Takaful: Towards Deepening Insurance Penetration

The universal objective of financial inclusion is to facilitate the establishment and delivery of suitable and affordable financial services for the underserved or disadvantaged segments of all human population regardless of race or religion.

Addressing the constraints for building inclusive financial sectors is, therefore, paramount in helping to improve the lives of people through the creation of sustainable financial services in the society.

Therefore, considering the significant number of the financially excluded segment of the population in the world today, which constitutes more than 2.5 billion working age adults, it is remarkable to indicate that non interest finance can be a very important tool for the promotion of financial inclusion, not only in Nigeria, but the whole world.

One of the major obstacles identified in the universal fight against the prevalence of financial exclusion is the lack of financial literacy among the populace. The observed gap in financial literacy is especially wide among women and of course the less educated segment of the society. Therefore, it is evident that people often lack the ability to save and manage their little earnings for effective personal financial decisions.

For instance, lack of financial education leads many people to erroneously understand insurance as something that can only be done when there is disposable income. This idea forms the basic understanding on risk and the need for mitigating against it among many people.

Perhaps, in order to improve on the issue of financial literacy, the Organisation for Economic Co-operation and Development (OECD) initiated a project in 2003 to develop common financial literacy principles that will serve the needs for global financial education.

Many other countries have also identified their various financial educations needs and have developed strategies towards closing these gaps. The key important areas that require proficiency in personal finance include saving, investment, tax, insurance and retirement among others.

Additionally, the drive towards non interest finance can never be comprehensive without establishing the necessary regulatory framework for non interest mechanism of risk mitigation like the Takaful insurance.

This was the main reason at the completion of its assignment in 1983, the Malaysian Committee on Islamic banking framework, recommended that a special task force be established to study the practicability of islamic insurance (the Takaful).

This was suggested in order to draw up an appropriate legal framework which is feasible for complementing risk management in all non interest banking operations.

It was this process that later heralded the evolution of the pioneering 1984 Malaysian Takaful Act. Prior to that, Takaful as an alternative to conventional insurance was first practiced in Sudan in 1979.

The application of risk management mechanism in Islamic history can be traced to the practice of paying blood money (Diyyah) for manslaughter by members of the Arab clan and that of mutual indemnification among co-workers (Dawaniyya) during the reign (634-644 CE) of Caliph Umar al-Khattab (ra).

These early Arabian risk mitigation practices are today recognised as insurance products. Indisputably, these traditions inculcate and connotes that a Muslim is expected to have an appetite for risk management. Risk and uncertainty are part and parcel of every human endeavour; therefore, it is innate for people to prepare themselves against unforeseen financial or physical loss.

For that reason, one can declare without fear of contradiction that Islam not merely recognises insurance but encourages the practice of insurance as a lawful method for risk management. However, the question that always springs to mind is that if insurance is not prohibited in Islam why then do a majority of Muslims exhibit their overt repugnance over insurance issues?

Many Muslims miscomprehend the role of insurance in Islam and argue that it is forbidden and goes against the belief in the will of Allah whereas the World Fiqhi bodies have collectively issued a favourable ruling for practicing “Takaful” as the Islamic substitute for conventional insurance.

Therefore, allegations on the position of insurance in Islam are all based on sheer misconceptions caused by unawareness or lack of interest on the subject matter because Islam as a way of life sets standards for the conduct of all aspects of human existence.

There are some fundamental elements which made it necessary for Islamic law (Shari’ah) to negate the practice of conventional insurance business. Islamic law explicitly forbids the involvement in any form of any action that is associated with excessive uncertainty (Gharar), gambling (Maisir), and interest (Riba).

Moreover, we can safely infer that the Takaful is not a new phenomenon for some countries in Asia, Middle East, Europe and America because long before the dawn of the 21st century, many countries have realised the need for the development and implementation of inclusive financial products.

In the same vein, the United Kingdom Department for International Development and many international NGOs have since taken the lead in aiding the research and promotional development on financial inclusion in many parts of Asia and Africa.

