Takaful: Concept and Model by Atiquzzafar Khan

(1)

(2)

Main Topics

•

• Introduction of Modern InsuranceIntroduction 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)

•

(3)

Risk and Insurance:

Risk and uncertainty are fundamental

facts of life. All human activities are

subject to risk, which may lead to

financial or physical losses to him.

Insurance is a device to cover the

losses arise due to occurrence of

some undesired event.

(4)

Definition of Insurance

Insurance is an economic device

whereby the individual substitutes

a small certain cost (premium) for

a large uncertain financial loss

(the contingency insured against)

that would exist if it were not for

the insurance.

(5)

Socio

Socio--Economic Benefits of InsuranceEconomic Benefits of Insurance

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Nature of Insurance Contract

Premium Compensation

Premium _Compensation

General Insurance

(7)

Shariah Position of Insurance

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Rulings of Collective Fiqhi

Bodies about Insurance

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Major Arguments Against

Insurance

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 othersUnlawful appropriation of others’’ propertyproperty

–

(10)

Islamic Substitute

These Fiqhi bodies suggested that that an

scheme based on the concept of mutual

cooperation and Joint responsibility may

be considered as Islamic Substitute for

conventional Insurance.

That alternate is introduced under the

title of Takaful in the recent past.

(11)

Takaful Pioneers

Takaful started some 30 years ago in Sudan

and Middle East in 1979 with the

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 SudanThe Islamic Insurance Co. of Sudan

But it took some time for the movement to

take shape

(12)

Takaful Pioneers

Later in 1984, Malaysia played a pioneering

role in setting the first Legal framework

specific to Takaful (Takaful Act Malaysia).

This was instrumental in the successful

launching of the Takaful movement in

Malaysia and in other countries of South

East Asia.

(13)

Other Islamic/ Takaful Legislations

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Takaful Today

From a handful of operators two decades

ago the Takaful movement has blossomed

into a fast growing phenomenon in many

Muslim countries with very promising

prospects in other countries with a large

Muslim community.

(15)

Takaful drivers

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Takaful Drivers

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Takaful Operators

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Takaful Premium

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(19)

Takaful Geographical Spread

South& East Asia :

56%

Middle East :

36%

Africa:

7%

Europe, USA & Others:

(20)

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

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WORKING OF THE TAKAFUL

BUSINESS: The Malaysian Case

Takaful Business is based on the concepts of

Mudarabah and Tabarru. Involvement of

these two Islamic forms of business eliminates

the elements of Riba from insurance contract

and convert Gharar into tolerable form.

In Family Takaful each Takaful installment is

divided and credited into two separate

Accounts namely, the Participants'

Account(PA) and the Participants

Account(PA) and the Participants’’ Special Special

Account(PSA). A substantial proportion of the

installments is credited into the PA solely for

the purpose of savings and investment.

(22)

(23)

Company’s Admin & Manag. Expenses

Profit Attributed To Shareholders

PA based on Mudarabah

Payment to The Family from

(24)

Payment of claims

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Shariah Concerns regarding Mudaraba Model Shariah Concerns regarding Mudaraba Model

(28)

Company’s Admin & Manag. Expenses

Profit Attributed To Shareholders

PSA based on Wakalah

Payment to The Family from

(29)

Wakalah Model

General Takaful General Takaful

PROFIT / LOSS ATTRIBUTABLE TO

SHAREHOLDERS TAKAFUL ADMIN & MARKETING

EXPENSES 25% TO 35%

INVESTMENT BY FUND

PROFITS FROM INVESTMENT OF TAKAFUL /

RETAKAFUL

ON PRINCIPLE OF AL-WAKALAH

PARTICIPANT

60% SHARE OF PROFIT FOR THE COMPANY

40%

MANAGEMENT EXPENSES OF

(30)

Shariah Concerns regarding Wakalah Model Shariah Concerns regarding Wakalah Model

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Definition of Waqf

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Cont Cont……

Waqif has right to set the rules for waqf

and manage the waqf.

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

(34)

Waqf Model

PROFIT / LOSS ATTRIBUTABLE TO

SHAREHOLDERS TAKAFUL OPERATOR FEES FOR

ADMIN & MARKETING EXPENSES 25% TO 35%

INVESTMENT BY FUND

PROFITS FROM INVESTMENT

OPERATIONAL COST OF TAKAFUL /RETAKAFUL

OPERATIONAL COST OF TAKAFUL OPERATIONAL COST OF

TAKAFUL

ON PRINCIPLE OF AL-WAKALAH

PARTICIPANT

60%

SHARE OF PROFIT FOR THE COMPANY

40%

MANAGEMENT EXPENSES OF

COMPANY

Waqf

INITIAL DONATION BY SHAREHOLDERS TO CREATE WAQF FUND

Waqf

(35)

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(37)

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

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Future Outlook

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Growth Outlook

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New Takaful Frontiers

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(42)

Takaful Products to Non

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(43)

Conclusions

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