© Islamic Development Bank, 2016
King Fahd National Library Cataloging-in-Publication Data

Islamic Development Bank
 Financial product development process./ Islamic

   Development Bank – Jeddah, 2016

     ISBN: 9960-32-324-2

1-Product management 2-Process l-Title
658.57 dc 1437/7794

L.D. no. 1437/7794
ISBN: 9960-32-324-2

All rights reserved. No part of this publication may be reproduced or distributed in
any form or by any means, or stored in a database or retrieval system, without the
prior written permission of the Islamic Development Bank.

Note

For easy reference and understanding, the following terms are used for the abbreviations
and technical terms.

Description Mentioned as

MC
IFM

IFI

IFPI / PI

PIM

PIPP

FPDC

FPD

FPDP

IFP(s)

Member Country
Islamic Financial Market

Islamic Financial Industry/Institutions

Islamic Financial Product Idea

Product Idea Map

Product Idea Project Portfolio

Financial Product Development Center

Financial Product Development

Financial Product Development Process

Islamic Financial Product(s)
[Also, IDBG’s modes of finance]

Clients

industry

product idea

idea map

project portfolio

the Center

product development

the Process

product(s)

Pg

1 Introduction ...................................................................................................................................................................................... 1

2 Design of the Financial Product Development Process ............................................... 2

2.1 Modeling Framework .............................................................................................................................................. 2

2.2 Business Model ............................................................................................................................................................... 3

2.3 Process Model .................................................................................................................................................................. 7

2.4 Planning and Steering instruments .................................................................................................. 7

2.4.1 Requirement Matrix ............................................................................................................................ 12
2.4.2 Product Portfolio ..................................................................................................................................... 12
2.4.3 Business Segment Matrix ........................................................................................................... 13
2.4.4 Business Segment Trend ............................................................................................................. 13
2.4.5 Product Life Cycle .................................................................................................................................. 14
2.4.6 Resources Matrix ................................................................................................................................... 14
2.4.7 Product Idea Map ................................................................................................................................... 14
2.4.8 Product Idea Project Portfolio ........................................................................................... 14

3 IDBG’s Financial Product Development Process ................................................................... 15

3.1 Identify current and future market requirements .................................................... 15
3.2 Identify gaps in existing IDBG products ................................................................................. 16
3.3 Generate new product ideas – Concept Paper ............................................................. 17
3.4 Evaluate new product ideas - Develop the Business Case............................. 18
3.5 Approval of new product ideas ............................................................................................................ 21
3.6 Product development project ............................................................................................................... 21
3.7 Final Shariah approval (Documentation & Process flow) .............................. 21
3.8 Adaptation of IT and BP-implementation ............................................................................ 22
3.9 Launch new product ........................................................................................................................................... 22
3.10 Post-launch review, Shariah audit and Feedback .................................................. 22

4 The Process at a Glance .............................................................................................................................................. 23

Index

  Pg

Figure 1  Modeling Framework 2

Figure 2  Business Model 3

Figure 3  Relationship between IF market and IDBG’s Product Portfolio 4

Figure 4  Product-Market Matrix for IDBG 5

Figure 5  Product’s relation to the Business Process 6

Figure 6  Process Model 7

Figure 7  Basic Source and Gate Model 8

Figure 8  Source and Gate Model of the Process 9

Figure 9  Planning and Steering instruments 11

Figure 10  The Financial Product Development Process 15

Figure 11  Progressive Portfolio technique 19

Table 1  Sample Business Segment Matrix 13

Table 2  Sample Product Template 17

Figure Index

The IDB Vision 1440H (2020) emphasizes the role of IDB in leading and supporting the Islamic
financial industry. One of the most important initiatives in this endeavor is to “invest in a
strong research and development facility to develop new financial products”1.

An important step in that direction was the establishment of the Financial Product
Development Center (FPDC) in early 1432H, to act as a focal point for product innovation
across IDBG and build upon the pioneering role of the IDB Group in promoting and expanding
the Islamic financial industry.

The Center has since embarked on various initiatives for new product development,
including:

1. Developing a Business Process for new product development.
2. Building capacity of product developers within IDBG.
3. Designing new financial products.

The Center has developed a framework for the Financial Product Development Process
(FPDP), described in this document. The document outlines the main steps and functions
of each step in the process of new product development. The goal is to streamline product
development efforts and optimize coordination between various stakeholders to facilitate
the creation of new Islamic financial products.

As product development is a relatively new area in Islamic finance, we hope that the feedback
for this framework document from within the IDB Group, and other stakeholders of the
Islamic financial industry, will greatly help improve and enhance the proposed framework.

The ultimate objective of product development is to enable the Islamic financial industry
to systematically create new financial instruments that meet Shari’ah objectives and at
the same time serve the needs of Member countries. This can be achieved by innovating
credible and efficient instruments for financing development and creating wealth. In this
manner, the Islamic financial industry will be able to better contribute to the stability and
prosperity of the world economy.

Dr. Abdul Aziz Al-Hinai

Vice President, Finance
Islamic Development Bank

 FOREWORD

1 Vision 1440H, Islamic Development Bank, Safar 1427H, March 2006, p. 32.

ACKNOWLEDGEMENT

This document was first drafted by Mr. Rolf Michael Bergman, who was advising IsDB for the
process for developing new financial products in IsDB.

Br. Mohsin Sharif, of the Financial Product Development Center, extensively reviewed the
original draft and brought it into its final shape for publishing.

The Financial Product Development Center was established
in response to the IDBG Vision 1440 H and the IDBG Strategy.
One of its main roles is to set up, develop, and implement
a Group-wide Financial Product Development Process
to facilitate new product development and ensure the
leading role of IDBG in the Islamic financial industry. It will
undertake this activity in close collaboration with all relevant
departments and entities of IDBG.

