GLOBAL ISLAMIC FINANCE FORUM Wealth Management The Takaful - PowerPoint PPT Presentation

GLOBAL ISLAMIC FINANCE FORUM Wealth Management The Takaful Rendezvous 20 th September 2012 content brand By: Saiful Yazan Ahmad

Wealth Management from Islamic Perspective… Basic Principles of Islam on wealth differs from Western concept:  All wealth belongs to Allah and human is only a caretaker or wakeel. Hence, accountability grows with the level of wealth. Wealth is endowed by Allah to people in the form of Sustenance/Rizq.  No matter how hard a man works to gain wealth, he must not lose sight that Allah is the One who created wealth and sent His help to him. “Every bounty that you enjoy is from Allah and whenever any misfortune strikes you, it is Him to that you cry for the removal for your distress” (16:53) “To Him belongs all that is in the heavens and all that is in the earth, and all that is in between and all that is beneath t he soil” (20:6) Protection of Deen (way of life) Protection of Protection of Intellectual Wealth (‘ aql) 5 Core Protection of Protection of Values in Dignity Lives Islam content brand 2

WEALTH MANAGEMENT – Islamic Perspectives  Gaining wealth is a legitimate quest in Islam so that they can become economically strong; have a better life; give back to society (thru zakat, donations, waqaf, etc. ) and leave inheritance for family members. Mu’amalat  The more we are given wealth, the more we should give away. “ O you who believe! Spend out of what Culture We have provided you …” (2: 254) Economy Some part of wealth must be given back in ISLAMIC WAY OF the cause of Allah. As Allah never mention LIFE ‘Your wealth’ in the Quran but instead mentions; “ …and give them out of the wealth that Allah has given you..” (24:33)  The concept that wealth belongs to Allah has the following effects: Civilization Country a) Muslims will accept ownership of wealth as a trust from Allah, hence utilize wealth only to seek for prosperity in this world and hereafter; Note: Mu’amalat refers to interaction among human beings b) Muslims will ensure that wealth is managed within Islamic environment content i.e. enforcement of zakat, tax or state brand duty for the prosperity of the ummah. Private & Confidential 3

WEALTH MANAGEMENT IN ISLAM • Wealth should be accumulated and distributed to the next generations/offspring for long term survivorship and prosperity of future family members as well as the society. • Therefore, a man must manage and control his wealth, and not to let the wealth controls him. • Islam dictates correct way of spending money. Some prohibitions like spending to show off wealth, causing wastage, spending on illegal products and practicing exuberance/lavish spending. • Not to forget that there is a share of your wealth for the poor and needy too. • Another concept to understand is wealth is not the end in life, but it is meant to attain higher value in life. • Wealth management in Islam include: • Zakat management; • Inheritance, • Wills and testaments • Estate management • Managing cash and saving • Managing of tax and state duty; and • Different business transactions. content brand Private & Confidential 4

WEALTH MANAGEMENT LANDSCAPE IN MALAYSIA Hedge Funds Ultra High Family Offices Net Worth Private Equity Size of investible assets Upper High Multi-Family Wealth Advisory Trust Net Worth Offices Firms Companies Lower High Wealth Mgmt Private Banking Net Worth Firm Arms Full Service Financial Financial Mass Affluent Brokerage Planners Advisors Stockbroking Unit Trust Mainstream Retail banking Insurance Companies Companies content Source: BNM Financial Sector Blueprint 2011-2020 brand Private & Confidential 5

DEVELOPMENT ON WEALTH MANAGEMENT INDUSTRY  Asset/wealth management is very important in the world of finance.  Generally, it involves professional management from an institutional investors (i.e.: insurance/takaful companies, pension funds, unit trust companies, etc.) and high net worth individuals (HNWIs).  As for Muslim investors, formerly they often turned to conventional financial institutions to have their assets managed conventionally.  However, due to the emerging field of Islamic finance and the availability of various kinds of products and services which are Shariah-compliant nowadays, the Muslim investors now can easily choose different Islamic financial institutions to manage their assets/wealth to meet the desired expectation. content brand Private & Confidential 6

