1

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.
Regional Head
Takaful Pakistan Limited.

2
Outline of Presentation
 Introduction to Takaful ( Islamic Insurance )
 Difference b/w Conventional Insurance & Takaful
 Takaful Through Time
 General & Faimly Takaful Types
 Re-Takaful
 Takaful Models Worldwide.
 Takaful - Target Market
About Us

AlHuda Center of Islamic Banking

and Islamic Economics (CIBE); A
pioneering effort to promote
Islamic Banking and Finance in
Masses through Advisory,
Education, Training, Publications,
Awareness and Practice, with a
view to support, sustain, spread
and supplement SBP and Govt.
initiative for promotion of Islamic
Banking and Finance.

4
 Our Services

 Education & Trainings

 Post Graduate Diploma in Islamic Banking & Finance
 Certified Courses
 Advisory and Consultancy
 Islamic Financial Modeling
 Feasibility Report
 Strategic Planning
 Research & Product Developments
 Shariah Advisory
 Publications
 True Banking Magazine
 Islamic Banking & Finance News
 SukuK Portal
 Takaful Blog
 International Conferences & Workshops
 Awareness and Promotion
 Awareness Campaigns
5
 Our Brands

www.truebanking.com.pk www.sukuk.com.pk

www.alhudacibe.com

Online Magazine on Islamic Banking

6
 Meaning of Takaful

 “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.
 Meaning of Takaful

 Takaful means mutual protection and joint

guarantee.

 Operationally, takaful refers to participants

mutually contributing to a common fund with
the purpose of having mutual indemnity in the
case of loss.
 What wrong with Insurance
practice ?
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
Basic Elements of Takaful
 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.
Main drivers of Takaful
 Piety (individual purification)

 Brotherhood (mutual assistance)

 Charity (Tabarru or contribution)

 Mutual Guarantee


Community well-being as opposed to profit maximization.
Comparing Takaful to Conventional
Insurance
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.
 Takaful through Time

 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.
Takaful through Time… (Cont’d.)

 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.
 Takaful Operators
The number of Takaful operators worldwide is now estimated
at:

 180+ Takaful companies

 11 Retakaful companies

 In 46 Countries.
General Takaful Types

 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
Types of Family Takaful
 Term Life Takaful

 Whole Life Takaful

 Endowment Takaful

 Universal Takaful

 Marriage Plan

 Education Plan
ReTakaful
Currently few ReTakaful companies worldwide offering a relatively
small capacity:
 Sudan (1979) National Reinsurance.
 Sudan (1983) Sheikhan Takaful Company.
 Bahamas (1983) Saudi Islamic Takaful and ReTakaful
Company.
 Bahrain/Saudi Arabia (1985) Islamic Insurance and Reinsurance
Company.
 Tunisia (1985) B.E.S.T. Re
 Malaysia (1997) ASEAN ReTakaful International.
 Dubai (2005) TakafulRe by ARIG.
 Lloyds of London to have a ReTakaful Syndicate in 2007.
 SwissRe has formed a separate ReTakaful Pool
 MunichRe set up ReTakaful Co. in Malaysia 2008
 TAKAFUL - TARGET MARKET

 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.

Different Models of Takaful

 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.)

Mudarib’s Management
Wakalah Investmen Share of PTF’s Expense of Profit/Loss
Fee t Investment the
Income Income 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.)
Challenges to Takaful
 Skepticism.

 Lack of uniformity in Models & Shariah decisions.

 Regulatory issues.

 Capacity constraints.

 Limited Investment avenues.

 H.R. issues.
Thank You.