This document provides a framework that describes the
essential steps of the process and how the process will
function. Furthermore, it describes the major activities of
each process step and the consequent results as well as
the resulting responsibilities. This is crucial to guarantee
successful development and subsequent launching of new
products.

In addition, the document provides information about the
necessary organizational units, their roles and responsibilities
as well as the required control mechanisms to enable the
process to achieve its objectives, in accordance with the
IDBG Strategy.

This includes, particularly, the creation of consistent control
mechanisms like product portfolio, business segment matrix,
product life cycle management including trend analysis, and
above all structured knowledge about the financial needs of
IDBG’s Clients, that consequently provide information that
facilitates the development of new and sustainable Shari’ah
compliant products.

Besides the launch of the process, an open and integrated
Group-wide teamwork of participants, combined with
the creation and the implementation of transparent and
consistent planning and controlling processes will be crucial
for successful product development.

1FPD Process

1  Introduction

2.1  Modeling Framework
A field-proven modeling framework is adopted as the basis
for the design of a new process. This consists of a “business
model” and a “process model” for a product development
process customized for the IDB Group.

Figure 1: Modeling Framework

Business model

IF market
requirements

FPD Center

must meet

Product
portfolio

Resources Procedures

Business process

Business unit

Process model

Product
close

Product
monitoring

Product Development

Generate
product ideas

Evaluate
product ideas

Identify
gaps

Legend:  IF = Islamic Financial
 FPD = Financial Product Development

Partner

Product
idea

development

Development
 of product

Approve
product idea

Final
Approval

Launch new
product

Post-Launch
review

IDB Group Vision (1440H) and Strategy

Information
Technology

Finding product
ideas

Product
launch

Modeling framework

2  Design of the Financial Product Development Process

FPD Process  2

2.2  Business Model
The business model shows the main components that play a
significant role in the accomplishment of the IDBG’s mission.
One of the main components is the product portfolio that
IDBG offers to its Clients. To be successfully aligned with
the needs of the Clients, the product portfolio must meet
the requirements of the Clients, failing which the strategic
business plan and product goals will not be realized.

Directly connected to the product portfolio is the business
process that generates the products. The business process
needs resources like offices, infrastructure, specialists, etc. as
well as specific procedures for an efficient and lean operation
and management of the business process. Other important
components are information technology (IT) for a proper
business process support as well as business partners who
bring a specific service or support for the business process.
The business model at IDBG is shown in Figure 2.

Figure 2: Business Model

3FPD Process

Business model

IF market
requirements

FPD Center

IDB Group Vision (1440H) and Strategy

must meet

IF product
portfolio

Resources

Information
Technology

Procedures)

Business process

Business unit

Partner

Legend: IF = Islamic financial           PDP = Product development process           FPD = Financial Product Development

IDBG’s success is majorly determined by its ability to meet
the needs and requirements of its Clients and satisfy the
demand as well as enhance the product portfolio of IDBG.
(Area marked red in Figure 2 and detailed in Figures 3 and 4).

Based on the business model, the relationship of the market
demand and the IDBG product spectrum that is documented
in its product portfolio is shown in Figure 3.

To secure IDBG’s leading role in the industry, it is of
paramount importance that future trends be identified
at early stages, through regular interactions, surveys and
studies of both the Islamic as well as the conventional
financial industry. This will effectively drive IDBG’s product
portfolio towards sustainable Shariah-compliant innovation.

Of note is the increasing importance and popularity of Islamic
financial products in non-Muslim countries. The principles of
these products include avoidance of speculation business
and that no business is allowed without a real flow of goods
and services. This will be the most effective way that will
result in sustainable and ethical business development,
while at the same time minimizing the risks involved. Hence,

Figure 3: Relationship between IF market and IDBG’s Product Portfolio

Current IDB IF product portfolio
that covers the market
requirements.

IF-Market:
IDB:
• IF-Product portfolio

Legend: IF = Islamic Financial

Current IF market demand for new
IDB IF products.

• Requirements
• Potential Future
  needs

Potential future IF market demand:
Potential for new IF products
based on the creativity and
innovation power of IDB and will
generate IF market demand in the
future.

IF market demand for
current IDB FI-Products

IDB IF-Product portfolio
 satisfies

IF-Market requirements and needs.

Potential of new IDB IF
products for the current
IF market demand

Potential for new IF
products
to generate future
demand in the IF
market.

Current and future
IF market potential and
demand

FPD Process  4

these will assert themselves in the market of such products
for rational reasons. Consequently, IDBG will have to be at
hand to cater to such demand with innovation in this area,
to maintain its position as a leader in the industry.

The product spectrum of IDBG (yellow, green and blue in
Figure 3) shows the subsets of products, both current and
future, offered by IDBG. The corresponding Product-Market
matrix is presented in Figure 4.

Studies will be conducted to explore future trends of the
market and subsequently propose relevant strategies for
IDBG to adapt and lead the industry.

Products also require effective business processes. These
business processes consist of:

a. human resources with specific skills and
knowledge;

b. procedures and regulations for the operative
handling of resources;

c. partners i.e. investors, syndication partners or
vendors/suppliers; and

d. IT support

5 FPD Process

Figure 4: Product-Market Matrix for IDBG

Current market requirements
for new financial products

Current product portfolio of
IDBG that meets the market
requirements

Potential market
requirements  for financial
products

• Continuous adaptation of
  current products cu

rr
en

t

Is
la

m
ic

 F
in

an
ci

al
 P

ro
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u
ct

s

current future

Islamic Financial Market

Future market demand
which is not covered by
current IDB IF products /
services
• Combinate, modify or adapt
   existing IDB IF products / services
   into a new product / service

existing market cultivation future market generation

Existing and future
market potential

n
ew

Current market demand
which is not covered by
IDBG ‘s existing product
portfolio

• Create completely new product

• Combine, modify or adapt
  current products into new products

Current market demand
which is covered by
IDBG’s existing product portfolio

Future market demand
which is not covered by
new products of IDBG
• Create completely new product

• Combine, modify or adapt
   IDBG’s current products / services
   into new products

IF-Market
Requirements
Potential needs

The optimal cooperation and coordination of these factors
as shown in Figure 5 will influence both the effectiveness
and efficiency of IDBG in generating new products. This will
enable IDBG to focus on the right products, and complement
them with an efficient business process alongwith the use
of requisite resources, procedures, IT support and business
partners.

