- Published on
KembaraXtra-Islamic Finance -Takaful: Islamic Insurance
1. Understanding Takaful
1. Understanding Takaful
- Definition: Takaful is derived from the Arabic word "kafala," meaning "to guarantee." More specifically, "Takafala" means "to mutually guarantee and protect one another," implying mutual help and assistance.
- Prohibition of Indemnity (Conventional Insurance): Traditional insurance practices, where the insurer directly compensates the insured (policyholder), are not acceptable under Shari'ah (Islamic law).
- Reason: Both the premiums paid and the indemnity received involve uncertainty (Gharar), which is prohibited.
- Example of Gharar: An individual pays premiums for life insurance. If they die early, beneficiaries receive a large sum relative to premiums paid. If they live a long life, they may receive no benefit. This uncertain outcome is unacceptable.
- Profit Seeking: Conventional companies are profit-seeking entities that take calculated risk with the potential of gain.
- Donation (Takaful) Approach: Takaful replaces the sale of indemnity (conventional insurance) with a contract of donation (contribution) among participants/policyholders.
- Uncertainty in Donation: Uncertainty is acceptable in donation-based systems or unilateral contracts.
- Reason: The primary goal is mutual assistance, not commercial profit.
- Gratuity: Tolerates uncertainty.
- Unilateral Contract: Purpose is not commercial gain.
- Mutual Contribution and Assistance: Takaful is a system of mutual contribution and assistance for life and general policies.
- Donation-Based: It operates on donation contracts, not sales contracts.
- Acceptable Uncertainty: Uncertainty is tolerated since the core purpose is mutual aid, not commercial gain.
- Avoidance of Prohibited Elements: Islamic capital markets (equity and fixed income) must avoid elements prohibited by Shari'ah.
- Key Prohibitions:
- Interest (Riba)
- Uncertainty (Gharar)
- Gambling (Maisir)
- Investments in unlawful activities (e.g., alcohol, tobacco, pork, weapons)
- Capital guarantees in equity-based products.
- Distinct Features: Islamic finance must have distinct contractual and transactional features to differentiate itself from conventional finance.
- Shared Economic Benefits: While differing in approach, both Islamic and conventional finance can achieve similar economic outcomes.
- Published on
KembaraXtra-Islamix Finance-Islamic Finance vs. Conventional Finance
Core Principles
Core Principles
- Prohibition of Interest (Riba):
- A fundamental difference. Money cannot generate income simply by being lent.
- Islamic banks cannot rely on interest earned on loans.
- Profit must be generated through real economic activity, such as trade, lease, or investment. This involves converting money into a tangible asset before engaging in contracts like sale or lease.
- Avoidance of Uncertainty (Gharar):
- Prohibition of Gambling (Maisir):
- Activities considered "zero-sum games" are forbidden.
- Ethical Investments:
- Investments in unlawful activities (e.g., alcohol, weapons, gambling) are prohibited.
- No Capital Guarantees in Equity-Based Products:
- Distinct Contractual and Transactional Features:
- Focus on Asset-Backed Financing: Islamic finance emphasizes linking financing to real assets and economic activities.
- Profit Generation through Trade/Investment: Instead of interest, profit is generated through legitimate business activities.
- Example: Credit Sale (Murabaha):
- A customer (Z) needs equipment.
- An Islamic bank purchases the equipment from a vendor at a certain price (e.g., €100,000).
- The bank then sells the equipment to Z at a higher price (e.g., €100,000 + a 4% profit margin per annum), with payment deferred.
- Z doesn't pay interest, but the bank earns a profit on the sale transaction.
- Ethical Considerations: Aligns with Islamic principles and values.
- Real Economic Activity: Focuses on financing productive assets and businesses.
- Published on
- Published on
KembaraXtra-Islamic Finance-Introduction
1.0 Introduction
1.0 Introduction
- Islamic finance is rooted in principles established over 1400 years ago but presented in a modern way.
- It shares the goal of economic benefit with conventional finance but differs in its methods.
- Key differences include the exclusion of interest (riba) and excessive uncertainty (gharar).
- Acceptable financial features are combined with Shari'ah principles to create Shari'ah-compliant products.
