View source for Takaful Rules in Pakistan

                                    Government of Pakistan

                                  Ministry of Commerce

                               Islamabad, the 3rd September 2005

                                       NOTI FI CATI ON

S.R.O. 905(1)/2005 – In exercise of the powers conferred by sub-section (1) of section 167 of the

Insurance Ordinance, 2000 (XXXIX of 2000), read with clause(lxiv) of section 2 and the second

proviso to section 120 thereof, the Federal Government, is pleased to make the following rules,

the same having been previously published as required by subsection (1) of the said section 167,

namely :

1.     Short title and commencement.-(1) These rules may be called the Takaful Rules, 2005.

(2)    These shall come into force at once.

2.     Definitions. – (1) In these rules, unless there is anything repugnant in the subject or

context, -

       (a)      accept re-Takaful includes risks from Takaful pools or re-Takaful pools managed

       by other Takaful or re-Takaful operators for inclusion in Takaful pools managed by the

       Takaful operator;

       (b)      Bank means the State Bank of Pakistan;

       (c)      Central Shariah Board means the Central Shariah Board constituted by the

       Securities and Exchange Commission of Pakistan under rule 33;

       (d)      contribution means Takaful charge or instalment payable by a participant;

       (e)      Family Takaful means Takaful for the benefit of individuals, groups of

       individuals and their families as elaborated in the provisions of the Ordinance pertaining

       to life insurance business;


(f)     General Takaful means Takaful other than Family Takaful;

(g)     mudaraba based contract means a Takaful contract based on the principle of

mudaraba;

(h)     Ordinance means the Insurance Ordinance (XXXIX of 2000);

(i)     participant includes, where Takaful policy has been assigned, the assignee for the

time being and, where he is entitled as against to participant Takaful Fund to the benefits

of the policy, the legal heirs of a deceased participant;

(j)     “Participants’ Investment Account (PIA)” means the investment account of the

participants under a Family Takaful plan;

(k)     “Participants’ Investment Fund (PIF)” means a separate fund comprising of the

underlying assets representing the units of the PIA under a Family Takaful plan;

(l)     “Participants Takaful Fund (PTF)” means a separate risk pool to which the

participants’ risk related contributions are paid and from which risk related benefits are

paid out;

(m)     “Participants’ membership documents (PMD)” means the documents detailing

the benefits and obligations of a participant;

(n)     Principal Officer means a person, by whatever designation called, appointed by a

Takaful operator and charged with the responsibility of managing the affairs of the

Takaful operator;

(o)     re-Takaful means an arrangement consistent with sound Takaful principles for re-

Takaful of liabilities in respect of risks accepted or to be accepted by the Takaful operator

in the course of his carrying on Takaful business and includes ceding risks from Takaful

pool(s) managed by the Takaful operator(s) to one or more re-Takaful pool(s) managed by

any other one or more Takaful operator(s) in line with Takaful principles;

(p)     Shariah Board means a Shariah Board constituted by a Takaful operator for its

Takaful business under rule 34;

(q)     Shariah compliant investments means investment that adhere to principles and

injunctions of Islam as laid down in Shariah (i.e., the Quran, Sunnah, Ijma and Qiya) and

established by practice and usage and as approved by the Shariah Board of the Takaful

operator;


       (r)     Takaful benefit includes any benefit, whether pecuniary or not, which is secured

       by a Takaful policy, and the word “pay” and other expressions, where used in relation to

       Takaful benefit, shall be construed accordingly;

       (s)     “Takaful broker” means a person who is permitted by the Securities and

       exchange Commission to carry on Takaful business as Takaful broker;

       (t)     Takaful business means business of Takaful whose aims and operations do not

       involve any element which is not in consonance with the injunction of Islam as laid down

       in the Shariah;

       (u)     Takaful policy includes any contract of Takaful for Family Takaful business or

       General Takaful business whether or not embodied in or evidenced by an instrument in the

       form of a participants’ membership document, and references to issuing a policy shall be

       construed accordingly;

       (v)     Takaful operator means a person who is permitted by the Securities and

       Exchange Commission to carry on Takaful business as Takaful operator ;

       (w)     Wakala based contract means a Takaful contract based on the principle of

       Wakala ; and

       (x)     Window Takaful Operator means a life insurer registered under the Ordinance

       and carrying out the business of Family Takaful under window operations within its

       corporate structure, and follows the rules applicable to other Takaful operators.

