TAKAFUL

Presentation Outline
Conventional Insurance How Qimar & Riba exists in Conventional Insurance Mode of Takaful Mudarabah Model Wakalah Model Wakalah based on Wa f Model Re Takaful !""lication of Takaful

Conventional Insurance

Conventional Insurance
Definition # ! wa$ to "rovide securit$ % and com"ensation to what is valuable in the event of its loss& dama'e or destruction based on the "rinci"le of risk takin' and s"eculation()

Conventional Insurance
!ccordin' to *hariah rules there are two aspects of Conventional Insurance& namel$+ ,( Conce"tual !s"ect -( .ractical !s"ect *o far as the Conce"t of Insurance is concerned& it is to cover the risk of loss& or #fortunate man$ hel"in' the unfortunate few)( The conce"t is not onl$ reco'ni/ed& but also a""reciated and rewarded b$ Islam(

Conceptual Aspect

Al-Maidah verse # 2

0Hel" $e one another in ri'hteousness and "iet$& but hel" $e not one another in sin and rancor0 .rinci"les of Muwalat& Maa il& and 1afalah and establishment of Islamic welfare state b$ the Hol$ .ro"het 2*!W3& Wa f and Tabrru are exam"les for reco'nition of this conce"t(

Practical Aspect
Conventional Insurance is forbidden due to two reasons+ ,( Qimar or Ma$ser -( Riba *ince the above two thin's have been clearl$ "rohibited b$ Islam& the$ cannot be 4ustified on the conce"tual as"ect of hel"in' victims of various accidents or losses(

Practical Aspect

5 believers6 Intoxicants and 'amblin' and !l !nsab 2!nimals sacrificed for idols3 and !l !/lam 2arrows for seekin' luck or decision3 are an abomination of *atan7s handiwork( *o avoid them in order that $ou ma$ be successful( *atan wants onl$ to excite enmit$ and hatred between $ou with intoxicants and 'amblin' and hinder $ou from the remembrance of !llah and from "ra$er( *o& will $ou not then abstain8 2!l Maidah 9: ; 9,3

Mayser
QIMAR or MAYSER has been clearl$ "rohibited b$ Quran and Hadith of the Hol$ .ro"het 2*!W3( It has two basic elements which are "rohibited& namel$+ ,( 1hatar -( <harar

Khatar
Taleequl milki al alkhatr, wal mal fil janibain To conditionali/e the ownershi"%"rofitabilit$ on uncertain event& where mone$ is involved on both sides( However& if mone$ is not involved on both sides i(e( one "art$ voluntaril$ 2without an$ com"ensation3 declares #We shall com"ensate $ou on a "articular event of loss)& it would not be Ma$ser(

Gharar
=exicall$ it means uncertainty and technicall$ it means+ >ncertaint$ of the counteract or *ub4ect matter or .eriod in a commutative contract(

Gharar
The element of <harar in the commercial insurance contract+ The insurer does not know how much he would owe to an individual *ome times an insured also does not know how much he would "a$ ultimatel$ to the insurer In case of no claim from the insured in 'eneral insurance& Qimar emer'es

Conventional Insurance
Problems The "artici"ant contributes a small amount of "remium in a ho"e to 'ain a lar'e sum ?Khatar The "artici"ant loses the mone$ "aid for the "remium when the insured event does not occur ? Gharar The com"an$ will be in deficit if the claims are hi'her than the amount contributed b$ the "artici"ants ? Gharar

RIBA
The element of Riba in the commercial insurance contract exists in two wa$s+ Direct Riba ? @xcess on one side in case of exchan'e between the amount of "remium and the sum insured( In irect Riba ? The interest earned on interest based investments

Islamic Co-operative Insurance (TAKAFUL)

Takaful
ATakafulB is derived from an !rabic word A1afalaB meanin' # to Guarantee#( ! s$stem of Islamic Insurance based on the "rinci"le of !A"A#$% 2mutual assistance3 and !A&ARR$" 2<ift& <ive awa$& donation3 where the risk is shared collectivel$ b$ the 'rou" '()$%!ARI)Y( This is a "act amon' a 'rou" of members or "artici"ants who a'ree to 4ointl$ 'uarantee amon' themselves a'ainst loss or dama'e to an$ of them as defined in the "act(

