For details, http://www.scribd.com/doc/220665160/Takaful-An-Introduction. Awaiting for your feedback. WASIM HANIF wasim.hanif@hotmail.com

2. WASIM HANIF

3. Outline of Presentation
What is Shariah Compliant ?
Sources of Shariah
Conventional Insurance
Takaful – Definition & Mechanism
Comparison (Takaful & Insurance)

4. Islam has provided a list of “Don’ts” for doing business.
‫ےہ‬‫گیا‬ ‫کردیا‬‫بیان‬ ‫میں‬‫ے‬‫ر‬‫کےبا‬ ‫ممنوعات‬ ‫میں‬ ‫سالم‬ِ‫ا‬ ‫دین‬
We only have to check that our transactions don’t contain
any of those “Don’ts”
‫نہیں۔‬‫تو‬ ‫چیز‬ ‫کوئی‬ ‫والی‬ ‫عات‬ ‫ممنو‬ ‫میں‬ ‫معامالت‬‫ے‬‫ر‬ ‫ہما‬ ‫کہیں‬ ‫کہ‬ ‫ےہ‬‫دیکھنا‬ ‫یہ‬ ‫ہمیں‬
‫ےہ‬ ‫گیا‬ ‫کیا‬ ‫منع‬ ‫سے‬ ‫جن‬‫یعنی‬
This alone is prove enough for it being in accordance with
Shariah principles
‫ےہ‬‫کافی‬ ‫لےی‬‫کے‬ ‫نے‬ ‫ہو‬ ‫حالل‬‫کے‬ ‫چیز‬ ‫ی‬ ‫کس‬‫ل‬‫اصو‬ ‫یہی‬‫ر‬‫او‬
What do you mean by Islamic or Shariah Compliant?

5. Sources of Shariah
The recognized primary sources of Islamic law are the Qur'an and Sunnah. In
matters that were not clearly spelled out in these sources, Muslim jurists
developed other methods of finding a solution to a question. The first is ijma'
or unanimous consensus among jurists, and the second is qiyas, or decision by
analogy.
Qur’aan Kareem
Sunnah / Hadidth
Ijma / Ijtihad
Qiyas / Replacement

6. Conventional Insurance
What is Insurance ?
• It is nothing but a promise of compensation for
specific potential future losses.
• In exchange of a consideration an insurer, or
insurance carrier, is a company selling the
insurance policy.
• The insured, or policyholder, is the person or
entity buying the insurance policy.

7. Shariah’s Stance on Conventional Insurance
concept of
Insurance?
practice of
Insurance?
?
Shariah has no objections as to the concept or
objectives of insurance ; it has reservations only
with the way it is being practiced…

8. Insurance Business Model
Policyholders
--Insured--
Insurance Company
--Insurer--
Premiums
Claim Payment (upon Risk actualization)
Sum Insured
(Subject-Matter)
Premium
(Consideration)

9. The Conventional Insurance Process
• The customer pays premiums in exchange for claims
(at the time of risk actualization) from the Insurer
PREMIUMS (MONEY)
CLAIMS (Upon Risk Actualization)

10. Types of Contracts
‫معاوضہ‬ ‫عقد‬
Commutati
ve
Contract
• Example: Selling Purchasing, Leasing
(Ijarah), Nikhah, Rahan etc.
‫تبرع‬ ‫عقد‬
Taburru
Contract
• Example: Hibah (Gift), Sadqah, Loan,
Ariah, Wasiyyah, Waqf etc.

11. Shariah’s perspective/stance on Insurers’ Business Model
• Insurer: The insurance company is selling “Sum Insured”
• Insured: The policyholder is buying Sum Insured by paying fixed
“Premiums”
• Nature of Contract:
• It is a sales purchase contract, bi-lateral, commutative i.e. Aqd-e-Muawaza
– Subject Matter: “Sum Insured” ; Consideration: “Premium”
• It is a Risk-Transfer Mechanism
– The insured (financially weaker party) is transferring its risk to the
insurer (financially stronger party)
– The insurer is charging a fee called “Premium” for accepting the
risk and promising to pay “Sum Insured” if a covered event takes
place

12. Riba , Qimar & Gharar
R I B A Qimar/Maysir Gharar
Riba, Qimar and Gharar are prohibited in Shariah.
sales-purchase contract is Aqd Muawaza and due to this
some ills involves:

13. RIBA – Interest or Usury
Riba Al Qura’an:
A conditional or understood increase versus a loan is Riba.
Those who take riba (usury or interest) will not stand but
as stands the one whom the demon has driven crazy by his
touch. That is because they have said: :Sale is but like
riba.‘‘, while Allah has permitted sale, and prohibited riba.
(Surah:2,Verses:275)
‫جو‬‫وہ‬ ‫ہیں‬ ‫کھاتے‬ ‫سود‬ ‫لوگ‬(‫میں‬‫قیامت‬)‫جسے‬ ‫گے‬ ‫اٹھیں‬ ‫طرح‬ ‫کی‬‫شخص‬ ‫اس‬ ‫تو‬ ‫گے‬ ‫اٹھیں‬‫چھو‬ ‫نے‬‫شیطان‬
‫کہ‬ ‫تھا‬‫کہا‬ ‫نے‬ ‫ں‬‫انہو‬ ‫کہ‬ ‫گا‬‫ہو‬ ‫لئے‬ ‫اس‬ ‫یہ‬‫ہو۔‬ ‫دیا‬ ‫بنا‬ ‫پاگل‬‫کر‬‘‘‫طرح‬ ‫کی‬ ‫ی‬ ‫ہ‬‫سود‬ ‫تو‬ ‫بھی‬ ‫بیع‬‫ےہ‬ ‫ہوتی‬’’،
‫ےہ۔‬ ‫دیا‬ ‫ار‬‫ر‬‫ق‬‫ام‬‫ر‬‫ح‬ ‫کو‬‫سود‬ ‫ر‬‫او‬‫ےہ‬ ‫کیا‬ ‫حالل‬ ‫کو‬ ‫بیع‬ ‫نے‬ ٰ‫تعالی‬‫ہللا‬ ‫حاالنکہ‬
Riba literally means:
increase, addition, expansion or growth.
• Riba al Quran
• Riba al Hadith

14. RIBA – Interest or Usury
Riba Al Hadith:
A conditional increase in commutative contract without
consideration.
Sayyidina Ubadah ibn Samit (RA) reported that the Prophet (SAW) said, “Sell
gold for gold like for like, and siiver for silver like for like, and date for date like
for like, and wheat for wheat like for like, and salt for salt like for like, and
barley for barley like for like. If anyone exceeds, in taking or giving then he has
dealt in interest. Sell gold for silver as you like on spot payment, and wheat for
dates as you like on spot payment, and barley for dates as you like on spot
payment.” (credit and less measure are disallowed).(Termazi)

15. QIMAR / GAMBLING
• The word ‘maisir’ literally means ‘getting something too
easily’ or ‘getting a profit without working for it’
• It means that both parties stake their money in such a way
that one party draws total profit and the other party incurs
total loss
• Four elements in Qimar;
1. Commutative Contract between two.
2. Everyone puts his money on risk.
3. Uncertainty in conclusion of event.
4. One draws total profit and the other 100% total loss.

16. GHARAR - UNCERTAINITY
• Literal meaning of Gharar is: To Cheat, Deceive, Lure, Entice,
Risk, Danger, Hazard. ‫خطرہ‬ ‫اور‬ ،‫دالنا‬ ‫امید‬ ‫غلط‬ ،‫دہی‬ ‫دھوکہ‬
• In the Fiqh, Gharar is the element of uncertainty in the basic
parts of commutative contract. i.e. Subject Metter, Price,
period, Delivery etc.
• Basic conditions of effectiveness of Gharar;
1. should be found in Commutative contract.
2. Should be major.
3. Shouldn't found in contracts which are exempted.
4. Should be found as in basic contract. (isalatan)

17. TAKAFUL - DEFINITION
Takaful is a community-pooling system,
based on the principles of brotherhood and mutual
help, wherein participants contribute in a fund, to
help those who need it most in times of financial
difficulties.
EXAMPLES: The concept of Takaful exists in
cooperative societies and joint-family systems etc
In practice, Takaful can serve as a risk-mitigation
tool and an alternative to conventional insurance.