       (2)     The words and expressions used but not defined herein shall have the same

       meaning as are assigned to them in the Ordinance.

3.      Classes of Takaful business.-(1) For the purposes of these rules, Takaful business shall

be divided into the classes as specified in section 4 of the Ordinance.

       (2)     A Takaful operator may underwrite any or all classes of Takaful business provided

       that under each of the classes of Takaful business, approval shall be obtained from the

       Commission as to the permissibility of underwriting that class of Takaful business and the

       types of risks that may be permissible within each class. The objective of this being that

       risks of non-permissible classes of Takaful business such as which may not be in

       accordance with the principles of indemnification of losses or insurance of businesses of

       non-permissible items as defined by the Shariah Board may not be included in the Takaful

       operations.

4.     Composite Takaful.-The Commission shall not grant registration to any applicant nor

would it permit grant an existing insurer the permission to underwrite and to carry on the

businesses both of Family Takaful and General Takaful conjointly.


5.       Window products or Takaful operations by conventional insurer.-(1)Existing life and

non-life or general insurance companies carrying on conventional business shall not be permitted

to underwrite Takaful business or launch such products :

         Provided that in case an existing non-life or general insurer wishes to transform its

business into Takaful business, it shall be given a period of not more than one year from the date

it start underwrite Takaful products, after which it would be required to underwrite Takaful

products only. After this period, the licence of that insurer for underwriting conventional

insurance business shall stand cancelled automatically. This period shall be meant to give such

insurer time to establish itself in Takaful operations.

         2.     The Commission, after at least five years of the start of Takaful operations in

         Pakistan, may allow window Takaful operations in consultation with the Ministry of

         Commerce to conventional insurance companies, subject to such terms and conditions as

         may be recommended or specified by the Commission from time to time.

6. Requirement for carrying on business as Takaful operator.-Subject to these rules, Takaful

business shall not be carried on in Pakistan by any person as Takaful operator who is not eligible

under section 5 of the Ordinance and has not been granted a certificate of registration by the

Commission under section 6 of the Ordinance.

7.       Use of word “Takaful”.-No person other than a registered Takaful operator

shall, without the written consent of the Commission, use the word “Takaful” or any other word

implying similar meaning indicating that such person carries on Takaful business in the name,

description or title under which it carries on business in Pakistan or make any representation to

such effect in any bill-head, letter paper, notice or advertisement or in any other manner

whatsoever .

8.       Takaful operational model.-(1) The principal operational model for insurance risk

management and the investment component shall be based on the Islamic concept of wakala and

modarba, respectively.

        (2)     All contributions received under Family Takaful contracts shall be credited to the

        Takaful Business Statutory Fund. All such contributions shall be divided into the following

        components, the determination of each component being clearly and unambiguously

        defined in the participants’ membership documents (PMD), namely: -

        (a)     Investment component;

        (b)     risk related component; and

        (c)     Takaful operator’s fees.

        (3)     A separate Participants Takaful Fund (PTF) shall be created within the Takaful

        business     Statutory     Fund    to    which   the    risk   related    component      of


        contributions and Takaful operator’ s fees shall be credited and from which benefits shall

        be paid out.

        (4)      The investment component shall be credited to one or more Participants’

        Investment Funds (PIFs) , the proportion to be credited to each PIF being defined in the

        PMD. Each PIF shall be divided into Participants’ Investment Accounts (PIAs), a separate

        account being maintained for each PIA. Investment of funds may be made in consonance

        with the Islamic concept of the mudaraba, wakala or a combination of mudaraba and

        wakala at the option of the Takaful operator (or its Appointed Actuary in case of Family

        Takaful) and the Shariah Board as clearly spelled out in the participants’ membership

        documents.

        (5)      All contributions received under General Takaful contracts, net of any Government

        levies, shall be credited to one or more Participants Takaful Funds (PTFs). A General

        Takaful operator may create a single PTF or separate PTFs for different classes of business.

