Islamic Estate Planning is broadly concerned with making arrangements to most effectively deal with your personal property and assets after you have passed away.
Briefly describe FIVE (5) of EIGHT (8) components of a financial plan and explain the process of creating a valid will according to Quran and Sunnah.
Discuss any FIVE (5) types of financial instrument.
Do you think ALL MUSLIM in Malaysia needs family takaful coverage.
1. Five components of a financial plan
ReplyDeleteThe components of Islamic financial planning should include, but not limited to this area; wealth generation, wealth protection, wealth accumulation, wealth purification and wealth distribution.
a. Cash flow and liability management
ReplyDeleteTo assess the current state of cash flow and the state of current indebtedness, Islamic financial planners may inquire the financial data from the clients through interviews and financial documents such as bank statements, investment balances, EPF statements and many more. The sets of statements used to evaluate the cash flow and liability status of clients are: Net worth statement and Cash flow statement. In offering Shariah based financial planning services, financial planner should ensure that the statements do not embody any prohibited elements and the assets, liabilities and others are properly reflected with Shariah principles.
b. Risk management and takaful planning
ReplyDeleteRisk management, also known as wealth protection, is conducted to avoid, control, reduce or finance risks.it implies the act of protecting the wealth from any harm resulting from pure risk. While our fate is in the hand of Allah, we are commanded to work hard to change our conditions, as dictated in surah al-Ra’d, “Indeed, Allah will never change the condition of a people until they change what is in themselves. Prophet Muhammad demonstrated that tawakal comes after putting efforts as shown in the hadith, “tie the camel and then leave it to the will of Allah.” There are several types of risk management, which includes risk avoidance, control of loss (loss prevention and minimisation), risk retention and risk sharing.
One way to reduce risks is by participating in takaful. Takaful literally means mutually guarantee and solidarity. In takaful plan, the participant would contribute a particular amount of money as contribution partly to the risk fund (the participant’s special account) using the concept of tabarru’ (donation) and partly to another party (known as Takaful Operator) with a mutual agreement that the kafil is under a legal responsibility to provide for the participant’s financial protection against unexpected loss, should it happen within the agreed period.
ReplyDeletec. Islamic investment planning
ReplyDeleteInvestment is a tool in wealth accumulation process. Financial investments are usually made through banks, intermediaries, stock brokers incase of investing in company shares, mutual funds, pension funds and insurance company. Investment helps to provide capital and income at some future time, either to meet a future obligation or need, or to transfer to the next generation. As Muslim, we must plan thoroughly to ensure that the funds are being invested into Shariah compliant investment products, such as shares, unit trusts, real estate, sukuk and others. Shariah screening should be implemented before investing our surplus units to avoid investment in prohibited activities such as gambling, alcohol and interest-based financial services.
d. Zakat administration and tax planning
ReplyDeleteWealth purification is achieved by providing zakat or paying taxes. Zakat or alms giving is one of the five pillars in Islam. Zakat literally means “growth”, “increase” or “multiply”. Another definition of zakat is “purify”. These definitions reflect the psychological and material growth in the soul and wealth of Muslims. Technically, zakat is a fixed proportion collected from the surplus wealth and earnings of Muslims that are distributed to prescribed beneficiaries. Taxation, on the other hand, is a social contract when individuals within a country, region or state agree to pay revenue (tax) to a group of people (government). The revenue from taxes is the main income for the government to finance expenditure. Tax planning is strategizing to achieve legitimate tax savings, and is not considered as tax evasion or tax avoidance.
e. Islamic retirement planning
ReplyDeleteRetirement planning is an arrangement to provide people with an income during retirement, that is, when they are no longer earning a steady income from employment. Retirement plans may be set up by employers, insurance companies, the government or other institutions such as employer associations or trade unions. In general, the Islamic retirement planning process consists of three broad steps: assessing the future income needs of a person, how to accumulate the funds, and ascertaining the manner in which the accumulation will be consumed.
2. Process of creating a valid will according to Quran and Sunnah
ReplyDeleteA will in Islam is called Wasiyyah. Technically, wasiyyah is a gift of property by its owner to another contingent on the giver’s death. Therefore, wasiyyah is an act of giving away one’s property in his lifetime but it is effective upon the death of the giver. In making a will, two import rules must be observed:
a. The bequest should not be made in favour of entitled legal heirs
The hadith of Prophet Muhammad states that, “there is no bequest in favour of of legal heir.” This principle means that when a wasiyyah is made in favour of an entitled legal heir, the bequest is not valid.
b. The quantum of the bequest must not exceed 1/3 of the whole estate.
This condition is based on the hadith, “A third, and a third is much.” This hadith shows that a bequest exceeding the limit of 1/3 is not valid.
