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Dr. Muhammad I

SECP Tak

Presentation Outline

9 Conventional Insurance

9 How Qimar & Riba exist in Conventional In

9 Definition of Takaful

9 Mudarabah Model

9 Wakalah Model

9 Wakalah based on Waqf Model

9 Application of Takaful

Conventional Insurance

Definition

“A way to provide security / and compensation

is valuable in the event of its loss, damag

destruction based on the principle of risk tak

speculation”

Conventional Insurance

Two Aspects of Insurance

According to Shariah rules there are two aspect

Conventional Insurance, namely:

1. Conceptual Aspect

2. Practical Aspect

So far as the Concept of Insurance is concerned

cover the risk of loss, or “fortunate many helpin

unfortunate few”.

This concept is not only recognized, but also

appreciated and rewarded by Islam.

Conceptual Aspect

Why this Concept is rewardable?

Al-Maidah v

"Help ye one another in righteousness and pie

help ye not one another in sin and ranco

Principles of Muwalat, Maaqil, and Kafal

establishment of Islamic welfare state by t

Prophet (SAW), Waqf and Tabrru are exam

recognition of this concept.

Practical Aspect

Second Aspect of Insurance is practical Aspect,

forbidden due to two reasons:

1. Qimar or Maisir

2. Riba

Since these two things have been clearly prohi

Islam, they cannot be justified on the conceptu

aspect of helping victims of various accidents o

losses.

Practical Aspect

Quranic view on Gambling & Risk

O believers! Intoxicants and gambling and Al Ansab

sacrificed for idols) and Al Azlam (arrows for seeking

decision) are an abomination of Satan's handiwork. S

them in order that you may be successful. Satan wa

excite enmity and hatred between you with intoxican

gambling and hinder you from the remembrance of A

from prayer. So, will you not then abstain? (Al Maid

Practical Aspect

How Qimar & Riba exists ?

QIMAR or MAISIR has been clearly prohibite

Quran and Hadith of the Holy Prophet (SAW).

Maisir has two basic elements which cause to p

namely:

1. Gharar

2. Khatar

Khatar

“Taleequl milki al alkhatr, wal mal fil jani

To stipulate/conditionalize the

ownership/profitability on uncertain event,

whereas money is involved in the both sides

However, if money is not involved from both

i.e. one party voluntarily (without any

compensation) declares “We shall compensat

on a particular event of loss”, it would not be

Maisir.

Gharar

Gharar literally means “Uncertainty”

Forms of Gharar :

Any bilateral transaction in which the liability

party in the transaction is either uncertain or

contingent.

Consideration of either is not known.

Ultimate outcome of any one party is uncerta

Delivery is not in the control of the obligor.

Payment form one side is certain, but from th

side is contingent.

Gharar & Khatar

Presence of Gharar and Khatar makes Qimar,

Speculation, Gambling and Conventional Insur

prohibited.

Qimar

Indication of Presence of Qimar in a trans

If in any transaction one party’s profit is

dependent on the loss of the other then this

indication that the transaction involves Qim

Qim

In the permissible modes of business any pr

loss is equally shared & is fair to every part

example, in partnership (Musharakah) both

parties share profit & loss. Similarly in other

like sale, purchase, hiring or leasing each p

considerations are certain.

Conventional Insurance

Problems

The participant contributes a small amount of

premium in a hope to gain a large sum - Kha

The participant loses the money paid for the

premium when the insured event does not oc

Gharar.

The company will be in deficit if the claims ar

than the amount contributed by the participa

Gharar.

Riba

The element of Riba (Interest) exists in lend

borrowing funds/investments at fixed intere

other related practices in the investment act

of the conventional insurance companies

The Solution

Islamic Cooperative Insuranc

( Takaful)

Takaful

Takaful is an Arabic word that means

“Guaranteeing each other"

It is a system of Islamic Insurance based on

principle of TA’AWUN (mutual assistance) a

TABARRU’ (Gift, Give away, donation) wher

risk is shared collectively by the group

VOLUNTARILY.

This is a pact among a group of members or

participants who agree to jointly guarantee a

themselves against loss or damage to any of

as defined in the pact.

Models of Takaful

1. Mudarabah Model

2. Wakalah Model (hybrid of Wakalah &

Mudarabah)

3. Wakalah based on Waqf Model

Mudarabah 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 participant

the takaful operator in an agreed ratio.