18. WAQF
• Transferring the ownership of a physical thing to Allah.
• That is for the benefit of people.
• Waqf item(asset) neither be sold nor be distributed in
inheritance (meerath)
• By using that thing, it should not be diminished.
(Like; well, water cooler, school, Masjid, hospital etc.)
‫دینا‬ ‫میں‬ ‫اہ‬‫ر‬ ‫کی‬‫ہللا‬ ‫کر‬ ‫نکال‬ ‫سے‬ ‫ملکیت‬‫اپنی‬ ‫کا‬‫چیز‬ ‫ی‬ ‫کس‬
‫ہی‬ ‫تے‬ ‫ہو‬ ‫لئے‬ ‫کے‬ ‫ں‬‫بندو‬ ‫کے‬ ‫ہللا‬ ‫منافع‬‫کے‬ ‫وقف‬‫ں‬
‫میں‬‫اث‬‫ر‬‫می‬‫شے‬‫موقوفہ‬‫ی‬ ‫ہ‬ ‫نہ‬‫ر‬‫او‬ ‫ہوسکتا‬ ‫نہیں‬‫ھبہ‬ ‫ر‬‫او‬ ‫خت‬‫و‬‫فر‬ ‫خریدو‬ ‫کی‬ ‫وقف‬
‫ےہ‬ ‫ہوسکتی‬ ‫تقسیم‬
‫وقف‬ ‫کا‬ ‫کنواں‬،‫نہیں‬ ‫جائز‬ ‫وقف‬‫کا‬ ‫پانی‬ ‫ذا‬ٰ‫لہ‬ ،‫ےہ‬ ‫ی‬‫ر‬‫و‬‫ضر‬ ‫بقا‬ ‫کا‬ ‫وقف‬
‫ےہ‬ ‫ہوسکتا‬

19. FUNCTIONALITY OF FAMILY TAKAFUL - MODEL
Participant’s
Investment
Account (PIA)
Waqf Fund Operator / Wakeel
Participant
Contributions
Profits from Investment Wakalee Fee(s) for
Investment
Management
Contributions for
Takaful Benefit
Payment of Claims
Surplus Distribution
(if any)
Wakala Fee for
Operating Waqf
Fund
1
23
4
5
6
7

20. PROCESS OF TAKAFUL
• Takaful Operator creates the Waqf Fund or the “Taburru
Fund”
• Participants contribute their premiums/contributions on
the basis of “Taburru” into this Waqf Fund
• The Waqf Fund pays the claims
• Takaful Operator creates the Waqf Fund or the “Taburru
Fund”
• Participants contribute their premiums/contributions on
the basis of “Taburru” into this Waqf Fund
• The Waqf Fund pays the claims
Takaful Operator
WAQF FUND
Contributions
Claims
Surplus

21. KEY POINTS ON TAKAFUL BUSINESS MODEL
• Contributions are paid on the basis of
Taburru. In Shariah such a contract is
called Aqd Taburru
• Contributions are credited to the Waqf
Fund; Operator acts as Wakeel
• The Waqf Fund pays the claims
• Contributions are invested only in
Shari’ah Compliant investment avenues
• An independent Shariah Board supervises
business activities for Shariah compliance
WAQF

22. KEY POINTS ON TAKAFUL BUSINESS MODEL
• Takaful resonates with the beliefs and values system of
people from different cultures:
Shariah
Compliant Ethical
Transparent
and Full
Disclosure
Shariah and
Socially
Responsible
Investments
Surplus
Sharing

23. KEY POINTS ON TAKAFUL BUSINESS MODEL
Conventional Insurance vs. Takaful

24. TAKAFUL VS INSURANCE
Section Takaful Companies Conventional Insurance
Companies
Nature of
Contract
Takaful is based on mutual
cooperation.
Conventional insurance is based
solely
on commercial factors.
Riba / Qimar Takaful is free from interest (Riba),
gambling, (Maysir), and uncertainty
(Gharar).
Conventional insurance includes
elements of interest, gambling, and
uncertainty.
Two separate
funds
All or part of the contribution paid
by the Participant is a donation to
the Takaful Fund, which helps other
Participants by providing protection
against potential risks.
The premium is paid to conventional
insurance companies and is owned
by them in exchange for bearing all
expected
risks.
Shariah
Monitoring
Takaful companies are subject to the
governing law as well as a Shari’a
Supervisory Board.
Conventional companies are only
subject to the governing laws.

25. KEY POINTS ON TAKAFUL BUSINESS MODEL
Section Takaful Companies Conventional Insurance Companies
Restricted
Investment
The Plan Owners’ and
shareholders’ capital is invested
in investment funds that are
Shari’a compliant.
The capital of the premium is
invested in funds and investment
channels that are not necessarily
Shari’a compliant
Surplus
Distribution
Any surplus in the Takaful Fund is
shared among Participants only,
and the investment profits are
distributed among Participants
and shareholders on the basis of
Mudaraba or Wakala models.
All surpluses and profits belong to
the shareholders only.
The End. Jazak Allah

26. Questions?