Figure 5: Product’s relation to the Business Process

IF product
portfolio

Resources

Information
Technology

Procedures

Business Process

Partner

FPD Process  6

7FPD Process

2.3  Process model
The process model (Figure 6) shows the path of product
development.

It starts with the identification of the gaps, followed by
generating new ideas for products that can potentially
fill those gaps. These ideas are then evaluated and initial
approval is obtained for subsequent development of the
most feasible ideas. A project portfolio then assists in
the development of the product, which is launched after
obtaining final approval from the relevant authorities. Post-
launch review of the product facilitates the monitoring
function by transmitting information regarding performance
and potential ideas for the future.

2.4  Planning and Steering Instruments
It is very important that gaps between the market
requirements and the existing product portfolio of IDBG
be identified (see also Figure 3), as they are crucial for
stimulating development of new products.

To identify gaps, IDBG can use both internal and external
sources to obtain information on the needs of the Clients
and the extent to which the current products serve them.
An unmet need represents a gap that needs to be filled by a
new product.

The development of a new product takes place within the
framework of the ‘Source and Gate model’ (Figure 6). This
model consists of various sources of ideas and the gates
they pass through for eventual development. The gates are

Figure 6: Process model (PM)

Product Development

Generate
product ideas

Evaluate
product ideas

Approve
product idea

Development
of product Final ApprovalIdentify

gaps
Post-Launch

Review
Launch

new product

Process Model

Finding product
ideas

Product
idea

development

Product
launch

Product
monitoring

Product
close

decision points where the ideas are screened and evaluated
to proceed to the next stage of product development. This
is a direct result of the viability of the idea at any particular
stage in the process. The model depicts the path of the ideas
for products that make their way through the gates in the
idea funnel, to being developed alongside each other in the
project portfolio towards the final launch.

The ideas are sourced from various players in the market
through regular monitoring and research. Next, they go
through the ‘gates’ in the ‘idea funnel’ where they are
reviewed for:

a. Shariah permissibility,
b. Strategic alignment,
c. Economic impact
d. Operational feasibility, and
e. Financial viability

The source and gate model of the Process is presented in
Figure 8.

Figure 7: Basic Source and Gate Model (SGM)

FPD Process  8

9FPD Process

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This results in the project portfolio where the ideas are
sorted and arranged according to the relative strategic and
economic impacts, for further development. The project
portfolio, hence, facilitates efficient project management
for the development of the ideas into products.

The Process passes through various levels including the
systematic and structured assessment of previously
identified product ideas followed by the approval for
developing a new product as a project, including resource
planning i.e. staff, budget, timeline, etc.

The gaps are to be identified by different departments and
entities of IDBG in collaboration with the Center. Various
ideas are generated through direct feedback from the
Clients, their different requirements as well as discussions
within the departments and entities within IDBG and
different players in the industry.

The interaction between the business model on one side
and the process model on the other side will result in the
control and planning mechanisms that will be required to
ensure creation and control of the process (yellow field in
Figure 9).

FPD Process10

11FPD Process

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As mentioned previously, the success majorly depends
on IDBG’s capability to react to new market requirements
swiftly and adequately. Those requirements may imply
minor modifications in existing products at best. However,
they may also lead to completely new products. This will
present the starting point of for identifying new product
ideas within IDBG. At the same time, it can be assumed
that a number of product ideas compete with each other
for reaching the state of realization. Hence, a consistent
evaluation and approval scheme is crucial. All product ideas
have to pass through the previously established scheme
to ensure a reasonable ranking, choice and approval
for a product development project. Important control
mechanisms are the product idea map (PIM), the product
idea project portfolio (PIPP) and the product portfolio (PP).

2.4.1  Requirement Matrix
The Requirement Matrix includes the Clients’ requirements
versus the current as well as new products that are not yet
available in IDBG´s product portfolio. A requirement matrix
for each client is developed and the resulting matrices are
then aggregated in one overall Requirement Matrix. In this
matrix, the requirements with a high number of inquiries
and demand will be identified.

Regular surveys of Clients and explorations of future trends
(as mentioned in Section 2.2) will be complementing the
study of the relationship between the market and IDBG’s
product portfolio (see Figure 3). These are crucial to pursue
an overarching vision of the requirements of the Clients
amidst the current as well as future market trends and
conditions. Techniques like these will subsequently facilitate
the creation of matrices with the gathered information of
the requirements. The resulting aggregated matrix will
enhance IDBG’s efficiency in identifying the right product
ideas that can be developed into products that fill the gaps
and effectively cater to the needs of the Clients.

2.4.2  Product Portfolio
The Product Portfolio shows the current IDBG products with
its strategic and economic impact for IDBG. It shows how to
evaluate the strategic and economic impact for any single
IDBG product, either existing or in-development. (Detailed
in Figure 11)

FPD Process12

13FPD Process

2.4.3  Business Segment Matrix
The Business Segment Matrix depicts the products of IDBG
against various sectors in which these products are used.
Table 1 shows a sample matrix for selected sectors and
products.

