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Takaful Products
for
HBL – Islamic Banking Division

11th Feb, 2010

Zubair Mughal
Chief Executive Officer
AlHuda : Centre of Islamic Banking & Economics

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 Meaning of Takaful

 “Takaful” is the Sharia Compliant brand name

for the Islamic alternative to conventional
insurance. Its based on the principle of
Ta’awan or mutual assistance.

 Takaful comes from the Arabic root-word

‘kafala’ — guarantee.
 Meaning of Takaful

 Takaful means mutual protection and joint

guarantee.

 Operationally, takaful refers to participants

mutually contributing to a common fund with
the purpose of having mutual indemnity in the
case of loss.
 Why Insurance ?

Is Some thing wrong with Concept ?

 Risk Aversion
 Assuring others
 Risk sharing
 From the Holly Quran

The need for insurance is shown in the

following verse of The Quran.
“ Those of you who die and leave widows
should bequeath for their widows a year’s
maintenance and residence” (2.240)
 From the Hadiths

By Anas-bin-Malik, One day Prophet

Muhammad(PBUH) notced a bedouin leaving
his Camel without tying it. He asked the
bedouin, “Why don’t you tie down your
camel”? The Bedouin answered, “ I put my
trust in Allah (SWT)”. The Prophet (PBUH) then
said,” Tie your camel first, then put your trust
in Allah(SWT)” <Tirmidhi>
What wrong with practice ?
The contract between the insurer & insured is
technically wrong from the sharia perspective
because of
 Interest (Riba)
 Gharar (Uncertainty))
 Gambling (Qamar & Maisir)
 Risk Transfer Issue
Basic Elements of Takaful
 Mutuality and cooperation.
 Takaful contract pertains to Tabarru as against Aqd – e-
mu’awadat in case of conventional insurance.
 Payments made with the intention of Tabarru (contribution)
 Eliminates the elements of Gharrar, Maisir and Riba.
 Wakalah/Modarabah basis of operations.
 Joint Guarantee / Indemnity amongst participants – shared
responsibility.
 Constitution of separate “Participants’ Takaful Fund”.
 Constitution of “Shariah Supervisory Board.”
 Investments as per Shariah.
Comparing Takaful to Conventional
Insurance
Issue Conventional Insurance Takaful
Organization Principle Profit for shareholders Mutual Benefit for Participants
Basis Risk Transfer Risk sharing
Value Proposition Profits maximization Affordability and spiritual
satisfaction
Laws Regulations Sharia plus regulations
Ownership Shareholders are Owners Participants
Management status Managed by Company Management Operator
Form of Contract Contract of Sale Islamic contracts of Wakala or
Mudarbah with Tabar’ru
(contributions)
Investments Interest based Sharia compliant, Riba-free

Surplus Profit of Insurance Company. Distribution to Participants on

pro rata basis.
 Takaful through Time

 Origins in the First Constitution of Madina.

 Serious efforts were made in modern times, in 1970s to come

up with an Islamic alternative to the conventional insurance.

 The first Takaful company was set up in Sudan in 1979,

almost simultaneously followed by another one set up in
Bahrain.
Takaful through Time… (Cont’d.)

 Poor Insurance penetration in the Muslim countries (<1% of

GDP).

 Average growth rate higher than conventional insurance

companies (around 25%).

 Non–Muslims increasingly opting for Takaful products for

commercial benefits.
Takaful Operators
 The number of Takaful operators worldwide is now estimated
at:

 180+ Takaful companies

 11 Retakaful companies

 In 38 Countries.

 Offering all type of Insurance product with Shariah

Mechanism
General Takaful Types

 General Takaful – offers all kinds of non-

life risk coverage. It is normally divided into
following classes:

 Property Takaful
 Marine Takaful
 Motor Takaful
 Miscellaneous Takaful
Types of Family Takaful
 Term Life Takaful

 Whole Life Takaful

 Endowment Takaful

 Universal Takaful

 Marriage Plan

 Education Plan
ReTakaful
Currently few ReTakaful companies worldwide offering a relatively
small capacity:
 Sudan (1979) National Reinsurance.
 Sudan (1983) Sheikhan Takaful Company.
 Bahamas (1983) Saudi Islamic Takaful and ReTakaful
Company.
 Bahrain/Saudi Arabia (1985) Islamic Insurance and Reinsurance
Company.
 Tunisia (1985) B.E.S.T. Re
 Malaysia (1997) ASEAN ReTakaful International.
 Dubai (2005) TakafulRe by ARIG.
 Lloyds of London to have a ReTakaful Syndicate in 2007.
 SwissRe has formed a separate ReTakaful Pool
 MunichRe set up ReTakaful Co. in Malaysia 2008
 TAKAFUL - TARGET MARKET

 People who do not insure due to religious reasons.

