Takaful( Islamic Insurance )

Zubair MughalRegional Head

Takaful Pakistan Limited.

Introduction

“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.

Origins of Takaful

In the event of death caused by someone from another tribe, the member of the offender’s tribe would share the “ blood money” (Khoon Baha) to provide for the family of the victim.

Why Insurance ?

Is Some thing wrong with Concept ?

Risk Aversion Assuring others Risk sharing

From the Holly Quran

The need for insurance is shown in the following verse of The Quran.

“ Those of you who die and leave widows should bequeath for their widows a year’s maintenance and residence” (2.240)

From the Hadiths By Anas-bin-Malik, One day Prophet

Muhammad(PBUH) notced a bedouin leaving his Camel without tying it. He asked the bedouin, “Why don’t you tie down your camel”? The Bedouin answered, “ I put my trust in Allah (SWT)”. The Prophet (PBUH) then said,” Tie your camel first, then put your trust in Allah(SWT)” <Tirmidhi>

What wrong with practice ?

The contract between the insurer & the insured is technically wrong from the sharia perspective because of

Gharar (Uncertainty)) Gambling (Qamar & Maisir) Interest (Riba)

Riba in Insurance

Direct RibaExcess on one side in case of exchange

between the amount of premium.

Indirect RibaThe interest earned on interest based

investments

Gharar

Lexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter.

Different Models of Takaful 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)

Wakalah Based on Waqf Model : The participant's donate the fund and operator charge an agency fee.

InvestmentIncome

Operational Cost of Takaful

/ ReTakaful

Claims &Reserves Surplus

(Balance)

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.)

Mudarib’s Share of PTF’s

Investment Income

Wakalah Fee

InvestmentIncome

Management Expense of

the Company

Profit/Loss

S H A R E H O L D E R S’ F U N D (S.H.F.)

Participant

WAQF

Takaful Operator

Share Holder

Wakala-Waqf Model

Investment by the Company

Shariah Compliance Shariah compliance is an essential

element in Takaful . It is ensured through a Shariah

Supervisory/ Advisory Board at the level of each Takaful company.

The role of the Shariah Board is vital in meeting the specific demand of a public who would not insure otherwise.

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

BANCATAKAFUL Background Range of Products

Savings → Personal Accident, Homeowners’ Comprehensive, Credit Cards, etc.

Financing, Individuals → Car Ijarah, Housing Musharika, Mortgage Takaful.

Financing, SMEs → Trade Credit Takaful, Business, Office, Equipment, Assets.

E-Commerce

BANCATAKAFUL (…Cont’d.)

Advantages of BancaTakaful: Facilitation Desk / Equipment. Fast Turnaround Time. One-Stop shop for Clients. Concept of Islamic Financial Supermarket. Value Added Services. Law of Large Numbers.

Lower Contribution Rates. Attraction for Depositors.

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.

Takaful Pioneers

Takaful started some 27 years ago in the Middle East with the launching of two companies: The Islamic Arab Insurance Co. (IAIC)

in the UAE and The Islamic Insurance Co. of Sudan

But it took some time for the movement to take shape.

Takaful Pioneers

Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act).

This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asia.

Takaful Operators The number of Takaful operators worldwide is

now estimated at: 179 Takaful companies 11 Retakaful companies In 48 Countries. Average growth rate higher than

conventional insurance companies (around 25%).

Non–Muslims increasingly opting for Takaful products for commercial benefits.

Takaful Premium Takaful is one of the fastest

growing segments in insurance (at around 20% pa. on average)

World Takaful contributions are conservatively estimated at around US$ 3billions, of which: 60% General Takaful 40% Family Takaful

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.

TAKAFUL - TARGET MARKET

Main Markets

Malaysia Indonesia Iran GCC countries Other Arab countries Other Asia Pacific Pakistan ( Emerging Market )

Takaful Best Practices Regional Takaful institutions and

organisations need to come together internationally in order to promote and standardise best practices within the industry: Islamic Financial Services Board (IFSB) ASEAN Takaful Group (ATG) International Takaful Association (ITA) Accounting and Auditing Organization of

Islamic Financial institutions (AAOIFI)

Growth Outlook

World Muslim population is estimated at 1.5 billions,

A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East).

Takaful Prospects in Pakistan

97% Muslim population.

Demand for insurance increasing with increase in per capita income.

Personal lines insurance business (leasing, health, Medicare) growing at a higher rate than other conventional classes.

Islamic banking on sound footing with support of the Govt.

Introduction toTAKAFUL PAKISTAN LIMITED

TAKAFUL PAKISTAN LIMITED Takaful Pakistan is a joint venture of

prestigious local & foreign institutions, including:

House Building Finance Corporation. Emirates Global Islamic Bank. Arif Habib Securities. Sitara Chemicals. Emirates Investment Group (Sharjah). Al-Buhaira National Insurance Co.

(U.A.E.)

Large initial paid-up Capital.

TAKAFUL PAKISTAN LIMITED … (Cont’d.) Managed by dedicated professionals, committed

to the cause.

ReTakaful arrangements with a consortium of

internationally reputed ReTakaful operators.

Shariah Board comprises of eminent scholars.

BancaTakaful and MicroTakaful products.

We intend to be the trend-setter for excellent

Clients’ Servicing, Operational bench marks and

prudent Underwriting practices.

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