ALIFF AND IMANI CASE

Introduction

Aliff and Imani met you, a certified Islamic Financial Planner, in your office and they were
impressed by your detailed explanation about the concepts of Islamic Financial Planning. You
have been asked to prepare a comprehensive financial plan in realising their financial goals.
You have gathered the following information from two meetings which were held on 20th
November 2020 and 1st December 2020.

Personal Information Year 2020

Aliff (40 years) and Imani (38 years) both work at an eminent public university in northern
Malaysia. They got married 10 years ago and from their marriage they have a son Zaki (5
years) and a daughter Zalina ( 2 years).

Aliff is the eldest in the family of two and his father passed away 2 years ago. He inherited a
traditional malay house (current value RM150,000) in Yan Kedah as a faraid proceed from his
late father’s estate and he is renting out this house at RM400 a month. His mother lives in Alor
Setar with his sister and he has been supporting them with RM300 on a monthly basis. His
mother was diagnosed with kidney problem and he spent RM7,000 in year 2015 for her kidney
treatment in a private hospital. Imani is the only child of her parents and both have retired from
government agencies. They are financially well off and are not dependent on her. They are
living in Kelantan and she always makes an effort to visit them at least once every four months.

Due to the high cost of college education, Aliff wishes to set up an education fund for his
children and he prefers not to take education loan for his children. He wants to estimate how
much money should be invested to cover their education cost and asked you for your advice on
ways to set up education plans for them. He anticipates that both of them will begin attending
college at the age of 18 and he chose to send them to local universities. The average cost of
study for 4 years social sciences degree programme including living expenses is RM15,000 per
year and this cost will rise at a rate of 3% per annum.

Financial Information Year 2020

Aliff is working as a senior lecturer with a salary of RM8,000 per month and the salary is
expected to grow at 4% a year. He is also appointed as a head of department in the university
with administration allowance of RM500 per month until end of year 2023. For retirement
purpose, he contributed 11% of his salary to Kumpulan Wang Simpanan Pekerja (Employee
Provident Fund (EPF) while the university contributed 12% and his current EPF balance is

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RM80,000. Apart from his current employment, he is also takes up a part time job as a tutor at a
private college in Alor Setar with monthly earnings of RM1,000. Meanwhile, Imani is working as
a librarian in the same university with a salary of RM4,000 a month. Her salary is expected to
increase by 4% also per year. She chose the pension scheme as her retirement option,
therefore there is no salary deduction for EPF. As government servants, Aliff and Imani received
an average of half month bonus every year.

Both of them has contributed RM150 per month each for takaful protection policies and they are
entitled a total coverage of RM500,000 per person and the current cash value for both plans
is RM15,000 each. At the same time, they are also being covered by the university’s
takaful coverage where the death benefit is 10 times of their monthly basic salary. For
medical purposes, Aliff participated in a medical takaful plan covering all his family members
since last 5 years with an annual contribution of RM3,600.

Aliff and Imani have submitted separate assessment tax to Lembaga Hasil Dalam Negeri
(Inland Revenue Board of Malaysia) and both have been paying taxes RM200 and RM150
every month respectively. In addition, they also pay zakat; RM1,500 for Aliff and RM1,000 for
Imani every year for the past three years. They have asked you on the current status of these
tax and zakat payments (including zakat on wealth)

At present they are residing in their own single storey semi detached house in Jitra which was
purchased by Aliff 5 years ago. He purchased this house using RM200,000 Islamic home
financing which was attached with Mortgage Reducing Term Takaful (MRTT) for a 30 years
period at 8% profit rate per annum. The current value of the house in that area is rated at
RM350,000. Imani had also bought a terrace house in Changlun, 2 years ago using Islamic
home financing (with MRTT) of RM150,000 for a 25 years at profit rate 9% per annum. This
house which has been valued at RM200,000 nowadays, has been rented out at RM500 per
month.