9.       Participants Takaful Fund.-(1) A PTF shall be a separate fund the purpose of which

shall be the pooling of risks amongst the participants. The role of the Takaful operator shall be the

management of the PTF and related risks. At the initial stages of the set-up of the PTF the Takaful

operator and any of its shareholders may at their discretion make an initial donation or qard-e-

hasna to the PTF. The objectives of the PTF shall be to provide relief to participants against

defined losses as per the PTF rules and the PMD.

         (2)     The Takaful operator shall define the PTF rules which shall be in accordance with

         the generally accepted principles and norms of insurance business suitably modified with

         guidance by the Shariah Board of the Takaful operator. Any subsequent changes to the

         PTF rules shall also be approved by the Shariah Board.

    (3)         The income of the PTF shall consist of the following, namely :-

    (a)         Contributions received from participants (other than the portion transferred to

                the PIF under Family Takaful policies) including Takaful operator’ s fees

                which should be a part of the contributions;

    (b)         claims received from re-Takaful operators and re-insurers;

    (c)         investment profits generated by the investment of funds and other reserves

                attributable to participants in the PTF;

    (d)         salvages and recoveries;

    (e)         qard-e-hasna by the shareholders fund to the PTF in case of a deficit;

    (f)         commission received from re-Takaful operators and reinsurers; and

    (g)         any donation made by the shareholders.

    (4)         The outgo from the PTF shall consist of the following, namely:-

    (a)         Losses settled related to participants risks and expenses directly related to

                settlement of claims such as surveyors’ fees, etc, but not including any


office expenses. All expenses to be charged to the PTF (other than benefit

payments) shall need to be defined in the PTF rules and the PMD;

(b)        re-Takaful and reinsurance costs;

(c)        Takaful operator’ s fees, which shall not be determined with reference to

           the surplus in the PTF;

(d)             share of investment profits of the               mudarib’ share,

           a                                                 as                      or a

                                          PTF                    s

           percentage of the funds as wakala fees for investment management or any

           other combination thereof approved by the Appointed Actuary (in the case

           of Family Takaful operator) and Shariah Board of the Takaful operator;

(e)        surplus distributed to participants; and

(f)        return of qard-e-hasna to the Shareholders Fund ;

(5)        Subject to the provisions of the Ordinance, technical reserves required to

be set up in the PTF shall consist of all of the following reserves or any one of them, or any

combination of two or more of them or such other reserves as the Appointed Actuary of the

Takaful operator may require to be provided, namely :-

(a) Unearned contributions reserves ;

(b) incurred but not reported reserve ;

(c) deficiency reserve ;

(d) contingency reserve ;

(e) reserve for qarde-e-hasna to be returned in future ; and

(f) surplus equalization reserve .

10. Shareholders Fund (SHF).-(1) A Shareholders’ Fund shall be maintained for Family and

General Takaful business, on similar basis, as per the requirements under the Ordinance and the

Securities and Exchange Insurance Rules, 2002, for life insurers, and non-life insurers,

respectively. The Shareholders Fund shall be maintained under the guidelines provided by its

Shariah Board and Central Shariah Board. The SHF shall consist of the paid-up capital and

undistributed profits to the Shareholders.

        (2) In the case of General Takaful operator, the income of the Shareholders Fund shall

        consist of the following, namely: -

        (a)     Takaful operator’ s fees, which shall not be determined with reference to the

        surplus in the PTF;

        (b)     profit on the investment of the SHF; and

        (c)     proportion of the investment profit generated by the investment of the PTF or the

        fees for investment as per the PTF rules and the PMD.

        (3)     The expenses of the Shareholders Fund shall consist of all the expenses related to

        the Takaful operator other than those mentioned in the PTF rules and the PMD and shall

        include all marketing as well as administrative, investment and operational expenses,

        except commissions or over-riders paid to the business intermediaries, benefit payments

        and related expenses such as surveyors’ fees.


        (4)      The shareholders must undertake to discharge unconditionally all the contractual

        liabilities of the PTF, but their liability in this regard shall not exceed the SHF.

