Posted by I am writing this letter to create public awareness ( specially to the Muslims) pertaining to certain matters concerning the affairs of Amana Takaful PLC ( ATL ) that have troubled me over the years. Some publications by ATL in the past raised several doubts in my mind and somewhat similar practices are still continuing. There are many issues but, at the present time, I wish to focus and bring two very important matters to the attention of the public and to ATL’s shareholders.
Firstly, in the audited accounts for year ending 31/12/10 the overdrafts are recorded at Rs. 390 Million. Note 12.3 in the accounts states “The Bank Overdraft is within the limit and not subject to any Overdraft interest” I found this statement to be absurd because no commercial bank would lend money free of interest. Ordinarily I would have clarified this matter with ATL’s management but, going by past experience; I chose not to do so. I preferred an outside body to look into this.
I referred this matter to the Securities and Exchange Commission of Sri Lanka (SEC) The Sri Lanka Auditing and Accounting Standards Monitoring Board (SLAASMB) and The Insurance Board of Sri Lanka ( IBSL) to investigate and find out why the overdrafts did not attract interest. It was established that the company has obtained interest free overdraft facilities only on account of interest income earned from Government Securities. Following my complaint, the company was directed by the SEC to disclose these facts in the Financial Statements in future in order to comply with para 32 of SLAS 03, “Presentation of Financial Statements”.
The ICASL has defined the objective of an audit of financial statements as “to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with SLAS and relevant legislation”. SEC has written to ATL to follow SLAS3 in future accounts and I understand they have agreed to do so. In other words, the accounts should quantify and reveal interest receivable and payable prior to set off. Just stating a net figure only or stating that no interest is paid on the overdraft is not acceptable.
In these circumstances how can anyone say the accounts comply with Sri Lanka Accounting Standards.? SLAS 3 para 14 states “…..Financial Statements shall not be described as complying with Sri Lanka Accounting Standards unless they comply with all the requirements of Sri Lanka Accounting Standards “.
It should be noted that the Balance Sheet does not carry a note number for the overdrafts. The only limited reference is in note 12.3 and note 25.2. Note 12.3 states “the bank overdraft is within limits and not subject to any overdraft interest. ” Note 25.2 states “The Company has not recognized the notional interest income amounting to Rs 18, 983,503 on government securities and interest free bank overdraft facility during the year “. In my opinion, this note is not adequate It lacks transparency. It should in fact quantify and state clearly that interest receivable and payable are set off by ATL.
The overdraft at 31/12/10 was Rs 390 million and at 31/12/09 Rs 206 million. Assuming that the mean average overdraft for the year ending December 2010 was Rs 300 million, at 15% per annum, the overdraft interest payable would be around Rs 45 million. If the net interest after setting off is Rs 18 million, as stated in the accounts, then the interest on government securities should be Rs 63 million.
These are all material figures when you take into consideration that the loss for year 2010 was Rs 49 million, the retained loss at 31/12/10 was Rs 382 million, the overdraft at 31/12/10 was Rs 390 million and the stated capital was Rs 500 million.
A bland statement on its own, without reference to any other note in the Accounts, that the overdraft is free of interest is misleading and is a text book example of ‘window dressing’.
Due to the foregoing, in my view, the Accounts do not give a “true and fair view”, the state of affairs is not properly disclosed and Sri Lanka Accounting Standard (S LAS 3) has been conveniently ignored.
Shareholders are entitled to information and not means to information. There are numerous judgments and decisions on this subject given by the British Courts. The principles relating to shareholders entitlement to accurate, adequate and meaningful information in the Annual Reports have been argued and settled in many cases in the House of Lords and the Court of appeal. Some excellent judgments referring to the duties of directors and auditors have emanated from those hallowed halls of justice.
Secondly, as we are dealing with interest payable and interest receivable, the Islamic principles regarding the taking and giving of interest comes into focus. The Holy Qu’ran says “O those who believe fear Allah and give up what still remains of the riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. Neither you wrong, nor be wronged.” (Al-Baqarah 2:278-279)
Again, Prophet Muhammed (pbuh) in his last sermon delivered at Mt. Arafat has specifically referred to the fact that interest is prohibited for Muslims.