This model allows the takaful operator to shar

underwriting results from operations as well a

favorable performance returns on invested

premiums.

Mudarabah Model

Shariah Concerns

The relation between the participants is that

tabarru’ and not Mudarabah, “Profit Sharing”

applied here. Donation cannot be Mudarabah

at the same time.

In a Mudarabah contract, a profit is to be gen

to be distributed. Profit is not the same as ‘S

(excess pf premiums over claims, reserves a

expenses) and in the insurance context no de

can be generated by definition.

Mudarabah Model

Shariah Concerns

The sharing in underwriting surplus itself is

something which is similar to making this into

commercial business venture and not a mutu

contract for assistance and protection.

The requirement to provide Qard Hasanah (in

a deficit) in a Mudarabah contract by definitio

against the concept of Mudarabah which is a

sharing contract and a Mudarib cannot be a

guarantor.

Wakalah Model

Cooperative risk sharing occurs among the

participants whereas the takaful operator ear

for services (as a Wakeel or Agent).

The operator earns an upfront deductible fee a

shares the profit of investments, it does not sh

the results of underwriting.

Waqf Model

In order to eliminate the element of “Mayser”,

concept of ‘Waqf’ and ‘Tabarru’ is incorporated

relation to this participants shall agree to relin

as “donation” certain amount of money.

The Takaful Fund, consisting of the contributio

as Tabarru, will be further invested by the Co

based on the principle of Islamic modes of Tra

through which the element of interest (riba) w

replaced.

Waqf Model

TAKAFUL OPERATOR SHARE OF

COMPANY FEES FOR MANAGEMENT

PROFIT FOR THE

ADMINISTRATION EXPENSES OF A

COMPANY

EXPENSES COMPANY

25% TO 30%

40%

INITIAL

PROFIT SHARING ON

DONATION BY

MUDARABHA BASES

SHAREHOLDERS

TO CREATE WAQF

FUND

WAQF PROFITS FROM

INVESTMENT

INVESTMENT

BY FUND

60%

DONATION WAQF

PARTICIPANT WAQF OPERATIONAL

PAID BY FUND

FUND COST OF SURPLUS

PARTICIPANT 75%

TAKAFUL

TO

/RETAKAFUL

70%

Waqf Model

Basic Features

A Waqf Fund is established by the shareholde

Takaful Company through the contribution of

amount’ (part of the Capital) to compensate t

beneficiaries or participant of Takaful scheme.

Ceding amount of the Waqf will remain invest

Any person by signing the proposal form,

contributing to the Waqf and subscribing to th

documents shall become the member of the W

fund.

Waqf Model

Basic Features

The Waqf fund shall work to achieve the follo

objectives:

a. To extend financial assistance to its

members in the event of losses.

b. To extend benefits to its members stri

accordance with the Waqf Deed.

c. To donate to Charities approved by th

Shariah Supervisory Board

Waqf Model

Basic Features

The Waqf Fund will lay down the ru

distribution of its funds to the beneficiaries

decide how much compensation should be g

a subscriber/member .

The Waqf will become owner of all contributi

has the right to act as a legal entity as per it

for investment, compensations and dealing

surplus amounts.

Waqf Model

Basic Features

The Takaful Company may distribute the surp

amounts on the following three basis:

a. A portion of surplus should be kept as

reserve to mitigate the future losses.

b. A portion of surplus should be distribut

among the participants to differentiate

from the conventional insurance proce

c. A portion of surplus should be utilized

the charitable purposes every year.

Waqf Model

Basic Features

As per the rules of the Waqf, if the

liquidated, the outstanding balance, after pa

dues and payables, will be utilized to ch

purposes.

The Takaful company, while managing th

Fund, will play two different roles simultane

a. Operator/Manager

b. Mudarib

Waqf Model

Basic Features

As Operator/Manager, the Takaful Compa

perform all functions necessary for the op

of the Waqf against a Wakala fee to be d

from the Contributions of the Participants.

As Mudarib of the fund, the Takaful Comp

manage the investment of the excess fund

Waqf into Shariah compliant investments

participate in the profit of the fund’s inve

at a fixed ratio of profit.

Application

Takaful can be used to cover :

Property e.g. house, factory, mosque, of

Vehicles (car, motorcycle etc..)

Goods ( For Import or Export )

Valuables

Health, accidents and Life

Takaful by Dr. Muhammad Imran Usmani - Revision history

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