Outline of the

Presentation
Insurance
Takaful
Characteristics
Need

of Takaful

of Takaful
Difference between Takaful and Conventional Insurance
Products of Takaful
Models of Takaful
Role of Takaful in Islamic Economic System
Market Status
Issues & Challenges
Suggested Measures
Conclusion

INSURAN
CE
Islamic Insurance
Conventional

INSURANCE
A contract in which an individual receives
financial protection against losses from an
insurance company. The company pools clients'
risks to make payments more affordable for the
insured.

What is Takaful?
Takaful (Islamic insurance) is
a financial transaction of a
mutual co-operation
between two parties towards
providing a financial security
for one of them against an
unexpected material risk.

Thakaful is
Social scheme
Arabic word
Legally binding agreement

 Common good

Contributions
Losses & liabilities
Uncertainty removes
Fair distribution of

surplus

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The Prophet Muhammad (P.B.U.H)

said:
The believers, in their affection,
mercy and sympathy to each other,
are like the body, if one of its organs
suffer and complains, the entire body
responds with insomnia and fever
(Muslim)

Practices of
the Holy
Prophet (SAW)
The relevant legislations
passed in the first
constitution of Medina
was in 622 B.C

Practices of the
Companions
Hazrat Umar (R.A) ordered to a group
of Mujaheedin in each district, to
contribute an equal amount of money
to help legal heirs of those victims, in
case if any person is killed by any other
person of the same district.

Characteristics of Takaful

Establishment of two separate funds

Solidarity
principle
and
equal
distribution
Restricted investments
Establishment of Shariha board

surplus

Why Conventional
Insurance is
unacceptable in Islam???

Objections to Conventional
Insurance
Scholars view the insurance contract as
an exchange contract money is being
exchanged for money over time.
Insurance is a buy and sell agreement.
.
Elements of:
Uncertainty Gharrar
Gambling Maisir
Interest Riba
Profit distribution
Investment of funds
Nature of capital

GHARAR-Uncertanity
Gharar is forbidden in Islam because it is
not showing the full knowledge , disclosure
and transparency.
Gharar describe RISK..

In insurance Gharar exist in three

forms:
Gharar in the outcomes
Ghaarr in the results of exchange
Gharar in contract period

Maiser-Gambling
Maisir resembled with Risk taking
whereby insured get a huge amount
without any equivalent input.
Insurance include Maisir where
insured makes a bet on the
happening of loss and insurer also do
it.

Riba-Interest:

. Allah has permitted trading and

forbidden
riba (Al Baqarah 2 : 275).
Every profit must be based on liability and risk
otherwise it is Riba according to Islam.
Conventional insurance companies normally
place the insurer fund in interest bearing instruments
like loans and bonds.

Investment Of
Funds
Insurance companies invest in such type
of assets that are totally prohibited in
Islam such as alcohol, gambeling, bonds
etc. while the Takaful companies invest in
interest free funds that are halal-oharam.

Nature of Contract:
In Takaful every policyholder has the right to
know .???
How their money is used?
How the surrender value is calculated?
& the Takaful policyholders must be careful
that the funds are used for halal purposes.
Insurance contract based on interest.

Profit Distribution
In Takaful every policy holder has the
right to know about the distribution of
profit
among
partners
but
in
conventional insurance there is no hard
and fast rule about that, its totally
depend upon management of company

DIFRENCE
BETWEEN
TAKAFUL
AND
CONVENTIONAL
INSURANCE

Issue
Risk
Gharar

Maisir

Investment
Surplus

insurance
Tkaful
Risk transfer Risk sharing
Gharar exist Gharar
brought
down by
making
conditional
donations
Payment
Obviates the
depends
element of
upon chance maisir
Interest
Interest free
based
Surplus in
Distribution
hands of
according to

PRODUCTS OF
TAKAFUL

Products of
takaful

Genera
l
takaful

Family
takaful
Child
education
plan

Child
marriage
plan

Savings +
protection
plan

Retirement
plan

Marine
takaful

Property
takaful

Motor
takaful

General Takaful:
General takaful offer all kinds of non life risk coverage
It is normally divided into following classes
Property Takaful
Marine Takaful
Motor Takaful
Miscellanea Takaful

Family Takaful

Children Education
Plan:
Long term savings
Protection for child education
Education will continue when you are not

around

Children Marriage
Plan:
Loan Protection
Ease in coming financial

challenges
Plan will continue
Received good lump sum
amount

Financial protection +
Saings Plan:
"A companion of Prophet Muhammad
(s.a.w.w.) asked: 'O Prophet of Allah!
Should I tie my camel and then
entrust Allah or should I leave the
camel untied and then entrust Allah?'
The Prophet (s.a.w.w.) replied: 'Don't
leave your camel untied; instead first
tie the camel and then put your
Tawakkal on Allah.'"