Let me quote from the last Sermon, Quote “Allah has forbidden you to take usury (Interest), therefore all interest obligation shall henceforth be waived. Your capital, however, is yours to keep, you will neither inflict nor suffer inequity, Allah has judged that there shall be no interest and that all the interest due to Abbas ibn’ Abd’al Muttalib shall henceforth be waived” Unquote.
Is the company in-fact going against the fundamental principles and tenets of Islam. I don’t know of a single circumstance that allows Muslims to take or receive interest. I am aware that ATL has invested in Govt. Securities to comply with the rules of IBSL, The question is does Islam permit this.
I would advise shareholders, especially Muslim shareholders, to take up these matters with the Directors and to independently review these matters with learned Islamic Scholars. Considering the serious losses incurred by ATL, it may be that part of shareholder’s funds is used to buy Government Securities attracting interest at fixed rates.
The taking and giving of interest is a grave sin and, rather than punish, Allah has declared that he will wage war.
In conclusion I state that my first point refers to an accounting standard which has not been followed. This should be rectified.
The second point refers to the prohibition of giving and taking of interest and I have quoted from the Holy Qur’an and the Prophet’s last sermon. It may well be that over the years, various bodies of Scholars, in order to keep up with modern business practices, have looked for and found ways to enable Muslims to receive and pay interest and to still call themselves ” Shariah Compliant “.!!!
Yours truly,
M.M. Mansoor
Editors note:
This letter was sent to us by Mr. M. M. Mansoor who is a retired Chartered Accountant and a fellow member of ICASL.
According to Mansoor, he is a public rights activist and an active investor in the CSE and presently holds 100 shares of ATL.
The views expressed in this letter are his own and News360.lk will not hold any responsibility for the contents of this letter.
News360.lk is willing to provide space for any interested party who wish to respond or express an opinion regarding this letter.
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Dear Readers,
This gentleman is the father in law of a former director who was asked to resign. That is the reason he does not want to write to the company. Further all these are fabricated stories.
There are regulators and auditors and further there are so many shareholders who own much more shares in this company. Let them take care of this matter and Mr Mansoor can do something more use.
Dear Readers,
I usually have great difficulty in dealing with people who are unable to read and understand the English language. Let me try.
The reader is barking up the wrong tree. I have three sons in law. All are professionals and none of them have worked in AMANA in any capacity. How do you sack a man who does not work for you. ?
I have written to ATL some years ago and up till now I have not had a meaningful reply. This refers to documents and projections sent to investors relating to a Private Placement in December 2004. I challenged the projected figures. The actual losses made for five years subsequent to the Private Placement have justified the fears expressed in my letters. In fact , projected profits of Rs 140 million has resulted in losses of Rs 226 million for five years. Who is fooling whom here?
.Since I did not receive a reply, on this occasion, I invited the SEC to investigate into the accounts.
The reader says I hold only a few shares. He is correct because I recently sold off my shares. He also talks of regulators and auditors. I did refer to the regulator SEC. He says let shareholders take care of theses matters. In fact in my letter I have requested shareholders to take these up with the Directors ans scholars.
Obviously the writer does not understand English. Could the Editor please give him a Sinhala translation !!
As a Muslim,what I would like to write is that this gentleman’s article is confusing to a greater extent because on one hand, he finds ATL at fault for the non recognition of interest income in their books and on the other hand,he sites a few Quranic and Prophetic statements prohibiting all types of interest based transactions.According to my understanding,based on the information disclosed in ATL’s annual report,its Shariah board has issued a statement to the effect that all transactions pertaining to ATL is within Shariah law therefore I do not see any issue with this especially because the president of the All Ceylon Jamiathul Ulama (ACJU) is a member of this Shariah board.I am sure that this decision to allow ATL to recognize interest income in their books is based on the Islamic decision making methodology referred to as Ijithihaad.Mr.M,you should have clarified this matter with the Moulavi (Mufti) before publishing ,as you are,according to my knowledge,NOT an Islamic scholar (I am subject to correction on Mr.M being an Islamic scholar).
