Overview of Islamic Banking in Malaysia

Overview of Islamic Banking in Malaysia Since the 1970s, Islamic banking has emerged as a new reality in the international financial scene. Its philosophies and principles are however, not new, having been outlined in the Holy Qur’an and the Sunnah of Prophet Muhammad (p.

b. u. h. ) more than 1,400 years ago. The emergence of Islamic banking is often related to the revival of Islam and the desire of Muslims to live all aspects of their live in accordance with the teachings of Islam. In Malaysia, separate Islamic legislation and banking regulations exist side-byside with those for the conventional banking system.The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA) which came into effect on 7 April 1983.

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The IBA provides BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks. The Government Investment Act 1983 was also enacted at the same time to empower the Government of Malaysia to issue Government Investment Issue (GII), which are government securities issued based on Syariah principles. As the GII are regarded as liquid assets, the Islamic banks could invest in the GII to meet the prescribed liquidity requirements as well as to invent their surplus funds.The first Islamic bank established in the country was Bank Islam Malaysia Berhad (BIMB) which commenced operations on 1 July 1983. In line with its objectives, the banking activities of the bank are based on Syariah principles. After more than a decade in operations, BIMB has proved to be a viable banking institution with its activity expanding rapidly throughout the country with a network of 80 branches and 1,200 employees.

The bank was listed on the Main Board of the Kuala Lumpur Stock Exchange on 17 January 1992.The long-term objective of BNM is to create an Islamic banking system operating on a parallel basis with the conventional banking system. However, similar to any banking system, an Islamic banking system requires three vital elements to qualify as a viable system, i. e. :• • • a large number of players; a broad variety of instruments; and an Islamic money market. In addition, an Islamic banking system must also reflect the socio-economic values in Islam, and must be Islamic in both substance and form.

Recognising the above, BNM adopted a step-by-step approach to achieve the above bjective. The first step to spread the virtues of Islamic banking was to disseminate Islamic banking on a nation-wide basis, with as many players as possible and to be able to reach all Malaysians. After a careful consideration of various factors, BNM decided to allow the existing banking institutions to offer 1 Islamic banking services using their existing infrastructure and branches. The option was seen as the most effective and efficient mode of increasing the number of institutions offering Islamic banking services at the lowest cost and within the shortest time frame.

Following from the above, on 4 March 1993 BNM introduced a scheme known as “Skim Perbankan Tanpa Faedah” (Interest-free Banking Scheme) or SPTF in short. In terms of products and services, there are more than 40 Islamic financial products and services that may be offered by the banks using various Islamic concepts such as Mudharabah, Musyarakah, Murabahah, Bai’ Bithaman Ajil (Bai’ Muajjal), Ijarah, Qardhul Hasan, Istisna’ and Ijarah Thumma Al-Bai’. To link the institutions and the instruments, the Islamic Interbank Money Market (IIMM) was introduced on 4 January 1994.

In October 1996, BNM issued a model financial statement for the banking institutions participating in the SPI requiring the banks to disclose the Islamic banking operations (balance sheet and profit and loss account) as an additional item under the Notes to the Accounts. As part of the effort to streamline and harmonise the Syariah interpretations among banks and takaful companies, BNM established the National Syariah Advisory Council on Islamic Banking and Takaful (NSAC) on 1 May 1997 as the highest Syariah authority on Islamic banking and takaful in Malaysia.On 1 October 1999, a second Islamic bank, namely Bank Muamalat Malaysia Berhad (BMMB) commenced operations. The establishment BMMB was the effect of the spin-off following the merger between Bank Bumiputra Malaysia Berhad (BBMB) and Bank of Commerce (Malaysia) Berhad (BOCB). Under the merger arrangement, the Islamic banking assets and liabilities of BBMB, BOCB and BBMB Kewangan Berhad (BBMBK) were transferred to BBMB, while the conventional operations of BBMB, BOCB and BBMBK were transferred to BOCB accordingly. In addition, BMMB was given 40 branches of BBMB and BBMBK in arious locations throughout Malaysia and a staff workforce of 1,000, migrated from BBMB, BOCB and BBMBK. Government Investment Issues In 1983, the Malaysian Parliament passed the Government Investment Act to enable the Government of Malaysia (Government) to raise funds through the issuance of a non-interest bearing certificates known as the Government Investment Issues (GII).