The Business Segment Matrix serves as the planning and
control tool to ensure that IDBG’s strategic objectives are
paramount in consideration. Furthermore, there has to be a
link to the dynamic development of the individual business
segments, showing the trend within the segment and the
product life cycle status. This information is relevant for
both elimination of non-feasible products from the product
portfolio in a timely manner, as well as for initiating the
development of new products soon enough.

The Business Segment Matrix is the basic instrument for
getting an overview of the whole business at IDBG and
its future development. It is an important instrument for
steering IDBG in an effective way and detecting future
directions at an early stage.

2.4.4  Business Segment Trend
The Business Segment Trend is derived from and is a
graphical representation of the Business Segment Matrix
over a period of time. It is also an important input for the
product life cycle management.

Table 1: IDB approvals (US$ millions) – Inception until 1433H (selected sectors and products)

 Agriculture Education Energy

 312.70 581.70 1565.10

 1963.70 849.70 1596.10

 94.60 122.80 4986.90

Sector
Product

Installment Sale

Istisna’a

Leasing

2.4.5  Product Life Cycle
The Product Life Cycle corresponds with the business
segment trend. It shows the maturity level of IDBG’s
products. It is also an instrument for triggering new products
at the right time in case the life of an existing product ends.

2.4.6  Resources Matrix
The Resources Matrix includes an overview of all relevant
resources like employees, skills, IT support, and business
partner etc. that are required to generate the new products.
It allows a quick check of the allocation of critical resources
related to the Business Segment Matrix and Product
Portfolio of IDBG. It is also a basic instrument for an efficient
resource management at IDBG.

2.4.7  Product Idea Map
The idea map identifies product ideas based on a set of
attributes and properties of financial products (see Figure
9). This set of attributes ultimately defines how each product
idea is ranked based on its strategic and economic impact
at IDBG. It is also the decision-making basis to set up the
project portfolio.

2.4.8  Product Idea Project Portfolio
The project portfolio is based on the idea map and includes
all product ideas with their description and the extent of
necessary resources required, like budget, timeline, business
partners, IT support and employees with special skills, etc.
to develop the idea into a proper new product. It is also the
basis of decisions about product development projects that
are to be started, implemented or executed. The project
portfolio is also used as a central monitoring instrument for
all running product development projects.

FPD Process14

15FPD Process

The design of the IDBG’s Process is based on the Modeling
framework that was outlined and described in the previous
section. The Process is shown in Figure 10.

3.1  Identify current and future market requirements
This is the starting point of any product development. It is
of primary importance for IDBG to identify potential sources
of information regarding the Clients’ needs. This allows for
systematic learning of these needs and generation of ideas
to modify existing products or develop new products.

After having identified the sources of information, it has to
be determined how the information obtained from these
sources can be structured and extracted in a timely manner
and how that can be transmitted to the Center.

For example, potential sources are IDBG’s member
countries. In these countries, the market requirements
and/or the product ideas as well as the expected demand
and the Clients’ needs can be identified. In addition, other
relevant client-sectors for IDBG, like private-sector clients of
ICD and ITFC can also be defined.

Therefore, the requirements of the Clients have to be
defined and documented periodically in a structured and
coordinated manner. The Center is responsible for the
consistent assimilation of the data. The representatives
and/or country officers of the member countries assume
the role of local market researchers and are responsible for
gathering market data. The structure and templates for that
should be consistent with all other planning and steering
instruments at IDBG.

The Center keeps an overview of market requirements and
the product ideas coming from the different Clients, which
will constantly help to recognize the

Figure 10: The Financial Product Development Process

3  IDBG’s Financial Product Development Process

Product
Development

Project
Adaptation of

IT and BP-
implementation

Final ApprovalEvaluate new
product ideas

Approval
of new

product ideas

Identify
current and

future market
requirements

Generate new
product ideas

Identify gaps
in existing

IDBG
products

Launch new
Product

Post-launch
Review

Financial Product Development Process (FPDP) - IDBG

10 987654321

frequency of certain demands/requirements, and therefore
possibly identify a potentially huge demand regarding
development of new products or modifying the existing
products.

These are important prerequisites for subsequent
procedures of evaluation and approval of the requirements
and/or products ideas.

For other relevant external sources, i.e. the industry,
investors, regulators, etc. (see Figure 8) similar standardized
procedures for gathering relevant information have to be
established.

The quality of decision-making for development of
new products as well as the probability of success will
substantially improve as increasingly relevant sources of
information on market needs are considered.

Pre-requisites for this process step:
• Determining a standardized structure for gathering,

documenting, aggregating and transmitting
information in a timely manner,

• Determining relevant information to gather, and
• Determining the relevant sources for gathering

information.
Major results of this process step are:

• Requirement matrix of each Client
• The aggregated Requirement Matrix
• Estimated demand and benefits of satisfying Clients’

needs
• Financial, economic, legal and Shari’ah requirements

of the Clients, and
• Comparative analysis of other Islamic financial

Institutions and their product portfolios (based on
market research)

3.2  Identify gaps in existing IDBG products
Based upon the market requirements and the planned
projects in a Member Country as well as the information
originating from other relevant sources as defined in
3.1, the concerned department as well as the Center can
identify the gaps in the existing product portfolio of IDBG.
To ensure consistency, standardized templates will be used
to document structured descriptions of the gaps that are
identified.

FPD Process16

17FPD Process

Major results of this process step are:

• Identification of gaps in the current product portfolio
at IDBG

• Structured description of the gaps on a standardized
template

3.3  Generate new product ideas – Prepare the
Concept Paper

Based upon the gaps identified, various techniques can be
used to generate product ideas that might help fill these
gaps. Workshops bringing together experts from different
relevant fields, both internal as well as external, can be very
useful to generate ideas to fill the gaps. Other techniques of
idea generation will have to be developed as well.