Mr Mansoor’s response,
I thank Mr Waleedh for his response. It appears he has not fully understood the gravity of the problem or the salient features of my complaint. He should read the article a few more times. Inter alia, i have said the following.
** The accounts have been window dressed. The receiving and paying of interest is not declared as called for by SLAS3. SEC have brought this to the attention of the Directors after I complained.
** The fact that the so called Shariah Council have given a ruling is of no interest to me. My complaint is the accounts do not give a true and fair view.
**Mr Zaheed the CEO, has admitted that they take interest and pay interest. Refer Article published in the Sunday Leader yesterday. Irrespective of how interest is dealt with, I have queried whether Islam permits such transactions.
** I have asked shareholders to clarify such matters with learned Islamic Scholars. That is my duty as a Muslim.
If ATL if making continuous losses,what is the purpose of this company. When can we expected dividends and proper accounts?
I cannot answer you because I do not have a crystal ball. All I can say is each time they are bankrupt or insolvent they go with a begging bowl to shareholders. in 2004 they put out an offer document and collected monies on a Private Placement at a premium of 100%. The figures forecast by Amana Securities was absurd. Up to the offer date the company made losses.
In 1997 when they were in dire straits they went for a Rights Issue and collected Rs 375 million. This year, when there was a serious loss of capital, they collected Rs 750 million . So whats going on ? Better look into the crystal ball. If you go by ATL’s track record the next Rights issue should be circa 2013.
The accounts seem OK except for the interest issue which I have pointed out. The SEC is following this up. As for dividends, just forget it. Just sell off your shares in ATL and invest in shares like LGL, RAL, CWM ,COCO, and CIC. They all pay dividends.
I have also came across this situation in ATL annual report… They have given an explantation saying The investment in Govt. Securities are compulsory under Insurance companies law… Therefore they have invested in Govt Securities through a bank and They have an agreement with a bank to recieve interest on Govt Securities and let Amana Overdraw the account with no interest. At the end of the day Bank always wins the game… So readers will undesratand the facts beyond this level… At this point we should question the validity of the Sharia board in where they have given the certification on the Annual Report… And also I need to point out that under investment Note no 3, the company has invested in Bank deposit and No explanation has given in relation to interest bearing or non interest bearing Deposit….
I thank Mr Amaya for his response and the views expressed are appreciated.
Apart from the issues noted by him , there are many other issues which I am following up. I have complained to the IBSL and SLAASMB on these matters and they are investigating. The main queries are in respect of govt. securities purchased for Rs 606 million and overdraft of Rs 390 million at 31/12/10. Also it seems that the Rs 606 million exceeds the limits placed by IBSL . Normally this is not a problem. However, since the excess of interest receivable from govt securities less payable on overdrafts is intended for charities , this is a problem.. Then the more you invest in govt securities, more monies are available for charities and not the shareholders. This is a stupid practice . How can Amana make payments to charities when they have never paid a dividend and carries a retained loss of Rs 382 million at 31/12/10.
The Annual reports have not given the correct picture on the interest issues and how they got interest free overdrafts. Dont worry, we are looking into all this. the SEC has written to Amana to follow SLAS3 in future.
Once all the info is available I intend contacting Mr Mohamed Amin Ali Quattan who is a Shariah Advisor to Standard & Poor, rating indices, USA, to let me know whether Amana is Shariah compliant. Mr Quattan is a highly respected and eminent Scholar on Shariah matters. In my view ,the accounts are an absolute disgrace.
salam mr mansoor,
Thank you very much for pointing out the facts. In islam it says if there is any country regulation to follow we have to give priority for that, in that situation we can accept investment in govt securities since itz a must, but how can they go for a o/d and give it to their customers who believe the money is free from interest? is it allowed in islam? if you compare the total amount that you have to pay for your loan in AMANA and other banks most of the time it is equal. ARE THEY FOLLOWING REAL ISLAMIC BANKING??? other readers please do not comment saying there are many scholars are there in the board so nothing to worry.. Allah has given us knowledge to clarify what is wrong and what is correct so lets try to use that and not to depend on what others just say.
Mr Roshan,
waalaikum salaam.
