Takaful: Concept and Model by Atiquzzafar Khan

  

Takaful: Concepts and Models

Takaful: Concepts and Models

Main Topics Main Topics

  Introduction of Modern Insurance Introduction of Modern Insurance

  Evaluation of Insurance Business Evaluation of Insurance Business from Islamic Point of View from Islamic Point of View

  Islamic Alternative: (Review of Islamic Alternative: (Review of

  Existing Existing

  Experiences of Takaful) Experiences of Takaful)

  Performance of Takaful Industry Performance of Takaful Industry

  

Risk and Insurance:

Risk and Insurance:

  Risk and uncertainty are fundamental Risk and uncertainty are fundamental facts of life. All human activities are facts of life. All human activities are subject to risk, which may lead to subject to risk, which may lead to financial or physical losses to him. financial or physical losses to him.

  Insurance is a device to cover the Insurance is a device to cover the losses arise due to occurrence of losses arise due to occurrence of some undesired event. some undesired event.

  Definition of Insurance Definition of Insurance

  

Insurance is an economic device

Insurance is an economic device

whereby the individual substitutes

whereby the individual substitutes

a small certain cost (premium) for

a small certain cost (premium) for

a large uncertain financial loss

a large uncertain financial loss

  

(the contingency insured against)

(the contingency insured against)

that would exist if it were not for

that would exist if it were not for the insurance. the insurance. Socio

  Socio

  Economic Benefits of Insurance

  Economic Benefits of Insurance

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Nature of Insurance Contract

Nature of Insurance Contract

  Premium Compensation

  Premium Compensation

  General Insurance Life Insurance

  

Shariah Position of Insurance

Shariah Position of Insurance

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Bodies about Insurance

Bodies about Insurance

  

Rulings of Collective Fiqhi

Rulings of Collective Fiqhi

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Insurance

Insurance

  

Major Arguments Against

Major Arguments Against

  According to these Fiqhi bodies Conventional According to these Fiqhi bodies Conventional

  Insurance is unlawful because of involvement of Insurance is unlawful because of involvement of prohibited elements like, prohibited elements like,

• – –

  Riba (Interest) Riba (Interest)

• – –

  Qimar (Gambling) Qimar (Gambling)

• – –

  Gharar (Uncertainty, Doubt, Risk) Gharar (Uncertainty, Doubt, Risk)

• – –

  Unlawful appropriation of others Unlawful appropriation of others ’ ’ property property

  Violation of law of inheritance in case of life insurance.

• – – Violation of law of inheritance in case of life insurance.

  Islamic Substitute Islamic Substitute

  

These Fiqhi bodies suggested that that an

These Fiqhi bodies suggested that that an

scheme based on the concept of mutual scheme based on the concept of mutual

cooperation and Joint responsibility may

cooperation and Joint responsibility may

be considered as Islamic Substitute for be considered as Islamic Substitute for conventional Insurance. conventional Insurance. That alternate is introduced under the That alternate is introduced under the title of Takaful in the recent past. title of Takaful in the recent past.

  Takaful Pioneers Takaful Pioneers

  

Takaful started some 30 years ago in Sudan

Takaful started some 30 years ago in Sudan

and Middle East in 1979 with the and Middle East in 1979 with the establishement of: establishement of:

• – –

  

The Islamic Arab Insurance Co. (IAIC) in the

The Islamic Arab Insurance Co. (IAIC) in the

  UAE and UAE and

• – –

  The Islamic Insurance Co. of Sudan The Islamic Insurance Co. of Sudan But it took some time for the movement to But it took some time for the movement to take shape take shape

  Takaful Pioneers Takaful Pioneers

  

Later in 1984, Malaysia played a pioneering

Later in 1984, Malaysia played a pioneering

role in setting the first Legal framework role in setting the first Legal framework specific to Takaful (Takaful Act Malaysia). specific to Takaful (Takaful Act Malaysia). This was instrumental in the successful This was instrumental in the successful launching of the Takaful movement in launching of the Takaful movement in Malaysia and in other countries of South Malaysia and in other countries of South East Asia. East Asia.

  

Other Islamic/ Takaful Legislations

Other Islamic/ Takaful Legislations

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Takaful Today

Takaful Today

  

From a handful of operators two decades

From a handful of operators two decades

ago the Takaful movement has blossomed

ago the Takaful movement has blossomed

into a fast growing phenomenon in many

into a fast growing phenomenon in many Muslim countries with very promising Muslim countries with very promising prospects in other countries with a large prospects in other countries with a large Muslim community. Muslim community.

  Takaful drivers Takaful drivers

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Takaful Premium

Takaful Premium

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Takaful Geographical Spread

Takaful Geographical Spread

  South& East Asia : South& East Asia :

  56% 56%

  Middle East : Middle East :

  36% 36%

  Africa: Africa:

  7% 7%

  Europe, USA & Others: Europe, USA & Others:

  1% 1% Definition of Takaful

Definition of Takaful

  The word Takaful means joint guarantee. The objective of Takaful is cooperation and mutual help among the members of a defined group. In a practical sense Takaful can be visualized as a

method of joint guarantee among a group of members or

participants against loss or damage that may inflict upon

any of them. The members of the group agree to guarantee jointly that should any of them suffer a catastrophe or disaster, he would receive certain sum of money to meet the loss or damage. All members of the group pool together their efforts to support the needy.