This has given much impetus for the development of suitable financial products, to those with ethical and faith related reservations towards the practice of conventional finance.

Against this backdrop, the National Insurance Commission NAICOM initiated and and and crafted market development strategies for the industry under the MDRI project. The development of the Takaful Insurance operational framework happens be one of those strategies targeted for accomplishment by the commission as the Nigerian insurance regulatory authority.

Remarkably, the implementation of the Takaful Insurance framework was launched by the NAICOM in November 2013, after the unveiling of the Takaful Insurance Guideline ceremony performed by the then minister of state for finance, Mr Yerima Lawal Ngama, in Lagos.

This landmark achievement clearly indicates that the Nigerian insurance regulator has tremendously given the Takaful Insurance all the attention and supports it required without any prejudice.

The Nigerian insurance industry and all interested stakeholders are expected to take the full advantage of this remarkable initiative towards the expansion of a new business frontier for the betterment of the economy.

Interestingly, the target market for the Takaful in Nigeria is large and recent reports from the few existing window operations indicate the attainment of 70 per cent penetration.

Based on the Financial Services Access survey 2012 conducted by a non-governmental organisation (NGO), Enhancing Financial Innovation and Access (EFInA), there are strong indications that with suitable operational framework like that of the Takaful, proper public education and awareness on the benefits of insurance and how it works, 35.9 million adults who constitute 41.4 per cent of those without insurance in Nigeria could be included in the insurance market.

The experience in other jurisdictions like Asia and Middle-East also depicts the prospects of healthy and viable business conditions.

According to the 2012 World Takaful Report prepared by Ernst & Young, United Kingdom (UK), global Takaful contributions rose from 19 per cent in 2010 which amounts to $8.3 billion to $12 billion in 2013. With this exponential growth trend, the Takaful contribution is, therefore, expected to reach $25 billion by the end of 2015. No doubt, the implementation of the Takaful Insurance will open up another exciting opportunity for the development and growth of the Non-interest Financial Institutions (NIFIs) in Nigeria.

Therefore, one may infer without fear of contradiction that the success of the Takaful operations is certainly going to secure the needed business environment for the operations and the stability of all other non interest financial institutions in the country.

The prospective Takaful insurance operators may have to look beyond these perspectives by coming up with innovative Takaful insurance products that shall suit the specific needs of its potential market in Nigeria.

However, the predictable emerging challenge for the Takaful Insurance business can be observed in the following important areas: consumer awareness, investment restrictions, liquidity management, re-takaful arrangement, market development, capacity building, availability of Advisory Council of Experts (ACE) and the continuous professional development for the ACE.

These challenges must be seen as very imminent and requires urgent strategic plans for the smooth take off by the new Takaful operators.

(Leadership Newspapaer / 18 July 2014)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Turkey: Prominence Of Sukuk In Turkey As An Islamic Finance Instrument

Turkey's first regulation for Islamic Finance was realized during the 1980s, during a period of liberalization as part of a plan to attract foreign direct investments. Interest free banking was introduced with the legalization of "special finance houses" which did not possess bank status and therefore did not benefit from banks' privileges.

The Islamic Finance sector kept evolving steadily in the 1980s and 1990s with Arab Gulf investors setting up finance houses and commencing lending activities, accommodating mainly specific religious clientele.

The leap for interest free banking came after the 2001 economic crisis. Banking finance legislation went through a major overhaul after the crisis. A union was formed to provide a certain level of state control and support for special finance houses. 2006 saw the introduction of Banking Law No. 5411, which legitimized participation banking and provided insurance through the Savings Deposit Insurance Fund for participation deposits. Along with these changes, the special finance houses union became the Participation Banks Association of Turkey ("TKBB"), which sets forth the ethical, professional principles for participation banks. All participation banks had to be a member of TKBB. The following years saw a rapid increase in participation banking and the 2008 global crisis highlighted the need for more stable financing. In line with the government's support of Islamic Finance and interest free finance instruments, the World Bank Global Islamic Finance Development Center was launched on the premises of the Istanbul Stock Exchange in late 2013.