 People who insure and are insensitive to religious reasons.

 People who currently do not insure at all.

Takaful
Participants Contribution

Participants

Pool of Contributions
 Participants Contribution
Investment in
Shariah Complaint
Avenues Participants

Pool of Contributions
Profit from Investment
(Part of the profit goes to the
Company for acting as
mudarib)
 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib)

Wakala Fee Claims Re-Takaful Expense etc.

 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib)

Wakala Fee Claims Re-Takaful Expense etc.

 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib )

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS
 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib)

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS
 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib)

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Contingency Reserve Charity Distribute Among Participants

 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib)

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Contingency Reserve Charity Distribute Among Participants

 Participants Contribution

Investment in Participants
Shariah Complaint Securities

Profit from Investment

(Part of the profit goes to the Pool of Contributions
Company for acting as mudarib)

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Contingency Reserve Charity Distribute Among Participants

 Investment in Participants Contribution
Shariah Complaint Securities

Participants

Profit from Investment Pool of Contributions

(Part of the profit goes to the

-
Company for acting as mudarib)

Wakala Fee + Claims + Re-Takaful Expense etc.

=
SURPLUS

Contingency Reserve Charity Distribute Among Participants

 Wakala-Waqf Model
Share
Holder

SHARE H O L D E R S’ F U N D (S.H.F.)

Mudarib’s Management
Wakalah Investmen Share of PTF’s Expense of Profit/Loss
Fee t Investment the
Income Income Company
Takaful
Operator

Investment by
the Company

WAQF
Operational Claims &
Cost of Takaful Investment Reserves Surplus
/ ReTakaful Income (Balance)

Participant
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.)
 Takaful
Products
Synergy
with
HBL - Islamic
Banking
 Motor Takaful Coverage

Motor Takaful provides

comprehensive protection for your
car:

 Private Motor Coverage

 Commercial Vehicle Coverage
 Third Party Liability Coverage

Motor
Takaful
Property Takaful Coverage
Details
Property Takaful provides
comprehensive protection for your
Property:

 Commercial Buildings
 Hospitals/Public Utility
Buildings
 Laboratories, Stores, Ware-
houses
 Factories
 Private Dwellings
 Bridges & Infrastructure
Projects

Property
Takaful
Marine Takaful Coverage
Details
Marine Cargo Takaful provides
comprehensive protection for:

 Imports
 Exports
 In-land Transportation

Covering all modes of transport

viz by sea, air, road, rail, etc.

Marine
Takaful
Murabaha Takaful
Background
◦ Once the goods under the
Murabaha contract have been
purchased, there is a possibility
that they might get damaged,
destroyed or otherwise be
rendered defective prior to
being sold
Coverage
◦ Comprehensive Takaful
coverage of the goods
purchased for the entire
Murabaha transaction period
against the risks of loss,
damage or destruction due to
fire & allied perils, Theft,
Burglary, pilferage, accidental
damage, contamination, transit
& transportation risks, storage
risks, Acts of God, etc.
Accidental Death Takaful
The structure of the
product is simple. When
clients deposits their
money with the Bank, their
protection for such
accidental happenings
shall be equivalent to the
full amount of their
deposit or twice the
amount of deposit. Hence
the more they deposit with
the bank, the higher will
be their coverage, subject
to a maximum of Rs. 5
million.
Cash withdrawal
Takaful
Background
In order to assure your depositors
peace of mind and security, we
have designed a special coverage
for ATMs & Cheques’ withdrawal
protecting their cash throughout
the year. Their entire amount of
cash withdrawn through any ATM
and Bank shall be fully covered
and guaranteed. The coverage
shall remain in force right from
the withdrawal up to an agreed
time limit thereafter, thereby
ensuring that they safely reach
their home with complete peace of
mind.
Micro Health Takaful
Background
Health is an important part of life and one
has to spend significant amount during the
hospitalization, leaving him in financial
distress. When the person is hospitalized
and is not insured, he takes out money
from the bank to pay the bills of the
hospital. This affects both the bank and the
person in need.

Health Takaful can be offered to the

savings account holders as well as saving
certificate holders of the bank as a value
added service. This gives them incentive to
keep their money with the bank. The same
can also be extended to the bank’s
borrower, since if they are hospitalized, it
would be hard to recover the loan amount
from them as they would have already paid
exorbitant fees to hospitals.
BancaTakaful

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BancaTakaful is one of these
opportunities
 BancaTakaful is defined as the distribution of Takaful
products by Banks (Normally Islamic Banks)

 The Bank sees BancaTakaful as a way of creating a new revenue flow and
its extensive branch network is efficiently used.