11.     Qard-e-hasna.-When the PTF including reserves are insufficient to meet their current

payments less receipts, the deficit shall be funded by way of an interest-free loan (qard-e-hasna)

from the SHF.

12.     Relationships.-(1) For the risk sharing portion the relationship of the participants and of

the Takaful operator shall be directly with the PTF. The Takaful operator shall act as the wakeel

of the PTF and the participants shall pay contributions to the PTF.

        (2) Being members of the PTF, the participants shall be entitled to the benefits as per the

        PTF rules and the PMD.

        (3) The shareholders shall provide an undertaking to the PTF to provide the members

        benefits in the event that there is a deficit in the PTF at any point by giving a Qard-e-hasna

        to the PTF. The shareholders shall, however, have the right to recover the Qard-e-hasna

        payments to the PTF from future surpluses in the PTF.

        (4) The other relationship with the Takaful operator shall be that of either mudarib or

        wakeel or both , where in the case of the PTF, the Takaful operator shall also act either as

        mudarib or wakeel or both to the PTF. Further in the case of the Family Takaful plans

        with a savings element, the Takaful operator shall also act either as mudarib or wakeel or

        combination of mudarib or wakeel relating to the PIF.

13.     Payment of losses.-(1) The Takaful operator shall, on the basis of set rules and

regulations to be defined for the PTF and in the PMD, pay the losses of participants of the fund

from the same fund as per its rules. Besides this, all expenses that shall be incurred for providing

Takaful benefits such as re-Takaful contributions shall also be met from the same fund.

        (2)      The PTF rules shall lay out the broad terms and conditions under which claims and

        other benefits shall be payable and conditions and limitations which shall be applicable.

        The PMD shall contain specific details related to the risks covered for a specific risk and

        member.

        (3)      The PTF as well as PMD for each class of Takaful business shall be approved by

        the Shariah Board of the Takaful operator and after its approval the same shall be filed

        with the Commission and unless objected to in writing within fifteen days of such filling

        by the Commission the same shall assumed to be approved and remain in force and if

        objected to in writing the objections shall be removed by the Takaful operator to the

        satisfaction of the Commission.


14. Sharing of surplus.-(1) At the end of each financial year the Takaful operator shall evaluate

the assets and liabilities of the PTF and determine whether the operation for that particular period

had produced a surplus or a deficit for sharing amongst the participants.

        (2) The determination of surplus in the PTF shall be done at least once each accounting

        year.

        (3) The determination of surplus shall be done by the Appointed Actuary for a Family

        Takaful operator; and by the Management of General Takaful operator. Such surplus shall

        be determined by carrying out evaluation as at the date of such determination.

        (4) Surplus at each valuation date shall be made up of technical results and investment

        returns related to the PTF. Surplus shall arise from the total contributions paid by the

        participants to the PTF less the total value of claims paid (less claims received from re-

        Takaful or reinsurance and recoveries made) to hem for the risks covered under the PTF,

        less Takaful operator’ s fees charged related to Takaful operations managed by the

        Takaful operator, less commission paid to the intermediaries and the change in the

        technical reserves.

        (5) Takaful operator may hold a portion of the surplus as a contingency reserve (over and

        above the technical provisions). The rest of the surplus shall be distributed to participants

        in proportion to the contributions to the PTF net of any risk related claims, which they

        may have received during the intervaluation period.

        (6) In the case of General Takaful business the distribution of surplus shall be after each

        valuation. Contracts completing their risk period in the accounting year for which the

        valuation is done shall be taken into account for surplus distribution based on the results of

        the previous valuation.

        (7) In the case of Family Takaful business the surplus distribution may be done after each

        actuarial valuation or it may be distributed only to those participants who actually leave

        the risk pool by way of termination of membership which may be due to the payment of

        benefits as per the PMD or otherwise. The determination of surplus shall consider the

        method of surplus distribution.

        (8) A Takaful operator may compute the distributable surpluses on the basis of the

        combined results of all the classes of business or calculate the surpluses separately for

        each class.

        (9) The distribution of surpluses to participants may be carried out more frequently than

        yearly, depending on the administration and computer systems of the Takaful operator.