Sukuk Financing

Turkey had various previous experiences with interest free financing in the form of profit-loss sharing certificates and real estate certificates mainly used for the financing of large infrastructure and construction projects. The issuance of sukuk was initially regulated with the Capital Markets' Board ("CMB") Communiqué Series III, No. 43 on Lease Certificates and Asset Lease Companies ("Communiqué Series III, No. 43") in 2010. Communiqué Series III, No. 43 regulated lease certificate (sukuk) issuance in a broad manner without specifics and several issuances were realized under it. In 2013, it was abolished by the Communiqué Series III, No. 61 on Lease Certificates ("Communiqué"). In 2012, Law No. 6327 was introduced allowing for the Undersecretary of Treasury to issue sovereign lease certificates. Statistics of the Organization of Islamic Cooperation indicate that Islamic banking in Turkey has not received the same level of interest as compared to other Muslim countries and is far from saturation. As such, the sukuk market is yet to develop. In fact, the first sovereign sukuk issuance was realized in August 2013 with significant over-subscription closing at USD 8 billion which shows huge demand for sukuk.

Legal Framework

As is known, sukuk holders obtain a partial ownership over a specific asset enjoying the profit that such asset generates and the proceeds from the sale, if sold.

The Communiqué introduced five types of lease certificates consisting of certificates based on ownership (ijara sukuk), management (musharakah sukuk), trading (murabaha sukuk), partnership (mudarabah sukuk) and engineering, procurement and construction (EPC) contracts (istisna sukuk) or through the combined use of these different types. Yet lease certificates that may be issued are not limited to these, as the CMB is receptive to novel instruments.

The legislation also regulates the establishment and management of asset leasing corporations ("ALC") and their capacities. ALCs may issue more than one lease certificate at a time and may issue for companies that are not the originating company.

ALCs may be established by banks, intermediary institutions, listed real estate investment trusts, public corporations with an average market value above TRY 1 billion and average market capitalization over TRY 250 million, partnerships where the Treasury holds 51% and more shareholding.

The board of directors of the ALC is liable for failure to collect the proceeds obtained from the rights and assets as well as to make payment to lease certificate holders pro rata their share as per their lease certificate.

The Communiqué regulates the issuance of lease certificates in a broad manner, leaving space for interpretation and practice. As per the Communiqué, real persons or legal entities execute a written agreement, indicating their intention to pool their properties to establish the originating institution. The originating institution transfers assets and rights to the ALC for the issuance of ownership-based lease certificates, or to the companies incorporating the ALC that manage the assets or rights on behalf of the ALC in the issuance of management agreement-based lease certificates. The ALC serves as the special purpose vehicle to which the assets or rights are transferred or leased.

The characteristics of each type of lease certificate are as follows:

• Ownership based lease certificates are issued to provide financing for the acquisition of the rights and assets by the ALC from the originating institution for the purposes of leasing to the originator or third parties or management on behalf of the ALC.
• Lease certificates backed by management contracts are issued so as to transfer the proceeds generated by managing the assets or rights owned by the originating institution to the ALC.
• Lease certificates backed by trading are issued for proceeds generated from the sale of assets and rights on deferred basis in order to finance the acquisition of such asset or right by the ALC.
• Lease certificates backed by a partnership are issued for providing financing to enable the ALC to be a shareholder of the joint-venture.
• EPC based lease certificates are issued to finance the realization of the relevant work for which the ALC shall be party to the EPC contract as well.

Assets and rights included in the portfolio of an ALC cannot be disposed of until the redemption of lease certificates, for any purpose other than collateralization to the benefit of lease certificate owners, even in the case of transfer of management or supervision of the ALC to public authorities. Accordingly, its assets cannot be pledged or attached, or be subject to interim injunction in favor of third parties or attached even for the collection of public receivables, or included as part of an estate in the case of bankruptcy. The ALC cannot conduct any activities other than those related to the issuance of lease certificates.