 Diversifies its business activities

 Covers all customers’ needs – whether financial or protection related.

 The distribution costs are marginal since it is the Bank’s existing

employees who sell the products.
 Advantages for the Takaful Company

• Extends its client base due to Bank’s extensive

network.
• Provides access to clients who were otherwise
difficult to reach
• Varies the distribution channels.
• The Takaful Company often benefits from the well-
established brand image and service reliability that
people attribute to Banks.
• Lower cost compared to the cost of the traditional
sales representatives.
 Advantages for the Customers

• The client enjoys greater access to all financial

services from the Bank including protection – “One
Stop Shop” or “Islamic Financial Supermarket”

• The client benefits from cheaper Takaful products

than through traditional channels.

• Contribution payment methods are simplified since

they are collected directly from Bank accounts.
Direct BancaTakaful Model
 Takaful Companies support to Islamic banks at
discounted rates.
 The banks pay the contributions directly to Takaful

Companies
 The rates offered to the banks under this model will be

net of commission.
 The banks merge specific Takaful product into their

own product to produce a BancaTakaful product.

 The banks offer BancaTakaful products to their

customers apparently “free of cost”.

 Simplified products such as Personal Accident, Home

Shelter Takaful, etc may be included under this model.

Indirect BancaTakaful Model
 Takaful Company enter into a cooperation agreement
with our Islamic Banking partners
 While selling their banking products, the bank offers

to arrange Takaful coverage to their customers from

us.
 The bank then refers the client to Takaful Company or

obtains and forwards their details.

 We offer our products to the Bank’s clients on

specially reduced rates.

 Contribution is either paid directly to us or through

our partner bank.

 We pay the bank a commission at a pre- agreed rate.
Products Ideal for
Personal Financing
1. Home Musharakah:
 Fire & Allied Perils Takaful: covers property against the risk of fire
and other perils such as lightning, explosion, riot & strike, earthquake,
atmospheric disturbances, burglary, etc.
 Personal Accident Takaful: covers risks of accidental death, total
disablement, temporary total and temporary partial disablement; 24hrs,
worldwide cover.

2. Car Ijarah:
 Private Car/Commercial Comprehensive Takaful: provides
comprehensive coverage to the vehicle against risk such as fire, hail, theft,
snatching, whilst in transit, 3rd party death or bodily injury, 3rd party
property damage, emergency medical expenses and any accidental damage
to the vehicle.
 Personal Accident Takaful
…Personal Financing Takaful Products
(Cont’d)

3. Hajj & Umrah Financing Scheme

 Hajj & Umrah Travel Takaful: covers risks of
accidental death, total disablement, temporary
and total partial disablement, hospitalization
expenses due to accident or illness, emergency
medical evacuation expenses, expenses for
repatriation of mortal remains, loss of baggage
and loss of passport while travelling for the
purpose of performing Hajj and Umrah.
Products Ideal for Deposit
Accounts
1. Shop Owners Takaful: covers building,
contents, stock and cash against the risks of fire,
explosion, riot and strike, earthquake, rain water
damage, flooding, vehicle impact damage, loss of
rent, burglary and armed hold up, etc

2. Personal Accident Takaful

3. Home Shelter Takaful

Products Ideal for Project Financing
1. Marine Cargo Takaful: covers machinery, equipment or material against
the risks during transit either at sea, in air or land.

2. Marine Advance Consequential Loss Takaful: covers the

consequential loss resulting from loss or damage to the machinery,
equipment or material during transit.

3. Contractor’s All Risk Takaful: covers contract works against risks such
as fire, earthquake, malicious damage, storm, flooding, lack of skill, 3rd party
liability, etc.

4. Erection All Risks Takaful: covers erection works against risks such as
fire, earthquake, malicious damage, storm, flooding, lack of skill, 3rd party
liability.

5. Principal’s Advance Consequential Loss Takaful: covers consequential

loss resulting from losses covered under CAR and EAR policies.
Products Ideal For Fixed Assets
Financing
1. Marine Cargo Takaful

2. EAR

3. Fire & Allied Perils Takaful

4. Machinery Breakdown Takaful: covers

machinery against the losses resulting from
risks such as defects in casting and material,
faulty design, short circuit, lack of skill, etc.
Some Examples of BancaTakaful
 Simple examples are:
◦ Motor Takaful policy with Car Ijarah of Islamic Bank
◦ Family Takaful cover with Housing or other
financing facility.
◦ Depositors protection
◦ Credit card protection
 More complex products include:
◦ Savings products
◦ Education products
◦ Retirement products
◦ Protection products
Thank You.