Professional Documents
Culture Documents
1
Takaful
A group of persons agree to share certain risk (for example, damage by fire) by
collecting a specified sum from each. In case of loss to anyone of the group,
the loss is met from the collected funds Thus it can be visualized as a pact
among a group of members or participants who agree to jointly guarantee
among themselves against loss or damage that may inflict upon any of them as
defined in the pact. Should any member or participant suffer a catastrophe or
disaster he would receive a certain sum of money or financial benefit from a
fund, as also defined in the pact, to help him meet the loss or damage.
In other words, the basic objective of Takaful is to pay for a defined loss from
a defined fund. Each member of the group pools effort to support the needy. It
means mutual help among the group.
In view of the above as well as the real need for insurance cover, Muslim jurists
looked further into the Islamic system of insurance. Their conclusion was that
insurance in Islam should be based on the principles of mutuality and
cooperation. On the basis of these principles, Islamic system of insurance
embodies the elements of shared responsibility, joint indemnity, common
interest, solidarity, etc. According to the jurists this concept of insurance is
acceptable in Islam because,
Although the word Takaful does not appear in the Holy Qura’an, it is derived
from the term Ta'awun, or mutual assistance and connotes the same meaning.
The second verse of Surah 5 in the Holy Qura’an exhorts the individual to assist
others:
"Assist one another in the doing of good and righteousness. Assist not
one another in sin and transgression, but keep your duty to Allah"
V.5:2.
They {Muslims of the Quraysh and Yathrib tribes} are one community
(ummah) to exclusion of all men. The Quraysh emigrants according to
their personal custom shall pay the blood-rite {aqila} within their
number and shall redeem their prisoners with the kindness and
justice common among believers."
Believers are to other believers like parts of a structure that tighten
and reinforce each other." Al-Bukhari and Muslim.
The Believer, in their affection, mercy and sympathy towards each
other, are like the body- if one of its organs suffers and complains,
the entire body responds with insomnia and fever." Muslim.
Qard Al Hassan
According to Islamic principles, only one type of loan, Qard el Hasan (lit. good
or benevolent loan) is allowable. Under the concept of Qard el Hassan, the
lender may not charge interest or any premium above the actual loan amount.
Some Muslim jurists state that this restriction includes directly or indirectly any
benefits associated with the loan: "…this prohibition applies to any advantage
or benefits that a lender might secure out of the qard (loan), such as riding the
borrower's mule, eating at his table, or even taking advantage of the shade of
his wall."
Riba (Interest/Premium/Usury)
The single most important aspect that differentiates Islamic finance from
conventional finance and banking is the absence of interest. As discussed
earlier, the Shariah prohibits both the taking and paying of interest (Riba) no
matter what the purpose of the transaction, or the amount of interest charged.
Apart from a minority interpretation of Shariah by a few Scholars, the
consensus among Islamic jurists is that Riba and interest are the same.
There are four occasions in the Holy Qura’an where Riba is clearly prohibited.
Refer to V.30:39; V.4:161; V.3:130 and V.2:275-276.
The use of Riba is clearly prohibited by Prophet Muhammad (PBUH) in a
Hadith, where the Prophet (PBUH) condemned those who accept interest, as
well as those who pay it or are witness to such a transaction.
Al Gharar (Uncertainty)
All commercial transactions must contain full disclosure. In other words, any
transaction entered into should be free of uncertainty, deception and unknown
Four fundamental factors must co-exist to establish the proper framework for a
Takaful system:
Parties have Legal Capacity (i.e. +18 years old) and are mental fit
Insurable Interest
Principle of Indemnity prevails
Payment of Premium is consideration (offer and acceptance)
Mutual Consent (which includes voluntary purification)
Takaful Models
As a matter of deep faith, Muslims believe that there is unity in diversity. One
expression of this is that no single "best" model exists for Takaful. Shariah
scholars worldwide concur on fundamental components that characterize a
Takaful scheme, yet in their judicial opinions (fatwas) operational differences
are tolerated that do not contradict essential religious tenets.
Ta’awuni model
1) Mutual responsibility
2) Mutual cooperation
3) Mutual protection
Taxes - subject to local, state and federalTaxes - subject to local, state and
taxes. federal taxes (if any) plus obligated
to arrange annual tithe (Zakat)
donations to charity.