- Islamic finance aims to provide products and services comparable to conventional finance while adhering to Islamic teachings.
- Core Sources: Islamic principles and values are derived from:
- The Qur'an: Contains legal principles and injunctions on various subjects (ritual, marriage, commerce, etc.).
- Traditions of the Prophet Muhammad (Sunnah/Hadith): Records the sayings, actions, and tacit approvals of the Prophet, covering a wider range of topics than the Qur'an.
- Shari'ah:
- Muslims believe Islam starts from the revelation.
- It aims to guide humanity toward moral potential and worldly worth.
- Shari'ah encompasses commands, prohibitions, guidance, and principles for Muslims.
- It is considered the clear path for guidance in this life and salvation in the afterlife.
- Key Points:
- The essence of Islam is derived from the Qur'an and the Traditions of the Prophet Muhammad.
- Muslims believe Shari'ah refers to commands, prohibitions, guidance, and principles under Islam, which is the clear path for guidance and deliverance.
- Scope of Shari'ah: Provides guidance in:
- Belief
- Moral conduct
- Practical rulings/laws
- Focus: This study guide focuses on the practical rulings/substantive law governing Islamic finance.
- Importance of Morality: Moral values are integral to Islamic finance.
- Examples of Moral Values Incorporated into Islamic Finance:
- (a) Timeliness: Prompt payment of debt or delivery of assets. Failure can have legal consequences.
- (b) Tolerance: Consideration of each other's needs and circumstances in bargaining.
- (c) Mutual Revocation: Allowing contract cancellation if one party is uncomfortable with the outcome.
- (d) Honesty (Amanah): Truthfulness in all statements, representations, and warranties.
- Note: This is not an exhaustive list, but highlights the relevance of morality in commercial dealings.
- Published on
KembaraXtra-Islamic Finance -Shari'ah Compliance
- Islamic finance is defined by its adherence to Shari'ah principles. This means that financial activities must not contradict Islamic law.
- Interest (Riba): A fundamental difference lies in the prohibition of riba (interest). Conventional banking relies on interest as a core mechanism for profit, which is forbidden in Islamic finance.
- Example: Fixed deposits in conventional banks involve a promise to repay the principal plus interest. This structure is unacceptable in Islamic finance.
- Debtor-Creditor Relationship: Conventional banking establishes a debtor-creditor relationship between the bank and the customer (both depositor and borrower).
- Uncertainty (Gharar): Islamic finance also prohibits gharar (excessive uncertainty or speculation) in contracts.
- Banking: Conventional banking relies on interest, which is forbidden.
- Insurance: Conventional insurance may involve gharar due to the uncertain nature of payouts (amount and timing).
- Capital Markets: Conventional bonds often involve interest payments, which are not Shari'ah-compliant.
- Goods and Services: Islamic finance avoids involvement in the production, sale, or distribution of haram (forbidden) goods and services.
- Examples of Haram:
- Non-Halal foods (pork, improperly slaughtered animals)
- Alcohol
- Gambling
- Pornography
- Related entertainment
- Examples of Haram:
- Contractual Structure: A business can be non-compliant if its contracts are based on interest (riba) or excessive uncertainty (gharar).
- Transactional Perspective: A business can be non-compliant if it deals with haram goods or services.
- Published on
Technical Analysis - Chart Pattern - Bullish Pennant
The Bullish Pennants signal indicator are that bulls are going to go a-charging again. This suggests that the strong ascent in price would resume after the short time of consolidation in price when the bulls amass enough energy to propel the price higher again. In this scenario, the price made a steep vertical increase before taking a rest.
The Bullish Pennants signal indicator are that bulls are going to go a-charging again. This suggests that the strong ascent in price would resume after the short time of consolidation in price when the bulls amass enough energy to propel the price higher again. In this scenario, the price made a steep vertical increase before taking a rest.
Just like we predicted, the price made another big move in rising direction after the breakout. To play this trade, trader can place the long order just above the white top of the pennant and stop below the bottom of the pennant to avoid fakeouts.
- Published on
Technical Analysis - Chart Pattern - Symmetrical Triangle
A Symmetrical Triangle is a chart pattern creation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle.