MALAYSIA: DEMOGRAPHIC CHANGES Diagram 1: Total Population (2008-2010,2012 & 2030) Diagram 2: Life Expectancy by Gender (2008-2010) Total Population Male Female 77 76.8 70 76.4 72 71.9 29.4 71.6 28.3 27.5 27.9 2008 2009 2010 2012 2030f 2008 2009 2010  Total population is increasing in a lower average annual Diagram 3: Percentage on Population by Gender 2010 growth population rate (2%: 2000-2010) compared to 2.6% for the period 1991 – 2000. (see Diagram 1) Male Female  It is attributable to the lower birth rate from late marriages and also from considerations of higher cost of living.  Due to improved quality of living and advance in medical 48% care, the average life expectancy of Malaysia is improving as reflected in Diagram 2 . 52%  Apart from it, Muslim population is largest in Malaysia with the proportion of 61.3% and expected to become larger in 2030 (64.5%) – Huge potential for Islamic financial products  The ratio of male & female is almost balanced. (see Diagram 3) content brand Source: Dept. of Statistics, Msia & Pew Research

MALAYSIA DEMOGRAPHIC PROFILE (cont’d) Diagram 4: Malaysia Population by Age Band & Gender (2000 & 2010)  Malaysia’s population is aging partly due to:  Delaying marriage to pursue higher education which impacts birth rates  Improved healthcare and quality of life which led to higher life expectancy  Increase of working population (15-64 years old) from 62.8% to 67.3%  Proportion of those above 65 years old has increased from 3.9% to 5.1%  Impact to Takaful market :  Longer life expectancy gives opportunity for Takaful operators to design extensive coverage specific to these aging group thru tailored products (e.g: medical coverage, investment/savings /retirement) content brand Source: Dept. of Statistics, Msia

MALAYSIA DEMOGRAPHIC PROFILE (cont’d) Diagram 5: Urban & Rural Population (2010) Urban Rural 37% 63%  In tandem with Malaysia's rapid development, the proportion of urban population increased to 63.0 per cent in 2010 compared with 62.0 per cent in 2000.  Urbanity means information can be disseminated faster and this helps in effectiveness of marketing communication and increasing awareness on financial products including Takaful.  Urban population tends to be exposed to higher cost of living which will create the need for wealth creation, management and protection products. content Source: Dept. of Statistics, Msia brand Private & Confidential 9

MALAYSIA DEMOGRAPHIC PROFILE (cont’d) Diagram 6: Household Income Distribution for 2009 1% 6% 499 below 14% 500 - 999 1,000 - 1,499 1,500 - 1,999 12% 24% 2,000 - 2,499 2,500 - 2,999 11% 3, 000 - 3,499 3,500 - 3,999 10% 4,000 - 4,999 9% 5,000 above 6% 7%  The largest fraction among the class of income data is the RM5,000 (USD1,600) and above group which takes up 24%  Another interesting observation is 26% of the households earn between RM1,000 (USD322) to RM2,000 (USD645).  This creates an opportunity for basic protection products that will meet the needs of the lower income group. (e.g: micro takaful) while the higher income group will augur well for the development of the takaful industry due to increased affordability. content brand Private & Confidential 10

KEY FOCUS AREAS  Growing population size o Huge opportunity in creating product suites that cater to the needs of each life cycle.  Higher Life Expectancy for Women o Opportunity for products targeted at women (critical illness, savings or retirement plan, etc) o Opportunity to competitively price (relative to male target market) protection-based products due to higher life expectancy.  Aging Population: Retirement Planning Needs o In Malaysia, the retirement age has been increased to 60 years old from 55 years previously o Opportunity for Retirement Plan: • For the young adults – a plan that can generate their wealth until they reach retirement age (long- term) • For the older adults – potential short term plan which can allow them early retirement. • Cheaper retirement based products for male (relative to female) due to wider difference in life expectancy between male and female o Opportunity for better medical and health products due to increasing cost of treatment. content brand Private & Confidential 11