based is not limited to Muslims, was introduced in the Finance Act 2010, and refers to financial transactions which are consistent with the principles of Islamic or Sharia law.

Under Islamic finance, the payment and receipt of interest is forbidden. Speculation is also prohibited, while investment in unethical businesses, products or services is also banned. According to the Revenue Commissioners, under Islamic finance, transactions are typically backed by or based on an identifiable and tangible underlying asset.

The transactions also involve sharing risk between the investor and the investee, and products under Islamic finance operate along the same lines as conventional financial products by using familiar legal structures in an alternative way to achieve the financing objectives.

The Finance Bill published yesterday proposes technical changes to certain Islamic financial transactions in the same way as conventional financial transactions by allowing such a company to have other income in addition to income from leasing and/or income from specified financial transactions.

http://www.thejournal.ie

Islamic finance, Occupy protests and public good

There are only two ways to conquer and enslave a nation, one is by sword, the other is by debt," said John Adams, the second president of the United States.

If we expand the quote, it could include debt without collateral asset, trading of such debt, and enhancing it with leverage. There are consequences as there are market cycles.

Can Occupy Wall Street (OWS), public good and Islamic finance converge? Yes, through the lofty principals of economic justice.

The essence of Islamic finance is about "risk sharing over risk transfer", as it implies a financial and economic system of checks and balances. It implies an "ethical" financial intermediation linked to the real economy for "moral" value-added output. It implies modalities of contracts whose foundations are based on transparency, where asymmetric information is minimised to prevent abuses against the weaker counter-party.

Furthermore, Islamic finance is about financial inclusion paving the path for distributive wealth and income, and ensuing economic opportunities. Finally, it's all about business and not religion, and it about profits but against profiteering.

OWS

According to commonly used information website Wikipedia, Occupy Wall Street is a protest movement which began last September 17… against social and economic inequality, high unemployment, greed, as well as corruption, and the undue influence of corporations — particularly from the financial services sector — on government. The protesters' slogan ‘We are the 99 per cent' refers to the growing income and wealth inequality in the US between the wealthiest 1 per cent and the rest of the population.

It would seem many of the concerns raised by the OWS movement were similar to its predecessor spark, the Arab Spring phenomenon, except replacing "corporations" with "corrupt and repressive governments". As of now, the Arab Spring has had more impressive results than OWS after helping bring new governments in Tunisia, Egypt, and Libya, new governments in the "wait" in Yemen and Syria, and "new governance" in other regional countries.

The question becomes, how would the OWS movement react to Islamic finance? During a London demonstration along the OWS lines in 2011, a protester held up a sign, "Let's bank the Muslim way". Obviously, the reference is to Islamic banking, but the jury is still out if the industry will receive OWS' endorsement as many of the financial institutions, such as HSBC and Citi, protested against have a presence in Islamic finance.

Public good

In March last year, the Securities Commission Malaysia (SC) and the Oxford Centre for Islamic Studies (OCIS) held a two-day closed roundtable on Islamic Finance and the Public Good.

Dr Raja Nazrin Shah, Crown Prince of Perak and Financial Ambassador to the Malaysia International Islamic Financial Centre (MIFC), who officiated the roundtable, said, "public good is one concept that is common to both conventional and Islamic finance.

The values advocated by Sharia are not only confined to the detailed technical aspects of transactions, but also in the extent to which the objectives of Sharia are achieved. If every aspect of Islamic finance were to be subject to a public good test, arguably no negative repercussion could ever arise.

Likewise, if all conventional financial products were subjected to a public good test, the catastrophic effects of the recent crisis could have been avoided; and finance would serve its rightful purpose — as an engine that drives and supports the real economy."

At the same roundtable, the Chairman of SC, Tan Sri Zarinah Anwar, said, "… the virtues of Islamic fin-ance need to be unlocked further. Public good, ethics, shared values, governance, and real and tangible contributions to the economy hold the key to innovation and growth. Profits involving a higher social purpose and objective represent values that will create not just economic returns, but also comply with universal ethical standards. Putting all these in place will strengthen the universality and acceptability of Islamic finance, enabling it to offer a distinctive value proposition."

