Wealth Planning Islamic Perspective by ziaahmed

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									Planning Today for Tomorrows Needs Islamic ,Safe and Secure

Ethical, Transparent and Sustainable i.e. Islamic
Dr. Zia Ahmed

Zia Ahmed

Wealth Planning


Islamic Economics
Islamic economics is based on the Shariah.The basic objectives are to ensure general human well-being and socio-economic justice. All the wealth belongs to Allah (swt): "And give them of the wealth of Allah which He has given you." [An-Nur: 33] The community is the trustee of the wealth: "Believe in Allah and His Messenger, and spend whereof He has made you heirs."[Al-Hadid: 7] Hoarding of wealth is prohibited: "And those who hoard up gold and silver and spend not in the way of Allah; announce to them a painful chastisement." [AtTauba: 34] Circulation of wealth is a duty: "Whatsoever Allah may restore unto His Messenger - is due unto Allah and unto His Messenger - the orphans and the needy ...so that it may not be confined to the rich amongst you." [Al-Hashr:7]

The main objectives of the Shari‘ah are to ensure that human life is based on ma’rufat (good) and to cleanse it of munkarat (evils). The term ma’rufat denotes all the qualities that have always been accepted as ‘good’ by the human conscience. The Shari‘ah gives precise definitions of ma’rufat and munkarat, clearly indicating the standards of goodness for which individuals and society should aspire
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Conventional Vs. Islamic
The Role of Moral Values While conventional economics generally considers the behavior, tastes and preferences of individuals as given, Islamic economics does not do so. It places great emphasis on individual and social reforms through moral uplift. This is purportedly to be the purpose for which God’s messengers have come to this world. Moral uplift aims at changing the behavior, tastes and preferences of the individuals, and thereby, it complements the price mechanism in promoting general well-being. The Importance of the Hereafter The Hereafter is a concept which is completely ignored by conventional economics, but it is one which is greatly emphasized by Islam and other major religions. Because of their innate goodness, human beings do not always try to serve their selfinterest. They are altruistic, and willing to sacrifice for the well-being of others. This behavior is rewarded in the Hereafter. Whilst conventional economics also seeks optimal allocation of resources, the fact that it is unable to offer rewards for benevolent acts means that the humane side of the economy is neglected.
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Definition Of Investment Planning
Investment planning: It is designed to help with investment strategies with the objective of generating positive return on investment. The following steps are necessary: Assess risk appetite, develop an investment strategy by choosing a wide array of investments. Growth & Income Risk & Return Spending & Security Wealth Transfer & Wealth Control Achieving a Balance. An effective Investment Planning program creates a ‘ plan’ that helps them understand the ‘big picture’…and how to balance these objectives, make decisions, and implement changes that provide a total wealth planning solution.

Zia Ahmed

Wealth Planning


Process Of Investment Planning
The 5 step process are: Inventory taking Analysis and evaluation Plan designing Implementation Monitoring and reviewing The liquidity issue Liquidity is necessary for immediate consumption Assets should be kept in different grades of liquidity so that it is easy to liquidate when necessary

Zia Ahmed

Wealth Planning


The Islamic Angle
Muslims are supposed to have surplus wealth to be strong. Surplus wealth can only be obtained through higher income as a result of hard work. Having surplus income alone is not enough. Co-operative effort through helping one another (“Help ye one another in righteousness and piety”al-Maidah5:2)
Peace and stability to ensure greater development Service to others is an important social responsibility Charity to help others Principle of sharing Responsibility towards development
The traditional trade-off concept is between risk and return With more complex financial instruments like fixed income instruments, with its own individual risk characteristics, the wealth planner has to be more skilful in drawing up the right strategies to ensure the required rate of returns for the clients In Islam the trade-off is not only between risk and return but it is also between life in this world and the hereafter The Quran has in various places guided man to diversify their risk (Story of Jacob who tells his sons to enter from different gates to collect food from Egypt) The Quran also reminds Muslims not to sell life in the hereafter for the life in this world. In other words the life in this world is not worth compared to life in the hereafter

