CONCEPT PAPER OF A PROPOSED PROJECT

I. PROJECT PROFILE
A) TITLE

: THE PROPOSED CREATION OF SAUDI OFW BANK

B) PROPONENT

: PMGRC and MEPHA International

Riyadh, Kingdom of Saudi Arabia
Contact person: Engr. Modrika M. Abdullah
E-Mail: [email protected]

C) CONCERNED PARTIES

: This proposal needs the support of the following:

1) The Philippine Government thru the Phil Embassy
2) Organization of Filipino Communities in Saudi Arabia
3) Various employers and businessmen in Saudi Arabia

D) BRIEF DESCRIPTION

: The SAUDI OFW BANK shall be a Sharia-compliant

financial institution that would cater the economic needs of
Overseas Filipino Workers OFWs.
It shall have a main office in Riyadh Kingdom of Saudi Arabia; and with
branch offices in the Philippines (Luzon, Visayas, and Mindanao)

E) PROJECT COST

: (To be shown in the detailed feasibility study)

II. RATIONALE:
There are thousands of Overseas Filipino Workers (OFWs) in the Kingdom of Saudi Arabia. They are
contributing and catalyst in economic development of both countries.
But the problem is that some retired OFWs or some of those who completed their contract are no longer
accessible to employment in the Philippines. Some of them usually sell their properties to meet the needs of their
families and back to square one. Whereas those business enthusiasts need capital build-up.
Another problem is that conventional funding institutions including unscrupulous businessmen in the Philippines
usually charge high interest rate. Instead of benefiting, life of ex-OFWs even become miserable.
So, this proposal intends to serve Saudi-based OFWs through Islamic Finance or Islamic Banking.
(next page, please)

III. OBJECTIVES:
A) General Objectives To create SAUDI OFW BANK to cater economic needs of Overseas Filipino Workers (OFWs).
B) Specific Objectives 1. To help sustain the needs of OFWs presently working in the Kingdom of Saudi Arabia and those already in
the Philippines. This would include:
a) Cash Remittance;
b) Acquisition of Fixed Assets; and
c) Capital Build-up for Livelihood / Business Projects.
2. To enhance Islamic Finance or Islamic Banking worldwide;
3. To serve as platform towards closer relationship among the main players as follows:
a) The Philippine Government,
b) OFWs, and
c) Various companies / employers and individual Saudi businessmen in the Kingdom of Saudi Arabia.
IV. REVIEW OF LITERATURE
THE PRINCIPLES OF ISLAMIC FINANCE:
The Quran and the Sunnah are the principal sources of Islamic law. Islamic finance signifies financial services,
mechanisms, practices, transactions, and instruments that comply with provisions given in these fundamental
Islamic texts. Thus, Islamic finance not only includes banking, but also capital formation, capital markets and all
types of financial intermediation.
While some of these norms are shared by Islamic and western financial systems, certain norms are exclusive to
Islam. In fact, some Islamic financial restrictions are severe enough to render certain western financial practices
and transactions absolutely void. This assertion of religious law in commercial sphere reaffirms the claim that
Islam is an all encompassing system, not just a set of prayers, acts of worship, and declarations regarding God's
existence and omnipotence.
Coming back to the topic, derived from the Quran and the Sunnah, some of the main features of Islamic finance,
in brief are:
1.

Riba is prohibited in the strongest terms. Riba literally means "an excess", and most of the present-day
Islamic scholars agree that it includes both usury and interest. The prohibition of riba is generally considered
to be the most important of all Islamic financial principles.

2. Gharar, which signifies ambiguity, uncertainty, or lack of specificity in the terms of a financial contract, is
forbidden.
3. As riba is prohibited, suppliers of capital become investors instead of creditors.
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4.

Investment can only be made in permitted commodities and activities. For instance, one cannot deal in the
import and export of alcohol. Similarly, it is not allowed to invest in a casino.

5. Market prices must be determined by the forces of demand and supply. In other words, Islam envisages a free
market.
6.

Information must be easily and equally accessible to all investors.