The ideas are described in the Concept Paper, which is the
first look of any idea. The Concept Paper outlines, briefly:

• The gap (to be filled by the idea),

• Description of the idea,

• Justification of the proposal, and

• Expected outcomes.

For a clearer understanding of the product, a Product
Template is also developed. It outlines the structure of the
proposed product, showing the roles of the parties involved
as well as the deliverables. Table 2 shows a sample format.

Table 2: Product Template

Product Name -

Steps  Step 1   Step 2

Description

No. 1  2 1  2

Parties

Actions

Deliverables

Essential results of this process step are:

• New product ideas to fill the identified gaps,

• Concept Paper, and

• Product Template.

3.4  Evaluate new product ideas – Develop the
Business Case

The product ideas, after being generated and described, now
have to pass through an evaluation test, which will ensure
that only product ideas that are in the best interest of IDBG
and its Clients are cultivated in detail (in the business case)
and put forward for subsequent development and approval.

To enable this, an evaluation scheme with clearly defined
views and evaluation criteria as well as weighting criteria
has to be developed. The development of such a scheme
will be coordinated, defined, developed, documented and
advanced by the Center, with involvement of all participants.

Methodically a progressive portfolio technique will be
applied. This enables various views on the product idea
based on the aligned criteria. It also allows aggregating a
product idea in a portfolio according to its priority. In the
priority portfolio, the individual product idea is presented
according to its strategic and economic relevance for
IDBG. The portfolio serves as a central decision basis for
further approval. It also shows the relative positioning of
competing product ideas. The complexity of the progressive
portfolio is critically influenced by the number of different
views as well as by the number of relevant evaluation and
weighting criteria per view. The schematic construction of a
progressive portfolio is illustrated in Figure 11.

FPD Process18

19FPD Process

Figure 11: Progressive Portfolio technique

Market

Investor

Bank L                   M                   H

H

M

L

Economical impact

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ra

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gi

ca
l i

m
pa

ct

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PI1
PI2

PI3

Evaluation criteria

Legend: PI(i) = Product Idea           Counter i = 1-n          n = Number of Ideas

Ev
alu

ati
on

 vi
ew

s

Progressive Portfolio technique

Shari’ah

Product evaluation is based on various criteria analyzed
from different perspectives i.e. Shari´ah, client, investors,
and IDBG. The black arrows in Figure 11 represent the specific
evaluation criteria. For example, the market view can
include the following: Market growth, share and volume for
a product idea as well as a competitive position like service,
competence, customer orientation, etc. All the criteria for
evaluation and their weights will be defined in order to
develop a standardized pattern for product idea evaluation.
The evaluation of the product ideas leads to only certain ideas
being selected for further development and subsequent
approval.

For each product, a Product Coordinator is identified and
assigned by the concerned department. The Product
Coordinator acts as the focal point for the Process and is
responsible for preparing the Business Case for the product
in close coordination with the Center.
The Business Case should include the following:

   The rationale and goals of the product

   The product design, including but not limited to:
• description of the product idea
• the Shariah-compliant structural model
• potential of the product within the market and

assumptions made
• sustainable benefit of the new product for all

parties involved.

   Risks involved

   Financial engagement, implications and projections

Essential results from this process step are:

• Product Idea Map

• Prioritized product ideas

• Business case for selected product ideas

FPD Process20

21FPD Process

3.5  Approval of new product ideas
The business case will then be presented to the relevant
authorities, starting with the Shari’ah Committee, followed
by related departments and units at IDBG. Clearance of the
product from the following departments is essential:

• Risk Management

• Finance Control

• Legal

• IT (if necessary)

The Product Coordinator is responsible for following through
the approval process of the new product idea.

Essential results from this process step are:

• Project Portfolio

• Sign-off from relevant departments/entities

3.6  Product Development Project
The next step is to develop and finalize the necessary legal
documents for the new product, as well as marketing
material. This is done by the Product Coordinator in close
collaboration with the Legal department.

Essential results of this process step:

• Complete legal documents of the new product

• Marketing & outreach materials

3.7  Final Shariah approval (Documentation & Process
flow)

After the development of the product, it has to be presented
to the Shariah board for final review and approval. The
documentation, contracts and the processes through
which the transaction would take place have to be clearly
highlighted for the board’s consideration.

Following the approval, the product is ready for in-
house testing (if required) and adaptation of IT and BP-
implementation.

3.8  Adaptation of IT and BP-implementation
During this phase, all the necessary tasks for supporting the
new product’s operational structure with efficient business
processes and suitable IT support are accomplished.

Suitable criteria have to be defined for measuring the
performance of the business process of setting up a new
product.

Essential results from this process step are:

• Business processes

• IT processes and system support

• Monitoring criteria

3.9  Launch new product
For the launch, all necessary preparations have to be in place,
like providing information material, preparing presentations
and setting up the appropriate internet presence.

3.10  Post-launch review - Shariah audit and feedback
In-house Shariah audits by the IDB’s Shariah Committee
on regular basis will ensure monitoring the Shariah-
compliance of the approved processes and procedures and
the fulfillment of all contractual stipulations by the product
team.

Feedback from the Clients will also become a relevant source
to identify any gaps that could suggest future improvements
in IDBG’s offerings and potentially new products as well.

FPD Process22

23FPD Process
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The Financial Product Development Center was established in Muharram 1432H (December
2010). Its main purpose is to enhance the leadership of the Islamic Development Bank
Group in the development and promotion of innovative Islamic financial products within
the framework of the Maqasid al-Shariah. This is accomplished while further strengthening
the financial soundness and relevance of the IDB Group.

The Center is the focal point for the development of new and innovative financial instruments
at IDB Group, and for this purpose it also collaborates with various institutions in the Islamic
financial industry.