        (10) The Board of Directors, with the consent of the Shariah Board of the Takaful

        operator shall initially set out the detailed mechanism for the distribution of such surplus,

        and the frequency of distributions made annually, or more frequently after the technical

        evaluation of assets and liabilities. The mechanism shall form a part of the PTF and shall

        also be mentioned in the PMD.

        (11) The Takaful operator may distribute surplus either in cash or adjust against future

        contributions or in the case of Family Takaful contracts, credit the surplus to the PIA.

        However in the case that a member does not wish to continue as a participant in the PTF it

        shall be necessary to pay surplus to such member based on his entitlement.

        (12) If a participant wishes to donate its surplus for social or charitable purposes, this

        shall be done by the Takaful operator.

15.     Deficit .-In case of a deficit in the PTF, the Takaful operator shall undertake to give Qard-

e-Hasna to the PTF to make good of the deficit. The Qard-e-Hasna may be recovered from future

surpluses without any excess on the actual amount given to the PTF.

16.     Management and marketing expenses.-(1) All the administrative and management

expenses of the Takaful operator, except those enumerated under sub-rule (4) of rule 9 , shall be

borne by the shareholders in consideration of receiving a stipulated proportion of the gross

contributions to the PTF by way of Takaful operator fee.

        (2)     The shareholders shall be responsible for all expenses of management and

        marketing, etc. Shareholders’ income shall include the Takaful operator fee and

        investment management fee or share, for the PTF and the PIF and investment income on

        the SHF. Takaful operator fees to be charged and the investment management fee or share

        shall be explicitly defined in each PMD and Takaful contract.

        (3)     All expenses of Takaful business shall form part of the expenses of Takaful

        Business Statutory Fund for Family Takaful operators; and Shareholders Fund for General

        Takaful operators.

        17.     Funds.-(1) A Takaful operator shall maintain and administer two funds, one to be

known as the Participants Takaful Fund (PTF); and the other the Shareholders Fund (SHF).

Further in the case of Family Takaful plans, a Participants’ Investment Fund (PIF) related to the

Participants’ Investment Account (PIA) shall also be maintained;

        (2)     For Family Takaful business, the PTF, PIF and PIA shall be linked to the Takaful

        Business Statutory Fund.


18.     Participants’ Investment Fund (PIF).-(1) In the case of Family Takaful plans, a portion

of the contributions each year shall be invested to build up surrender values for the participants.

These shall be maintained in the form of units for each participant in a Participants’ Investment

Account (PIA). The underlying assets against these units shall be maintained in a separate fund to

be called the Participants’ Investment Fund.

        (2)      The income and expenses of the PIF shall be maintained separately and unit price

        shall be determined at least once every month.

19.     Investment management of funds.-Investment of participants contributions within the

PTF as well as in the PIF shall be managed under a wakala contract, a mudaraba contract or a

combination contract as determined to be sound and workable by the Shariah Board of the

Takaful operator. The Takaful operator shall set the fee structure and the profit sharing ratio on

the investment management based on the advice of the Shariah Board and the Appointed Actuary,

if any.

20.     Product design.-A Takaful product shall be based on the principle of wakala or mudaraba

or both. The Appointed Actuary of the Family Takaful operator shall ensure that the products are

sound and workable whereas the Shariah Board of the Takaful operator shall ensure that these

conform to the Islamic principles.

21.     Deposits.-(1) A Takaful operator shall at all times maintain a deposit with the State Bank

of Pakistan in accordance with the provisions of section 29 of the Ordinance.

        (2) Any such deposit shall be made in cash or instrument of an approved Islamic financial

        institution. This deposit shall be marked as a lien to the State Bank of Pakistan.

22.     Shareholders funds under capital or equity raised by the sponsor or Takaful

operator.-(1) For a Takaful operator, the Shareholders funds shall be maintained only in

securities or in a manner which is not against Islamic principles and shall comprise mainly of

securities which are approved by the Shariah Board of the Takaful operator.

        (2) All income accruing and receivable in respect of a deposit shall be payable to, and

        receivable by, the Takaful operator making the deposit.