Zia Ahmed

Wealth Planning


Retirement Planning
Retirement planning is one of the significant parts in the financial planning process ; it will create a significant source of income during the retirement period; The Retirement Planning process Setting of Retirement Plan Goals; Obtain Necessary Financial Information to Determine Retirement Needs; Definition of Income Stream : a term used to cover any range of products that bring forth a steady stream of income; (b) Vehicles Providing Income Streams Pensions Employees Provident Fund (EPF) Takaful or Life Assurance

Zia Ahmed

Wealth Planning


Investment in Real Estate
Real estate refers to land and all those that are fixed to it such as building, plant and machinery People invest in real estate to get the flow of income rather than the space it provides. Geographical Population Physical Aspects Technological/Building method Fashions and Trends Occupancy status Development approvals Tenure and Title Conditions/Restrictions

Zia Ahmed

Wealth Planning


Investment In Securities
Securities are financial assets that are traded in the capital markets. Since the fluctuations in securities prices can be very volatile it is very attractive for people with surplus funds to buy and sell them hoping to get dividends and/or capital gains within a short time.
There are two main types of securities namely: Equity instruments Debt instruments The third type which is increasingly becoming popular is The hybrids. Hybrids are those that have the characteristics of both equity and debt. Difference between debt and equity: In terms of claims In terms of time Debt or borrowing is fixed in time i.e. it is terminal or has maturity and therefore is fixed in claim. This means that debt must be paid in full upon maturity. Once it matures the firm must pay the creditors the principle plus interest.
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Stock Screening Process
Halal Stocks and Shariah Index No Haram Activities
For companies with activities comprising both permissible and nonpermissible elements the SAC uses two other criteria: The public perception or image of the company To determine the tolerable level or benchmark of mixed contributions from permissible and non-permissible activities, the SAC came out with four levels: 5% benchmark – when the non-permissible are clearly prohibited (riba; gambling; liquor; pork) 10% benchmark – involve element of umum balwah prohibited element affecting most people and difficult to avoid

Zia Ahmed

Wealth Planning


Stock Screening Process
20% benchmark – mixed rental payment from Shariah non-compliant activities such as rental from premises used for gambling; sale of liquor etc 25% benchmark – activities that are generally permissible and beneficial (maslahah) but contains elements that may affect the Shariah status of these activities. Among these activities are hotel and resort; share trading; stock broking and others Shariah compliant securities which are subsequently considered Shariah noncompliant: If the price of the securities is more than its cost: must sell immediately. If not the proceeds should go to charity If the price is lower than cost: then wait until the price is equal to cost and then sell. If dividends are declared during the holding period the dividend may be accepted

Zia Ahmed

Wealth Planning


Islamic Debt Securities
Islamic Interbank Money markets (IIMM) was established in 1994. This is to allow Islamic banks to manage their liquidity and price discovery. Several new instruments were introduced REIT Private Equity Funds Income Funds Sukuk is a long term IDS whose underlying contractual framework could be a BBA; Murabahah; Istisna (purchase of manufactured products on order) or Ijarah (leasing). BBA is most popular and known as BAIDS but not popular among Middle East Shariah scholars The ijarah sukuk are more acceptable globally.

Zia Ahmed

Wealth Planning


Insurance and Takaful
One of the important areas of wealth planning is the distribution of the estates. Insurance and takaful are instruments that create instant estates and hence they are very important in the distribution of such estates We should not forget to protect our ability to earn or generate wealth. This can be done through insurance and takaful We may save money for the future but such savings need preservation Insurance and takaful creates instant estates with a small premium or contribution. It provides financial security against premature death and disability. Death or accidents can happen any time. Insurance and takaful can to some extent guarantee our loved ones will have something to depend on when we are gone or become incapacitated.