Based on the above-mentioned principles, there is a variety of Islamic financial instruments and transactions in
vogue. Some of them are briefly explained below:
1. Musharaka: It is a business structure in which the investor not only makes a financial contribution to the
enterprise, but may also participate in managing the venture. Profits are shared between the parties
according to a pre-determined ratio and losses are borne by them in proportion to their capital contributions.
In terms of classification, this is an equity-based transaction.
2. Mudaraba: In this arrangement, the investor provides the requisite financial resources, but does not
participate in managing the enterprise. It is a form of partnership in which one party provides the funds while
the other provides expertise and management. Profits are divided among the parties according to a mutually
agreed ratio. Financial losses are borne by the investor alone. This is also an equity-based transaction.
3. Murabaha: In this transaction, the finance provider, instead of advancing a loan to the party wishing to
purchase goods or equipment, purchases those items and sells them to that party at cost plus a declared
profit.
4. Tawarruq: In it the finance provider buys an asset and immediately sells it to the client on a deferred
payment basis. The client then sells the same to a third party for immediate delivery and payment.
Consequently, the client receives a cash amount and has a deferred payment obligation for the marked-up
price to the finance provider. The asset is typically a metal like copper or platinum.
5. Ijarah: It is the leasing or hiring of a physical asset, and it is one of the fastest growing activities of Islamic
financial institutions.
6. Takaful: It is a form of insurance. It is an arrangement by a group of people to shield each other from loss or
damage through the setting up of a defined pool of resources. Any member of the group who suffers such a
loss is compensated in the form of monetary help from the common fund. In other words, it is a mutual selfhelp scheme between those who wish to support each other in difficult times.
7. Sukuk: Also called "Islamic bond", it signifies, speaking more accurately, an Islamic investment certificate. It
is an asset-based investment as the investor owns an undivided interest in an underlying tangible asset that
is proportionate to investment. The sukuk certificate is a proof of this ownership interest. The certificate
holder is not only entitled to all the benefits that it entails including a share in the revenues generated by that
asset, but is also entitled to share in the proceeds of the realization of the sukuk asset. Sukuk structures
employ techniques that are well developed in conventional markets for structured finance, and have become
a significant mechanism for raising finance in the international markets by institutions, corporations, and
sovereign and state entities.
It must be mentioned that some of the prevalent transactions and instruments are not considered to be in
conformity with Islamic law by all Muslim scholars. Those opposing these practices do so by pointing out the
hidden or concealed elements of riba and gharar in them. For example, actual administrative fee is one thing
and interest in the name of administrative fee is another. However, to most of the scholars, venture capital
finance is closest to the actual Islamic finance. Thus, musharaka and mudaraba structures are favored by the
majority.
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In fact, every financial institution dealing in Islamic finance has a committee of Muslim scholars, called "shariah
committee", that determines whether a product or practice complies with Islamic law. As there is no set of
binding uniform rules, shariah committees, at times, give conflicting rulings.
There can also be a difference between two countries or regions. For instance, in Malaysia, Islamic financial
restrictions are interpreted more liberally than in the Gulf
Another shortcoming confronting Islamic finance is the shortage of qualified professionals. There are not many
people who are equally skilled in conventional finance and Islamic law. A person well acquainted with
conventional finance can easily understand any Islamic financial product; however, one cannot develop or
market such a product without knowing the rules and logic unique to Islam.
To summarize, lack of uniformity in laws and procedures, and deficiency of skilled professionals are among the
main hurdles faced by Islamic finance. However, the industry is growing the Arab oil money being one of the
main driving forces. This is evident not only from the number of banks and institutions established specifically for
practicing shariah compliant finance, but also from the increasing number of western or conventional financial
institutions engaging in Islamic finance operations.
(Source: http://www.nuwireinvestor.com/articles/understanding Islamic-finance)
V. SCHEDULE OF ACTIVITIES / TARGET
PAR TI C U LAR S

TIME FRAME

STEP 1: Conduct of Seminar on Islamic Finance. Resource Speaker from Al Rajhi Bank shall be invited to
discuss the basic principles of Islamic Finance . All interested Chairmen / officers of various Filipino
community organizations based in Saudi Arabia will be invited to attend.

1st week of
March 2011

STEP 2: From among the interested participants, organize a federation or an umbrella organization (to be
temporarily called OFW Islamic Finance Federation). The primary purpose of the federation shall be to facilitate
the creation of the proposed Saudi OFW Bank. Its activities shall be supported by the Philippine Embassy.

2nd to 4th week of

March 2011

STEP 3: The federation, in partnership with experienced NGO based in the Philippines (Mindanawan
Community Development Organization, Inc.), shall prepare and endorse a proposal to concerned offices
including foreign-based institutions (like USAID, UNDP, JICA, etc.) to finance the preparation of Development
Plans and Economic Feasibility for the creation of SAUDI OFW BANK.

1st to 4th week of

April 2011

STEP 4: Evaluation of concerned proposal on preparation of FS, approval & release of funds

May-Aug 2011

STEP 5: Preparation of Development Plans and Economic Feasibility by the partner NGO.

Sept-Dec 2011

STEP 6: Presentation of the feasibility study to: a) Concerned government agencies, b) Officers of Filipino
community organizations in Saudi Arabia, and to c) Various companies / businessmen in Saudi Arabia.

Jan 2012

STEP 7: Evaluation by concerned parties

Jan Mar 2012

STEP 8: Start of funding from interested parties and commencement of implementation period

April 2012

For any suggestion, comments, please contact:

Engr. Modrika M. Abdullah [email protected]