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International Conference on Islamic Banking & Finance in Mauritius

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					Organized
By :




    CENTER OF ISLAMIC BANKING & ECNOMICS
2
                    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.




                                                   3
   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 Ta‘awan 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

   Interest (Riba)
   Gharar (Uncertainty))
   Gambling (Qamar & Maisir)
   Risk Transfer Issue
   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.
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.
   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%).

   Non–Muslims increasingly opting for Takaful products for
    commercial benefits.
The number of Takaful operators worldwide is now estimated
  at:

   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:

          Property Takaful
          Marine Takaful
          Motor Takaful
          Miscellaneous Takaful
   Term Life Takaful

   Whole Life Takaful

   Endowment Takaful

   Universal Takaful

   Marriage Plan

   Education Plan
   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                                                   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.)


                                                 Admin          Management
              Wakalah       Investmen          Expenses,         Expense of        Profit/Loss
               Fee               t            Employee’s            the
                              Income              etc.            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.)
   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.
   Skepticism.

   Lack of uniformity in Models & Shariah decisions.

   Regulatory issues.

   Capacity constraints.

   Limited Investment avenues.

   H.R. issues.
 CENTER OF ISLAMIC BANKING & ECNOMICS

                      Head Office:
192- Ahmad Block, New Garden Town , Lahore, Pakistan
     Ph: +92-42-35913096-8, 35858990, 38407850
                Fax: +92 -42-35913056
             E-mail : info@alhudacibe.com
             Web: www.alhudacibe.com