Zia Ahmed

Wealth Planning


Takaful Products
Basically there are two types of products: the life and general for insurance and family and general for takaful. Four major types of life insurance: term; whole life; endowment and investment-linked A straight life contract is one where premiums are payable as long as the insured lives Endowment is another type of permanent insurance similar to whole life. The only difference is that it provides death benefits for a specified period of time. It has cash values and the policy holder is paid the contract’s face value at the end of the protection period. Investment-life insurance contract divides the premium into two parts: the investment account and the risk account. The risk account takes care of the insurance benefits but the investment account belongs to the policy holder.

Zia Ahmed

Wealth Planning


Family Takaful Products
Family takaful products are similar to investment-linked insurance. It has two separate accounts: the Participants’ Accounts (PA) and Participants’ Special Account (PSA) which is based on Tabarru’. If participant dies before maturity date he or she will receive whatever he or she has contributed up to the date of death plus his portion in the PSA including the profits from investment. Mortgage Reducing Term Assurance (MRTA) or Mortgage Takaful Fire Marine Etc.

Zia Ahmed

Wealth Planning


Building $ 1 Million Portfolio
Basic Assumption
Starting Age – 25 Years Retirement – 55 Years Total Years – 30 Years Regular Withdrawals – 5 Years Total – 5 Withdrawals

Uses of Withdrawals
Marriage – 30 Years of Age Home – 35 Years Land – 40 Years Rental Property – 45 Years Education (KIDS)– 50 Years Marriage ( KIDS) – 55 Years

How much to Invest
0-5 Years – 50 KD a month = total 3000 KD 6-10 Years – 100 KD a month = total 6000 KD 11-15 Years – 150 KD a month = total 9000 KD 15-20 Years – 150 KD a month = total 9000 KD 20- 25 Years – 200 KD a month = total 12000 KD 25- 30 Years – 200 KD a month = total 12000 KD

(Think Future – think of Rupee at 30 a Dollar soon)

5 Years – 3000 KD – Marriage 10 Years – 6000 KD – Home with rental option 15 Years – 9000 KD – Land for resale or development 20 Years – 9000 KD – Rental Property 25 Years – 12000 KD – Education 5 years plan 30 Years – 12000 KD – Marriage and other related expenditure.

How much it will be at Retirement
5 Years – 3000 KD – 96000 KD 10 Years – 6000 KD – 96000 KD 15 Years – 9000 KD – 72000 KD 20 Years – 9000 KD – 36000 KD 25 Years – 12000 KD – 24000 KD 30 Years – 12000 KD – 12000 KD

≈ 325000 KD @ 150 rupees a KD ≈ 5 Crore With own house and basic facilities all responsibilities paid off. @ 1% a month return then monthly pension of 500,000.

Where to Invest
Pension Plan
Takaful Pension Plan – Regular Return/dividend Plan Growth and Return Pension Medical + Growth+ Pension

Real Estate
Home/ Residential Property – Rental Earning Land Buy – IJARA/ Diminishing Musharakah/ REIT Commercial Rental Property – ISTISNA/ REIT

Islamic Capital Market
Unit Trust/ Mutual Fund Sukuk/ Islamic Bonds Equity/ Share Investment

High Risk Assets
Venture Finance Private Equity Entrepreneurship

Gold, Silver, Precious Metals

Few Ideas Which has high Potentials
Live Stock – Goat, Ship, Cow, Buffalo Agriculture and Plantations

Sectors of My Choice
Choice I
Waste, Water, Food

Choice II
Alternative – Health, Energy, Education

Choice III
Health, IT/ITES, Real Estate

Regions of My Choice
Choice I
India, Indonesia, Saudi Arabia

Choice II
Malaysia, GCC, Brazil

Choice III
Under Developed Countries – Algeria, Morocco, Libya, Iran, Sudan, Nigeria, Namibia