The first issuance of GII was introduced in July 1983. The primary reason for the introduction of the GII is to enable the Islamic bank to hold first class liquid assets instruments to meet the statutory liquidity requirements as well as for investment. The GII was initially issued based on the Shariah contract of Qardh Hasan (benevolent loan). Under this contract, the purchase of GII by any institution or individuals will be considered as a benevolent loan to the Government to undertake developmental projects for the benefit of the nation. The Government is obliged to return the principal amount to the providers of funds (institutions or individuals) at maturity.

Any return on the loans (if any) is at the absolute discretion of the Government.In 2001, the basis of GII’s issuance was further enhanced to accommodate the need to develop further the secondary market activities of the Islamic money market. An alternative concept of GII based on Sell and Buy Back Arrangement was introduced in June 2001. Under this arrangement, the Government will sell its identified assets at an agreed cash price to the buyer and subsequently buy back the same assets from the buyer at an agreed purchase price to be settled at a specified future date. In the primary market, the Government will offer to sell specified nominal value of its assets through a tender process.

Interested parties may place their orders to purchase the Government’s assets through participating financial institutions (PFIs). PFIs that offer the most competitive price will purchase the Government’s assets and subsequently, the Government will buy back the assets from the PFIs at par price equivalent to the nominal value, which will be settled at a specified future date or maturity. The difference between the selling price and the purchase price (nominal value) represents the profit of the PFIs. The obligation of the Government to settle the purchase price is securitised in the form of GII and issued to the PFIs.At maturity, the Government will redeem the GII and pay the nominal value of the securities to the GII holders. The GII constitutes as one of the financial instruments that is actively traded in the Islamic Interbank Money Market Islamic Inter-bank Money Market The Islamic inter-bank money market (IIMM) was introduced on January 3, 1994 as a short-term intermediary to provide a ready source of short-term investment outlets based on Syariah principles. Through the IIMM, the Islamic banks and banks participating in the SPI would be able to match their funding requirements effectively and efficiently.BNM issued the Guidelines on the IIMM on December 18, 1993 to facilitate proper implementation of the IIMM.

The IIMM covers the following aspects:• • Interbank trading of Islamic financial instruments; and Mudharabah Interbank Investments (“MII”) Only Islamic banks, commercial banks, merchant banks and eligible finance companies and discount houses are allowed to participate in the IIMM. 3 Interbank trading Eligible banking institutions are allowed to trade in the designated Islamic financial instruments, such as Islamic accepted bills and Islamic debt securities among themselves.GIC are non-tradable but the players may exchange the papers among themselves based on the price issued by BNM. Mudharabah interbank investments (MII) MII refers to a mechanism whereby a deficit Islamic banking institution (‘investee bank”) can obtain investment from a surplus Islamic banking institution (“investor bank”) based on Mudharabah (profit-sharing). The period of investment is from overnight to 12 months, while the rate of return is based on the rate of gross profit before distribution for investments of 1-year of the investee bank.The profit-sharing ratio is negotiable among both parties. The investor bank at the time of negotiation would not know what the return would be, as the actual return will be crystallised towards the end of the investment period.

The principal invested shall be repaid at the end of the period, together with a share of the profit arising from the used of the fund by the investee bank. Beginning February 2, 1996, BNM introduced the minimum benchmark rate for the MII i. e. the prevailing rate of the Government Investment Issues plus a spread of 0. 5 per cent.The purpose of the benchmark rate is to ensure that only banks with reasonable rate returns participate in the MII. The National Syari’ah Advisory Council The National Syariah Advisory Council on Islamic Banking and Takaful (NSAC) was established on 1 May 1997.

The primary objectives of the NSAC are as follows:• • • To act as the sole authoritative body to advise BNM on Islamic banking and takaful operations; To co-ordinate Syari’ah issues with respect to Islamic banking and finance (including takaful); and To analyse and evaluate Syari’ah aspects of new products/schemes submitted by the banking institutions and takaful companies. Islamic Banking Concepts Wadiah Yad Dhamanah (savings with guarantee) Refers to goods or deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.Mudharabah (profit-sharing) Refers to an agreement made between a capital provider and another party (entrepreneur), to enable the entrepreneur to carry out business projects, based on a profit sharing basis, of a preagreed ratio. In the case of losses, the losses are borne by the provider of the funds. Musyarakah (joint venture) Refers to a partnership or joint venture for a specific business, whereby the distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.