3. Five types of financial instrument
ReplyDeletea. Mudarabah
Mudarabah is a contract, with one party providing 100% of the capital and the other party providing its specialized knowledge to invest the capital and manage the invest project. Profits generated are shared between the parties according to an pre-agreed ratio. If there is a loss, the first partner, rab al-mal, will lose his capital, and the other party, mudarib, will lose the time and effort invested in the project.
b. Murabahah
Murabahah refers to the sale of goods at a price. This includes a profit margin agreed to by both parties. The purchase and selling price, other cost and the profit margin must be clearly stated at the time of the sale agreement. In other words, this contract is when the investor undertakes to supply specific goods or commodities, incorporating a mutually agreed contract for resale to the client and a mutually negotiated margin.
c. Musharakah
ReplyDeleteMusharakah refers to a classical joint venture where both entrepreneur and investor contribute to the capital (assets, technical and managerial expertise, working capital, etc) of the operation in varying degrees and agree to share the returns as well as the risks in proportions agreed to in advance. Traditionally, this form of transaction has been used for financing fixed assets and working capital of medium- and long-term duration.
d. Ijarah
Ijarah means lease, rent or wage. Ijarah concept refers to selling the benefit of use or service for a fixed price or wage. Leasing is designed for financing vehicles, machineries, equipment, and aircraft.
e. Hibah
Hibah refers to giving away the ownership of an asset with immediate effect without any return. It is a unilateral benevolent contract in which a party transfer the ownership of an asset to a person without any consideration during the lifetime of the giver. Hibah usually arise in practice when Islamic banks voluntarily pay their customers a ‘gift’ on saving account balances, representing a portion of the profit made by using those saving account balances in other activities.
4. Do you think All Muslim in Malaysia needs family takaful coverage?
ReplyDeleteYes. Family takaful offer financial support needed to access proper healthcare, education, and retirement. It also provides protection and long-term saving. Financial benefits will be given in case of a tragedy. The contribution also will be deposited in an account for the purpose of savings which provides investment returns based on a pre-agreed ratio. By participating in takaful family, we are eligible for personal tax relief as in life insurance.
NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
QUESTION 1: The component of Islamic Financial Planning consisted of:
1) Wealth Protection
Concept of protection in Islam can be seen in the concept of Takaful. Means a joint guarantee, whereby a group of participants agree to jointly guarantee among themselves against a defined loss. Based on the principle of Ta’awun (mutual assistance) and Tabarru’ (donation, gift or contribution) where the risk is shared collectively by the group voluntarily. Takaful provides guarantee against loss or damage and with Takaful, Muslim can plan ahead for any unwanted/unfortune events. For example, General Takaful & Family Takaful.
2) Wealth Accumulation
Is an achieving a reasonable capital growth with the objective of preserving accumulated wealth. It is involving asset allocation strategies, investment policy and others. Channels of investment must be Shariah compliant – free from elements of gharar (uncertainty), riba (ususry), maysir (gambling) and free from any prohibited elements in Islam. Examples are takaful investment link product, shares, unit trust, gold and silver, property, mudarabah investment account etc.
3) Wealth Preservation
Is a protecting wealth against every conceivable financial risk and treats through sound wealth management – quality investment. Which no one should unnecessary losses due to the quality of investment advice they receive or to a failure to protect one’s assets. Under Islamic view, wealth as a trial and man are responsible as the trustee to the wealth that Allah has given to him. Man are required to work hard if he wants to acquire wealth. Examples are takaful investment link product, shares, unit trust, gold and silver, property, mudarabah investment account etc.
4) Wealth Distribution
It is an important discipline in Islamic Financial Planning for the purpose of proper wealth distribution after death. Where death is inevitable, but many tend to ignore. Danger of leaving a mess to family members which will lead to disputes. Example are faraid, wasiyyah and hibah.
5) Wealth Purification.
It is a fundamental concept in Islamic Financial Planning. Where the spending on those in need is a highly commendable form of ibadah (submission to Allah). The Prophet Muhammad pbuh declared: “A generous person is close to Allah, close to Paradise, close to people, and far from Hell. However, a misely person is far from Allah, far from Paradise, far from people, but close to Hell. Allah loves more an ignorant man who is generous than a worshipper who is miserly. (Narrated by At Tarmizi)”. Example is sadaqa (almsgiving) and Infaq (spending in the service of God) are voluntary whereas Zakat is obligatory.
NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
QUESTION 1: The financial planning process can be generalized under 5 components:
1) Takaful Planning – To cover for a major risk. Takaful covers only financial loss which is caused by various risks. Essential takaful coverage one should possess to financially cover any unfortunate mishap i.e Family Takaful, Medical Takaful, General Takaful.
2) Investment Planning – Critical to help reach the financial goals. These financial goals are met through creating financial resources by investing savings generated over time. Every individual has different levels of risk appetite and thus the investment needs of every individual are different. The core part of investment planning consists of deciding on an asset allocation strategy that is in line with meeting the overall objectives of an individual. Asset allocation means diversifying money among different types of investment categories such as stocks, bonds, cash, etc.
3) Retirement Planning - To carefully evaluate the lifestyle we will require at the time of retirement. The purpose of retirement planning is to ensure that an individual will be able to maintain his/her current standard of living after retirement, even in absence of regular cash inflows by way of any income such as salary income. Generally, many individuals ignore and underestimate the amount of financial capital required for comfortable retired life. One should plan their retirement right from the age they start earning.
4) Tax Planning - A lot of individuals invest only to save tax. No considerations are given to where the money is invested and how does it fit into the overall strategy of meeting life goals. Tax planning is all about using allowable strategies to reduce tax liabilities. Tax planning is supposed to be used as part of the overall strategy and not independently. Tax planning helps an individual minimize taxes, not evade taxes.
5) Estate Planning - This is a very important component of a financial plan as a majority of people neglect and ignore estate planning as they don’t want to think about their death. Estate planning is crucial as a means of providing for one’s family over the long term. Failing to plan for the legal and financial aftermath of death usually results in much heartache and pain for survivors. So, to peacefully bequeath the wealth to their legal heirs it's important to do estate planning.
NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
QUESTION 1: The process creating a valid will according to Quran and Sunnah
The importance of making an Islamic will is clear from the Holy Quran and Hadith. A valid Islamic will is a legally binding document that gives instructions on the way a person plans to leave behind his estate.
Unless a Muslim person makes a will, their wealth will not be distributed according to Quran and Sunnah. If a person dies without making a will, their property is then distributed according to the Rules of intestacy. Because this country is not a Muslim country, rules of intestacy is not Shariah Compliant. Therefore, it is important not just to make a will but to make a valid will otherwise it will not be legally binding. If the document is not valid or a person fails to make an Islamic will, the Rules of Intestacy will decide how his estate will be shared out, which may not be pleasing to Allah. Also, this may not reflect what the deceased may have wanted personally. Islamic laws of Inheritance prescribe how a deceased’s property should be divided amongst their blood relatives, also how much they can give to any adoptive children or to charity.
Leaving no will makes matters very complicated and the families sometime have to employ expensive Probate practitioners or Accountants to deal with probate matters during the time when family might be dealing with the grief of losing their relative. Leaving a valid Islamic will simplifies things. It will be specified what is included in the estate and who inherits what. Seeking professional help while making your will can also mean this is done in most tax efficient way as a professional will writer will be able to advise on how to save money or avoid paying unnecessary high taxes through Tax Planning.
Wasiyyah is a contract that is made during lifetime of testators to distribute their estate to beneficiaries which is effective only after their death (Nor Muhamad, 2017). However, there are two main limitations in which wasiyyah is only for non-legal heirs and the total amount of wasiyyah is not more than 1/3 of the total estate. Besides that, legal heirs should not be named as recipients unless other heirs give their consent (Azhar et al., 2014; Isa, Othman, Azizan, & Mohd Daud, 2017; Md Yusof, 2009; Nor Muhamad, 2011b; Nordin et al., 2016; Ramli, 2013; Samori et al., 2016; Wan Harun, 2009).
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NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
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Initially, it is compulsory for Muslims to leave wasiyyah based on Surah Al-Baqarah, verse 180 which means: “It is prescribed, when death approaches any of you, if he leaves any goods that he makes a bequest to parents and next of kin, according to reasonable usage; this is due from the Allah.fearing (2:180)”
However, this law has been amended by Surah An-Nisa‟, verse 11 and 12 which revealed faraid distribution (Nor Muhamad, 2012) and Prophet Muhammad‟s Hadith narrated by Imam Ahmad, Abu Dawud and Ibn Majah (Al-Asqalani, 1995; Al-Shawkani, 1995) which means: “Allah, Mighty is His Name, has given every person who has rights his due, and there is no bequest to an heir.”
Based on the consensus among Muslim scholars, wasiyyah has four main pillars namely testator, beneficiary(ies), subject matter(s) and contract (offer and acceptance) (Mohamed, Jusoh, Mohd Burhan, & Awang, 2017; Muda, 2009; Nor Muhamad, 2012).
Conditions for testator are mukallaf (puberty and sensible), independent, owner of subject matters and done voluntarily. While for beneficiaries, they must be known, (except for charity wasiyyah), alive after the death of testator, capable to own and manage the estate, and only for non-legal heirs. For subject matter(s), it could be movable, immovable property or usufruct which is valuable in Islam, could be transferred after the death of testator and exist in the ownership of testator if the subject matters are specified or exist after the death of estator for unspecified subject matters. Offer and acceptance could be manifested (sarih) or symbolized (kinayah). Wasiyyah could be verbally such as, “I bequeath to you my property to ….” and written by themselves or through any agencies which provide written wasiyyah services (Hussain & Sulaiman, 2013; Kamaruddin & Ahmad, 2012).
However, testator is preferred to prepare wasiyyah through authorized agencies to ensure that wasiyyah can be enforced after the death of testator. Generally, wasiyyah jurisdiction is subjected to the Ninth Schedule, List II, State List, Malaysian Federal Constitution.
This indicates that the jurisdiction to amend and implement wasiyyah is the State Authorities. Each state in Malaysia has one provision that includes the Syariah Court jurisdiction related to wasiyyah through Islamic Religious Administration (in states that do not have any special statute provision of Syariah Court) and Syariah Court Statutes (Nor Muhamad, 2012, 2017) based on Section 46(2)(b)(viii) Administration of Islamic Law (Federal Territories) Act 1993 (Act 505). To date, there are one only four states in Malaysia that have special provision or enactment related to wasiyyah which are Selangor, Negeri Sembilan, Melaka and Kelantan.
NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
QUESTION 2: Discuss any FIVE (5) types of financial instrument.
Istisna’a: A procurement contract whereby payment is made by a buyer for goods to be delivered at a later date. In the context of project finance, an Istisna’a structure is used to finance the construction period of a project. The Islamic financiers appoint the borrower as their agent to procure the specific project assets to be financed Islamically.
Ijara: Is a leasing facility whereby the Bank (lessor) leases out the identified asset to the customer (lessee). Customers will then use the asset to run their business and generate sales. At the end of the lease period, the customer will purchase the asset from the Bank.
Wakala: An agency contract whereby the Wakil acts in an agency capacity on behalf of the financier.
Sukuk: The Islamic equivalent of a bond, although rather than a debt claim the investor owns a share in the underlying asset. The Sukuk structure has been used on a number of project finance transactions in the Middle East.
Murabaha: A credit sale agreement pursuant to which an agreed profit between a financier and a client is specified in a sale and purchase contract.
NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
QUESTION 3: Do you think ALL MUSLIM in Malaysia needs family takaful coverage?
Yes, family takaful coverage is falls under compulsory item to have in every household during the economic/life condition that we are live right now.
Family takaful is:
1. Protection coverage and a long-term savings.
2. Beneficiary will be provided with financial benefits if you suffer a tragedy.
3. Enjoy a long-term personal savings because part of your contribution will be deposited in an account for the purpose of savings.
4. Enjoy investment returns from the savings portion based on a pre-agreed ratio.
Participation in family takaful eligible for:
1. Personal tax relief as in life insurance with maximum amount of relief for an ordinary family takaful is RM6,000 per year less any contributions paid to retirement benefit schemes i.e. Employees Provident Fund. For medical and education plans, the tax relief is RM3,000 per year.
Concept in family takaful:
1. When you participate in family takaful, you will contribute a certain amount of money to a takaful fund.
2. You will undertake a contract (aqad) for part of your contribution to be in the form of participative contribution (tabarru’) and the other part for savings and investment.
3. Your contribution in the form of tabarru’ will be placed in a fund (Participants’ Investment Account or PIA) that will be used to fulfil your obligation of mutual help, should any of the participants face a misfortune arising from death or permanent disability. If you survive until the date of maturity of the plan, you will be entitled to share the net surplus from the fund, if any.
4. The takaful operator will invest your savings and investment contribution (Participant’s Account or PA) and the profit will be shared between you and the takaful operator according to a pre-agreed ratio.
Types of coverage under Family takaful can be grouped as follows:
i. Ordinary family - Individual family takaful (individuals) – The plans include education, mortgage, health and riders. You will receive financial benefits arising from death or permanent disability, as well as long-term savings (investment), and investment profits that are distributed upon claim, maturity or early surrender.
ii. Group family takaful (employers, clubs, associations and societies) – The plans include group education, group medical, health and riders. A minimum number of participants are required to qualify under these plans. You will receive protection in the form of financial benefits arising from death or permanent disability.
Annuity – a plan that provides regular income upon your retirement.
Investment-linked – A portion of your contribution is used to buy investment units, such as units in equity or fixed income securities. The takaful protection covers death and permanent disability.
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NAME: Nor Raihana Mohd Sha'rani
ReplyDeleteMFB8013: WEALTH MANAGEMENT AND PLANNING
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A family takaful rider is an extension of the basic family takaful. The rider provides coverage against personal accident and disability, medical and health.
The spike in healthcare and livelihood costs in Malaysia, accessing the benefits of private hospitalization or even higher education can become challenging for many Malaysians in the long run. To ensure that we have all the financial support that we need to access proper healthcare, education, retirement, and even coverage for Hajj and Umrah, and more, we must opt for making contributions to family takaful funds.
The Shariah ideals driving takaful to ensure the overall financial security of all the participants in the funds as well as their families, property, and businesses.
The unforeseen and out of control situations can happen to anyone and at any time. What is in our control is how we are prepared to deal with those situations.
Family Takaful products focus on providing financial coverage and protection for participants and their dependents. They also offer death benefits, accidental benefits, repatriation benefits, and more, that centers around the participants and their families.
When we have a takaful certificate or insurance policy, the coverage will help us to pay, either in full or in part of the hospital bill in an emergency.
This benefit is very helpful in situations where our emergency funds are insufficient. And in the event of a tragic death, insurance and takaful benefits will cover our heirs and ensure their lives can continue.
Benefits covered under family takaful in the following condition that if you pass away before your takaful plan matures, the takaful operator will pay to your nominee (wasi) with the following benefits:
1. From your PA
The amount accumulated in your PA plus your share of profits from the date of inception of the takaful plan to the due date of payment prior to death.
2. From your PSA
The sum covered under the risk or tabarru’ portion. If you survive until the date of maturity, you will be entitled to the following benefits:
i. From your PA - The amount accumulated in your PA plus your share of profits from the investment.
ii. From your PSA - The net surplus allocated to you, if any.
Subscribe a family takaful showing us as a prudent financial consumer and the financial journey is manageable. In conclusion from above explanation, revealed that all Muslim Malaysia need a takaful coverage as their live saver in order to help them managed those unexpected risk/ matter that takaful can help to cover and settle. Although it’s required a portion of monthly commitment every month, however the coverage that we entitled will return help us in the needed situation.
THANK YOU..
Nazifah Binti AB Halim
ReplyDelete1) Five components of a financial plan
a) Wealth Generation
Wealth can be acquired in main two ways: al-warātsah (inheritance) and al-kasb (earning). Wealth earned through inheritance doesn’t require efforts The asset is passed down from owner to the rightful heirs whether thorough their own agreement or divide through faraid. The second source of wealth generation is through earning from employment which can be obtained from business or working in organization.
In Islamic financial planning, wealth generated must be administered system practically by preparing two important statements: Cash flow and Net worth statement. This is crucial in assessing the current financial position. One needs to gather all his/her financial information and collect all the documents, e.g. bank statements, insurance/Takaful policies, investment statements, EPF statement and many more. Once the statements are prepared, Shariah screening has to be performed by evaluate all financial assets and their sources of financing. If there are any Shariah-non-compliant assets or financing, options to dispose the assets, or refinancing using Shariah-compliant financing products.
b) Wealth Purification
Wealth purification is an important aspect of Islamic financial planning. Purification can be in the form of giving that portion of wealth as charity and pay zakat. The objective of purification is to comply with Allah’s commandment to refrain from wrongful means of earning wealth so as to fulfill obligation of a normal person wanting to accumulate permissible wealth. Assets that are subject to zakat must be halal assets or halal income.