Key eatures of Takaful

Coo"erative Risk?sharin' for .rotection( Clear se're'ation between .artici"ant and 5"erator( *hariah Com"liant Investment strate'ies( !voidance of Riba 2interest3 and Ma$sir 2<amblin'3( <harar is for'iven& usin' TabarruB *hariah !dvisor$ 5versi'ht

!ifference "#$ Insurance % Takaful

!ifference
Insurance & It is a "usiness institutions' operate( venture "ase( on the principles of )Contract*+ & Risk transfer mechanism $here the insure( su"stitutes certainty for uncertainty+ Takaful & It is a co-operative institution "ase( on the principles of )Ta'a$un' ,mutual co-operation& Risk sharin. mechanism/ as such no transfer of risk is involve(+

Mo(els of Takaful

Mo(es of Takaful
Currentl$& there are three kinds of Takaful model bein' o"erated worldwide+ .ure Mudarabah Model Wakalah Model 2h$brid of Mudarabah & Wakalah3 Wakalah based on Wa f Model

Mu(ara"ah Mo(el
The "artici"ant and the o"erator enter into a Mudarabah contract from the be'innin' of the relation& for indemnification and share of the underwritin' results( The *ur"lus is shared between the "artici"ants and the takaful o"erator in an a'reed ratio( This model allows the takaful o"erator to share in the underwritin' results from o"erations as well as the favorable "erformance returns on invested "remiums(

Mu(ara"ah Mo(el
PROFIT ATTRIBUTABLE TO SHAREHOLDER

COMPANY

COMPANY ADMINISTRATION & MANAGEMENT EXPENSES

TAKAFUL CONTRACT BASED ON PRINCIPLE OF AL-MUDHARABAH

INVESTMENT BY COMPANY

PROFITS FROM INVESTMENT

SHARE OF SURPLUS FOR THE COMPANY TAKAFUL CONTRIBUTION PAID BY PARTICIPANT GENERAL TAKAFUL FUND GENERAL TAKAFUL FUND OPERATIONAL COST OF TAKAFUL /RETAKAFUL

SURPLUS

*+, -+,
SHARE OF SURPLUS FOR THE PARTICIPANT

Mu(ara"ah Mo(el
Shari"a .oncerns The relation between the "artici"ants is that of tabarruB and not Mudarabah& #.rofit *harin') canBt be a""lied here( Conation cannot be Mudarabah ca"ital at the same time( In a Mudarabah contract& a "rofit is to be 'enerated to be distributed( .rofit is not the same as A*ur"lusB 2excess "f "remiums over claims& reserves and ex"enses3 and in the insurance context no "rofit can be 'enerated b$ definition(

Mu(ara"ah Mo(el
Shari"a .oncerns The sharin' in underwritin' sur"lus itself is somethin' which is similar to makin' this into a commercial business venture and not a mutual contract for assistance and "rotection( The re uirement to "rovide Qard Hasanah 2in case of a deficit3 in a Mudarabah contract b$ definition is a'ainst the conce"t of Mudarabah& which is a "rofit sharin' contract and a Mudarib cannot be a 'uarantor(

0akalah Mo(el
Coo"erative risk sharin' occurs amon' the "artici"ants whereas the takaful o"erator earns a fee for services 2as a Wakeel or !'ent3( The o"erator earns an u"front deductible fee and shares the "rofit of investments& it does not share the results of underwritin'( The o"erator ma$ also char'e a Afund mana'ement feeB and "erformance incentive feeB

0akalah Mo(el
COMPANY
TAKAFUL OPERATOR FEES FOR ADMINISTRATION EXPENSES "5% TO #0% SHARE OF PROFIT FOR THE COMPANY MANAGEMENT EXPENSES OF COMPANY PROFIT / LOSS ATTRIBUTABLE TO SHAREHOLDERS