Benefits paid from contributions (Al
Benefits paid from general insurance
tabarru) made by participants as
account owned by insurer.
mutual indemnification.
Accounting standards consistent with
national rules (with may be GAAP)
Accounting consistent with GAAP and
plus prevailing statutory rules.
prevailing statutory rules Auditing for
Auditing same standards plus
uniform application of accounting
conformance with Islamic rules;
standards.
typically with Shariah Advisory
oversight.
Introduction
The Takaful industry is roughly 30 years young as the first Takaful company was
established in 1979 - the Islamic Insurance Company of Sudan. Today there are
some 28 registered Takaful companies worldwide writing General Takaful
More takaful companies are under formation in Sri Lanka and in Singapore. At
least four more takaful companies will likely be established in the Middle East
(viz. Bahrain, Kuwait, U.A.E. and Egypt). Several others are being
contemplated in various countries such as Saudi Arabia, Pakistan, Australia and
Lebanon. It is also understood that interest is shown in Takaful in the
Philippines, South Africa, Nigeria, and some of the former states of the Soviet
Union.
Overall, the Takaful industry in the Middle East region is newly emerging when
compared to other relatively developed markets such as Malaysia. The more
successful companies in the Middle East (Bahrain/UAE) have grown at 10%
annually whereas in Malaysia the rate of growth has been 60% annually.
Retakaful or Reinsurance
• Tunisia (1985), Beit Ladat Ettamine, Sauodi Takafol, Ltd. (BEST Re)
The Takaful way of Insurance in Pakistan is greatly needed and much awaited
as a significant segment of population desire Shariah-Compliance in all their
financial dealings.
A parallel can be drawn from the immense success of the Islamic Banking in
Pakistan.
Shareholders
Local Shareholder:
• Pakistan Kuwait Investment Company (Private Limited, Pakistan.
• Meezan Bank Limited, Pakistan
• Saudi Pak Industrial and Agricultural Investment Company (Pvt) Ltd,
Pakistan
Foreign Shareholders:
• TN Overseas Investments Pte Ltd, Malaysia (Representing Takaful
Nasional of Malaysia, the largest Takaful Company in the world).
• Noor Financial Investment Company, Kuwait.
• Takaful Holdings Limited, Dubai (representing Amanah Takaful of Sri
Lanka).
A broad estimate of the total Gross Premiums Written (GPW) within the Takaful
industry in 1998 is approximately US$500m for both Life and Non-Life business,
of which around $200m pertains to Asia Pacific region. Malaysia is one of the
largest markets outside the Arab region for Takaful, writing 78% of the non-
Arab takaful business. A geographical spread of takaful business is shown
below:
The growth in Takaful business had indeed been very impressive. As the
following Table illustrate, the annualized average growth since 1994 has been
92% in Family Takaful and 34% in General. Most growth appears to be in the
Family and group Family Takaful (68% and 11% respectively) of GPW as
compared to General Takaful (4-6%). In Family Takaful the products sold were
individual and Group Term as well as savings products, mortgage policies and
pension plans. In General Takaful, all classes of commercial business were sold.
Retakaful
Germany
USA
Switzerland
UK
Japan
The reinsurance business overall was profitable in 1988 with Pre-Tax profits of
$3.9 Billion {vs. $7.0 Bil. in 1997}. The industry Loss Ratio was 73.6% vs. 71%
{1997 was the lowest in 10 years}.
There are today Life and Non-Life insurance premiums written annually of
$24.5 Billion (of these 50% is in ASEAN countries). Assuming that over the next
ten years, the Insurance Penetration Rates (i.e., Per Capita usage increases -
refer to the section following in this paper) and the local market share of
Takaful coverage rises to approximately 15% then the Gross Premiums Written
could climb to $3.75 Billion. Further, if 33% of this were to be ceded to
Retakaful operators, then $1.2 Billion of Retakaful revenues could result as
reinsurance business, which would require a capital base of between $600
Million and $1 billion. This compares with the existing (estimated) global
capital base for Retakaful companies of less than $100 Million (1999).
