Professional Documents
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Issues in Taka Ful by Imran Us Man I
Issues in Taka Ful by Imran Us Man I
Presentation Outline
9 Conventional Insurance
9 How Qimar & Riba exist in Conventional Insurance
9 Definition of Takaful
9 Mudarabah Model
9 Wakalah Model
9 Wakalah based on Waqf Model
9 Application of Takaful
Conventional Insurance
Definition
A way to provide security / and compensation to what
is valuable in the event of its loss, damage or
destruction based on the principle of risk taking and
speculation
Conventional Insurance
Two Aspects of Insurance
According to Shariah rules there are two aspects of
Conventional Insurance, namely:
1. Conceptual Aspect
2. Practical Aspect
So far as the Concept of Insurance is concerned, it is to
cover the risk of loss, or fortunate many helping the
unfortunate few.
This concept is not only recognized, but also
appreciated and rewarded by Islam.
Conceptual Aspect
Why this Concept is rewardable?
Al-Maidah verse # 2:
Practical Aspect
Second Aspect of Insurance is practical Aspect, it is
forbidden due to two reasons:
1. Qimar or Maisir
2. Riba
Since these two things have been clearly prohibited by
Islam, they cannot be justified on the conceptual
aspect of helping victims of various accidents or
losses.
Practical Aspect
Quranic view on Gambling & Risk
Practical Aspect
How Qimar & Riba exists ?
QIMAR or MAISIR has been clearly prohibited by
Quran and Hadith of the Holy Prophet (SAW).
Maisir has two basic elements which cause to prohibit.
namely:
1. Gharar
2. Khatar
Khatar
Taleequl milki al alkhatr, wal mal fil janibain
To stipulate/conditionalize the
ownership/profitability on uncertain event,
whereas money is involved in the both sides.
However, if money is not involved from both sides
i.e. one party voluntarily (without any
compensation) declares We shall compensate you
on a particular event of loss, it would not be
Maisir.
Gharar
Gharar literally means Uncertainty
Forms of Gharar :
Any bilateral transaction in which the liability of the
party in the transaction is either uncertain or
contingent.
Consideration of either is not known.
Ultimate outcome of any one party is uncertain.
Delivery is not in the control of the obligor.
Payment form one side is certain, but from the other
side is contingent.
Qimar
Indication of Presence of Qimar in a transaction
If in any transaction one partys profit is
dependent on the loss of the other then this is an
indication that the transaction involves Qimar.
Qimar
In the permissible modes of business any profit or
loss is equally shared & is fair to every party. For
example, in partnership (Musharakah) both the
parties share profit & loss. Similarly in other trades
like sale, purchase, hiring or leasing each partys
considerations are certain.
Conventional Insurance
Problems
The participant contributes a small amount of
premium in a hope to gain a large sum - Khatar.
The participant loses the money paid for the
premium when the insured event does not occur Gharar.
The company will be in deficit if the claims are higher
than the amount contributed by the participants Gharar.
Riba
The element of Riba (Interest) exists in lending or
borrowing funds/investments at fixed interest, and
other related practices in the investment activities
of the conventional insurance companies
The Solution
( Takaful)
Takaful
Takaful is an Arabic word that means
Guaranteeing each other"
It is a system of Islamic Insurance based on the
principle of TAAWUN (mutual assistance) and
TABARRU (Gift, Give away, donation) where the
risk is shared collectively by the group
VOLUNTARILY.
This is a pact among a group of members or
participants who agree to jointly guarantee among
themselves against loss or damage to any of them
as defined in the pact.
Models of Takaful
1. Mudarabah Model
2. Wakalah Model (hybrid of Wakalah &
Mudarabah)
3. Wakalah based on Waqf Model
Mudarabah Model
The participant and the operator enter into a
Mudarabah contract from the beginning of the
relation, for indemnification and share of the
underwriting results.
The Surplus is shared between the participants and
the takaful operator in an agreed ratio.
This model allows the takaful operator to share in the
underwriting results from operations as well as the
favorable performance returns on invested
premiums.
Mudarabah Model
Shariah Concerns
The relation between the participants is that of
tabarru and not Mudarabah, Profit Sharing cant be
applied here. Donation cannot be Mudarabah capital
at the same time.
In a Mudarabah contract, a profit is to be generated
to be distributed. Profit is not the same as Surplus
(excess pf premiums over claims, reserves and
expenses) and in the insurance context no definition
can be generated by definition.
Mudarabah Model
Shariah Concerns
The sharing in underwriting surplus itself is
something which is similar to making this into a
commercial business venture and not a mutual
contract for assistance and protection.
The requirement to provide Qard Hasanah (in case of
a deficit) in a Mudarabah contract by definition is
against the concept of Mudarabah which is a profit
sharing contract and a Mudarib cannot be a
guarantor.
Wakalah Model
Cooperative risk sharing occurs among the
participants whereas the takaful operator earns a fee
for services (as a Wakeel or Agent).
The operator earns an upfront deductible fee and
shares the profit of investments, it does not share
the results of underwriting.
Waqf Model
In order to eliminate the element of Mayser, the
concept of Waqf and Tabarru is incorporated. In
relation to this participants shall agree to relinquish
as donation certain amount of money.
The Takaful Fund, consisting of the contributions paid
as Tabarru, will be further invested by the Company
based on the principle of Islamic modes of Trades,
through which the element of interest (riba) will be
replaced.
Waqf Model
TAKAFUL OPERATOR
FEES FOR
ADMINISTRATION
EXPENSES
25% TO 30%
COMPANY
SHARE OF
PROFIT FOR THE
COMPANY
MANAGEMENT
EXPENSES OF
COMPANY
PROFIT / LOSS
ATTRIBUTABLE TO
SHAREHOLDERS
40%
INITIAL
DONATION BY
SHAREHOLDERS
TO CREATE WAQF
FUND
PROFIT SHARING ON
MUDARABHA BASES
WAQF
INVESTMENT
BY FUND
PROFITS FROM
INVESTMENT
60%
PARTICIPANT
DONATION
PAID BY
PARTICIPANT
WAQF
FUND
75%
TO
70%
WAQF
FUND
OPERATIONAL
COST OF
TAKAFUL
/RETAKAFUL
SURPLUS
SHARE OF
SURPLUS FOR
THE PARTICIPANT
100%
Waqf Model
Basic Features
A Waqf Fund is established by the shareholders of
Takaful Company through the contribution of Ceding
amount (part of the Capital) to compensate the
beneficiaries or participant of Takaful scheme. The
Ceding amount of the Waqf will remain invested.
Any person by signing the proposal form,
contributing to the Waqf and subscribing to the policy
documents shall become the member of the Waqf
fund.
Waqf Model
Basic Features
The Waqf fund shall work to achieve the following
objectives:
a. To extend financial assistance to its
members in the event of losses.
b. To extend benefits to its members strictly in
accordance with the Waqf Deed.
c.
Waqf Model
Basic Features
The
Waqf
Fund
will
lay
down
the
rules
for
Waqf Model
Basic Features
The Takaful Company may distribute the surplus
amounts on the following three basis:
a. A portion of surplus should be kept as
reserve to mitigate the future losses.
b. A portion of surplus should be distributed
among the participants to differentiate it
from the conventional insurance procedures.
c.
Waqf Model
Basic Features
Waqf Model
Basic Features
Application
Takaful can be used to cover :
Property e.g. house, factory, mosque, offices
Vehicles (car, motorcycle etc..)
Goods ( For Import or Export )
Valuables
Health, accidents and Life