Strategic Objectives
The Center has three major strategic objectives:

1. Developing Business Process for new product development.

2. Building capacity of product developers.

3. Designing new financial products.

These three objectives are summarized by the “3Ps” that the Center works along: Process,
People, and Products.

25FPD Process

Process
Formulating the Business Process (BP) of developing new
products is vital to determine the requisite steps for product
development. The BP will be used as a framework for all
other activities for product development.

The Center has already completed the general Business
Process Matrix for IDB Group, and is working to develop the
detailed processes of each step in the BP. The Center is also
moving ahead to implement the processes. The steps for
this  include:

1. Identifying product gaps with respect to the needs of
investors and customers, both on the assets side and
liabilities side.

2. Developing tools and techniques for generating and
evaluating new product ideas.

3. Producing Manuals of Islamic Financial Products.

People
For the process to be effective there has to be a good
number of product developers who are equipped with the
skills and knowledge needed for product development. This
objective is achieved through:

1. Capacity building and training programs.

2. Establish a Product Development Working Group
(WG) across IDBG. The WG shall work collectively to:

a. Identify gaps within each department or entity.
b. Stimulate new idea generation.
c. Share information on existing products.
d. Coordinate product development process.

3. Organize periodic seminars and conferences by
inviting experts and scholars to enrich and enhance
developing new products.

Products
With an effective process and the right people, the stage
is set for designing new products to fill the gaps between
customers’ and investors’ needs on one hand, and the
existing products on the other. Accordingly, the Center
carries out the following activities:

1. Carry out periodic surveys of existing Islamic and
conventional products.

2. Respond to the needs of the IDB Group entities for
new products.

3. Work closely with the Advisory Panel and the Working
Group for idea generation and evaluation.

4. Collaborate with the concerned departments and
entities for due approval and implementation.

5. Arrange pilot experiments for testing new products.

For more info: fpdc@isdb.org

FPD Process26

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http://pro-cs.net


Islamic Law of Islamic Law of

PropertyProperty

LAB2033LAB2033

DR. ZULKIFLI HASANDR. ZULKIFLI HASAN

CONTENTSCONTENTS

�� IntroductionIntroduction

�� Concept of Concept of WaqfWaqf

�� HistoricalHistorical

�� DefinitionDefinition

�� Important featuresImportant features

�� IssuesIssues

336,700 square km.336,700 square km. Over 35,727 hectares of Over 35,727 hectares of waqfwaqf land and land and

20,735.61 acres of registered 20,735.61 acres of registered waqfwaqf lands. lands.

WaqfWaqf lands in Malaysialands in Malaysia

20,735.615919.8314,815.787TOTAL

89.2667.0522.21Pulau Pinang

51226474474Perak

1063.25442.15621.10Selangor

1788.6061.251727.35Negeri Sembilan

843.34423.34420Kedah

843.3469.97773.39Melaka

227.448.75218.69Perlis

592839761951Johor

29.59825.424.178Sabah

3985-3985Pahang

236.929-236.929Sarawak

247.4443.01204.43Terengganu

27.5422.075.47Federal Territories

304.66133.12171.54 Kelantan

Total

(Acres)

General Waqf

(Acres)

Specific Waqf

(Acres)

State

IntroductionIntroduction

�� Historically, Historically, awqafawqaf played a significant role to bring played a significant role to bring

about economic growth and socioabout economic growth and socio--economic justice economic justice

in Muslim societiesin Muslim societies

�� AwqafAwqaf is stagnant during contemporary times, both is stagnant during contemporary times, both

as a concept and in practice as a concept and in practice

�� The role of third sector in promoting growth and The role of third sector in promoting growth and

welfare is increasingly becoming importantwelfare is increasingly becoming important

�� WaqfWaqf is not contributing in the growth of is not contributing in the growth of

economies in general and third sector in particular  economies in general and third sector in particular

ContCont……

� Allah decreed :

� “O you who have believed, bow and prostrate
and worship your Lord and do good that you
may succeed.” (Al-Haj 17:77)

� “Never will you attain the good [reward] until
you spend [in the way of Allah ] from that which
you love. And whatever you spend - indeed,
Allah is Knowing of it.” (Al-Imran 4:92)

HadithHadith on on WaqfWaqf
�� IbnIbn ''UmarUmar reported,reported,

�� ''UmarUmar ibnibn alal--KhattabKhattab got land in got land in KhaibarKhaibar; so he came to the ; so he came to the
Prophet,Prophet, peace and blessings of Allah be on him, to consult him peace and blessings of Allah be on him, to consult him
about it. He said, O Messenger of Allah! I have got land in about it. He said, O Messenger of Allah! I have got land in
KhaibarKhaibar than which I have never obtained more valuable than which I have never obtained more valuable
property; what dost thou advise about it? He said: "If thou property; what dost thou advise about it? He said: "If thou likestlikest, ,
make the property itself to remain inalienable, and give (the make the property itself to remain inalienable, and give (the
profit from) it in charity."profit from) it in charity."

�� So 'So 'UmarUmar made it a charity on the condition that it shall not be made it a charity on the condition that it shall not be
sold, nor given away as a gift, nor inherited, and made it a chasold, nor given away as a gift, nor inherited, and made it a charity rity
among the needy and the relatives and to set free slaves and in among the needy and the relatives and to set free slaves and in
the way of Allah and for the the way of Allah and for the travellerstravellers and to entertain guests, and to entertain guests,
there being no blame on him who managed it if he ate out of it there being no blame on him who managed it if he ate out of it
and made (others) eat, not accumulating wealth thereby (and made (others) eat, not accumulating wealth thereby (SahihSahih
Muslim)Muslim)

Historical BackgroundHistorical Background

�� The first waqf created by the Prophet (PBUH)
was Masjid in Medinah

� Other than these, the first known awqaf were
established for social purposes

� Umar bin Khattab—land of Khaybar

� Uthman bin Affan—well in Madinah

� Thereafter many different kinds of waqf were
created

� Public utilities, education and research, health care,

etc.