Thus, Islamic finance is not about privatisation of profits and socialisation of losses by the financial sector. It's about accountability rate of returns, via due diligence, as pre-determined rates of returns do not exist in Islamic finance.

Conclusion

When Islamic financial institutions, such as banks and takaful operators, are allowed to reach the point of presenting a systemic risk to the industry, that is, being too large to fail, then we have become conventionally inefficient. If bailouts and bankruptcies, combined with capital protected bonuses, become a common place in Islamic finance, then we will have our own Occupy Salaam Street (OSS) movement in the Islamic finance hubs.

However, today the aspirations and inspiration of OWS — the principals of economic justice — are aligned to the objectives of Islamic finance. It is about building a dynamic financial eco-system based on humanitarian beliefs, avoiding unjust enrichment and profiteering, and allowing for financial inclusion of the 99 per cent to achieve a basic necessity: human dignity.

The writer is Global Head, Islamic Finance and OIC Countries at Thomson Reuters. Opinions expressed here are the writer's own and do not reflect those of his own organisation or those of Gulf News.

http://gulfnews.com

Centre for Islamic Banking, Finance & Management launched

Her Royal Highness Princess Hajah Hafizah Sururul Bolkiah yesterday attended the official launching of the Centre for Islamic Banking, Finance and Management (CIBFM) and its first flagship, the Fiqh Mu’amalat Professional programme.

Held at the Indera Kayangan Ballroom of The Empire Hotel and Country Club, the launch opened with recitations of surah al-Fatihah and doa led by Pehin Orang Kaya Paduka Seri Raja Dato Paduka Seri Setia Ustaz Hj Awg Suhaili Hj Mohiddin.

On hand to officiate the launch of the centre and the programme was Acting Minister of Finance II at the Prime Minister’s Office Dato Paduka Awg Hj Bahrin Abdullah.

In his opening remarks, Permanent Secretary (Policy) at the Ministry of Finance cum Chairman of the Board of Directors for the Centre for Islamic Banking, Finance and Management Hj Shahbudin Hj Musa, in his capacity as chairman of the event, highlighted the objective of the establishment, function and roles of CIBFM, as well as the unique features of the Fiqh Mu’amalat Professional programme.

He emphasised on the centre’s role towards providing continuous learning and development programmes through a balanced mix of Islamic and conventional focus including the required soft skills.

He also shared future plans of the centre, which expects to offer and conduct some 50 programmes targeted for about 800 participants this year.

The launch saw the attendance of members of the Syariah Financial Supervisory Board, senior government officials, CEOs, managing directors and representatives of financial institutions and the first batch of the flagship.

In conjunction with the launching, a seminar in the form of special presentations and penal discussions by both local and well-known Syariah scholars and speakers were also held.

Following the opening ceremony, a special presentation was presented on Syariah Advisors for Islamic Financial Institutions – ‘Expectations and Challenges’ by a leading shariah scholar in Islamic Finance, Dr Mohamed Ali Elgari.

This was then followed by panel discussions on ‘Effective Human Capital Development – Mitigating the Gap on Applied Syariah Knowledge and Finance’ and another special presentation on ‘Value Propositions of Syariah Board in Contemporary Islamic Financial Market.’

The presentation delivered by founder and chairman of Amanie Advisors (Kuala Lumpur, Dubai, Luxembourg and Cairo), Dr Mohd Daud Bakar, concluded the morning event.

Later in the afternoon the event saw a continuation of panel discussions on Development of Islamic Investment Products and Services – A Local and Global Perspective and ‘Syariah Compliance Review – An Art or Science?’

http://news.brunei.fm/

Nigeria launches Islamic finance institute

The Governing Council of Bayero University, Kano-Nigeria has approved the establishment of an International Institute of Islamic Banking and Finance (IIIBF) in the University.

The Vice Chancellor Bayero University, Kano-Nigeria, Prof. Abubakar Rasheed has appointed Prof. Shehu Usman Rano Aliyu as the Director of the International Institute of IIIBF. Also appointed were the assistant directors training and linkages, research and publications and academic programmes, in the persons of Associate Professor Binta Tijjani Jibril, Dr. Nasir Ahmad and Dr. Mansur Idris, respectively.