  WORKING OF THE TAKAFUL WORKING OF THE TAKAFUL BUSINESS: The Malaysian Case BUSINESS: The Malaysian Case Takaful Business is based on the concepts of Takaful Business is based on the concepts of Mudarabah and Tabarru. Involvement of Mudarabah and Tabarru. Involvement of these two Islamic forms of business eliminates these two Islamic forms of business eliminates the elements of Riba from insurance contract the elements of Riba from insurance contract and convert Gharar into tolerable form. and convert Gharar into tolerable form. In Family Takaful each Takaful installment is In Family Takaful each Takaful installment is divided and credited into two separate divided and credited into two separate Accounts namely, the Participants' Accounts namely, the Participants' Account(PA) and the Participants Account(PA) and the Participants ’ ’ Special Special

Account(PSA). A substantial proportion of the

  

Account(PSA). A substantial proportion of the

installments is credited into the PA solely for installments is credited into the PA solely for the purpose of savings and investment. the purpose of savings and investment.

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Mudarabah Model _{Profit Attributed To Shareholders} Family Takaful _{Company $.!. ) + ' % " & &} $ $ _{& Manag. Expenses Company’s Admin based on Mudarabah} Takaful Contract _{Investment Profit} Payment to _Participant PA PA _{The Family from PA & PSA}

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  FTF _' PSA PSA _{% - > )} Payment of claims Payment of claims

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In case the Partcipant survived

In case the Partcipant survived

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_{5 7 ! ! . 5 7 &+ %>9; A &+ %>9; A} # . ! . # . ! . Mudarabah Model Mudarabah Model

  General Takaful

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Shariah Concerns regarding Mudaraba Model

Shariah Concerns regarding Mudaraba Model

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  Wakalah Model _{Profit Attributed} Family Takaful _{To Shareholders Company} 8 ' : _{/ / 6 $.!. ) + ' % " & & $ $ & Manag. Expenses Company’s Admin based on Wakalah} Takaful Contract _{Investment Profit} PSA _Participant

  PSA Payment to _{The Family from PA & PSA} FTF PA _{4/ =/6} PA _{% - > ) '} Wakalah Model

  Wakalah Model

  General Takaful General Takaful _{COMPANY TAKAFUL ADMIN & MARKETING EXPENSES 25% TO 35% FOR THE COMPANY SHARE OF PROFIT} MANAGEMENT PROFIT / LOSS _{EXPENSES OF ATTRIBUTABLE TO COMPANY SHAREHOLDERS CONTRACT BASED ON PRINCIPLE OF BY FUND TAKAFUL INVESTMENT PROFITS FROM INVESTMENT}

40%

AL-WAKALAH _{60% OPERATIONAL COST PARTICIPANT CONTRIBUTIO TAKAFUL TAKAFUL GENERAL GENERAL TAKAFUL OPERATIONAL COST} OF TAKAFUL / _{RETAKAFUL SURPLUS SURPLUS FOR SHARE OF PARTICIPANT 65% TO 75%} N PAID BY FUND _{FUND OPERATIONAL COST OF TAKAFUL OF TAKAFUL} ^(PROFIT) _{THE PARTICIPANT 100%}

  

Shariah Concerns regarding Wakalah Model

Shariah Concerns regarding Wakalah Model

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  Definition of Waqf Definition of Waqf

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  Waqif has right to set the rules for waqf Waqif has right to set the rules for waqf and manage the waqf. and manage the waqf.

  

Waqf may be general purpose or specific

Waqf may be general purpose or specific

purpose, like Waqf purpose, like Waqf ‘ ‘ Ala al Aulad or Ala al Aulad or Waqf Waqf ‘ ‘ Ala al Aqarib. Ala al Aqarib. In Islamic Law Waqf is a legal entity In Islamic Law Waqf is a legal entity

  

Waqf Model

Waqf Model COMPANY ADMIN & MARKETING EXPENSES EXPENSES OF ATTRIBUTABLE TO TAKAFUL OPERATOR FEES FOR MANAGEMENT PROFIT / LOSS 25% TO 35% FOR THE COMPANY SHARE OF PROFIT 40% COMPANY SHAREHOLDERS

  _{INITIAL DONATION BY CREATE WAQF FUND SHAREHOLDERS TO}

  _{MUDARABHA BASES TAKAFUL Waqf Waqf}

  INVESTMENT PROFITS FROM _{BY FUND}

_INVESTMENT

_60% CONTRACT BASED _{ON PRINCIPLE OF AL-WAKALAH TAKAFUL OPERATIONAL COST OF TAKAFUL /RETAKAFUL SHARE OF} PARTICIPANT CONTRIBUTION WAQF FUND _{PARTICIPANT PAID BY 65% TO 75%}

_{WAQF FUND}

_{OPERATIONAL COST OF OPERATIONAL COST OF TAKAFUL TAKAFUL} ^SURPLUS _{(PROFIT) THE PARTICIPANT SURPLUS FOR 100%}

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The Challenges ahead

The Challenges ahead

  Despite a remarkable breakthrough and a Despite a remarkable breakthrough and a dynamic and sustained growth, there are dynamic and sustained growth, there are challenges facing the Takaful industry which challenges facing the Takaful industry which are: are:

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The business model dilemma

The business model dilemma

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Future Outlook

Future Outlook

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  Growth Outlook Growth Outlook

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New Takaful Frontiers

New Takaful Frontiers

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  . Takaful Products to Non Muslims -

• Takaful Products to Non Muslims

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Conclusions

Conclusions

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