� Property, cash, grains for seeds, etc.

ContCont……

�� IbnuIbnu BattutahBattutah visited Damascus in 726 A.H., and observed visited Damascus in 726 A.H., and observed
the practices of the practices of waqfwaqf there:there:

�� ‘‘The variety and expenditure of The variety and expenditure of waqfwaqf at Damascus are at Damascus are
beyond computationbeyond computation’’

�� aid of persons who cannot undertake the pilgrimage aid of persons who cannot undertake the pilgrimage

�� supplying wedding gifts to girls whose families are supplying wedding gifts to girls whose families are
unable to provide them unable to provide them

�� freeing of prisoners. freeing of prisoners.

�� for for travellerstravellers out of revenues of which they are given out of revenues of which they are given
good clothing, and the expenses  of conveyance to their good clothing, and the expenses  of conveyance to their
countries.countries.

�� for the improvement and paving of the streetsfor the improvement and paving of the streets

ContCont……

� At the dissolution of Ottoman empire—¾ of
the land and buildings in some Turkish towns
were awqaf

� In some Muslim countries awqaf reached 1/3rd
or more of cultivable land

� At the beginning of 20th century

� In Palestine, 233 waqf deeds recorded (owning 890

properties) compared to 92 private ownership deeds

(with 108 properties)

� al Quds had 64 operating schools supported by awqaf

(more than the no. of mosques)

WaqfWaqf During Contemporary TimesDuring Contemporary Times

� Due to different reasons, awqaf have degenerated

now—both as a concept and in practice

� The concept of waqf is corrupted:

� Waqf is only for religious purposes

� Waqf can be established in real estate only

� Lack of awareness that waqf can be productive

asset/organization used for social/philanthropic

purposes

ContCont……

� In practice—many awqaf have become
unproductive assets

� Waqf not created for socio-economic purposes

� Lack of institutional/organizational development

� Lack of supporting institutions

� Many waqf assets lost

DefinitionDefinition

� Waqf—”Stand still, hold still, not to let go” or
“to protect something, by preventing it from
becoming the property of a third person”

� Waqf: religious endowment

� Waqf established by founder (waqif) by dedicating
an asset for benefit of a defined group

� Property in which the proprietary right is wholly
relinquished and which is concentrated in such a
manner to the service of God that it may be to
the benefit of man

Cont..Cont..

� waqf is irrevocable gift of a corporeal property
(‘ain) for the benefit of donor’s family or
someoneelse or something, in perpetuity, as a

charity promised and executed normally during the

life-time of the donor, which is not capable of

transfer, gift, and transmission thereafter..

� Waqf deed determines:

� Objectives for which waqf is created

� Way(s) its revenues/fruits/services can be used

� Management process and procedures of succession

of managers (mutawalli)

Features inherent in Features inherent in waqfwaqf

�� 1. collective ownership of the religious community is 1. collective ownership of the religious community is

fully expressed in fully expressed in waqfwaqf, even in cases where one person , even in cases where one person

alone has the management of it. alone has the management of it.

�� 2. the inalienability of the basic objects of the 2. the inalienability of the basic objects of the waqfwaqf. .

�� 3. collective usage is noticed residually in 3. collective usage is noticed residually in waqfwaqf, in that it , in that it

has the basic purpose of providing for charity, schools, has the basic purpose of providing for charity, schools,

mosques, public water supplies and other establishments mosques, public water supplies and other establishments

-- and not for individual usage. and not for individual usage.

�� 4. 4. waqfwaqf is frequently concentrated in zones in which the is frequently concentrated in zones in which the

institution of protection operates fullyinstitution of protection operates fully

Important FeaturesImportant Features

� Good objective or birr – good intention

� “…as if ownership belongs to God”

� Waqf is usually perpetual—but can be temporary
and partial

� Can be created for various objectives

� Philanthropic or public (khayri or aam)

� Family or private (ahli or khass)

� Mixed (mushtarak)

� Religious and charitable/social

1. Irrevocability1. Irrevocability

� the lack of power of the settler (waqif) to revoke
his donation at any time

� Jumhur: effective and binding as soon as the
declaration is made by the donor without any
need for delivery of possession to the
beneficiary. The property is transferred from the
ownership of the settler to the ‘ownership’ of
Allah and hence irrevocable.

ContCont……

�� In In MsiaMsia: S4 : S4 (1) A wakaf shall immediately come
into effect once all the requirements and
conditions of the wakaf had been
fulfilled,unlessitisexpresslyprovidedthatitshallco
mmence only after the death of the waqif.

� (2) A wakaf which has come into effect cannot
be sold or transferred by the waqif or be
inherited by any person.

Cont..Cont..

� Haji Salleh Bin Haji Ismail & Anor V Haji Abdullah Bin

Haji Mohamed Salleh & Ors [1935] 1 MLJ 26, Whitley, J.

“The ownership of the thing immobilised is transferred

to God; which means that such object ceases, for men,

to be subject to the right of the private property, and

that it henceforth belongs neither to the founder nor to

the beneficiary

� Re Dato Bentara Luar Decd Haji Yahya Bin Yusof & Anor

V. Hassan Bin Othman & Anor [1982] 2 MLJ 264, 1

LNS 16, Salleh Abas FJ: A valid wakaf, like the one

under appeal, takes effect immediately from the

moment of its creation.

2. Perpetuity2. Perpetuity

� ta’bid;

� 1. once the declaration of waqf is made by the
donor, a legally binding waqf is automatically
effected.

� 2. waqf cannot be constrained by time and
temporariness.