Aliff drives Toyota Camry that cost him RM120,000 when he bought it last 3 years. He paid
RM20,000 as down payment and the balance was secured by a 9-year Islamic hire purchase
financing with 3% profit rate. Eventhough Aliff and Imani worked in the same university, Imani
insisted to buy her own car. Her office schedules are different with Aliff and sometimes she has
to drive by herself to the university. Therefore she bought a Perodua Axia two years ago at a
price of RM42,000. She took a RM40,000 conventional hire purchase with 2.5% interest rate for
seven years. Other than car financing, both of them also have conventional credit cards with
outstanding balance of RM7,000 for Aliff and RM4,000 for Imani.

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List of assets with current values, owned by the couple, are as follows

Assets Aliff Imani

Wadiah Saving Account RM10,000 RM5.000
Tabung Haji RM6,000 RM4,000
ASB/Unit Trust RM20,000 RM10,000
FGV Shares RM10,000 -
Bank Persatuan Shares - RM5,000
Cepat Bhd Shares RM12,000 -

In January 2015, Aliff had invested 2,000 shares in Cepat Bhd with face value of RM5 per
share which is unlisted company. But based on your findings and also information from the
officer in the religious agency (JAKIM), this company produces non halal products. You have
informed this to Aliff and he seeks your advice on the method of cleansing this investment

In the first meeting, Aliff gave the following information as his family expenses for year 2014. In
addition, the Prime Minister of Malaysia has announced several initiatives to curb depreciation
of ringgit and economic slowdown in his budget speech in October 2014. This was led to the
introduction of Good and Services Tax (GST) and rationalization of subsidies. Based on this
situation, Aliff planned to cut off some expenditures starting January 2015 and he asked your
opinion of having 50% deduction on his expenses on telephone, Astro bill, dining and vacation.

Aliff Imani
Yearly (RM) Yearly (RM)
Groceries 6,000 -
Utilities 2,000 -
Telephone 5,000 2,500
Astro (TV satellite) 2,400
Dining Out 6,000
Clothing 1,000 2,000
Children Education 6,000 -
Books 1,000 1,000
Personal Expenses 2,000 3,000
Maid - 9,000
Vacation 6,000 -
Miscellaneous 4,000 2,000
Car Takaful & Road Tax 1,500 800
Car Maintenance 3,000 2,000
Petrol 4,000 2,000

They plan to perform hajj together 5 years from now. Due to the limited hajj quota, they opted to
choose private hajj package which will cost them RM30,000 each and it inflates at 4% per
annum. They want you to estimate how much fund is needed for this purpose.

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They expect to continue working till age of 58 year old and they plan to reside in Aliff’s
house in Yan Kedah for post retirement period. Surrounded with paddy fields and fruit
orchards, they estimated RM8,000 per month in current value is sufficient for them to maintain
their new village lifestyle after retirement. You have been asked to advice them on how to
achieve this retirement target. At the same time, they also realized the importance of having a
proper plan for estate planning and they seek your advice on faraid distributions. The couple
also indicates their willingness to share matrimonial (Harta Sepencarian) at a ratio of 50:50 on
the assets if one dies.

Assumptions

1. Inflation rate is at 3% per annum

2. Future EPF dividends are expected at 5% a year
3. EPF withdrawal at the age of 50: one third of EPF balance or Account II
4. The rate of return on equity investment is 8%, REIT at 6% and saving account at 3% per
annum. While ASB is 8% and Tabung Haji is 6%. For unspecified investments, weighted
returns will be used in the calculation.
5. Income tax as at 2020 rate
6. For financial assets, Nisab is RM19,125 (85g x RM225) and zakat rate is 2.5% per year
7. No dividends are expected from stock investments held and the market value is not
expected to change substantially in the near term
8. All cars depreciate in value at an annual rate of 15%.
9. Bonus received on contractual basis
10. Life expectancy for male and female: 85 years

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Task:

1. List out the issues of the case and your tasks in evaluating these issues, according to the
following financial planning components:
i. Cashflow Management
ii. Asset Liability Management
iii. Risk Management and Takaful
iv. Zakat and Tax
v. Islamic Investment (Education and Hajj Plan)
2. Analyze the information they have given to you and outline the potential tasks as financial
planner according to financial planning components.
3. Present your recommendations for each of the financial planning components based on your
analyses (Computation).