Presenter :  Fahim ullah khan  Abdul waheed  BSc economics  Group A 6 th semester

- Fatwas on insurance - What is takaful? - Key features of takaful - Takaful glossary - Takaful models - Takaful worldwide - Challenges facing Islamic insurance

1977 – Fatwa of Higher Council of Saudi Ulama’ 1978 – Fatwa of Fiqh Council of Muslim World League 1985 – Fatwa of Islamic Fiqh Academy (OIC)

1985 – Fatwa of Islamic Fiqh Academy (OIC): “The commercial insurance contract… which is commonly used by commercial insurance companies, is a contract, which contains major element of risk, which voids the contract and, therefore, is prohibited (haram) according to the Shariah”.

Takaful (Arabic ‘ mutual provision of guarantees ’ ): Islamic insurance. System based on the principles of solidarity and mutual assistance, under which the parties to the contract support each other when any of them suffers a loss (which means primarily a monetary compensation).

“ takaful means a scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for that purpose ” (Takaful Act 1984, article 2)

 takaful is free from excessive gharar (al-gharar al- kathir);  the installments paid, or a part thereof, may only be used in operations that are permitted by Shariah;  the takaful business is commonly based on a profit sharing mechanism known as mudharabah;  the business of a takaful company is supervised by the Shariah Supervisory Board;  takaful, as opposed to conventional insurance, does not contravene the Shariah law of inheritance.

1979 – Islamic insurance company (Sudan) Islamic Arab Insurance Company (UAE) 1984 – Takaful Act (Malaysia) 1985 – Takaful Malaysia Berhad (Malaysia) 1997 – Retakaful company (Asean Retakaful International, ARIL)

 General takaful  Family takaful

 Motor takaful scheme;  Accident takaful scheme;  Marine takaful scheme;  Engineering takaful scheme; etc.

 Individual family takaful plans;  Takaful mortgage plans;  Takaful plans for education;  Group takaful plans;  Health/medical takaful.

 Mudharabah model  Wakalah model  Modified Model (mudharabah+ wakalah)  Wakalah model with waqf

 The surplus is shared between the participants with a takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5, 6:4 etc. as mutually agreed between the contracting parties. Generally, these risk sharing arrangements allow the takaful operator to share in the underwriting results from operations as well as the favourable performance returns on invested premiums.

Contributions, claims and distributions. Qard al hasan Combined fee Combined fee is a percentage share of the underwriting result, a combination of the technical result and investment return

 Cooperative risk sharing occurs among participants where a takaful operator earns a fee for services (as a Wakeel or Agent) and does not participate or share in any underwriting results as these belong to participants as surplus or deficit. Under the Al- Wakala model, the operator may also charge a fund management fee and performance incentive fee.

Policyholders {participants} Policyholders funds Technical results Investment result Shareholders fund {takaful operator } Retakaful or Reinsurance Qard al- hasan Wakala fee Contribution,claims and distributions. Wakala fee is a percntage of upfront Contributions. This sometimes includes A performance element to encourage efficient management.

Wakala -Waqf Model It is a WAKALAH model with a separate legal entity of WAQF in- between. The relationship of the participants and the operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru. The relationship of the participants and the operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru. The contributions received would also be a part of this fund and the combined amount will be used for investment and the profits earned would again be deposited into the same fund which also eliminates the issue of Gharar. The contributions received would also be a part of this fund and the combined amount will be used for investment and the profits earned would again be deposited into the same fund which also eliminates the issue of Gharar. Losses to the participant are paid by the company from the same fund. Losses to the participant are paid by the company from the same fund. Operational expenses that are incurred for providing Takaful services are also met from the same fund. Operational expenses that are incurred for providing Takaful services are also met from the same fund.

Policyholders {participants} Waqf funds Technical results Investment result Shareholders fund {takaful operator } Retakaful or Reinsurance Initial donations Wakala fee Contribution,claims and distributions. Wakala fee is a percntage of upfront Contributions. Mudaraba fee is a percentage returns from investment

 Combination of wakala and mudaraba contracts: In this model, the wakala contract is adopted for underwriting activities, while the mudaraba contract is employed for the investment activities of the Takaful fund. This approach appears to be favoured by some international organisations and is widely adopted by Takaful undertakings in practice.

Policyholders {participants} Policyholders fund Technical results Investment result Shareholders fund {takaful operator } Retakaful or Reinsurance Qard al hasan Wakala fee Contribution,claims and distributions. Wakala fee is a percntage of upfront Contributions. Mudaraba fee is a percentage returns from investment

Profits attributable to Shareholders Company’s Admin. & Mangt. Expenses Takaful Contribution paid by Participant General Takaful Fund General Takaful Fund Operational Cost of Takaful Surplus (Profit) Participant’s Share from Surplus Company’s Share from Surplus Investment By Company Profit From Investments Company Participant Mudaraba Model

General Takaful Fund Operational Cost of Takaful/ ReTakaful Surplus (Profit) Surplus Distribution to Participants Participants’ Takaful Fund Wakala Model Takaful Contribution paid by Participant Company (Capital) Mudarib's’ Share of PTF’s Investment Income Management Expense of the Company Profit/Loss attributable to Shareholders Wakala Fee (30% to 35%) Profit From Investments Investment Income Reserves Investment by the Company Investment Income Sharing on Mudaraba Basis

Investment Income Operational Cost of Takaful / ReTakaful Claims & ReservesSurplus (Balance) 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.) Mudarib’s Share of PTF’s Investment Income Wakalah Fee Investmen t Income Management Expense of the Company Profit/Loss S H A R E H O L D E R S’ F U N D (S.H.F.) Participant WAQF Takaful Operator Share Holder Wakala-Waqf Model Investment by the Company

The number of takaful operators worldwide: - 75 takaful operators (including takaful windows) - 5 retakaful operators Total assets: USD 1,5 billion Contributions: USD 600 mln.

Share of takaful in insurance industry  Malaysia: 27 % of total insurance market  Asia Pacific: 9% of total insurance market  Middle East: 63 % of total insurance market  EU and US: 1 % of total insurance market The takaful and retakaful market is expected to grow to $10-12 billion by 2011.

THANK YOU FOR YOUR ATTENTION !