Murabahah (cost plus) Refers to the sale of goods at a price, which includes a profit margin as agreed to by both parties. Such sales contract is valid on the condition that the price, other costs and the profit margin of the seller are stated at the time of the agreement of sale. Bai’ Bithaman Ajil (deferred payment sale) Refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. Bai’ al-Dayn (debt trading) Refers to debt financing, i. e. he provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Only documents 5 evidencing real debts arising transactions can be traded. Bai’ al-Inah from bona fide merchant The financier sells an asset to the customer on a deferred payment and then the financier immediately repurchases the asset for cash at a discount.

Al-Ijarah Thumma al-Bai’ (leasing and subsequently purchase) Refers to a Al-Ijarah (leasing/renting) contract to be followed by AlBai (purchase) contract.Under the first contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the goods from the owner at an agreed price. Ijarah (leasing) Refers to an arrangement under which the lessor leases equipment, building or other facility to a client at an agreed rental against a fixed charge, as agreed by both parties.

Qardhul Hassan (benevolent loan) Refers to an interest free loan.The borrower is only required to repay the principal amount borrowed, but he may pay an extra amount at his absolute discretion, as a token of appreciation. Bai’ as-Salam (future delivery) Refers to an agreement whereby payment is made in advance for delivery of specified goods in the future.

Bai’ al-Istijrar (supply contract) Refers to an agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment. Kafalah (guarantee) Refers to a contract of guarantee by the contracting party or any third party to guarantee the performance of the contract terms by contracting parties. Rahnu (collateralised borrowing) Refers to an arrangement whereby a valuable asset is placed as collateral for debt. The collateral may be disposed in the event of default. Wakalah (nominating another person to act) Refers to a situation, where a person nominates another person to act on his behalf.

Hiwalah (remittance) Refers to a transfer of funds/debt from the depositor’s/debtor’s account to the receiver’s/creditor’s account whereby a commission may be charged for such service. Sarf (foreign exchange) Refers to the buying and selling of foreign currencies. Ujr (fee) Refers to commissions or fees charged for services. Hibah (gift) Refers to gifts award voluntarily in return for loan given. List of Financial Institutions Offering Islamic Banking Services The Islamic banks are not the only financial institutions involved in Islamic banking.Other financial institutions also offer Islamic banking services through the “Islamic Banking Scheme”. 7 Islamic Banks 1. Bank Islam Malaysia Berhad 2.

Bank Muamalat Malaysia Berhad Participating banks Commercial Banks in the Islamic Banking Scheme 1. AFFIN Bank Berhad 2. Alliance Bank Berhad 3.

AmBank Berhad 4. Citibank Berhad 5. EON Bank Berhad 6. Hong Leong Bank Berhad 7. HSBC Bank (M) Berhad 8. Malayan Banking Berhad 9. OCBC Bank (Malaysia) Berhad 10. Public Bank Berhad 11.

RHB Bank Berhad 12. Southern Bank Berhad 13. Standard Chartered Bank Malaysia Berhad Finance Companies 1. . 3. 4.

5. 6. 7. AFFIN-ACF Finance Berhad AmFinance Berhad EON Finance Berhad Hong Leong Finance Berhad Mayban Finance Berhad Public Finance Berhad Southern Finance Berhad Merchant Banks 1. 2. 3.

4. AFFIN Merchant Bank Berhad Alliance Merchant Berhad AmMerchant Bank Berhad Commerce International Merchant Bankers Berhad Discount Houses 1. 2.

3. 4. 5.