In Islamic financial planning , the amount paid for zakat is eligible to be claimed for income tax rebate, which will reduce the tax payable. This is one important element in zakat and tax planning as the rebate given is up to 100% of the amount of zakat paid by individuals. Fulfilling the responsibility to pay zakat not only helps purify the wealth, but also the soul of the zakat payer.
c) Wealth Protection
ReplyDeleteIn Islamic financial planning, wealth protection means protecting the wealth from risks of premature death and total permanent disability due to critical illness and accident. It is also known as risks management for individuals. In Islam, risk has to be managed properly to ensure a better future for the family during unexpected times. Risk management in Islam is guided by Quran; (Surah Al-Baqarah: verse 26)
In general, there are two types of risk protection plan: income protection and debt protection.
Income protection is a plan to ensure that an income will be continuously provided even in the face of crises. Income protection need is evaluated based on the age of the individual and his dependents, and also their condition.
Next is debt protection, which is a plan to provide the amount of money to pay off the debt in the face of financial crises due to premature death and total permanent disability. Debt with Islamic financial institutions are usually protected with takaful. For home financing, the Islamic banks usually require the customers to participate in Mortgage Reduction Term Takaful (MRTT) to ensure that if anything happen to the customer, there will be an amount provided by the takaful operator to pay off the outstanding financing amount.
d) Wealth Accumulation
Wealth accumulation is a process where individuals save and invest money for the purpose of emergency needs, acquisition of assets, education planning for the children, hajj fund and also retirement needs. Wealth accumulation is encouraged in Islam as mentioned by Surah Jumu’ah, verse 10: “And when the prayer has been concluded, disperse within the land and seek from the bounty of Allah, and remember Allah often that you may succeed. In Islamic financial planning, all the real and financial assets used for wealth accumulation must be compliant with Shariah.
e) Wealth Distribution
Wealth distribution is the final component in Islamic financial planning. It is a process whereby individuals need to plan on methods to distribute his/her wealth fairly and equitably among their heirs. Wealth distribution can also be done for the purpose of charity and investment for the hereafter. Sadaqah, hibah and waqf are examples of instruments for wealth distribution that will not only benefit the recipients, but also the givers, in this world and in the hereafter. These, however, need to be done while the owner is still alive.
1. Process of creating a valid will according to Quran and Sunnah
ReplyDeleteThe valid will in Islam is called as wasiyyah. Technically, Waṣiyyah is actually a pledge or acknowledgment by a person to complete the distribution of property after death to non -heirs and heirs who are protected from receiving the wealth. The Islamic jurist have agreed that wills to parents and relatives are obligatory for people who have property. It is based on the words of Allah SWT which means:
You are obliged, when one of you is about to die, if he has left property, (let him) make a will for parents and relatives in a good way (according to religious rules), as an obligation over the pious.” (Surah Al-Baqarah: 180)
The rules when doing valid will according in Islam are:
1.The rate of property that can be bequeathed is one -third of the balance of the property after deducting all outstanding debts.
2.Thirds of the testator's property is the right of the heirs to be divided by faraid.
3. A bequest in Shariah could be in writing or verbal. Whatever the form, it should be made in the presence of two witnesses who should be precluded from the legatees or his heir
4.The testator is required to declare his intention and upon his death the bequeathed property is transferred to the legatee after acceptance.
2. Five types of financial instrument
ReplyDeleteMurabaha, also referred to as cost-plus financing, is an Islamic financing structure in which the seller and buyer agree to the cost and markup of an asset. The markup takes place of interest, which is illegal in Islamic .
Mudaraba is a profit-sharing contractual arrangement between an investor (Rab al Maal) and a managing trustee usually Islamic bank (Mudarib). The Mudarib invests the funds provided by the investor in permitted business ventures and returns to the investor the principal and a pre-agreed share of the profit. The investment actives must conform with shariah principle.
Musharakah means relationship established under a contract by the mutual consent of the parties for sharing of profits and losses, arising from a joint enterprise or venture. For example, suppose that a customer wants to start a business but has limited funds while the Islamic bank has excess funds and wishes to be the financier in musharakah with the customer. The two party would come to an agreement to the terms and begin a business in which both share a portion of the profits and losses. This negates the need for customer to receive a financing from Islamic Bank.
Ijara is a contract between two parties, the lessor and the lessee, where the lessee (customer)enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the lessor (bank ). It is a lease agreement under which a certain asset is leased out by the lessor to a lessee against specific rent or rental for a fixed period. At the end of the lease period, the customer will purchase the asset from the Bank.
Bay al-salam refers to a type of sale where the price is paid in advance at the time contract for specified goods which will be delivered in future. In other words, salam is a type of sale where the seller undertakes the supply of some specific goods to the buyer at a future date in exchange of an advance price which is fully paid on the spot.