!0%
PR(/I! S0ARI%G (% M$DARA&0A &ASIS

INVESTMENT BY FUND

PROFITS FROM INVESTMENT

0%

PARTICIPANT

TAKAFUL CONTRIBUTION PAID BY PARTICIPANT

GENERAL TAKAFUL FUND 70% TO 75%

GENERAL TAKAFUL FUND

OPERATIONAL COST OF TAKAFUL /RETAKAFUL

SURPLUS

SHARE OF SURPLUS FOR THE PARTICIPANT 100%

0a1f Mo(el
The share?holders create a Wa f fund to extend the hel" to those who want cover a'ainst financial losses( The "artici"ants donate to the fund and the o"erator mana'es the fund( !ll underwritin' results belon' to the fund which itself has a le'al entit$(

0a1f Mo(el
COMPANY
TAKAFUL OPERATOR FEES FOR ADMINISTRATION EXPENSES "5% TO #0% SHARE OF PROFIT FOR THE COMPANY MANAGEMENT EXPENSES OF COMPANY PROFIT / LOSS ATTRIBUTABLE TO SHAREHOLDERS

!0%
INITIAL DONATION BY SHAREHOLDERS TO CREATE $A%F FUND PR(/I! S0ARI%G (% M$DARA&0A &ASES

$A%F

INVESTMENT BY FUND

PROFITS FROM INVESTMENT

0%

PARTICIPANT

DONATION PAID BY PARTICIPANT

$A%F FUND 75% TO 70%

$A%F FUND

OPERATIONAL COST OF TAKAFUL /RETAKAFUL

SURPLUS

SHARE OF SURPLUS FOR THE PARTICIPANT 100%

0a1f Mo(el
! Wa f Dund is established b$ the shareholders of Takaful Com"an$ throu'h the contribution of ACedin' amountB 2"art of the Ca"ital3( The Cedin' amount of the Wa f will remain invested( !n$ "erson b$ si'nin' the "ro"osal form& contributin' to the Wa f and subscribin' to the "olic$ documents shall become the member of the Wa f fund(

0a1f Mo(el
The Wa f fund shall work to achieve the followin' ob4ectives+ a3 To extend financial assistance to its members in the event of losses( b3 To extend benefits to its members strictl$ in accordance with the Wa f Ceed( c3 To donate to Charities a""roved b$ the *hariah *u"ervisor$ Eoard

0a1f Mo(el
The Wa f Dund will la$ down the rules for distribution of its funds to the beneficiaries and will decide how much com"ensation should be 'iven to a subscriber%member( The Wa f will become owner of all contributions and has the ri'ht to act as a le'al entit$ as "er its terms for investment& com"ensations and dealin' with the sur"lus amounts(

0a1f Mo(el
The Takaful Com"an$ ma$ distribute the sur"lus amounts on the followin' three basis+ a3 ! "ortion ke"t as reserve to miti'ate the future losses( b3 ! "ortion distributed amon' the "artici"ants to differentiate it from the conventional insurance "rocedures( c3 ! "ortion utili/ed for the charitable "ur"oses ever$ $ear(

0a1f Mo(el
If the fund is li uidated& the outstandin' balance& after "a$in' all dues and "a$ables& will be utili/ed to charitable "ur"oses( The Takaful com"an$& while mana'in' the Wa f Dund& will "la$ two different roles simultaneousl$+ a3 5"erator%Mana'er b3 Mudarib

0a1f Mo(el
!s 5"erator%Mana'er& the Takaful Com"an$ will "erform all functions necessar$ for the o"erations of the Wa f a'ainst a Wakala fee to be deducted from the Contributions of the .artici"ants( !s Mudarib of the fund& the Takaful Com"an$ will mana'e the investment of the excess funds of the Wa f into *hariah com"liant investments and will "artici"ate in the "rofit of the fundBs investments at a s"ecified ratio of "rofit(

Re-Takaful

Re-Takaful
!n Islamic alternative to conventional reinsurance based on a *hariah com"liant a""roved conce"t for reinsurance( Takaful 5"erator "a$s an a'reed "remium from its takaful fund to the Re Takaful o"erator in return for the Re Takaful 5"erator "rovidin' securit$ for the assurance that the Takaful 5"erator is "rotected(

Application of Takaful

Application
Takaful can be used to cover + .ro"ert$ e('( house& factor$& mos ue& offices Fehicles 2car& motorc$cle etc((3 <oods 2 Dor Im"ort or @x"ort 3 Faluables Health& accidents and =ife

T2A3K 4O5