takaful islamic insurance.pptx

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, it’s 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.

2

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