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Organized By :

CENTER OF ISLAMIC BANKING & ECNOMICS

An Introduction to

Takaful
(Islamic Insurance )

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

Editor in Chief.
Islamic Banking and Finance News , True Banking.

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Introduction to Takaful ( Islamic Insurance ) Difference b/w Conventional Insurance & Takaful Takaful Through Time General & Faimly Takaful Types Takaful Models Worldwide. Takaful - Target Market Challenges to Takaful Prospects of Takaful in Mauritius.

Takaful is the Sharia Compliant brand name for the Islamic alternative to conventional insurance. Its based on the principle of Taawan or mutual assistance. Takaful comes from the Arabic root-word kafala guarantee. Operationally, takaful refers to participants mutually contributing to a common fund with the purpose of having mutual indemnity in the case of loss.

The contract between the insurer & insured is technically wrong from the sharia perspective because of
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Interest (Riba) Gharar (Uncertainty)) Gambling (Qamar & Maisir) Risk Transfer Issue

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Mutuality and cooperation. Takaful contract pertains to Tabarru as against Aqd emuawadat 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.

Issue
Organization Principle Basis Value Proposition Laws Ownership Management status Form of Contract

Conventional Insurance
Profit for shareholders Risk Transfer Profits maximization Regulations Shareholders are Owners Managed by Company Management Contract of Sale

Takaful
Mutual Benefit for Participants Risk sharing Affordability and spiritual satisfaction Sharia plus regulations Participants Operator Islamic contracts of Wakala or Mudarbah with Tabarru (contributions) Sharia compliant, Riba-free Distribution to Participants on pro rata basis.

Investments Surplus

Interest based Profit of Insurance Company.

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.

Poor Insurance penetration in the Muslim countries (<1% of GDP). Average growth rate higher than conventional insurance companies (around 25%). NonMuslims increasingly opting for Takaful products for commercial benefits.

The number of Takaful operators worldwide is now estimated at:


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180+ Takaful companies 11 Retakaful companies In 46 Countries.

General Takaful offers all kinds of non-life


risk coverage. It is normally divided into following classes:
x x x x Property Takaful Marine Takaful Motor Takaful Miscellaneous Takaful

Term Life Takaful Whole Life Takaful Endowment Takaful Universal Takaful Marriage Plan Education Plan

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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.

Wakalah Based on Waqf Model : The participant's donate the fund and operator charge an agency fee. Pure Mudarabah Model : The participants and operator enter into modarabah Contract. Wakalah Model : An Agency Agreement is made between participants and Operators on the basis of Wakalah ( Agency agreements)

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 Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala Fee

Claims

Re-Takaful Expense etc.

Participants Contribution
Investment in Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala Fee

Claims

Re-Takaful Expense etc.

Participants Contribution
Investment in Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Participants Contribution
Investment in Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Participants Contribution
Investment in Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Contingency Reserve

Charity

Distribute Among Participants

Participants Contribution
Investment in Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Contingency Reserve

Charity

Distribute Among Participants

Participants Contribution
Investment in Shariah Complaint Securities

Participants

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

Pool of Contributions

Wakala fee, Claims, Re-Takaful Expenses

SURPLUS

Contingency Reserve

Charity

Distribute Among Participants

Investment in Shariah Complaint Securities

Participants Contribution Participants

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

Pool of Contributions

+
Claims

Wakala Fee

Re-Takaful Expense etc.

=
SURPLUS

Contingency Reserve

Charity

Distribute Among Participants

Wakala-Waqf Model
Share Holder

SHARE

H O L D E R S
Admin Expenses, Employees etc.

F U N D (S.H.F.)

Wakalah Fee

Investmen t Income

Takaful Operator

Management Expense of the Company

Profit/Loss

Investment by the Company

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

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Takful for All , This the System Not Religion Good Regulatory Environment and Insurance Penetration. Good Muslim Population. Surplus Distribution Emerging Islamic Financial Market. A Sustainable system.

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Skepticism. Lack of uniformity in Models & Shariah decisions. Regulatory issues. Capacity constraints. Limited Investment avenues. H.R. issues.

CENTER OF ISLAMIC BANKING & ECNOMICS


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