1. Five components of Financial Planning should include, but not limited to the areas as following;
ReplyDeletei. Wealth Generation
Wealth generation or wealth creation can be acquired by two main sources; which are inheritance and earning. Wealth that earned through inheritance doesn’t need any effort to earn it but will be passed from the owner to the rightful heirs through the right and lawful arrangement as per current practises; faraid and hibah. The second source is through an earning from occupation; either by engaging in business or working with organisation. The wealth generation process must be done in conditions that is permissible by Shariah (halal), in legal means and in ethical ways like honest, just and avoidance of fraud. Once income is generated, they must spend it wisely by prioritizing the “needs” rather than “wants”. Islam promotes moderation in life, as mentioned in Surah Al-Furqan, verse 67:
“And [they are] those who, when they spend, do so not excessively or sparingly but are ever, between that, [justly] moderate.”
In Islamic financial planning, wealth generated must be administered systematically through cash flow and liability (debt) management.
ii. Wealth Protection
In Islamic financial planning, wealth protection means protecting the wealth from any harm that resulting from pure risks such as premature death and total permanent disability due to critical illness and accident. This component also one of the most crucial areas in financial planning and mainly related with risks management and Takaful planning as a protection tool. Risks need to be evaluated before a proper risk protection plan can be developed. In general, there are two types of risk protection plan, which are income protection and debt protection.
Income protection is a plan to ensure that an income will be continuously provided even in the face of crises. It plays an important role in securing lives of individuals and their loved ones in case if there is reduction/loss in household income due to unexpected or unforeseen events. Whereas in debt protection, it is a plan to provide the amount of money to pay off the debt in the face of financial crises due to premature death and total permanent disability. In current practises, most of financing and debt with Islamic financial institutions are usually protected with Takaful. For example, like home financing, the Islamic banks usually require the customers to participate in Mortgage Reduction Term Takaful (MRTT) to ensure that if anything happen to the customer, there will be an amount provided by the Takaful operator to pay off the outstanding financing amount.
iii. Wealth Accumulation
Wealth accumulation is a process where individuals save and invest money and for the purpose of emergency needs, acquisition of assets, education planning for the children, hajj fund and also retirement planning. Wealth accumulation is encouraged in Islam as mentioned by Surah Jumu’ah, verse 10:
“And when the prayer has been concluded, disperse within the land and seek from the bounty of Allah, and remember Allah often that you may succeed”
Savings simply means putting money in an instrument for the purpose of accumulating it over time. It is supposed to be safe enough to protect its value, thus usually associated to low risk. On the other hand, investment is normally explained as the choice by individuals to risk his savings with the hope of getting more money instead of putting it in saving without expanding. Currently there are lots of instruments that offered by financial institutions that suit and meet customer needs and financial condition such as real asset, properties, gold, commodities, unit trust, fixed deposit, etc. In Islamic financial planning, all the real and financial assets used for wealth accumulation must be compliant with Shariah and free from haram elements such as riba’ (usury), maysir (gambling) and gharar (uncertainty).
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ReplyDeleteiv. Wealth Purification
Purification of wealth can actually refer two things; first, it covers the purification of wealth through different rules prescribed by Shariah. There are several Islamic methods such as infaq (spending), zakat (alm), sadaqah (charity), qardul hassan (interest-free loan), hibah (gift), and waqf (endowment). Second, it covers the usage of wealth to purify something for example the purifying of a human being from his or her sins with the use of wealth given by Allah. Fulfilling the responsibility to pay zakat not only helps to purify the wealth, but also the soul of the zakat payer. In current practice in Malaysia, zakat is related with tax planning, in order to balance and optimize the pay for zakat.
v. Wealth Distribution
Wealth distribution is the final component in Islamic financial planning. It is a process whereby individuals need to plan on methods to distribute his/her wealth fairly and equitably among their heirs through faraid. To ensure that it will be managed accordingly, an administrator need to be appointed or the wealth left by the deceased being frozen. Wealth distribution can also be done for the purpose of charity and investment for the hereafter. Sadaqah, hibah and waqf are examples of instruments for wealth distribution that will not only benefit the recipients, but also the givers. These however, need to be done while the owner is still alive. Thus, the proper planning for wealth distribution that has been done earlier will allow the owner of wealth to ensure that his wealth will benefit him in this world and the hereafter.
2. The processes of creating a valid Will (al-Wasiyyah) according to Quran and Sunnah are as following;
- The will (al-Wasiyyah) is executed after payment of funeral expenses and any outstanding debts. The one who makes a will is called a Testator (al-Musi). The one on whom a will or bequest is made for is generally referred to as a Legatee (al-Musa lahu) and the Executor of the Will is called al-Wasi al-Mukhtar.
- The testator can only give away up to one-third (1/3) of his or her property.
- The legatee must not be an individual who is a legitimate heir to inheritance. The utmost benefits behind al-waṣiyyah is its adoption as a valuable tool that affords the testator flexibility to bequeath assets to those he or she deems deserving; and it also safeguards the close kin who are entitled to their share under Shariah law from being disinherited. It gives non-inheriting relatives such as adopted child and non-biological parents leverages of being legitimately enriched and accommodated into the testator largesse.
- There must be an existence of a genuinely written will by the testator or a witnessed verbal pronouncement attested to by relatives as made by the testator while the pronouncement of ijab and qabul (offer and acceptance) is necessary.
- The willed property (Musa bihi) must not exceed one-third of total estate. The willed property also must not be made in favour of legal heir at the time of death of testator because “there is no bequest for the heir”.
- The Testator must be an adult, sane and has the legal capacity to dispose of whatever he bequests.
- The Legatee must be in existence at the time of death of the testator. The appointed will’s executor (al-wasi al-mukhtar) appointed by the Testator must endeavour to carry out the wishes of the Testator.