Abrar Discounts Berhad AFFIN Discount Berhad Amanah Short Deposits Berhad CIMB Discount House Berhad KAF Discounts Berhad 8 6. Malaysia Discount Berhad 7. Mayban Discount Berhad Range of Islamic Banking Products and Services in MalaysiaDeposit Products / Services Savings account-i Current account-i General investment account-i Special investment account-i Specific investment account-i Retail Financing Products / Services Cash line facility-i Computer financing-i Education financing-i Hire purchase-i Home / House financing-i Land financing-i Leasing-i Pawn broking-i Personal financing-i Plant & machinery financing-i Project financing-i Property financing-i Share financing facility-i Shop house financing-i Sundry financing-i Umrah & visitation financing-i Unit trust financing-i Working capital financing-i Applicable Concepts Bai’ Bithaman Ajil / Murabahah Bai’ al-Inah / Murabahah Bai’ Bithaman Ajil / Bai’ al-Inah Al-Ijarah Thumma al Bai’ Bai’ Bithaman Ajil Bai’ Bithaman Ajil Ijarah Ar-Rahnu Bai’ Bithaman Ajil / Bai’ al-Inah / Murabahah Al-Ijarah Thumma al-Bai’ Bai’ Bithaman Ajil Bai’ Bithaman Ajil Bai’ Bithaman Ajil / Mudharabah / Musyarakah Bai’ Bithaman Ajil Bai’ Bithaman Ajil Bai’ Bithaman Ajil Bai’ Bithaman Ajil / Mudharabah / Musyarakah Murabahah Applicable Concepts Wadiah / Mudharabah Wadiah / Mudharabah Mudharabah Mudharabah Mudharabah 9Card Services Products / Services Charge card-i Credit card-i Trade Finance Products / Services Accepted bills-i Bank guarantee-i Export credit refinancing-i Letter of credit-i Shipping guarantee-i Trust receipt-i Money Market Products / Services Bank Negara negotiable notes-i Commercial papers-i Government investment issues-i Negotiable debt certificate-i Negotiable instument of deposit-i Banking Services Products/Services Stock broking services TT / Funds Transfer Travellers’ Cheques Demand Draft Cashiers’ Order Standing Instruction ATM Service Telebanking Applicable Concepts Ujr Ujr Ujr Ujr Ujr Ujr Ujr Ujr Applicable Concepts Bai’ al-Inah Murabahah Bai’ al-Inah Bai’ Bithaman Ajil Mudharabah Applicable Concepts Murabahah Kafalah Murabahah Wakalah / Murabahah / Musyarakah Kafalah Murabahah Applicable Concepts Qardul Hasan Bai’ al-Inah 10 Number of financial institutions As at end 1998 Islamic banks Commercial banks Finance companies Merchant banks Discount Houses 1 25 18 5 1999 2 23 16 5 7 2000 2 21 14 5 7 2001 2 14 10 5 7 2002 2 14 10 3 7 2003 2 13 7 4 7Number of branches / SPI counters As at end 1998 Islamic banks Commercial banks Full-fledged branch SPI counters Finance companies Full-fledged branch SPI counters Merchant banks SPI counters Financing deposit ratio (%) As at end 1998 Islamic banks Commercial banks Finance companies Merchant banks 90. 3 52. 3 78. 7 69. 4 1999 51.

9 46. 5 98. 8 194. 0 2000 56. 8 53. 5 94.

4 88. 7 2001 52. 6 55. 6 99.

3 114. 6 2002 55. 8 71.

2 110. 5 117. 5 2003 55. 5 84. 2 143. 6 91. 7 6 6 4 0 3 823 2 735 2 745 2 730 2 730 7 646 7 1,553 6 1,366 7 1338 8 1335 8 1335 13 1410 80 1999 120 2000 122 2001 122 2002 128 2003 132 11 Takaful Key Indicators As at end 2000 No.

f Registered Takaful Operators 2 No. of Offices Branch Takaful Desk (2) No. of Agents (3) Family Takaful General Takaful No.

of Employees (4) Market Share Asset Contribution Market Penetration 3. 7 3. 8 2. 5 5. 0 4. 1 3. 2 5. 3 5.

3 3. 8 5. 6 5. 4 4. 5 5. 6 5.