The institute is currently advertising three postgraduate programmes which are due to commence in the 2012 academic session. The Institute is also inviting quality research papers for its forthcoming international conference in May this year.

http://www.cpifinancial.net

German Bank Offers ‘Islam-Compliant’ Investment

Last month, German bank WestLB rolled out a new “Islam-compliant” investment product named the Islamic Strategy Index Certificate. The value of the certificate is based on the value of the WestLB Islamic Deutschland Index, consisting of shares of ten German firms “whose business activities are consistent with the ethical rules of Islam.” The WestLB product prospectus explains that the Islamic Strategy Index Certificates “are certified by the Central Council of Muslims in Germany as Islam-compliant [Islam konformes] investment.” The Central Council of Muslims in Germany is an umbrella group of twenty-two Muslim organizations.

The prospectus goes on to explain that “for the selection [of stocks] it is in principle not permitted that the business activity of the chosen firms involve interest-bearing financial services or derivatives, insurance, alcohol, tobacco, pork, armaments, gambling, gold and silver hedging transactions, or the entertainment industry.” The firms making up the Islamic Deutschland Index are some of the biggest names in German industry, including the sporting goods manufacturer Adidas, the engineering group Siemens, the software maker SAP, the chemical giant BASF, the pharmaceutical company Bayer, and the energy companies E.ON and RWE. Deutsche Post, of which the German state remains the principal shareholder, also forms part of the index. In addition to providing postal services in Germany, Deutsche Post is the parent company of the international package sender DHL.

According to Frank Haak, WestLB’s managing director for equity markets, three scholars undertook the certification of the product on behalf of the Central Council of Muslims in Germany. Germany’sIslamische Zeitung – “The Islamic Paper” – names the three scholars as Mufti Abdul Kadir Barkatullah, imam of the Finchley Mosque in London, Sheik Haytham Tamim of the Utrujj Foundation in London, and Michael Saleh Gassner, an Islamic Finance expert from Zürich. Regarding one of the firms in the index, the Islamische Zeitung ironically remarks, “it must have escaped the attention of the financial scholars that ThyssenKrupp, by virtue of its participation in…ThyssenKrupp Marine Systems, counts as one of the most up-to-date producers of maritime military technology.”

The investment also involves a charitable component: whereas 95 percent of yearly dividends are to be reinvested, five percent are to be donated by WestLB to a charitable organization. According to theIslamische Zeitung, citing WestLB’s Haak, the beneficiary is to be chosen by the Central Council of Muslims in Germany.

http://www.weeklystandard.com

Islamic insurance services in the pipeline: Tira study

By Alawi Masare

The Citizen Reporter

Dar es Salaam. Tanzania may have Islamic insurance services in the market if an on going study gathers enough evidence on the potential for demand and supply for the services in the country.

The Islamic insurance, Takaful, is based on Sharia – Islamic religious law – whereby members contribute money into a common pool to guarantee each other against loss or damage on the principles of mutuality and cooperation.

This would be the alternative to conventional insurance services. Almost a half of the Tanzanian population is Muslim.

The 2010 insurance annual market performance report released recently shows that the Tanzania Insurance Regulatory Authority (Tira) is conducting a study on viability of the introduction of Islamic insurance products and associated regulatory framework.Tira is collaborating with the Association of Tanzania Insurers (ATI).

The study also seeks to carry out a comparative study of Takaful insurance regulatory frameworks of selected jurisdictions where both Takaful and Conventional Insurance operations are regulated, with the view to identifying regulatory models that may be feasible for Tanzania.

“The study will also identify legislative and operational gaps as far as introduction of Takaful Insurance and associated regulatory framework in Tanzania is concerned and propose legal and regulatory initiatives to eliminate the gaps to be identified,” reads the report in part.

Tira is also conducting a study on the awareness, perception, and use of insurance services by investors and business entities in Zanzibar.In 1985, Muslim jurists met in Jeddah, Saudi Arabia for seven days to discuss all types and forms of conventional insurance and resolved that “the commercial insurance contract is prohibited (Haraam) according to the Shariah.”

The jurists also recommended that alternative contract which conforms to the principle of Islamic dealings is the contract of cooperative insurance (Takaful), which is founded on the basis of charitable donation and Shariah compliant dealings.

http://thecitizen.co.tz