Thank you for your support and open minded outlook on Islam. i have complained to IBSL and SLAASMB on the deficiencies and omissions in the Annual Reports. SEC have already acted and in writing informed ATL to disclose their interest dealings as called for by SLAS3. Until I get the following info, I cannot say whether ATL is run on Islamic principles or is Shariah compliant.
*** Interest received and paid in 2010 on govt securities and overdrafts.If set off, full details required.
*** Insurance claims debited to this account. Why debit to this account.?
*** How much has been paid to charities or is earmarked to be paid.
***Is it morally acceptable to make payments to charities before paying dividends to shareholders. Some shareholders are non Muslim.
*** Overdraft was Rs 390 million and Govt securities Rs 606 million. What are the rates of interest. ? Are we paying out more than what we receive.?
*** Has PABC acted within the CBSL rules. Has part of the ATL book keeping been out sourced to PABC?
Will keep you all posted. With out the above info difficult to move forward. I am relying on the Regulators to do their job.
Salaams
Muzzammil Mansoor
Dear Mr.Muzammil
There was a recent respond to Sunday Leader for their news item of 6 Nov, by ATL confirming that there are no investigations carried out by SLASSMB or IBSL Also Refer to your comment on 26th October which says ” I have complained to the IBSL and SLAASMB on these matters and they are investigating”
Please refer the link – http://www.thesundayleader.lk/?p=50815
Seriously what’s going on…would like to know about your claim? is it true..
Citizen of Sri Lanka
Thank you for your response. I am aware of the letter sent in by ATL and published by the Sunday Leader. . The correct position is this.
I did complain to the SEC, SLAASMB and IBSL and brought to their attention that, in my view, inter alia, the Annual Report of ATL for year 2010 did not comply with the SLAS in some respects. I was primarily focusing on the fact that the Accounts did not quantify or disclose the interest received on Govt Securities ( Rs 606 million invested ) and interest paid or set off on Overdrafts with PABC ( Rs 390 million borrowed ). This was of great concern to me . Mr Zaheed, in his interview with the Leader titled “AMANA Takaful under fire” said that the interest on the overdraft is set off against interest earned on Govt Securities making the overdraft interest free.
I have to inform you that SEC and SLAASMB , after many meetings with me and inquiring into my complaints, has written to ATL recommending revisions to the present disclosures on interest. In fact SEC has specifically referred to the provisions of SLAS 3. Hopefully, after several years, the Shareholders will receive this information. IBSL yesterday, 18/11/2011, wrote to me that they are working on my complaint . This is in progress.
I will not comment on the contents of the letter sent by ATL to the Leader. It is for the Leader to reply. However let me tell you this. The Oxford Dictionary defines the word ” INVESTIGATION ” as follows.”Examine, inquire into, study carefully, make official inquiry into ” If you go by this definition was ATL investigated ?
You be the judge.
Has IBSL (Insurance Board of Sri Lanka) completed their investigation and has Amana’s Shariah compliance been independently verified?
Thank you for following this up
1) IBSL informed me that they are following up on my complaint .We have to wait for them to complete their investigations. I wrote to the Director General. As you know , SLAASMB & SEC have already written to ATL.
2) With regard to verifying whether ATL is Shariah compliant,we have a problem. The respected learned Scholars that I contacted have advised that they are unable to form an opinion on this matter as much of the vital information is not available. They say that they only go by the information available in the public domain. In other words they only study the Annual Reports. They do not contact the companies for additional information.
The following information, which the shareholders are entitled to , is not given in the Annual Reports. In fact some notes are completely misleading.
a) Overdraft interest paid or set off by PABC
b)Interest on Govt Securities received directly by PABC and set off against overdraft interest.
c) insurance claims paid , if any, and debited to Interest Account.
d) Interest monies paid to charities, if any, approved by the so called Shariah Council
e) Complete details of Assets Pledged.
The chances are that the above info will be given in future Annual Reports. These payments go into several millions. Remember ATL has run at losses and has never paid a dividend. ATL collected Rs 750 million on a Rights Issue in March, 2011. Is the company still making losses ??
I have done my part. Now it is up to the Shareholders.