3. Five types of financial instruments are as below;
ReplyDeletei. Mudarabah
Mudarabah contract is a form of partnership between one who contributes the capital (rabbul mal) and the other who contributes efforts in the form of managerial skills (mudarib). Profit from the outcome of venture is shared between the capital provider and manager according to mutually agreed profit sharing ratio; whilst losses are borne solely by the capital provider, provided that such loss is not due to the manager’s negligence of specified conditions.
ii. Musyarakah
Musyarakah is an agreement between two or more partners, whereby each partner provides funds to be used in a venture. Profits made are shared between the partners according to the invested capital or proportioned of shares or agreement between the partners. If loss, it must be borne by all partners as well according to the proportion of the shares. If the Bank provides the capital, the same conditions apply. Each partner may or may not participate in carrying out the business. A working partner gets a greater profit share compared to a sleeping (non-working) partner.
iii. Istisna’
Istisna’ is a sale on order or contract of sale whereby the seller undertakes to construct, manufacture or acquire an asset based on the specifications provided by the buyer and thereafter sell and deliver the asset to the purchaser at an agreed price, date and method of settlement. The method of settlement could be an advance payment, installment payment or deferred payment at a specified future date.
iv. Bai’ Bithaman Ajil (BBA)
BBA is a sale contract where a buyer makes a payment either on installment or in one lump sum to a seller for a specific asset. The differentiating factor in a BBA sale is the mode of payment i.e., on deferred payment basis. In a deferred payment sale, the tenure or period of payment must be clearly specified. The tenure would be effective from the date the asset is delivered to the customer.
v. Bai’ al-Salam
Bai’ al-Salam refers to an agreement to deliver goods at an agreed future date after the payment is immediately received. The key differentiating feature in this type of sale contract is an advance payment for the delivery of goods to be made in the future but the payment for the goods is to be settled on the spot.
4. I believe that all Muslim need Family Takaful coverage. As we know, there are two types of Takaful products; General Takaful and Family Takaful. In Family Takaful, the main purposes of contribution principally are for protection from any unexpected events that can be unfavourable outcome; and to provide mutual indemnity among the Takaful participants. Secondly, as savings and investments for his or his family’s benefit. Therefore, from these objectives, we can see the importance of Takaful not only as a tool in managing risks and providing financial assistance when misfortune inflicts but also can be part of wealth accumulation or investment. These obviously offer all what we need in one product like in current pandemic condition and it consistent with the doctrine of Maqasid al- Shariah that imposed duty upon all Muslims on the perseverance of religion, assets, property, life, as well as protection of descendants; which through Family Takaful, the policyholders’ family will benefit from the compensation that is paid after his/her demise.
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ReplyDeleteDo you think ALL MUSLIM in Malaysia needs family takaful coverage?
ReplyDeleteYes, family takaful coverage consider important aspect in our financial planning.
Takaful provides protection based on Shariah principles. By contributing a sum of money to a common takaful fund in the form of contribution ('Tabarru'), you will undertake a contract (aqad) to become one of the participants by agreeing to mutually help each other, should any of the participants suffer a defined loss
In family takaful will provides you with a protection and long-term savings. Customer or their beneficiary will be provided with financial benefits if customer suffer a tragedy. At the same time, customer will enjoy a long-term personal savings because part of their contribution will be deposited in an account for the purpose of savings. Customer also will be able to enjoy investment returns from the savings portion based on a pre-agreed ratio.
The application of Family takaful is when you participate in family takaful, you will contribute a certain amount of money to a takaful fund. You will undertake a contract (aqad) for part of your contribution to be in the form of participative contribution (tabarru’) and the other part for savings and investment.
Besides, your contribution in the form of tabarru’ will be placed in a fund (Participants’ Special Account or PSA) that will be used to fulfil your obligation of mutual help, should any of the participants face a misfortune arising from death or permanent disability.
If you survive until the date of maturity of the plan, you will be entitled to share the net surplus from the fund, if any. The takaful operator will invest your savings and investment contribution (Participant’s Account or PA) and the profit will be shared between you and the takaful operator according to a pre-agreed ratio.
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ReplyDeleteQUESTION 1: COMPONENTS OF FINANCIAL PLAN
ReplyDelete1) Financial goals
we cant make a plan until we know what we want to accomplish with our money, so whether creating it ourselves pr working with a professional, plan should start with a list of our goals, both big and small. It can help to organise them by how we'ww need the money.
-short term goals those we hope to achieve in the next 5 years such as paying off debt or buying a new car.
-medium term goals are those we hope to achieve in the next to 10 years such as the down payment on a home or starting our own business.
-long term goals are those that are 10 or more years away including college and of course retirement.
2) New worth statement
Every plan needs a baseline, so next we should determine our net worth. Make a list of all our assets (bank and investment accounts, real estate,, valuable personal property) and another one of all of debts (credit cards, mortgages, student loans). Assets minus liabilities equal net worth.
3) Budget and cash flow planning
Badget is really where the rubber meets the road, planning wise. It can help to determine where the money is going and where we can cut back in order to meet our goals.
A budget calculator can help ensure we don't overlook irregular but important expenses, such as car repairs, out of pocket health care costs and real estate taxes. As we compiling the list, separate the expenses into two buckets : must have items such as groceries and rent, and nice to have such as eating out and ym membership.
