Takaful

CENTRE FOR ISLAMIC ECONOMICS

Presentation by

DR: SANAULLAH MAHMOOD

IQRA UNIVERSITY
KARACHI
 Lexical Meaning: To insure
 Insurance is a contract between an insurance
company and the policy holder in which the
insurance company accepts to compensate the
specified losses of the policy holder against the
premium.
 The basic principal of insurance is to gather the
possible losses of policy holders and transfer them
to the insurance company .
 In fourteenth century traders adopted the system
of Marine 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 not only recognised by the
Shariah but in some aspects it is also
appreciated and rewarded by Islam.
• Types of Insurance:
1.General Insurance
2. Life Insurance
General Insurance is forbidden due to these three
reasons:

1. Gharar
2. Qimar/Mysir
3. Riba
Life Insurance is forbidden due to the reason of
Riba, Ghara and Qimar in risk portion and Riba in
investment portion.
 Riba, Gharar and Qimar

• Element of Gharar:
In general Insurance Subject matter is
uncertain.
Element of Qimar :
• In general insurance there is chance of total
loss of one party only.
Element of Riba:
Direct Riba - Excess on one side in case of
exchange between the amount of premium
and the sum insured.

Indirect Riba - The interest earned on interest

based investments
 Takaful means “Joint Guarantee” for mutual
assistance within a group. Each member of the
group pools to support each other within the
group.

 Principle objective is the same as Insurance - to

indemnify against unforeseen financial losses.
 System of Maaqil

 Kafala
 When the conceptual aspect of Insurance is
acceptable, therefore in current scenario it will be
obliged on Shari’ah Scholars with the help of other
Muslims to provide the Islamic alternate of
Insurance.
 In Islamic alternate ,the nature of contract should
be other than Qard/Muawazah and should be
acceptable and applicable.
 We have two types of contracts:
1. Commutative
2. Non commutative
 Commutative contract
 Bai, Ijarah , Rahan, Shirkah ,Mudarabah, Sulah
bil mal,Khula, Nikah.
 Non commutative contract:
 Aariyat,Wasiyat, Qard, Sadqa, Hiba/Donation,
Waqf
 Pakistani Scholars adopted the concept of Waqf

 Arab scholars adopted the concept of Wakalh

(Donation)

 Malaysian Scholars adopted the concept of

Mudarabah
Waqf Model
 Definition:
 To transfer ones property into the ownership
of Allah (Subhana hu Wa Taala) for the benefit
of human being
 Basic rules of Waqf :
 Waqf property cannot be sold nor gifted and
neither can it be distributed among the heirs of
the waqif.
 Waqf is a legal entity therefore it acts as a legal
(natural) person.
 It is allowed that the waqif can stipulate that he
himself will be the manager of waqf.

 The usufruct of the Waqf must be used in a way

that enables the corpus of to be maintained

 Another form of waqf which is termed as waqf

of currency is recognized by Shariah, and it can
only be invested in low risk investments.
 Waqif is allowed to stipulate that he will be the
beneficiary of waqf for his entire life.

 Whenever donation is given to the waqf, it is not

treated as waqf, rather it is treated as the property of
waqf.

 Conditions as laid down by the waqif are treated as

orders given by Allah .
 A Takaful Company is formed with the
capital of some investors for the purpose of
investment into Halal business and compensate
the victims of various losses.

 A Waqf Fund is established by the

shareholders of a Takaful Company to help
victims of financial losses and accidents as per
the rules and regulations defined in the
Memorandum of the Takaful Company and
waqf deed through the contribution of ‘Ceding
amount’
 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 Fund will extend benefits to its members
strictly in accordance with the Waqf Rules laid
down in the Waqf Deed.
 The Waqf Fund will becomes owner of all
contributions and has the right to act as a legal
entity as per its terms for investment,
compensations and dealing with the surplus
amounts.
 Waqf Model
Presen
TAKAFUL OPERATOR FEES MANAGEMENT PROFIT / LOSS
FOR SHARE OF
EXPENSES OF ATTRIBUTABLE TO
ADMINISTRATION PROFIT FOR
COMPANY SHAREHOLDERS
COMPANY EXPENSES
25% TO 30%
THE COMPANY

40%

INITIAL DONATION
PROFIT SHARING ON
BY SHAREHOLDERS
MUDARABHA BASES
TO CREATE WAQF
FUND

PROFITS FROM
WAQF INVESTMENT
INVESTMENT
BY FUND

60%

DONATION WAQF SHARE OF

PARTICIPANT WAQF OPERATIONAL
PAID BY FUND SURPLUS FOR
FUND COST OF SURPLUS
PARTICIPANT 75% TO THE PARTICIPANT
TAKAFUL
70% 100%
/RETAKAFUL
 The Donation For Waqf can be determined by
the Takaful company on the basis of Actuary.

 The Takaful company, while managing the

Waqf Fund, will play two different roles
simultaneously:
1. Operator/Manager
2. Mudarib
 As Operator/Manager, the Takaful Company
will perform all functions necessary for the
operations of the Waqf against a Wakala fee to
be deducted from the Contributions of the
Participants.

 As Mudarib of the fund, the Takaful Company

will manage the investment of the excess funds
of the Waqf into Shariah compliant investments
and will participate in the profit of the fund’s
investments at a specified ratio of profit.
 The Takaful Company may distribute the surplus
amounts on the following three basis

 A portion kept as reserve to mitigate the future

losses.

 A portion distributed among the participants to

differentiate it from the conventional insurance
procedures.

 A portion utilized for the charitable purposes every

year.
Re-Takaful
 Re-Takaful
 An Islamic alternative to conventional re insurance
based on a Shariah compliant approved concept for
re insurance.
 Takaful Operator pays an agreed contribution from
its takaful fund to the Re Takaful operator in
return for the Re Takaful Operator providing
security for the assurance that the Takaful
Operator is protected.
 Re-Takaful
 Three types of Re Insurance:
 1. Proportional in which each claim will be paid by
Re Insurance Company at the share agreed by it.
 Non Proportional means the Re Insurance company
will pay the claim after certain amount for example
after 50 Million.
 Stop Loss means the Re Insurance company will
pay the claims after the year end in case insurance
company is facing underwriting loss.
Thank You