Takaful New

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TAKAFUL

Transcript of Takaful New

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TAKAFUL

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PresenPresentation Outline

• Conventional Insurance

• How Qimar & Riba exists in Conventional

Insurance

• Mode of Takaful

• Mudarabah Model

• Wakalah Model

• Wakalah based on Waqf Model

• Re Takaful

• Application of Takaful

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Conventional Insurance

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PresenConventional Insurance

Definition

“ A way to provide security / and compensation to what is valuable in the event of its loss, damage or destruction based on the principle of risk taking and speculation.”

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PresenConventional Insurance

• According to Shariah rules there are two aspects of Conventional Insurance, namely:

1. Conceptual Aspect2. Practical Aspect

• So far as the Concept of Insurance is concerned, it is to cover the risk of loss, or “fortunate many helping the unfortunate few”.

• The concept is not only recognized, but also appreciated and rewarded by Islam.

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PresenConceptual Aspect

"Help ye one another in righteousness and piety, but help ye not one another in sin and rancor"

• Principles of Muwalat, Maaqil, and Kafalah and establishment of Islamic welfare state by the Holy Prophet (SAW), Waqf and Tabrru are examples for recognition of this concept.

Al-Maidah verse # 2

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PresenPractical Aspect

• Conventional Insurance is forbidden due to two reasons:

1. Qimar or Mayser2. Riba

• Since the above two things have been clearly prohibited by Islam, they cannot be justified on the conceptual aspect of helping victims of various accidents or losses.

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PresenPractical Aspect

O believers! Intoxicants and gambling and Al Ansab (Animals sacrificed for idols) and Al Azlam (arrows for seeking luck or decision) are an abomination of Satan's handiwork. So avoid them in order that you may be successful. Satan wants only to excite enmity and hatred between you with intoxicants and gambling and hinder you from the remembrance of Allah and from prayer. So, will you not then abstain? (Al Maidah 90 – 91)

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PresenMayser

• QIMAR or MAYSER has been clearly prohibited by Quran and Hadith of the Holy Prophet (SAW). It has two basic elements which are prohibited, namely:

1. Khatar

2. Gharar

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PresenKhatar

“Taleequl milki al alkhatr, wal mal fil janibain”

• To conditionalize the ownership/profitability on uncertain event, where money is involved on both sides.

• However, if money is not involved on both sides i.e. one party voluntarily (without any compensation) declares “We shall compensate you on a particular event of loss”, it would not be Mayser.

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PresenGharar

• Lexically it means uncertainty and technically it means:

Uncertainty of the counteract or Subject matter or Period in a commutative contract.

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PresenGharar

• The element of Gharar in the commercial insurance contract:

The insurer does not know how much he would owe to an individual

Some times an insured also does not know how much he would pay ultimately to the insurer

In case of no claim from the insured in general insurance, Qimar emerges

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PresenConventional Insurance

Problems

• The participant contributes a small amount of

premium in a hope to gain a large sum -

Khatar Khatar

• The participant loses the money paid for the

premium when the insured event does not

occur - GhararGharar

• The company will be in deficit if the claims are

higher than the amount contributed by the

participants - GhararGharar

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PresenRIBA

• The element of Riba in the commercial insurance contract exists in two ways:

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

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Islamic Co-operative Insurance (TAKAFUL)

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PresenTakaful

• ‘Takaful’ is derived from an Arabic word ‘Kafala’ meaning “ to Guarantee“.

• A system of Islamic Insurance based on the principle of TA’AWUN (mutual assistance) and TABARRU’ (Gift, Give away, donation) where the risk is shared collectively by the group VOLUNTARILY.

• This is a pact among a group of members or participants who agree to jointly guarantee among themselves against loss or damage to any of them as defined in the pact.

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PresenKey Features of Takaful

• Cooperative Risk-sharing for Protection.

• Clear segregation between Participant and Operator.

• Shariah Compliant Investment strategies.

• Avoidance of Riba (interest) and Maysir (Gambling).

• Gharar is forgiven, using Tabarru’

• Shariah Advisory Oversight

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Difference b/w Insurance & Takaful

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PresenDifference

• It is a business institutions’ operated venture based on the principles of “Contract”.

• Risk transfer mechanism where the insured substitutes certainty for uncertainty.

Insurance Takaful

• It is a co-operative institution based on the principles of “Ta’awun’ (mutual co-operation)

• Risk sharing mechanism, as such no transfer of risk is involved.

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Models of Takaful

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PresenModels of Takaful

• Currently, there are three kinds of Takaful model being operated worldwide:

Pure Mudarabah Model

Wakalah Model (hybrid of Mudarabah & Wakalah)

Wakalah based on Waqf Model

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PresenMudarabah Model

• The participant and the operator enter into a Mudarabah contract from the beginning of the relation, for indemnification and share of the underwriting results.

• The Surplus is shared between the

participants and the takaful operator in an agreed ratio.

• This model allows the takaful operator to share in the underwriting results from operations as well as the favorable performance returns on invested premiums.