4 4. 7 124 41 83 2001 2 125 42 83 2002 3 127 42 85 2003 4 132 43 89 Number 4 132 132 March (1) 2004 4,567 6,528 9,191 11,433 11,433 3,873 5,391 7,227 9,893 1,137 1,964 1,540 694 1,178 1,553 1,716 2,161 % 9,893 1,540 2,161 (1) 3-months ending March 2004 (2) All Takaful desks have been upgraded to branches with effect from year 2004 (3) Updated annually (4) Updated half-yearly 12 Total Assets (RM’000)Year IB 1983 369,800 1984 325,533 1985 514,233 1986 1,093,000 1987 932,321 1988 1,133,955 1989 1,368,341 1990 1,425,927 1991 1,400,391 1992 1,676,211 1993 2,009,088 1994 3,046,310 1995 3,248,000 1996 3,962,000 1997 5,202,104 1998 5,698,378 CB 1,397,457 2,038,916 3,652,757 9,077,980 FC 347,961 651,277 1,852,937 2,924,381 MB 93,318 259,230 664,767 676,839 778,134 DH SPI 1,838,736 2,949,423 6,170,461 Total 369,800 325,533 514,233 1,093,000 932,321 1,133,955 1,368,341 1,425,927 1,400,391 1,676,211 2,009,088 4,885,046 6,197,423 10,132,461 12,679,200 17,881,304 15,484,683 21,183,061 11,385,159 3,321,390 1999 11,724,223 15,589,065 4,806,146 2000 14,008,934 20,058,475 7,149,872 2001 17,404,759 27,026,076 9,821,594 1,439,347 2,577,707 24,412,265 36,136,488 1,507,952 4,288,350 33,004,649 47,013,583 1,352,925 3,747,833 41,948,428 59,353,187 2002 20,159,627 29,109,751 12,622,883 1,429,589 4,748,576 47,910,799 68,070,426 2003 20,929,723 36,829,959 17,915,089 1,715,826 4,826,243 61,287,117 82,216,840 13 Total Deposits (RM’000)Year IB 1983 274,900 1984 241,355 1985 410,224 1986 967,000 1987 809,147 1988 1,022,231 1989 1,229,205 1990 1,221,146 1991 1,175,502 1992 1,321,845 1993 2,014,100 1994 2,891,920 1995 2,745,335 1996 3,283,289 1997 3,223,440 1998 4,039,747 1999 9,685,166 CB 202,059 1,463,139 1,744,940 2,666,432 5,153,239 8,415,160 FC 22,617 246,710 378,931 966,439 1,170,227 2,110,717 MB 21,110 53,944 56,581 DH SPI 245,786 1,763,793 2,180,452 3,980,857 6,671,953 Total 274,900 241,355 410,224 967,000 809,147 1,022,231 1,229,205 1,221,146 1,175,502 1,321,845 2,259,886 4,655,713 4,925,787 7,264,146 9,895,393 347,986 348,487 606,456 – 11,132,333 15,172,080 10,576,042 3,033,083 401,401 1,109,163 15,119,689 24,804,855 867,143 2,267,652 24,616,814 35,918,401 673,451 2,362,757 32,730,889 47,106,506 684,241 3,630,568 36,763,303 53,184,527 2000 11,301,587 16,089,422 5,392,597 2001 14,375,617 22,030,963 7,663,718 2002 16,421,224 23,353,941 9,094,553 2003 17,583,700 26,518,703 10,965,594 851,715 4,291,844 42,627,856 60,211,556 14 Total Financing (RM’000)Year IB 1983 249,800 1984 161,111 1985 391,972 1986 525,000 1987 428,590 1988 609,374 1989 666,056 1990 817,398 1991 808,152 CB FC 2,491 163,460 452,872 1,224,931 2,189,934 1,878,449 2,995,546 5,089,803 MB 25,310 DH SPI 6,232 462,839 1,525,415 3,742,662 7,398,662 6,989,785 Total 249,800 161,111 391,972 525,000 428,590 609,374 666,056 817,398 808,152 1,028,724 1,065,210 1,737,768 3,492,012 6,001,731 10,749,351 10,461,223 13,751,571 1992 1,028,724 1993 1,058,978 3,741 1994 1,274,929 274,069 1995 1,966,597 842,557 1996 2,259,069 2,125,213 1997 3,350,689 4,705,766 1998 3,471,438 4,702,815 1999 5,029,537 4,920,513 2000 6,423,392 8,533,577 229,986 392,518 502,962 408,521 769,320 771,608 – 778,202 27,773 8,722,034 4,392,700 20,816,092 20,646,554 28,317,570 27,559,500 36,717,744 38,850,863 48,615,368 2001 7,671,016 12,257,576 7,617,370 2002 9,158,244 16,706,384 10,049,633 803,483 2003 9,764,505 22,324,271 15,745,750 780,842 – 15 Overview of Takaful in Malaysia The concept of takaful (Islamic insurance) was first introduced in Malaysia in 1985 when the first takaful operator was established to fulfil the need of the general public to be protected based on the Islamic principles. The legal basis for the establishment of takaful operators was the Takaful Act which came into effect in 1984. Insurance as a concept does not contradict the practices and requirements of Shariah.

