Presenter : Fahim ullah khan Abdul waheed

BSc economics Group A 6th semester

- Fatwas on insurance- What is takaful?- Key features of takaful- Takaful glossary- Takaful models- Takaful worldwide- Challenges facing Islamic insurance

1977 – Fatwa of Higher Council of Saudi Ulama’

1978 – Fatwa of Fiqh Council of Muslim World League

1985 – Fatwa of Islamic Fiqh Academy (OIC)

   1985 – Fatwa of Islamic Fiqh Academy (OIC):

“The commercial insurance contract… which is commonly used by commercial insurance companies, is a contract, which contains major element of risk, which voids the contract and, therefore, is prohibited (haram) according to the Shariah”.         

Takaful (Takaful (ArabicArabic ‘‘mutual provision of mutual provision of guaranteesguarantees’’): Islamic insurance. System ): Islamic insurance. System based on the principles of solidarity and based on the principles of solidarity and mutual assistance, under which the parties mutual assistance, under which the parties to the contract support each other when to the contract support each other when any of them suffers a loss (which means any of them suffers a loss (which means primarily a monetary compensation). primarily a monetary compensation).

““takafultakaful means a scheme based on means a scheme based on brotherhood, solidarity and mutual brotherhood, solidarity and mutual assistance which provides for mutual assistance which provides for mutual financial aid and assistance to the financial aid and assistance to the participants in case of need whereby the participants in case of need whereby the participants mutually agree to contribute for participants mutually agree to contribute for that purposethat purpose””

((TakafulTakaful Act 1984, article 2) Act 1984, article 2)

takaful is free from excessive gharar (al-gharar al-kathir);

the installments paid, or a part thereof, may only be used in operations that are permitted by Shariah;

the takaful business is commonly based on a profit sharing mechanism known as mudharabah;

the business of a takaful company is supervised by the Shariah Supervisory Board;

takaful, as opposed to conventional insurance, does not contravene the Shariah law of inheritance.

1979 1979 –– Islamic insurance company (Sudan) Islamic insurance company (Sudan)1979 - Islamic Arab Insurance Company 1979 - Islamic Arab Insurance Company

(UAE)(UAE)1984 1984 –– Takaful Act (Malaysia) Takaful Act (Malaysia)1985 1985 ––Takaful Malaysia Berhad (Malaysia)Takaful Malaysia Berhad (Malaysia)1997 1997 ––Retakaful company (Asean Retakaful Retakaful company (Asean Retakaful

International, ARIL)International, ARIL)

General General takafultakafulFamily Family ttakafulakaful

Motor Motor ttakafulakaful sscheme; cheme; AccidentAccident ttakafulakaful sscheme; cheme; Marine Marine ttakafulakaful sscheme; cheme; Engineering Engineering ttakafulakaful sschemecheme; etc; etc..

Individual family Individual family takafultakaful plans; plans; TTakafulakaful mortgage plans; mortgage plans; TakafulTakaful plans for education; plans for education; Group Group takafultakaful plans; plans; Health/Health/mmedical edical takafultakaful. .

Mudharabah modelMudharabah model Wakalah Wakalah modelmodel Modified Modified Model Model ((mudharabahmudharabah+ + wakalahwakalah)) WakalahWakalah model with model with waqfwaqf

The surplus is shared between the participants with a takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5 , 6:4 etc. as mutually agreed between the contracting parties. Generally, these risk sharing arrangements allow the takaful operator to share in the underwriting results from operations as well as the favourable performance returns on invested premiums.

Contributions, claims and distributions.

Qard al hasan

Combined fee

Combined fee is a percentage share of the underwriting result, a combination of the technical result and investment return

Cooperative risk sharing occurs among participants where a takaful operator earns a fee for services (as a Wakeel or Agent) and does not participate or share in any underwriting results as these belong to participants as surplus or deficit. Under the Al- Wakala model, the operator may also charge a fund management fee and performance incentive fee.

Qard al- hasan

Wakala fee

Contribution,claims and distributions.Wakala fee is a percntage of upfront Contributions. This sometimes includesA performance element to encourage efficient management .

Wakala -Waqf ModelIt is a WAKALAH model with a separate legal It is a WAKALAH model with a separate legal

entity of WAQF in-between.entity of WAQF in-between. The relationship of the participants and the The relationship of the participants and the

operator is directly with the WAQF fund. The operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund participants pay contribution to the WAQF fund by way of Tabarru.by way of Tabarru.

The contributions received would also be a part The contributions received would also be a part of this fund and the combined amount will be of this fund and the combined amount will be used for investment and the profits earned used for investment and the profits earned would again be deposited into the same fund would again be deposited into the same fund which also eliminates the issue of Gharar.which also eliminates the issue of Gharar.

Losses to the participant are paid by the Losses to the participant are paid by the company from the same fund.company from the same fund.

Operational expenses that are incurred for Operational expenses that are incurred for providing Takaful services are also met from providing Takaful services are also met from the same fund.the same fund.

Initial donations

Wakala fee

Contribution,claims and distributions.Wakala fee is a percntage of upfront Contributions.

Mudaraba fee is a percentage returns from investment

Combination of wakala and mudaraba contracts: In this model, the wakala contract is adopted for underwriting activities, while the mudaraba contract is employed for the investment activities of the Takaful fund. This approach appears to be favoured by some international organisations and is widely adopted by Takaful undertakings in practice.

Qard al hasan

Wakala fee

Contribution,claims and distributions.Wakala fee is a percntage of upfront Contributions.

Mudaraba fee is a percentage returns from investment

Profits attributable to Shareholders

Company’s Admin. & Mangt. Expenses

Takaful Contribution paid by Participant

General TakafulFund

General TakafulFund

Operational Cost ofTakaful

Surplus(Profit)

Participant’sSharefrom Surplus

Company’s Share from Surplus

Investment By Company

Profit From Investments

Company

Participant

Mudaraba Model

General TakafulFund

OperationalCost ofTakaful/ReTakaful

Surplus(Profit)

SurplusDistributiontoParticipants

Participants’

Takaful Fund

Wakala Model

Takaful

Contribution

paid

by Participant

Company

(Capital)

Mudarib's’Share of PTF’s InvestmentIncome

ManagementExpense of the Company

Profit/Lossattributable toShareholders

WakalaFee(30% to 35%)

ProfitFromInvestments

InvestmentIncome Reserves

Investment bythe Company

Investment Income Sharingon Mudaraba Basis

InvestmentIncome

Operational Cost of Takaful / ReTakaful

Claims &Reserves Surplus

(Balance)

P A R T I C I P A N T S’ T A K A F U L F U N D (P.T.F.)

Mudarib’s Share of PTF’s Investment Income

Wakalah Fee

InvestmentIncome

Management Expense of the Company

Profit/Loss

S H A R E H O L D E R S’ F U N D (S.H.F.)

Participant

WAQF

Takaful Operator

Share Holder

Wakala-Waqf Model

Investment by the Company

The number of takaful operators worldwide: - 75 takaful operators (including takaful

windows) - 5 retakaful operators Total assets: USD 1,5 billion Contributions: USD 600 mln.

Share of takaful in insurance industry Malaysia: 27 % of total insurance market Asia Pacific: 9% of total insurance market Middle East: 63 % of total insurance

market EU and US: 1 % of total insurance marketThe takaful and retakaful market is

expected to grow to $10-12 billion by 2011.

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