From these charts it is quite clear that the traditional cultural perspective on
risk and risk protection throughout the Central Asia, Pacific and Middle East
regions has curtailed the development of an insurance industry and limited the
penetration, especially for Life insurance, as a percentage of per capita
income. The highest rates of penetration exists in mature markets of Asia
Pacific region, 1.72% ($62/year) for Non-Life and 2.16% ($78/yr) for Life in
Malaysia and 1.03% ($271) for Non-Life and 3.15% ($828) for Life in Singapore,
respectively. By contrast, the lowest penetration rates are in Saudi Arabia with
0.55% ($37) for Non-Life and 0.01% ($0.60) for Life and in Kuwait with 0.50%
($77) for Non-Life and 0.11% ($16) for Life, respectively
The ranges of Takaful Products offered are categorized into two areas:
A. Risk type products. These products are provided for the protection of the
Participants. There is little, if any, maturity benefits payable at the end of the
contracted term. There is no Participant investment component involved,
therefore, such products are marked risk only.
Savings plans are offered under different 'labels', e.g. as a Retirement plan (to
save for retirement) or as an Education plan (to save for the children's college
education).
Investment Products
Retirement Plan
Under this plan the participant contracts to contribute a monthly amount under
a Retirement Takaful Plan. The term of the plan will be the difference
between the targeted retirement age and his current age.
The death benefit under this plan will reflect the various options available to
the client (i.e. escalating, level or reducing) and the value of his accumulated
savings under the plan at the date of death.
This is the Ladies Plan above but where the contribution is a single lump sum.
Under this plan death benefit choices will be available.
Capital Plan
Capital Plan
This is the Single Premium version of the previous plan. As with the ladies
single premium plan the death cover is equal to the single lump sum
contribution. The participant determines the term of the plan.
Education Plan
This plan will be marketed as a savings plan for the breadwinner of the family
for his children's university education.
Based on a targeted savings amount at the point of time the child is expected
to attain university entry age, a monthly contribution is determined. The
benefit on death or disability will be premium waiver for the balance of the
contract period
Marriage Plan
This plan is identical to the Education Plan except that the target expense here
is the expected marriage expenses of the child and the maturity age is the
expected age at marriage of the child.
Under this plan the contribution to the takaful plan is returned to the
participant if he survives the term of the contract. On death during that period
the contracted level death benefit is payable.
Under this variation of the preceding plan, the contribution to the takaful plan
is not returned to the participant if he survives the term of the contract. On
death during that period the contracted level death benefit will be payable.
This variation of level term pays a decreasing level of cover throughout the
contract period, allowing for a high level of cover at inception reducing to zero
at contract maturity.
Group Products
These are Takaful Ta'awuni products where many participants are grouped
under one contract. These products provide for a death and total permanent
disability cover determined by the relationship between the contract holder
and the participants as explained below:
Benefits to Employer/Company
The Takaful Ta'awuni Group Retirement Plan enables the employer to provide
its employees with retirement benefits, in form of either a lump sum payment
at retirement, or a lump sum used to purchase an annuity, i.e.
monthly,quaterly,half yearly, yearly income during employee's retirement.
Upon maturity of the plan, the benefit payable is the final maturity value in
the investment plan.
The Takaful Ta'awuni Group Term Protection Plan is level risk protection
coverage that protects employees in the event of death or disability, so that a
multitude of that employee's yearly salary can be paid to his family or
dependants to ease their financial burden in a sad time of loss. This multiple is
typically two or three times annual salary in the year of death. Minimum
protection is 12 months salary or SR 50,000, whichever is greater. Maximum
level of protection is five (5) to eight (8) times annual salary, depending upon
underwriting considerations.
Benefits to Employer/Company
Benefits to Employer/Company
Riders Products
As well as the base products identified in the foregoing, a number of riders will
be offered as either standalone products to be attached to the base product at
the participant's request or as a bundled attachment to a base product. The
riders to be made available to the participants are as follows
Property Takaful
Motor Takaful
Marine Takaful
Imports
Exports
Inland Transit
Miscellaneous Takaful
In this section we will show and analyze the overall strengths, weaknesses,
opportunities and threats facing the Takaful Industry. Understanding these
issues will allow a better understanding of the goals and objectives of the
master plan.
Strengths
Opportunities
1. Takaful is being driven by the vast untapped Islamic market, which can
be introduced to the Takaful concept. Whether such potential
participants are part of a Muslim majority in markets such as the Middle
East, or part of a minority in European countries, the potential for
Takaful life insurance is enormous.