In essence, insurance is synonymous to a system of mutual help.However, Muslim jurists are of the opinion that the operation of conventional insurance does not conform to the rules and requirements of Shariah as it involves the elements of uncertainty (Gharar) in the contract of insurance, gambling (Maisir) as the consequences of the presence of uncertainty and interest (riba) in its investment activities. Takaful is an insurance concept in Shariah whereby a group of participants mutually agree among themselves to guarantee each other against defined loss or damage that may inflict upon any of them by contributing as tabarru’ or donation in the takaful funds. It emphasizes unity and co-operation among participants.Takaful is not a new concept as it had been practised by the Muhajirin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 years ago.

Tabarru’ is the agreement by a participant to relinquish as donation, a certain proportion of the takaful contribution that he agrees or undertakes to pay, thus enabling him to fulfil his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss. The concept of tabarru’ eliminates the element of uncertainty in the takaful contract. The sharing of profit or surplus that may emerge from the operations of takaful is made only after the obligation of assisting the fellow participants has been fulfilled.Thus, the operation of takaful may be envisaged as a profit sharing business venture between the takaful operator and the individual members of a group of participants.

Takaful operations are regulated and supervised by BNM since 1988 with the appointment of the BNM Governor as the Director-General of Takaful. In October 1995, the ASEAN Takaful Group (ATG), a grouping of takaful operators in Brunei, Indonesia, Malaysia and Singapore was formed to enhance mutual cooperation and to facilitate the exchange of business among takaful operators in ASEAN. In 1997, the Malaysian takaful industry to a leap forward with the formation of ASEAN Retakaful International (L) Ltd. ARIL) as an offshore retakaful company in Labuan. The establishment of ARIL was to create a vehicle for more dynamic retakaful exchanges among ATG members and providing additional retakaful capacity for further reduce their dependence on conventional reinsurance. 16 TYPES OF BUSINESS The takaful business carried on by the Malaysian takaful operators are broadly divided into family takaful business (Islamic “life” insurance) and general takaful business (Islamic general insurance). Family Takaful Business In general, a family takaful plan is a combination of long-term investment and mutual financial assistance scheme.

The objectives of this plan are: • • • o save regularly over a fixed period of time; to earn investment returns in accordance with Islamic principles; and to obtain coverage in the event of death prior to maturity from a mutual aid scheme. Each contribution paid by the participant is divided and credited into two separate accounts, namely: • • The Participants’ Special Account (PSA) A certain proportion of the contribution is credited into the PSA on the basis of tabarru’. The amount depends on the age of the participant and the cover period. The Participants’ Account (PA) The balance goes into the PA which is meant for savings and investments only.

Examples of covers available under family takaful business are as follows: • • • • • Individual family takaful plans; Takaful mortgage plans; Takaful plans for education; Group takaful plans; and Health/Medical takaful.General Takaful Business The general takaful scheme is purely for mutual financial help on a short-term basis, usually 12 months to compensate its participants for any material loss, damage or destruction that any of them might suffer arising from a misfortune that might inflict upon his properties or belongings. The contribution that a participant pays into the general takaful fund is wholly on the basis of tabarru’. If at the end of the period of takaful, there is a net surplus in the general takaful fund, the same shall be shared between the participant and the operator in accordance with the principle of al-Mudharabah, provided that the participant has 7 not incurred any claim and/or not received any benefits under the general takaful certificate. The various types of general takaful scheme provided by the takaful operators include: • • • • • Fire Takaful Scheme; Motor Takaful Scheme; Accident/Miscellaneous Takaful Scheme; Marine Takaful Scheme; and Engineering Takaful Scheme.

Family takaful: Individual plan Mortgage Health Education Travel Family plan Waqaf Group family Group medical Employees Provident Fund Retirement Group plan Annuity General takaful: Motor Fire Marine, aviation transit Miscellaneous and Includes:Personal accident Workmen corporation Liability Engineering House owners 18