Takaful by Dr. Muhammad Imran Usmani
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