� 3. the subject matter of the waqf should remain
so forever.

�� JumhurJumhur: Perpetuity on immovable property.: Perpetuity on immovable property.

3. Inalienability3. Inalienability

� after a valid declaration is made, the subject matter of
the waqf ‘passes out of the ownership of the waqif and it
cannot be alienated or transferred either by the waqif or
the mutawalli nor do their heirs can take it by way of
inheritance.

� prohibit the administrator from mortgaging or pledging
the waqf property as security for a loan, simply because
whatever cannot be sold cannot be mortgaged too

� Section 4 (2), all properties are vested in the Majlis and
prohibits any conveyance, assignment, or transfer
whatever’ affecting waqf

Issues on PerpetuityIssues on Perpetuity

� perpetuity is one of the main cause of
underdevelopment.

� A shortcoming inherent in the concept of
perpetuity is non-liquidity of the assets.

� majority of the waqf institutions have a large
number of real estate but little cash,

� Due to the idea of perpetuity, the administrator
neither can sell the property nor aggressively
seek financing for its development through
mortgage.

� it gives rise to the prohibition of temporal waqf.

IstibdalIstibdal
� Hanafi and Hanbali schools have devised several

schemes to counter the negative effect of perpetuity by
allowing the exchange of estates or sell (ibdal and
istibdal).

� Hanbali jurists especially Ibn Taymiyah allowed
mosques to be sold and exchanged if that is
beneficialtothecommunity

�� EgEg. selling part of the . selling part of the waqfwaqf property to develop the property to develop the
remaining of the same property, selling bundle of remaining of the same property, selling bundle of waqfwaqf
properties and buying new one in exchange to be used properties and buying new one in exchange to be used
for the same purposes of the sold properties, selling for the same purposes of the sold properties, selling
one one waqfwaqf and buying another having common purpose and buying another having common purpose
and selling a handful properties belonging to various and selling a handful properties belonging to various
waqfwaqf and buying a new property which has higher and buying a new property which has higher
income and the same revenue income and the same revenue

Problems with Problems with istibdalistibdal

� the method of barter and selling one property in
order to purchase another seems difficult as it
takes along period of time to replace the given
waqf property with a comparable one,

� need the assessment of the valuers, suitability of
location, bargain and consent of the owner of
the targeted land, clearance from fatwa council
for selling the waqf property

Perpetuity: RevisitPerpetuity: Revisit

� The concept of perpetuity is not expressly
established in the sunnah, It is only deduced by
Muslim jurists from the Prophet’s hadith about
the waqf of the sayidina Umar (r) that the land
should not be sold, given as gift or inherited.

�� 1. 1. hadith of Umar (r), concerning habs is a form
of sadaqah jariyah and if read together with other
hadiths of sadaqah it will become clear that a
sadaqah that recurs after the death of the donor
is also a habs as long as the donation keeps
benefiting Muslims(as long as it exists.

ContCont……

�� 2. 2. the reported hadith must be read as a whole
including the part saying: ‘if you wish you can
detain the corpus and let its benefits go to
welfare’. Theh adith in this way gives liberty
(which also implies the permission of other
forms of waqf) to the owner of the property to
perpetually give his property in waqf.

Cont..Cont..

�� 3. 3. the rule is permissibility until there is evidence
against its validity

� Since waqf is for the benefitofummah and there is
no restriction on donors, all types of waqf should
be allowed.

Temporal Temporal WaqfWaqf is allowedis allowed

� Temporal waqf is allowed by Imam Abu Yosuf and
Malikis , and currently recognised in Sudan and by
Egyptian law of waqf.

� Imam Zufar and Ibnu Taymiyah have allowed cash
waqf. The majority of Malikis allowed cash and food
stuff..

� Some Shafi’I jurist sallowed the dedication of dog for
purposes of waqf.

� Al-Subki, manfa’ah or benefit might be the object of
waqf and, therefore, as long something can be used recurrently
and benefits can be received, it can be the subject
matter of waqf.

Practice in MalaysiaPractice in Malaysia

� the idea of perpetuity of the subject matter seems to
have lost its ground

� S 2: “include any movable or immovable property and
any interest in any right, interest, title, claim, chose in
action, whether present or future or which is otherwise
of value in accordance with Hukm Syarak;”

� waqf as “the dedication of any property form which its
usufruct or benefit may be used for any charitable
purpose whether as waqf am or waqf khas according to
Hukm Syarak, …”.

WaqfWaqf: Redefine: Redefine

� holding a maal (an asset) and preventing its
consumption for the purpose of repeatedly
extracting its usufruct for the benefit of an
objective representing righteousness and
philanthropy

� waqf should be identified as the perpetual
dedication of benefits of a valuable, the value of
which is amortized subsequently, and its
proceeds or revenue are later spent on welfare
of the named beneficiaries.

Types of Types of WaqfWaqf

�� waqfwaqf ahliahli, , the the waqfwaqf property is held for the family property is held for the family

of its founder, until the distinction of his or her of its founder, until the distinction of his or her

descendants descendants

�� waqfwaqf khairikhairi involves the permanent dedication of involves the permanent dedication of

property to charitable purposes. property to charitable purposes.

32

Potential of Waqf in Enhancing Welfare

TypeType

BeneficiariesBeneficiaries

ReligiousReligious Philanthropic/ Philanthropic/

SocialSocial

FamilyFamily AA BB

General PublicGeneral Public CC DD

�� Type AType A——Not too common (tombs)Not too common (tombs)

�� Type Type BB——WaqfWaqf for family membersfor family members

�� Type C Type C ––Mosques, graveyards, etc. Mosques, graveyards, etc.

�� Type Type DD——WaqfWaqf for enhancing welfarefor enhancing welfare


429 Too Many Requests

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