Group members: MuHammad Hammad Mohsin Muhammad Amir Abdullah Saeed Ejaz Ahmad Haseeb Ahmad Saud Javid
Outline of Presentation• Takaful – introduction.• Characteristics of Takaful.• Why conventional insurance is not Halal.• Difference between conventional insurance and Takaful• Models of Takaful .• Role in Economy.• Challenges are facing by Takaful.• Suggested Measure adopt by Takaful.• Conclusion.
Meaning of InsuranceInsurance provides financial protectionagainst a loss arising out of happening of anuncertain event. A person can avail thisprotection by paying premium to aninsurance company.
What is Takaful:Conceptually, Takaful (Islamic insurance) is afinancial transaction of a mutual co-operationbetween two parties towards providing afinancial security for one of them against anunexpected material risk.
The Quran says “Help ye one another in righteousness and piety, but help ye notone another in sin and rancour”. (Surah Al-Maidah verse:2)
The ProphetMuhammad(P.B.U.H) said:“The believers, in theiraffection, mercy andsympathy to eachother, are like thebody, if one of itsorgans suffer andcomplains, the entirebody responds withinsomnia and fever”(Muslim)
Practices of the doctrine of al-Aqilah among the ancientArab tribes as a tribal custom
Practices of the Holy Prophet (SAW)
Practices of the Companions
Development in the 19th Century
Characteristics of Takaful:The establishment of two separate fundsSolidarity principle and equal surplus distributionRestricted Investments:Establishment of a Shari’ah Board
Takaful Models• Investment according to contract and Shari’ah.• The principal operational model for insurance riskmanagement and the investment component shall bebased on the Islamic concept of Wakala and Modarbah,respectively. (Section 8(1) Takaful Rules – 2005).Followings are Models: Modarbah (Partnership with profit sharing) Wakala (Agency with Fees) Hybrid (Profit Sharing /Fees)
Modarbah (Partnership with Profit Sharing)• The Modarbah bias a true Islamic partnership structure.• Rab _ul_ Maal (capital provider trough tabaru donation)• Short fall in premium pool then get Qardy Hassna.• wide spread used in the early days of the introduction of Takaful.
Modarbah (Partnership with Profit Sharing)
Important points …..• 1.An operator is selected and a Mudarabah partnership is entered into.• 2.The clients/policy holders feed the Tabarru Fund with contributions and the operator invests these funds on their behalf.• 3.Profits split on those investments are according to pre-agreed ratio, losses (on investments and through claims) are charged to the Tabarru Fund.
Important points …..• 4.Insurance claims are honored.• 5.At various times, underwriting surpluses may be computed and distributed between the eligible clients / policyholders (or donated to a charitable cause) and sometimes also the operator.
Wakala (Agency with Fees) •The term wakalah in Arabic means agency •Acting as the agent or “wakil” to the participant as the principal to manage the participation of the latter in a variety of takaful products provided by the operator •The fee is payable from the takaful contribution paid by the participant
Wakala (Agency with Fees)• In the event of a cancellation or surrender, the participant will be refunded of the net balance of his contribution, if any, after deducting all the upfront charges such the wakalah fees and other management expenses from the takaful fund.
Wakala (Agency with Fees)
Important points ….. • 1. An operator is selected. • 2. The clients / policyholders feed the Tabarru Fund with contributions and the operator (agent) invests these funds. • 3. Insurance claims are honoured.
Important points ….. • The operator receives a fee for his efforts, usually a fixed amount or a remuneration linked to the gross contributions received. • At various times, underwriting surpluses may be computed and distributed amongst the clients/policyholders16 or ultimately donated to a charitable cause.
Hybrid (Profit Sharing/Fees)• As the term denotes, takaful hybrid model is a combination of the two principles .• Under the model, a relationship between the operator which combines the role of entrepreneur or Mudarib as well as the agent or wakil of the participant,the latter in the capacity as both provider of capital or sahibul-mal and principal to the agent.
Role of Takaful in Islamic Economic system• An exploitation free society and up lift of the entire society as a whole.•The Islamic system based on utilization of wealth.. i) financial assistance to low bracket incomepeople• Adequate capital formation
Prophet Mohammad (P.B.U.H) said,“He advised a poor companion to sell all his belongings for purchasing an axe for collecting firewood and sell those in the market.”
Role of Takaful in Islamic Economic system• To Meet the Financial services demand of Muslims Around the Globe. i) Muslims are 40% of total population. ii) As result 70 takaful and others financial institutions are working todays in Muslim and non Muslims countries also.
Role of Takaful in Islamic Economic system•Takaful was grown not innovative financialinstrument. i) the purpose of Islam is well being.. ii) complete code of life(sharia,h guide lines)
Role of Takaful in Islamic Economic system• Helping neighbours, poor relations and the distressed contribute to an exploitation free society based on the principle of brotherhood
ProphetMohammad(P.B.U.H) said,“ One whoeats to hisheartscontents, whilehis neighbourstarves, is nota Mumin“(faithful)
Future Challenges About Takaful1. The family takaful business in Pakistan is coming from the urban market and middle income group.2. Another challenge faced by the industry of takaful is the lack of knowledgeable and qualified people in the industry
Future Challenges About Takaful3. The re-takaful industry needs a number of takaful operators to operate effectively4. At last, product features innovations are also seen to be the future challenges for the takaful industry.
Suggested measuresTakaful or Islamic Insurance is only a subset of theglobal insurance industry of $ 2.5 trillion; where theglobal Takaful business is approximately $ 3 billiononly. However, Takaful is the fastest growing areas ofworld insurance market. At present, Takaful is growing@ 20% to 25% per annum compared to world averagegrowth of conventional insurance @ 5% to 6% perannum.
Suggested measures1. In view of the importance of customer awareness.2. Towards promoting the sound Takaful Industry, formation of national and international Takaful Association.3. Market penetration to further entrench its development underscore the importance of enhancing the productivity and efficiency of distribution capabilities.
Suggested measures3. Embracing smart collaboration or strategic alliance with Islamic Banks and financial institutions and building stronger customer allegiance and retention would reinforce the efforts to achieve this objective...4. Policy initiatives of the Regulatory Authority ought to be essentially devoted towards enhancing the effectiveness of the internal control structure within the Takaful Operators...
Concluding Remarks A dramatic rise in the demand for Takaful Insurance is being predicted by market observers, as the population of Islamic countries becomes more financially sophisticated and more determined to invest in Shariah compliant products. Moreover, due to the ethical nature of the products Takaful ought to be attractive to both Muslim and non-Muslims.
Concluding RemarksThe Global Takaful Industry is small in comparison to Conventional Insurance counterpart. Therefore, the market needs to gain worldwide brand recognition and exceed performance standard set by the Conventional Insurance Industry.The Takaful Industry is fast evolving and entering a stable development phase. However, only a few National Regulators have enacted a Takaful framework for the industry.
Concluding RemarksMalaysia & Bahrain are leading examples of having progressive Takaful Regulation. Recently, Saudi Arabia & Pakistan have also established Regulatory Framework for Takaful business. It is heartening to note that the Govt. of Pakistan is actively considering enacting a separate Takaful Act. This will certainly help to grow Takaful Industry of Pakistan.
In short“Takaful is a viable Shariah compliant alternative to insurance”!