"It is narrated that Hazrat Muhammad

Mustafa (s.a.w.w) said:

It is better to leave your heirs

wealthy rather than poor and
asking others for their
needs.

Common Benefits of Plans:

Financial protection
Investment of amount in Halal business
Availability of other financial riders
Maturity of amount
Loan protection
Partial withdrawals
Availability of plan
Tax free plan

TAKAFUL MODELS
There are three main different Takaful Models use
today.

Takaful
Models

Mudharabah

Wakalah

Wakala -waqf
model

Takaful models implemented in Pakistan

WAKALA-WAQF
MODEL

Wakala model
with waqf fund

WAKALA

IN ARABIC

AGENCY

The wakala concept is essentially an agent-principal

relationship, where the takaful operator acts as an
agent on behalf of the participants.

Operator as wakil/Agent: Operator is an

organization which manages Takaful Fund of
participants.

Participant as principal: A contributor to Takaful

Fund by participating in any protection scheme.

Wakala fee: The fee received by a Takaful Operator

from the Participants to manage Takaful fund.

Initial donation by shareholders.

Waqf
fund

Participant
contribution /
Tabarru

Tabarru / Donation: The contribution of participants

in waqf fund.

Participants/p
olicyholder
contribution

Shareholde
rs

/ Waqf fund

Overall
takaful
contract as
wakeel

Administrated
by Opretor

Only
investment
portion as
mudarib

WAQF FUND
1

Saved for
payment of
wakalah fee
claims or
retakaful
expenses.

This portion is
invested, or
used for
making
investment.

Waqf fund

Investment in 100% Islamic

transactions or sharia
complaint securities.

Profit on
investment
Profit sharing on MUDARBAHA basis

Profit for the

shareholder

Profit for
participants

Profit for the

company

Minus
Administration
expenses like
employees
salary etc.

MINUS
Management
expenses of
company.

Profit distribute between

shareholders.

Waqf fund

Waqf fund

Mudarabah
model(partnership
of sharing profit
and loss)
Policy
holder

Provide capital

Takaful
operator

Manage the whole

takaful operation
and make
investments.

Rabb-ulmal

Mudarib

Takaful models not

implemented in Pakistan
Issues in Mudarabah model.

1.
2.
3.
4.

Nature of contract is undermine.

Sharing in underwriting surplus.
General takaful.
Qard-al-hasan.

Issues in wakalah model.

1. Sharing in underwriting surplus.

2. Not reduce operator fee for largest clients
reduce the risk premium rates.
3. Initial expenses of takaful are not born by
shareholders.

Issues
&
challenges
faced by
Takaful

1. Development Of
Human Resource
Takaful is obstacle by less human
resources.
Lack of talented, skilled and
experienced people.
It is good to teach people Takaful
concept.

2. Lack of
Awareness
Islamic financial institutions are not putting too much

effort in developing Takaful.

It is crucial for marketers to enhance the industry and
the innovation of new products.
Financial markets must understand the needs and wants
of customer .
Many consumers are still stick to conventional insurance.
It is important to address educational issues and to
develop consumer awareness.

3. Regulatory Framework
Often, scholars are not agree each

other to establish a framework for

Takaful.
The issue of different regions i.e

Malaysia and Middle East countries.

Model of Takaful is being practiced

by specific region.

4. Cooperate Governance
Quite self interest between

Shariah Supervisory Board and

the board of directors of the
Takaful.
There is no clear mission and
responsibility of Shariah board.
At present, there are no
manual and standard terms of
reference.

5. Shortage of Shariahcompliant assets

The lack of appropriate

investment vehicles,
especially with the long
term duration.
The limited range of

shariah compliant asset

could be the result of
asset risk.

6. Distribution
channel
Micro insurance
Life

7. Lack of
standardization
Kind of model of Takaful
Every nation has its own model of Takaful.
Terms of standardization is mainly based on

different regions.
The lack of standardization will harm the
development of Takaful.

Role of takaful in Islamic economic

system.
ul
f
a ce
k
i
Ta rv
se

welfare
scheme

M Fo
um us r
m lim
ah

1.Create exploitation free society.

2.It is a safeguard against people faith, life, prosperity
and property.
3.Facilitate capital formation.
4.Motivate individual for saving.
5.Utilization or resources.
6. Greater employment.

Products of
takaful

Genera
l
takaful

Family
takaful
Child
education
plan

Child
marriage
plan

Savings +
protection
plan

Retirement
plan

Marine
takaful

Property
takaful

Motor
takaful