This means that neither the buyers nor the sellers could push the price far enough to make a distinct trend. If such type of pattern happens, we get lower highs and higher lows.
If this were a war between the buyers and sellers, then this would be a draw.
A Symmetrical Triangle is a chart pattern creation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle.
This means that neither the buyers nor the sellers could push the price far enough to make a distinct trend. If such type of pattern happens, we get lower highs and higher lows.
If this were a war between the buyers and sellers, then this would be a draw.
Since we already know that the price is likely to break out, we can just grab a ride in whatever way the market moves. In the above situation, purchasers wins and the price break and advance in upward direction.
In this example, if we put an entry order above the slope of the lower highs at white top, we would’ve been carried along for a pleasant ride up.
If you had put another entry order below the slope of the higher lows, then you would cancel it as soon as the first order was hit. Also, the most important thing in trading is to must put stoploss in every transaction to avoid false breakout and significant loss.
In this example, if we put an entry order above the slope of the lower highs at white top, we would’ve been carried along for a pleasant ride up.
If you had put another entry order below the slope of the higher lows, then you would cancel it as soon as the first order was hit. Also, the most important thing in trading is to must put stoploss in every transaction to avoid false breakout and significant loss.
- Published on
Technical Analysis - Chart Pattern - Bearish Rectangle
Bearish Rectangle is produced when the price consolidates for a moment all through a decline.
This happens due to the reality sellers probably need to freeze and collect their breath before taking the pair further lower.
In this situation, price breached the lowest of the rectangle chart pattern and continued to rocket down.
Price broke the bottom of the rectangle chart pattern & went towards the downward direction.
If we put a short order exactly below the support level, we would have made some nice profit on this trade.
The tip: Once the pair goes below the support level, it tends to make a move that is around the size of the rectangle formed.
Bearish Rectangle is produced when the price consolidates for a moment all through a decline.
This happens due to the reality sellers probably need to freeze and collect their breath before taking the pair further lower.
In this situation, price breached the lowest of the rectangle chart pattern and continued to rocket down.
Price broke the bottom of the rectangle chart pattern & went towards the downward direction.
If we put a short order exactly below the support level, we would have made some nice profit on this trade.
The tip: Once the pair goes below the support level, it tends to make a move that is around the size of the rectangle formed.
- Published on
Technical Analysis - Chart Pattern - Bullish Rectangle
Formed when the price consolidates for some length in an upswing.
This happens due to the fact that purchasers may want to pause and catch their breath before taking the pair much higher.
In this scenario, price broke the top of the rectangle chart pattern and continued to shoot upward.
Look at the chart, how the price climbed all the way upward after breaking above the top of the rectangle formation.
If we had a long order on white top of the resistance level and stoploss at lower point of second candle, we would’ve caught some pips (“percentage in point” or “price interest point”) on the trade!
Formed when the price consolidates for some length in an upswing.
This happens due to the fact that purchasers may want to pause and catch their breath before taking the pair much higher.
In this scenario, price broke the top of the rectangle chart pattern and continued to shoot upward.
Look at the chart, how the price climbed all the way upward after breaking above the top of the rectangle formation.
If we had a long order on white top of the resistance level and stoploss at lower point of second candle, we would’ve caught some pips (“percentage in point” or “price interest point”) on the trade!
- Published on
Technical Analysis - Chart Pattern - Bearish Pennant
A Bearish Pennant is created at some point of a severe, virtually vertical, downturn. After that significant drop in price, some sellers closed their positions even as other sellers determine to join the trend, causing the market consolidate for a moment. As soon as sufficient sellers jump in the trend, the price breaks below the bottom of the pennant pattern and continue to go downward direction.
A Bearish Pennant is created at some point of a severe, virtually vertical, downturn. After that significant drop in price, some sellers closed their positions even as other sellers determine to join the trend, causing the market consolidate for a moment. As soon as sufficient sellers jump in the trend, the price breaks below the bottom of the pennant pattern and continue to go downward direction.
As you can see, the slide in price proceeded after the price made a breakout to the bottom. To trade this chart pattern, we’d put a short order at the black bottom of the pennant with a stop loss above the pennant