Risk Management

Apart from financial risks, a lease certificate issuance may bear operational risks in respect of the management of the rights and assets that are subject to the lease certificate and regulatory risks depending on the location of the issuance.

The Communiqué explicitly prohibits the attachment, pledge or otherwise collateralization of the assets subject to sukuk in favor of third parties in a manner that may be detrimental to the rights of the certificate holders. Although this provision does mitigate a major legal risk that may occur on the part of the investors, it is not clear which party will bear the consequences. Operational risks are covered in terms of collection and distribution of proceeds.

Another issue that bears importance is compliance with Sharia rules. Sharia rules are not applicable in Turkey and the Communiqué naturally does not impose any obligations in this respect. However, compliance with Sharia rules may be important especially for foreign investors. As known, there is no uniformity or written set of rules regarding the interpretation of Sharia rules. Different issuers may adhere to different interpretations, some of them get consulting from experts in the area, whereas others follow the interpretations of the Islamic Financial Services Board and Accounting and Auditing Organizations for Islamic Financial Institutions. These issues may be significant in the issuance of lease certificates based on businesses which include elements both compliant and non-compliant with Sharia rules. There are currently four participation banks in Turkey all of which are member of TKBB, the association for participation banking which acts as a superior authority setting out guidelines. According to the website of the TKBB, goods and services that are allowed according to Sharia may be subject to Islamic Financing even if the provider also engages in prohibited activities. However, there is no clarity as to how this rule may be applied in case of lease certificate issuances.

Depreciation of the assets may also pose a risk. The Communiqué sets forth that the value of the issued lease certificates shall not exceed 90% of the total value of the relevant asset or rights for ownership based lease certificates.

Tax Incentives

ALCs and investors in sukuk market enjoy numerous tax exemptions.

Proceeds from transfer of assets and rights to ALCs and the holders of the lease certificates are tax-exempt. The same rule applies to VAT as Value Added Tax Law No. 3065 exempts the delivery of lease certificates issued by ALCs, the transfer of assets to the ALC and their subsequent lease and transfer back to the originating entity. Documents and certificates executed for the purposes of lease, transfer and pledge transactions regarding relevant assets or rights for the purposes of lease certificates also enjoy stamp tax-exemption. The transfer, lease and pledge transactions are exempt from duties. Withholding tax percentages vary from 10% of the lease proceeds obtained from lease certificates with a term of up to 3 years, to 3% for those with a term of 3 to 5 years. Government issued lease certificates (sovereign sukuk) as well as privately issued lease certificates with a term of over 5 yearsarenot subject to withholding tax. For proceeds obtained from lease certificate trading and coupon payments; non-resident and resident stock corporations' are free of withholding tax whereas non-stock corporations, other institutional investors and real persons are subject to a withholding of 10% on income. The income obtained from lease certificates issued abroad is also exempt from tax.

On the other hand, earnings from the acquisition and disposition of lease certificates issued domestically in Turkish Lira through promise to sell or buy back and earnings from the sale before term of lease certificates are subject to banking and insurance transaction tax in the amount of 1% for issuers.

Conclusion

Islamic Finance and interest free finance instruments are increasing their popularity globally as part of an effort to attract Gulf investors. And Turkey's legislation and practice on the matter is rapidly evolving with its foreign investor friendly and Islam espousing political and economic environment. Thus, the favorable tax regime for issuers, investors and the finance institutions offers broad opportunities in Sukuk market of Turkey.

(Mondaq / 17 July 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Egypt sovereign sukuk law still mired in uncertainty

DUBAI/CAIRO - Development of Egypt's Islamic economy continues to be hampered by ambiguity surrounding sukuk, and greater legislative and political clarity is required for the country to tap into the Islamic bonds market, banking industry officials and experts said.