        (3) The Takaful operator who has made a deposit under this rule may at any time

        substitute assets comprising the deposit cash and securities as may be specified by the

        Shariah Board.

23.     Books and records of Takaful business.-(1) Every Takaful operator shall maintain

proper books and records of its business. The provisions of section 45 of the Ordinance shall

apply to all Takaful operators.

24.     Establishment and maintenance of Participants Takaful Funds, and allocation

of surplus.-(1) Every Takaful operator shall establish and maintain a Participants Takaful


Fund in respect of the class or each of the classes of Takaful business carried on by the

Takaful operator in Pakistan so far as that business relates to policies issued in Pakistan.

        (2)     There shall be paid into a Participants Takaful Fund all receipts of the

        Takaful operator properly attributable to the business to which the Participants

        Takaful Fund relates (including the income of the Participants Takaful Fund), and

        the assets comprised in the Participants Takaful Fund shall be applicable only to

        meet such part of the PTF’ s liabilities and expenses as is properly so attributable.

        (3)     In the case of a Participants Takaful Fund established in respect of Family

        Takaful business, no part of the Participants Takaful Fund shall be allocated by

        way of Takaful benefits to participants except with the approval of the Appointed

        Actuary and out of a surplus of assets over liabilities as shown on the last

        statutory valuation of the Participants Takaful Fund and on the making of any

        such allocation that surplus shall be treated for purposes of this rule as reduced by

        the amount allocated.

        (4)     In the event of winding up, assets comprised in the deposit made by a

        Takaful operator under these rules shall be treated as assets of the Participants

        Takaful Fund established by the Takaful operator, and sub-rule (2) shall apply to

        those assets accordingly. In the event of winding up and if at the same time the

        Participants Takaful Fund is in deficit, the deposit should first be made available

        to meet that deficit. Only the left over shall be reimbursed to the shareholders.

        (5)     A Participants Takaful Fund established by a Takaful operator for any

        class of business shall, notwithstanding that the Takaful operator at any time

        ceases to carry on that class of business in Pakistan continue to be maintained by

        the Takaful operator so long as the Takaful operator is required under these rules

        to maintain proper books and records for policies belonging to that class.

25.     Requirements as to assets of PTF.-(1) The assets of the PTF shall be kept

separate from all other assets of the Takaful operator, and shall not include assets

comprised in a deposit under these rules, nor any amounts on account of goodwill, the

benefit of development expenditure or similar items not realizable apart from the business

or part of the business of the Takaful operator.

        (2)     The Commission may, in respect of assets of the PTF, require a Takaful

        operator.-

        (a)     not to make investments of a specified class or description; and

        (b)     to realize, before the expiration of a specified period or such extended

        period as the Commission may allow, the whole or specified proportion of

        investment of a specified class or description held by the Takaful operator when

        the requirement is made.


26.     Solvency requirement.-For the purposes of solvency requirement, subject to

sections 32 to 39 of the Ordinance, all investments out of the Takaful operator and

Participants Takaful Funds shall be made in the modes and securities approved by the

Shariah Board of the Takaful operator.

27.     Investment guidelines.-(1) The Takaful operator shall be required to invest his

available funds in his PTF and PIF in the modes and products that adhere to principles

established by the Shariah and all such modes and products shall be approved by the

Shariah Board of the Takaful operator.

        (2)      Limitations in terms of percentage investments in different Shariah

        compliant investments shall be issued by the Commission from time to time as

        new instruments become available in the market.

        (3)     The following guidelines shall be followed for investments of the surplus

        funds in the PTF, namely:-

        (a)     Investment in Shariah compliant Government securities.-Any Shariah

        compliant Government instrument such as Islamic bonds and securities restricted

        to eighty per cent of the funds; and

        (b)     Investments in immoveable property.-The Takaful operators shall be

        allowed to invest in immoveable property subject to the following conditions,

        namely:-

        (i)     the use and intended use of the property should be in compliance with the

        Islamic principles; and

        (ii)    return on rented property may be in the form of fixed rent but in case of

        delayed payments penalty may be charged and the penalty amount shall be given

        to charity.