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Presen

COMPANY ADMINISTRATION& MANAGEMENT

EXPENSES

INVESTMENT BY COMPANY

PROFITS FROM INVESTMENT

TAKAFULCONTRIBUTION

PAID BY PARTICIPANT

GENERAL TAKAFUL

FUND

GENERAL TAKAFUL

FUND

OPERATIONAL COST OF

TAKAFUL /RETAKAFUL

SHARE OF SURPLUS FOR

THE PARTICIPANT

SURPLUS

COMPANY

PROFITATTRIBUTABLE TO

SHAREHOLDER

TAKAFUL CONTRACT BASED ON PRINCIPLE OF AL-MUDHARABAH

SHARE OF SURPLUS FORTHE COMPANY

40%

60%

Mudarabah Model

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PresenMudarabah Model

Shari’a Concerns

• The relation between the participants is that of tabarru’ and not Mudarabah, “Profit Sharing” can’t be applied here. Donation cannot be Mudarabah capital at the same time.

• In a Mudarabah contract, a profit is to be generated to be distributed. Profit is not the same as ‘Surplus’ (excess pf premiums over claims, reserves and expenses) and in the insurance context no profit can be generated by definition.

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PresenMudarabah Model

Shari’a Concerns

• The sharing in underwriting surplus itself is something which is similar to making this into a commercial business venture and not a mutual contract for assistance and protection.

• The requirement to provide Qard Hasanah (in case of a deficit) in a Mudarabah contract by definition is against the concept of Mudarabah, which is a profit sharing contract and a Mudarib cannot be a guarantor.

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PresenWakalah Model

• Cooperative risk sharing occurs among the participants whereas the takaful operator earns a fee for services (as a Wakeel or Agent).

• The operator earns an upfront deductible fee and shares the profit of investments, it does not share the results of underwriting.

• The operator may also charge a ‘fund management fee’ and performance incentive fee’

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Presen

PROFIT / LOSSATTRIBUTABLE TO

SHAREHOLDERS

INVESTMENT BY FUND

PROFITS FROM INVESTMENT

TAKAFUL CONTRIBUTION

PAID BY PARTICIPANT

GENERALTAKAFULFUND 70%

TO 75%

GENERALTAKAFUL

FUND

OPERATIONAL COST OF

TAKAFUL /RETAKAFUL

SHARE OF SURPLUS FOR

THE PARTICIPANT 100%

SURPLUS

COMPANY

PARTICIPANT

60%

SHARE OF PROFIT FOR THE

COMPANY

40%

MANAGEMENTEXPENSES OF

COMPANY

TAKAFUL OPERATOR FEES FOR

ADMINISTRATION EXPENSES25% TO 30%

PROFIT SHARING ON MUDARABHA BASIS

Wakalah Model

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PresenWaqf Model

• The share-holders create a Waqf fund to extend the help to those who want cover against financial losses.

• The participants donate to the fund and the operator manages the fund.

• All underwriting results belong to the fund which itself has a legal entity.

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PresenWaqf Model

PROFIT / LOSSATTRIBUTABLE TO

SHAREHOLDERS

INVESTMENT BY FUND

PROFITS FROM INVESTMENT

DONATIONPAID BY

PARTICIPANT

WAQF FUND

75% TO 70%

WAQF FUND

OPERATIONAL COST OF

TAKAFUL /RETAKAFUL

SHARE OF SURPLUS FOR

THE PARTICIPANT 100%

SURPLUS

COMPANY

PARTICIPANT

60%

SHARE OF PROFIT FOR THE

COMPANY

40%

MANAGEMENTEXPENSES OF

COMPANY

WAQF

INITIAL DONATION BY SHAREHOLDERS TO CREATE WAQF

FUND

TAKAFUL OPERATOR FEES FOR

ADMINISTRATION EXPENSES25% TO 30%

PROFIT SHARING ON MUDARABHA BASES

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PresenWaqf Model

• A Waqf Fund is established by the shareholders of Takaful Company through the contribution of ‘Ceding amount’ (part of the Capital).

• The Ceding amount of the Waqf will remain invested.

• 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.

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PresenWaqf Model

• The Waqf fund shall work to achieve the following objectives:

a) To extend financial assistance to its members in the event of losses.

b) To extend benefits to its members strictly in accordance with the Waqf Deed.

c) To donate to Charities approved by the

Shariah Supervisory Board

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PresenWaqf Model

• The Waqf Fund will lay down the rules for distribution of its funds to the beneficiaries and will decide how much compensation should be given to a subscriber/member.

• The Waqf will become 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.

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PresenWaqf Model

• The Takaful Company may distribute the surplus amounts on the following three basis:

a) A portion kept as reserve to mitigate the future losses.

b) A portion distributed among the participants to differentiate it from the conventional insurance procedures.

c) A portion utilized for the charitable purposes every year.

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PresenWaqf Model

• If the fund is liquidated, the outstanding balance, after paying all dues and payables, will be utilized to charitable purposes.

• The Takaful company, while managing the Waqf Fund, will play two different roles simultaneously:

a) Operator/Managerb) Mudarib

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PresenWaqf Model

• 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.

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Re-Takaful

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PresenRe-Takaful

• An Islamic alternative to conventional reinsurance based on a Shariah compliant approved concept for reinsurance.

• Takaful Operator pays an agreed premium

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.

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Application of Takaful

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PresenApplication

Takaful can be used to cover :

• Property e.g. house, factory, mosque, offices

• Vehicles (car, motorcycle etc..)• Goods ( For Import or Export )• Valuables • Health, accidents and Life

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