They said new financial instruments were needed to fund mega projects that would help revive an economy hammered by three years of turmoil while keeping the budget deficit and government debt under control.

"The solution lies in Islamic bonds, which are still facing obstacles in the Egyptian market. The (sukuk) file should be revived and projects that can be financed by sukuk should be identified," Mohamed Ashmawi, chairman of The United Bank, which is 99% state-owned, told Zawya.

The government of President Mohamed Mursi had approved a draft bill authorizing issues of sovereign Islamic bonds, but the legislation was deactivated after Mursi's ouster last year.

Religious scholars have raised concern over possible government abuse of public assets under the bill. Sharia law bans payment of interest, and sukuk must be underpinned by physical assets, with investors receiving revenue from assets.

The draft law is now under review by the finance ministry ahead of submittal to a new parliament, for which elections are expected to be held at the end of 2014.

"The law has been stalled due to differences over formation of the legislative committee; how many members, whether to include sharia scholars from outside Egypt, whether there will be a single authority to oversee all projects or whether each project should have a legislative committee," Ashmawi said.

Lack of clarity

Basant Fahmy, professor of banking and finance at the French University, said the controversy surrounding public assets was still an issue due to lack of clarity from the government on how much it sought to raise from sukuk issues, how the funds would be invested, and how investors could exit from assets.

"The biggest hurdle is lack of clarity from the government in specifying suitable entry and exit (of investors) for those sukuk," she told Zawya, adding that projects financed by sukuk should be listed on the stock market.

"The Egyptian government needs to define the purpose of sukuk issues. Are they investment tools or debt instruments? If the aim is to increase liquidity, then it would be better to issue (conventional) bonds," she added. "Egypt's credit ratings cannot serve as a guarantee for large investments."

Western consultants helping Egypt with its economic reform plan have estimated that the country will need at least USD 60 billion of investment to reach GDP growth of 5% by 2018 and the same amount again to bolster foreign reserves, Reuters quoted senior officials as saying on Wednesday.

Egypt's budget for the 2014/2015 fiscal year projects a deficit of around EGP 240 billion, or 10% of gross domestic product. Gross domestic debt rose 17% to reach EGP 1.7 trillion, or 83% of GDP, in March from a year earlier, according to central bank data released in June.

"In Egypt's case, public debt can be reduced if sukuk issues are used to finance infrastructure projects, which are sukuk friendly because they are backed by a physical asset. The role of the government would then be to manage the sukuk program and oversee and coordinate between investors and the project without burdening the state budget," said Bassel Nadim of Tanmia Capital.

Ashmawi said one viable option was the renewable energy sector, particularly solar energy projects that would help address frequent power shortages in the Arab world's most populous country.

The governor of Faisal Islamic Bank of Egypt, Abdel Hamid Abu Mousa, said the sukuk law would boost the market and that FIB was among banks prepared to participate in financing projects launched under a state sukuk program

Corporate sukuk

The Egyptian Financial Supervisory Authority (EFSA) has submitted a separate corporate sukuk law to the finance ministry.

The sovereign sukuk law aims to organize financing of the state budget, national projects and public institutions, while the corporate sukuk law was put forward for the financing of firms and private institutions, EFSA head Ashraf ElSharkawy said in remarks published in local media in January.

He said parliament could decide to merge the two proposed laws. "Current stock market law regulations allow the trading of sovereign and corporate sukuk as ordinary financial instruments. If their trading required any modifications to the registry rules, we would do that," he was quoted as saying.

A senior official at Emaar Misr for Development told Zawya earlier this year that the firm would like to consider sukuk to develop projects in Egypt, because availability of funds from commercial banks was limited. But he said that lack of clear legislation had made it difficult to reach agreement on a sukuk issue.

Analysts said development of a sukuk industry would help broaden investment for both the public and private sector by attracting Gulf Arab investment.

"European states are racing to enact sukuk legislation to attract Gulf and Arab capital to finance big projects," Fahmy said.