Portfolio Distribution
Sector Distribution
I – 50 % II – 30% III – 20%

Regional Distribution
I – 50% II – 30% III – 20%

Why to Avoid Haram
The Punishment for Dealing with Riba (Interest and Usury) Quran Verse 2:275 (Chapter Al-Baqara) “Those who devour usury will not stand except as stand one whom the Evil one by his touch hath driven to madness. That is because they say: “Trade is like usury,” but God hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for God (to judge); but those who repeat (the offence) are companions of the Fire: They will abide therein (for ever).” Ibn Majah recorded that Abu Hurayrah said that the Messenger of Allah said, (Riba is seventy types, the least of which is equal to one having sexual intercourse with his mother.) The Two Sahihs recorded that the Messenger of Allah said, `Ali and Ibn Mas`ud narrated that the Messenger of Allah said, (May Allah curse whoever consumes Riba, whoever pays Riba, the two who are witnesses to it, and the scribe who records it.)

Allah Does Not Bless Riba (276. Allah will destroy Riba and will give increase for Sadaqat. And Allah likes not the disbelievers, sinners.) (277. Truly, those who believe, and do deeds of righteousness, and perform the Salah and give Zakah, they will have their reward with their Lord. On them shall be no fear, nor shall they grieve.) Allah states that He destroys Riba, either by removing this money from those who eat it, or by depriving them of the blessing, and thus the benefit of their money. Because of their Riba, Allah will torment them in this life and punish them for it on the Day of Resurrection. Allah said, On the authority of Abu Huraira (may Allah be pleased with him), who said: The Messenger of Allah said: “Allah the Almighty is good and accepts only that which is good. Allah has commanded the Faithful to do that which He commanded the Messengers, and the Almighty has said: “O ye Messengers! Eat of the good things, and do right..” (Quran 23:51). And Allah the Almighty has said: “O ye who believe! Eat of the good things wherewith We have provided you..” (2:172). Then he mentioned [the case of] a man who, having journeyed far, is disheveled and dusty and who spreads out his hands to the sky [saying]: O Lord! O Lord!-while his food is unlawful, his drink is unlawful, his clothing unlawful, and he is nourished unlawfully, so how can he be answered!” (Muslim).

HARAM- Prohibited
Giving Short Measures The community of the Prophet Shu‘ayb (sws) was known for practicing it with impunity. Consequently, they were destroyed for their persistence in deceit and disbelief in Allah and His Messenger. Allah the Almighty has repeatedly commanded exactitude in weights and measures. One of the verses says: And give full measure when you measure, and weigh with a just balance. That is good and better in the end. (17:35) Allah Has Destroyed People Who Involved in Haram ( Prohibited) (7:4) How many a township We have destroyed! Our scourge fell upon them at night, or when they were taking midday rest. (7:5) And when Our scourge fell upon them their only cry was: 'We are indeed transgressors.' People can learn a lesson from the tragic fate of those nations that spurned God's Guidance, and instead followed the guidance of others; and they became so degenerate that their very existence became an intolerable burden on the earth. Eventually, God's scourge seized them. and the earth was cleansed of their filthy existence. (7:10) We assuredly established you in the earth and arranged for your livelihood in it. Little do you give thanks.

Effect of Halal
A morsel of Halaal food Eating haraam gives rise to every type of infamy. Whereas, the halaal morsel is the cause of every kind of goodness and charity. Numerous traditions praise the acquisition of livelihood through lawful means. For example the Holy Prophet (s.a.w.s.) says, "Worship consists of seventy parts and the best part is earnings by lawful means." (Safinatul Behaar) The Messenger of Allah has also said, "When a man eats halaal food an angel stands over his head and prays for his forgiveness till he finishes eating." (Safinatul Behaar) The Prophet has remarked in a similar vein, "One who strives to earn his livelihood in a lawful manner from morning till night, achieves salvation." (Safinatul Behaar) The Holy Prophet (s.a.w.s.) states that Allah has said: "I will not care on the Day of Qiyamat from which door he enters Hell, the person who does not care from which door he earns money in this world." (Behaarul Anwaar) The Prophet of Allah (s.a.w.s.) has also mentioned the following tradition: "One who does nor care from which way he earns wealth in this world will be sent to Hell in Qiyamat and I shall not care from which way he is made to enter it." (Behaarul Anwaar) (Surah Nisa 4:2) It should not be that in a hurry to obtain livelihood you obtain it through illegal ways, before Allah provides you with the halaal sustenance that He had decreed for you."

