View source for Operational Mechanism of Takaful by Mr. M. Vaqaruddin

      Presented by:

      M Vaqaruddin

           CEO

Pak-Qatar General Takaful Ltd.

          Karachi


         Mudharabah-Based Takaful

• In this model, a clear distinction is made

  between the business of takaful or insurance

  and the business of investing funds mobilized

  from policyholders and/or the shareholders. The

  takaful operator seeks no returns from managing

  the takaful business in line with the spirit of

  takaful. It seeks returns from the business of

  investing the takaful funds under a mudaraba

  agreement with the policyholders for managing

  their funds. The policyholders assume the role of

  fund provider or rabb-al-maal. As a mudarib the

  takaful company receives its share of profits

  generated on investments.


                           Mudharabah Model                                       PROFITS

                                                                            ATTRIBUTABLE TO

                                                                              SHAREHOLDERS

  COMPANY

                                                                                 COMPANY'S

                                                                            ADMINISTRATION &

                                                                               MANAGEMENT

                                                                                 EXPENSES

    TAKAFUL CONTRACT                       PROFITS

                           INVESTMENT BY

  BASED ON PRINCIPLE OF                     FROM

                              COMPANY

     AL-MUDHARABAH                       INVESTMENT

                                                     OPERATIONAL                  SHARE OF

                                                       COST OF                 SURPLUS FOR

                                                       TAKAFUL                 THE COMPANY

                 TAKAFUL

                             PARTICIPANT PARTCIPANT                                   40% (Example Only)

PARTICIPANT    CONTRIBUTI                            OPERATIONAL    SURPLUS

                               TAKAFUL     TAKAFUL

                ON PAID BY                          COST OF TAKAFUL (PROFIT)

                                FUND        FUND                                      60% (Example Only)

               PARTICIPANT

                                                     OPERATIONAL                  SHARE OF

                                                       COST OF               SURPLUS FOR THE

                                                       TAKAFUL                  PARTICIPANT


       Wakala-Based Takaful

• In the wakala-based model, the takaful

  operator acts as the wakil or agent of the

  policyholders. As such it is entitled to a

  known remuneration. It incurs all the

  operational expenses on behalf of its

  principal.


                                     Wakala Model

  COMPANY                                                                MANAGEMENT             PROFIT / LOSS

                 TAKAFUL ADMIN & MARKETING    SHARE OF PROFIT

                                                                         EXPENSES OF          ATTRIBUTABLE TO

                    EXPENSES 25% TO 35%      FOR THE COMPANY

                                                                           COMPANY             SHAREHOLDERS

                                                        40%

            TAKAFUL

       CONTRACT BASED            INVESTMENT    PROFITS FROM

        ON PRINCIPLE OF            BY FUND      INVESTMENT

         AL-WAKALAH

                                                         60%

                                                                OPERATIONAL

                                                              COST OF TAKAFUL /

                                                                 RETAKAFUL

                 TAKAFUL         PARTICIPANT                                                       SHARE OF

PARTICIPANT                                     PARTCIPANT

                CONTRIBUTI         TAKAFUL                      OPERATIONAL          SURPLUS      SURPLUS FOR

                                                  TAKAFUL

                ON PAID BY           FUND                     COST OF TAKAFUL        (PROFIT)         THE

                                                   FUND

               PARTICIPANT        65% TO 75%                                                      PARTICIPANT

                                                                OPERATIONAL

                                                                                                       100%

                                                              COST OF TAKAFUL


• Waqf:

  Charity, religious endowment testamentary bequest of

  real estate.

• Waqf can be made for Property, Money or any other

  asset.

• Waqif should be Sain, Adult, Owner, Free.

• It is not necessary for the Waqif to be a muslim.

• The Waqif can put conditions at the time of Waqf.

• ( Hazrat Usman RA)


       Wakala-WAQF Based Takaful

• Some of the Shariah scholars have critically analyzed

  the Wakala system and have suggested to incorporate

  the concept of Waqf into the Wakala model. Under this

  revised model, the operator would initially make a

  donation to establish a benevolent fund called the Waqf

  Fund. When this Waqf is created, the shareholders will

  lose their ownership rights on the waqf. However, this

  fund will be administered by the operator. The donations

  received from the participants, seeking takaful

  protection, will also be deposited into this fund and the

  combined amount will be used for investment. Profits

  earned will be deposited into the same fund. Participants

  will be given benefit from this Waqf fund. The Waqf fund

  would be allowed to form contingency reserve fund apart

  from usual technical reserves. The Waqf fund rules

  would define the basis for compensation and financial

  help, and rules for sharing surplus between the members

  and operators.


                          Wakala Waqf Model

             COMPANY  TAKAFUL OPERATOR FEES FOR                                MANAGEMENT             PROFIT / LOSS

                                                      SHARE OF PROFIT

                      ADMIN & MARKETING EXPENSES                               EXPENSES OF          ATTRIBUTABLE TO

                                                     FOR THE COMPANY

                               25% TO 35%                                        COMPANY             SHAREHOLDERS

                                                              40%

                                                                        PROFIT SHARING ON

INITIAL DONATION BY                                                     MUDARABHA BASES

 SHAREHOLDERS TO

 CREATE WAQF FUND

               Waqf       Waqf           INVESTMENT    PROFITS FROM

                                           BY FUND      INVESTMENT

                                                               60%

                                                                      OPERATIONAL COST OF

                                                                      TAKAFUL /RETAKAFUL

                        TAKAFUL                                                                              SHARE OF

          PARTICIPANT CONTRIBUTION        WAQF FUND                                        SURPLUS         SURPLUS FOR

                                                         WAQF FUND    OPERATIONAL COST OF

                         PAID BY          65% TO 75%                       TAKAFUL         (PROFIT)              THE

                       PARTICIPANT                                                                         PARTICIPANT

                                                                      OPERATIONAL COST OF

                                                                           TAKAFUL                              100%