4) Debt management plan
Debt is sometimes treated like a four-letter word, but not at all debt is bad debt. A mortgage, for example, can help build equity and boost your credit score in the bargai. High-interest consumer debt like credit card, on the hand, weighs heavily an our credit score. Plus, every money we pay in finance charges and interest is one we can't put toward other goals.
5) Emergency funds
When something unexpected happens for example, lose job, or get hit with an expected medical bill, an emergency fund can help us avoid tapping our long term savings to make ends meet.
It's generally a good idea to save enough to cover at least three months, but ideally six months', worth of essential living expenses (eg: groceries, housing, transportation and utilities). Save this money in high liquid checking or savings account so we can access it in a hurry should the need rise.
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ReplyDeleteQUESTION 1: PROCESS OF CREATING A VALID ACCORDING TO QURAN AND SUNNAH
1) Wealth creation or generation
The arguments, concept and the analysis conducted on the full analysis conducted on the full reserve system and support obtained from the Quran and Hadith show that this system attains the Maqasid Shariah. Hence, the full reserve banking system is recommended to be applied in the islamic monetary islam.
-Creating or earning wealth of which is economically translated as income
-Utilizing or spending wealth earned which is termed as expenditure
2) Wealth Expenditure
In Islam, wealth expenditure is equally important if not more than wealth accumulation. Muslims shall be assessed in the hereafter for every cent spent from the wealth bestowed by the creator. Wealth consumption, the most neglected, is actually the most critical area of islamic wealth management that differs greatly from conventional wealth management. For consumption, Islam preaches its followers to tread the middle ground in between being thrifty to wasteful extravagance, to spend their wealth in lawful activities, to allocate zakat (obligatory yearly payment to specified & categories of beneficiaries) and voluntary charity (sadaqah, waqf) and to prioritize their spending to attain al-falah (success), now and hereafter.
3) Wealth accumulation
Islam structures detailed rules describing the limits imposed on the accumulation of wealth. Generally, two of the most important goals to save are to finance expenses after retirement (retirement or life cycle motive) and to protect consumption against unexpected shock (precautionary motive), these are to get prepared against risks that may impact earnings, health and mortality. Planning for the unexpected dictates for a higher level of income and therefore, precautionary saving need to be larger for higher income.
4) Wealth purification
Financial planners are getting familiar with the term wealth purification arising from ethical considerations embedded in islamic wealth management.
Purification of wealth can actually mean two things:
-It covers the purification of wealth through different rules prescribed by shariah, through offering of wealth as zakah (alm), sadaqah (donation) etc.
-It covers the usage of wealth to purify something for example the purifying of a human being from his or her sins with the use of wealth given by the Almighty.
5) Wealth protection/preservation
Takaful uphold the values of mutual help, brotherhood and shared responsibility while eliminating Shariah prohibited elements in its business operation and in all activities. The shariah objectives in Takaful practices are the protection of the five fundamental elements in human's life and to achieve success or al-falah in this world and the hereafter through maqasid shariah.
QUESTION: 5 TYPES OF FINANCIAL INSTRUMENTS
ReplyDelete1) Mudarabah - trustee profit sharing
Mudarabah is a contract between a capital provider (rabbul mal)and a entrepreneur (mudarib) under which the rabble mal provides capital to be managed by the midrib and any profit generated from the capital is shared between the rabble mal and the mudarib according to a mutually agreed profit sharing whilist financial losses are not due to the mudarib's misconduct (ta'addid), negligence (taqsir), or breach of specified terms (mukhalafah al-shurut).
2)Musharakah - joint venture and loss sharing
One of the most important equity participation financial instruments used by islamic bank is based on a musharakah contract. It establishes a partnership or joint venture for an economic activity between a bank and one or more clients.
In this joint venture, all parties may contribute some (not necessarily equal) percentage of all three factors of economic production (capital, labour, and entrepreneurship).
4) Bai al-salam - sale by order
Salam refers to an agreement whereby payment is made immediately while the goods are due to e delivered at an agreed later date.
The two terms 'Salam' and 'Salaf' have been used in interchangeable in Hadith literature to describe the contract for future delivery of specific goods with up-front payment of the price. The parties stipulate a certain time for supply of the goods of specified quantity and quality.
4) Bai al-istisna - construction
Istisna refers to a contract to sell to a purchaser a non-existent asset that is to be constructed, built or manufactured according to the agreed specifications and delivered on a specified futured date at a pre-determined price.
5) Murabahah - cost plus profit
Murabahah refers to a sale and purchase of an asset where the acquisition cost and the mark up disclosed to the purchaser. Murabahah is a sale and purchase contract. As one of the bilateral contracts, it shall not be terminated uniterally by any of the contracting parties. The specific inherent nature of the contract of Murabahah is the sale contract which is based on the element of trust in disclosing the cost mark-up. The common inherent nature of a sale contract is the transfer of ownership of the asset from the seller to the purchaser.
Yes. An insurance/Takaful plan with medical benefits is useful here, as it acts as a safety net while also providing a financial buffer should we ever run into a medical emergency. we will also have peace of mind knowing that our family is well taken care of, should the worth happen.Family takaful provides us with a protection and long-term savings. our beneficiary will be provided with financial benefits if we suffer a tragedy. At the same time, we will enjoy a long- term personal savings because part of our contribution will be deposited in an account for the purpose of savings.By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbor who is in distress. (Narratted by Imam Ahmad)
ReplyDeleteBased on the above basis, Islamic scholars had decided that there should be concerted effort to implement the Takaful concept as the best way to resolve these needs.