Malaysia, the United Arab Emirates and Saudi Arabia still dominate the global sukuk market.

KFH Research Ltd, a unit of Kuwait Finance House, said sukuk issues by sovereign entities accounted for 68.6% of new issues worth USD 31.2 billion in the first quarter of 2014.

(Zawya / 17 July 2014)

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India: Islamic financial institutes beneficial to infra

AHMEDABAD: Infrastructure is at the top of the newly appointed Prime Minister's priority list, and it can get a facelift from various Islamic financial services due to features likes avoidance of charging interest on principal (Riba), according to a study undertaken at Cept University. 

Yash Majeethia, MTech, infrastructure engineering and management, faculty of technology, Cept University, and Tushar Bose, assistant professor, faculty of technology, Cept, have authored a study, 'Islamic Financial Instruments an Opportunity for Financing Infrastructure in India' that has been published in 'Journal of Business Management and Social Sciences Research' recently. 

According to the study, introduction of Islamic finance can play a crucial role in order to bridge the gap and support India in achieving anticipated growth projections, especially in infrastructure sector; as operations in Islamic financial system are characterized by avoidance of Riba, the money invested cannot be channelized in other areas. 

India has an estimated infrastructure funding deficit of Rs 14,60,784 crore for the twelfth five year plan (2012-2017). "Islamic finance services can be banking or non-banking in nature. It is not limited to any community and can be benefited from irrespective of religion. One can see it as participatory banking," Majeethia said. 

Kerela is the first state that has come up with an Islamic non banking financial services company in the country in 2013. It has already received clearances from the Reserve Bank of India, Security and Exchanges Board of India and the Waqf board. Similar models can be run in other parts of the country too. 

Why Islamic financial institutions? 

Islamic financial institutions rest their objectives and operations on the Shari'a law, Islamic law, based on a verse of the Holy Quran that says "Allah has allowed only legitimate trade and prohibits interest". It is based on the philosophy of risk sharing; both lender and the borrower share the risks as well as the returns that are incurred from a project. This discourages fixed returns in terms of predetermined interest rates known as Riba. 

Secondly, it emphasizes on socially responsible investment, characterized by avoidance of Riba, avoidance of Gharar (involving in activities relating to uncertainty or speculation), avoidance of Zulm (oppression of one party by the other), avoidance of Haram (discouragement of services and goods which contradict the Islamic value), introduction of Zakat (laying a specific predetermined Islamic tax on various activities) and focusing on Halal (activities that are religiously permissible).

(The Times Of India / 17 July 2014)

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Sukuk issue a big success

MANAMA: The monthly issue of Sukuk Al Ijara short-term Islamic leasing bonds has received subscription to the tune of 240 per cent, the Central Bank of Bahrain announced yesterday.

Subscriptions worth BD48 million were received for the BD20m issue.

Carrying a maturity of 182 days, the issue begins tomorrow and matures on January 15 next year. The expected return on the issue is 0.80pc compared to 0.85pc for the previous issue dated June 19.

(Gulf Daily News / 16 July 2014)

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Oman: Alizz islamic bank appoints senior managers

Muscat: Saif Suleiman Al Yarubi will be the new General Manager, Chief Operating Officer, of the alizz islamic bank, its Board of Directors announced.

Saif Al Yarubi has over 23 years' experience, having worked with the Ministry of Defence (Oman) as Assistant Finance Director, Ernst & Young (UAE) as an Executive Manager and most recently with the Investment Corporation of Dubai (UAE) as the Finance Director. He is a Fellow Certified Chartered Accountant (FCCA).

The Board also approved certain other appointments of senior managers in the alizz Islamic bank. 

Ghalib Al Busaidy has been appointed Deputy General Manager, Chief Financial Officer, Ehab Elemam Hashish, Deputy General Manager, Head of Corporate Banking and Moosa Masoud Al Jadidi Deputy General Manager, Head of Retail Banking.