        (c)     Investment in Joint Stock Companies.-The Takaful operator may invest

        its funds in joint stock companies. However, investments in non-Shariah

        compliant preferred stocks, debentures and interest based redeemable capital

        securities are not allowed. For investments in the common stocks of joint stock

        companies, the following guidelines should be followed in consultation with the

        Shariah Board, namely:-

        (i)     The main business of the investee company must not violate Shariah.

        Therefore, it is not permissible to acquire the shares, debentures or certificates of

        the companies providing financial services like conventional banks or the

        companies involved in business prohibited by Shariah like alcohol production,

        gambling or night club activities, etc;-

        (ii)    the Shariah Board of the Takaful operator shall take into consideration

        factors such as the proportion of      income     of    the investee company from


        interest bearing accounts or non-Shariah based activities, the debt to equity ratio

        and cash or cash equivalents of the investee company; and

        (iii) investment decision shall be based on fundamental value of the companies

        instead of short-term speculations.

        (d)      Investments in redeemable capital.- The Takaful operator may also

        make its portfolio investments through various mutual funds operating under the

        Shariah principles and approved by the Commission. Before making any

        investment therein, the Takaful operator shall have the procedures and practices

        being followed by such funds scrutinised by its Shariah Board.

        (e)      Investments in redeemable capital.-The Takaful operators may invest

        their funds in Shariah compliant instruments like Musharika Certificates, Term

        Finance Certificates (TFCs), Participation Term Certificates (PTCs), etc.

        However, in case of investment in redeemable capital it shall be necessary that the

        certificates are issued in compliance with the Islamic injunctions and the scheme

        of their issue be examined by the Shariah Board of the Takaful operator. The

        basic conditions as laid down earlier for investments in the common stock of joint

        stock companies should also be followed.

        (f)      Placement of excess funds with banks and Islamic financial

        institutions.-

        The Takaful operators may invest a portion of their funds in liquid or short notice

        deposits schemes of Islamic banks and their branches or other Islamic financial

        institutions, placements in PLS saving accounts of Islamic banks and placement in

        current accounts of traditional banks without any return thereon.

        (g)      Financing under Islamic modes through the Islamic banks and

        financial institutions.-The Takaful operators may make arrangements with the

        Islamic banks operating in Pakistan to directly finance under musharika,

        murabaha, ijara (lease), salam, istisna contracts approved by the Commission.

28.     Re-Takaful.-(1) The Takaful operator shall ensure that the re-Takaful and

reinsurance arrangements are consistent with the sound Takaful principles and are as per

the guidelines provided by its Shariah Board.

        (2)      The provisions of section 41 of the Ordinance and rule 15 of the Securities

        and Exchange Commission Insurance Rules, 2002, shall also apply to Takaful

        business.

        (3)      In the event that the capacity provided by a Shariah complaint re-Takaful

        operator is not sufficient to support the business strategy of the Takaful operator,

        the Takaful operator, under advice of its Shariah Board, may be allowed to enter

        into re-Takaful and reinsurance contracts with conventional reinsurance

        companies till such time that proper re-Takaful arrangements are available.


         (4) In the case of a Takaful operator the compulsory cession to the Pakistan

         Reinsurance Company Limited (PRCL) shall not be applicable. Howevr, where a

         share is offered to a conventional reinsurance company, in such a case it shall be

         necessary to first offer this to PRCL as per the requirements of the Ordinance.

         (5) The Takaful operator may be permitted by the Commission to share risks with

         other Takaful operators within and outside Pakistan.

29.      Acceptance of risk by Takaful operator.-(1) Subject to sub-rules (2) and (3), no

Takaful operator shall accept any risk in respect of any general business unless and until

the contribution payable is received by the Takaful operator or is guaranteed to be paid

by such person.

         (2)     Where the contribution payable under sub-rule (1) is received by any

         person, including a Takaful agent or a Takaful broker, on behalf of a Takaful

         operator, such receipt shall be deemed to be receipt by the Takaful operator for

         the purposes of that sub-rule and the onus of proving that the contribution payable

         was received by a person, including a Takaful broker, who was not authorized to

         receive such contribution shall lie on the Takaful operator.