Risk Hedge in Islamic Perspective
Zakat Zakat means growth (nam'a), blessings (barakah), purification (taharah), or appreciation (madh). It is called zakat because one's wealth grows through the blessings of giving part of it and the prayer of those who receive it. Zakat purifies its giver of his/her sins and is clearly ordered by God. The Quran says "Take alms of their wealth and make them pure and clean” (9:103). It is a criterion for the believers and a way to success in this life and the next. Allah says, "Who establishes worship and spend of that we have bestowed upon them, these are the true believers. For them are grades of honor with their Lord, and forgiveness, and a beautiful provision". [8:3-4] Zakat is also purification from greed and envy. "And human inner selves are swayed by greed". [4:128]. For Allah says, "By no means shall you attain righteousness (and reward) unless you spend of that which you love". [3:92] Zakat brings forth the good and Allah's Mercy, "And My Mercy embraces all things. That (Mercy) I shall ordain for those who are righteous and give zakat, and those who believe in our verses (and signs)". [7:156]. It spreads tranquility and peace. Zakat is social security for the weak and a protection for the society against disintegration. It purifies wealth. The Prophet (saw), said, "Whenever people refrain from paying the zakat due on their wealth, they will be deprived of rain. If it were not for the sake of their cattle, they would not receive rain". (Ibn Majah and Al-Hakim) Only by paying the right of Allah and the right of the poor from zakat is the wealth purified from decreasing, or from destruction.

Quran and Hadith
Quran Surah Qalam Ayah 17:33 Verily, We have tried them as We tried the People of the Garden, when they swore to pluck the fruits in the morning,). Without (saying: "If Allah wills.''). Then there passed over it a Ta'if from your Lord while they were asleep. So by the morning, it became like As-Sarim. Then they called out (one to another as soon) as the morning broke. Saying: "Go to your tilth in the morning, if you would pluck (the fruits). So they departed, and they were whispering. "No poor person shall enter upon you into it today. And they went in the morning with Hard Qadirin. But when they saw it, they said: "Verily, we have gone astray. '"Nay! Indeed we are deprived!. The Awsat among them said; "Did I not tell you, `Why do you not Tusabbihun. They said: "Glory to Our Lord! Verily, we have been wrongdoers.Then they turned one against another, blaming. They said: "Woe to us! Verily, we were Taghin. We hope that our Lord will give us in exchange better than it. Truly, we hope in our Lord. Such is the punishment, but truly, the punishment of the Hereafter is greater if they but knew.

Hadith on Sadaqah
HADITH Rasulullah Sallallaho alaihe wasallam has said that once a person in a jungle heard a voice from a cloud above, saying, "Go and supply water to such and such person’s garden". Thereupon the cloud moved in one direction and rained on a piece of stony land. A channel collected the whole of that water which began to flow in a particular direction. He followed it and came to a place where a man stood with a shovel in hand, diverting the water to his garden. The person asked the man his name; and when he told him, it was the very name he had heard from the cloud. The person then asked him why he had asked his name. The person replied that he had heard a voice coming from the cloud saying, "Go and supply water to such and such person’s garden" and it was the same name which he had told him. The person then asked the man, "What he did, for, the cloud to supply water to his garden." The owner replied that now he has to tell the true facts. Whatever produce he got from the garden, he divided it into three equal parts; one part i.e. one third of the produce, he gave away promptly as Sadaqah, the second part he kept for himself and the family; the remaining one third he spent on the garden itself.

For all your queries
zia@ziaahmed.org www.hhrdevelopment.com www.ziaahmed.org

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