Ghalib Al Busaidy was the Deputy CEO for Investments at the State General Reserve Fund. He is a member of the Institute of Chartered Accountants in England and Wales. He is also a member of UK Association of Corporate Treasurers. Al Busaidy holds a BA (Honours) Accounting and Finance degree from Middlesex University, Business School and worked with PricewaterHouseCoopers, London UK before moving to the State General Reserve Fund in Oman.

Ehab Hashish is a seasoned banker with over 26 years' experience having worked in several international banking institutions including American Express (Egypt), Union National Bank, ABN Amro Bank, Dubai Bank (UAE), National Bank of Oman (NBO) as Head of Islamic Banking Window "Muzn". He holds a Bachelor degree in Commercial Accounting from the University of Alexandria.

Moosa Al Jadidi is an Omani talent who spent most of his banking experience in the field of retail and private banking. Prior to joining the alizz islamic bank, Moosa worked as Deputy General Manager, Deputy Head of Retail and Private Banking in National Bank of Oman.

He also worked with Dubai Bank, the European Financial Group Bank, Royal Bank of Canada and Bank Muscat. Moosa is an Associate of the Canadian Bankers Association and a Certified Private Banker. He also holds a Diploma in Private Banking.

(Times Of Oman / 16 July 2014)

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India: Scholars decry 'zakat' to fake organizations

HYDERABAD: Leading scholars of Islam in the city have advised Muslims to exercise caution in giving away zakat or mandatory charity as there has been a growth of 'spurious' institutions collecting alms for personal gains.

"Make thorough inquiries about the institution before you dole out zakat. Several instances have come to our notice where people posing as madrasa (religious school) representatives have been collecting money. Although you have good intentions, your deed is going waste as it is not reaching the deserving institutions," said Syed Khaja Moizuddin Ashrafi, main sermoniser at Kishanbagh mosque. Zakat is being misused by the collectors in several cases, other scholars said. Zakat, according to Islam, is mandatory charity deduced at the rate of 2.5 per cent from the annual savings of a Muslim and distributed either among the poor or on education, mainly during Ramzan.

According to noted philanthropist Giasuddin Babukhan, if properly organized and motivated, the Muslims in Telangana could raise zakat to the tune Rs 1,000 crore. But the actual collection and distribution of zakat is in the range of only Rs 100 crore.

"Collection of zakat and its distribution has not been organized. Every person who takes out zakat gives it away to whoever he or she feels is deserving," he said.

Babukhan's Hyderabad Zakat Charitable Trust has been able to raise Rs 10 crore from a single resource of zakat every year.

"The potential is huge provided Muslim community decides to take up zakat as a compulsory system to help eliminate poverty and provide education," he said.

Asharafi is active on social media mobilising people to give zakat to the "genuinely poor and needy institutions." Unfortunately, those who give zakat neither have the time to verify the authenticity of people who knock at their doors nor the institutions they represent.

Consequently, in many cases, zakat ends up in the coffers of fictitious madrasas and other fake welfare organizations.

A senior academic with Jamia Nizamia, Maulana Imtiyaz Ahmed, said zakat can be distributed among eight categories- the poor, destitute, those burdened with debt, pilgrims without support system and religious schools among others.

According to Ahmed, owing to the intrusion of suspect characters in the zakat collection, the amount of charity to recognized madrasas has declined substantially over the years.

General Secretary of the Deeni Madaris Board (Board for religious schools) Maulana Khalid Saifullah Rahmani, said about 20,000 children are studying in about 200 madrassas in GHMC limits. "In the last few years, some prosperous Muslims have begun to give zakat to welfare associations breaking their tradition of supporting madrassas because of cases of cheating," he said.

Appealing to Muslims to support madrassas, Maulana Rahmani lauded the trend to donate zakat to one's own relatives. "Madrasas are not only providing education to children but also food and shelter. Give zakat to such religious schools," he said.

(The Times Of India / 16 July 2014)

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