         (3)     Any refund of contribution, which may become due to a participant on

         account of the cancellation of a policy or alteration in its terms and conditions or

         for any other reason shall be paid by the Takaful operator, from the PTF, directly

         to the participant and a proper receipt shall be obtained by the Takaful operator

         from the participant and such refund shall under no circumstances be paid or

         credited to any other person, including a Takaful broker.

30.      Control of forms of proposal, policies and brochures.-(1) The Commission

may by notice in writing require a Takaful operator to submit the forms of proposal and

policies for the time being in use by the Takaful operator, and any brochure which is for

the time being in use there by the Takful operator for describing the terms or conditions

of, or the benefits to be or likely to be derived from, policies; and where the whole or part

of any such forms or brochure is not in Urdu or English there shall be submitted with it a

translation in the Urdu or English.

         (2)     A requirement under this rule, unless it is otherwise provided therein, shall

         apply to all such forms and brochures as aforesaid coming into use after the

         making of the requirement and before the Commission notifies the Takaful

         operator that the requirement is withdrawn.

         (3)     If it appears to the Commission, after affording the Takaful operator an

         opportunity of being heard that any such form or brochure as aforesaid

         contravenes or fails to comply with any provision of these rules or is in any

         respect likely to mislead, it may, by notice in writing, direct the Takaful operator

         to discontinue the use of the form or brochure either forthwith or from a date

         specified in the notice.


        Explanation.-For the purpose of this rule, the expression “brochure” includes any

        leaflet, circular or similar advertising matter, whether printed or not.

31.     Shariah compliance audit.-Takaful operator shall appoint a Shariah compliance

auditor who will conduct its audit for each accounting period.

32.     Accounting regulations.-The regulations and statements under section 46 of the

Ordinance shall apply to Takaful business with appropriate modifications based on the

advice of the Shariah Board of the Takaful operator.

33.     Central Shariah Board.-A Central Shariah Board (CSB) may be appointed by

the Commission for advice on any aspect of Takaful operations.

34.     Shariah Board.-(1) Each Takaful operator shall appoint a Shariah Board (SB) of

not less than three members which shall be responsible for the approval of products,

documentation as well as approval of all operational practices and investment of funds

which shall be filed with the Commission.

        (2)      Since the Shariah scholars on the religious boards carry great

        responsibility, the Takaful operator shall appoint only high calibre scholars who

        are specialized jurists in fiqh almu’ amalat (Islamic commercial jurisprudence) to

        such Boards. In addition, they shall have knowledge of modern financial dealings

        and transactions.

        (3)      The Takaful operator shall submit to the Commission details of the

        members of its Shariah Board at the time of commencing Takaful business and at

        later dates if there is a change in the composition of the Shariah Board. The

        Commission may within thirty days of such submission, based on reasonable

        grounds, require a Takaful operator in writing to reconstitute its Shariah Board.

35.     Meeting between Central Shariah Board and Shariah Boards.-The Central

Shariah Board may hold meetings with the members of the Shariah Boards of all Takaful

operators, individually or jointly, anytime it deems fit to discuss development of Takaful

business and also may hold such meetings on the request of Shariah Board of the Takaful

operators.

36.     Agent training.-Each Takaful operator shall include in its agent training course, a

classroom course on Takaful concepts of a minimum of eight hours duration. Every agent

of the Takaful operator intending to sell Takaful business shall be required to attend such

course.

37.     Business in rural areas.-To ensure a steady growth of Takaful business in all

parts of Pakistan, the Takaful operator shall be encouraged to market Takaful products

effectively in rural areas.


38.     General.-(1) The provisions of the Ordinance, the Insurance Rules, 2002, and the

Securities and Exchange Commission (Insurance) Rules, 2002, shall also be applicable in

addition to these rules.

        (2)     In case of any conflict between these rules and the Insurance Rules, 2002,

        and the Securities and Exchange Commission (Insurance) Rules, 2002, the

        provisions of these rules shall prevail.

F.No.1(55)/ 2003-Ins.II

                                                        (Munawar Akhtar Islam)

                                                            Deputy Secretary