Takaful is an Islamic insurance system based on mutual assistance and risk sharing that differs from conventional insurance in key ways. Takaful follows Sharia law and avoids elements of uncertainty, gambling, and interest. It operates using models like Wakalah, where participants mutually guarantee each other against defined losses, and Mudarabah, where investment profits are shared between participants and shareholders. Any surpluses are distributed to participants while deficits are covered by interest-free loans from shareholders.

1. What is Takaful
And how does it differ from conventional insurance
By Team 3

2. Content
 Takaful’s Standing in the World
 What is Takaful and Why does it exist?
 Takaful Models
 How Takaful differs from Conventional
Insurance?
 Summary
 Q & A
Team 3 : Takaful 2

3. Team 3 : Takaful 3
Resource: Global Takaful Insight 2014, Ernst & Young Ltd.
Takaful’s Standing in the World
8,426
9,645
10,775
12,268
14,029
16,108
18,561
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
2010 2011 2012 2013 2014f 2015f 2016f
Year
Global Takaful Contributions Forecast
2010 - 2016
Contribution ($ Million)
Note: “ f ” means forecast

4.  Foreign mergers and acquisitions in
Malaysia (in 2013)
• Khazanah Nasional Ltd. (Malaysia) & Sun Life Financial Ltd.
(Canada)
• American International Assurance Ltd. (USA)
 Regulatory improvements in Islamic
countries
• Malaysia
• Indonesia
• Turkey
• Oman
Team 3 : Takaful 4
Takaful’s Standing in the World
• Saudi
• Bahrain
• UAE (United Arab Emirates)

5.  Development of sukuk (Islamic bond)
tax framework (Hong Kong)
 Sharia-compliant platform launched in
Cobalt Ltd. (London)
Team 3 : Takaful 5
Takaful’s Standing in the World

6. What is Takaful?
 Concept derived from the Arabic word “Kafala”
 Embraces the element of mutual protection
and shared responsibility
 Takaful is a joint guarantee
 A group of participants agree to mutually
guarantee each other against a defined loss
Team 3 : Takaful 6
Contributions
Tabarru (donations)
Provide mutual
indemnityParticipants
Takaful Fund Takaful
Operator

7. Why Takaful Exists?
Team 3 : Takaful 7
Quran
The Holy
Book
Sunnah
The way of
life
Takaful
Insurance
System
Prohibits:
• Gharar (Uncertainty)
• Maysir (Gambling)
• Riba (Interest, Usury)
Sharia
Islamic
Religion Law

8. Gharar, Maysir and Riba
Gharar
(Uncertainty)
• Uncertainty regarding
transparency of
transactions
• The amount to be paid is
uncertain
• The occurance of the
insured event is unknown
Maysir
(Gambling)
• Speculative risk – Insurer
Profit: claims < premiums
Loss: claims > premiums
Riba
(Interest, Usury)
• Sharia Law prohibits
interest-based debt
financing such as bonds
and stocks
Team 3 : Takaful 8
Tabaru (Donations)
• Gharar is difficult to be
avoided
• But can be forgiven on
the grounds of
cooperation and tabaru
Risk Sharing
• Speculative risk can be
eliminated
• Risk transferred and
shared by participants
Sharia-compliant
Assets
• Sukuk (Islamic bond)

9. Takaful Models
9Team 3 : Takaful
 Pure Wakalah
 Pure Mudarabah

10. Pure Wakalah
10
PTC1 S/Hs2
Takaful Fund
Claims Expenses
(not mgt. exp.)
Mgt.
Expenses
Reserves
Investment
Return
Contribution
Agent FeeSurplus S/Hs
Surplus
Qard (Interest-free loan)
to cover the deficit
S/Hs Fund
Team 3 : Takaful
Note: 1. “PTC” is the abbreviation for participant
2. “S/Hs” means shareholders

11. 11
Takaful Fund
Claims Expenses
(not mgt. exp.)
Mgt.
Expenses
Reserves
X%
1-X%
Contribution
Y% 1-Y%Surplus S/Hs
Surplus
Qard (Interest-free loan)
to cover the deficit
Investment
Return
S/Hs Fund
Pure Mudarabah
Team 3 : Takaful
PTC1 S/Hs2
Note: 1. “PTC” is the abbreviation for participant
2. “S/Hs” means shareholders

12. How Takaful differs from
Conventional Insurance?
Differences
Risk
Principle
Investment
Retakaful
Surplus
Deficit
Team 3 : Takaful 12

13. Differences
Takaful Conventional
Risk  Share with participants  Transfer to insurer
Principle
 Mutual Assistance for
Participants
 Transparency
 Sharia board in Management
team (sharia-compliant)
• No interest/ uncertainty/ gambling
• Avoid prohibitive dealings
 Maximize Profit for
Shareholders
Investment
 Non Interest-bearing
• Property, Islamic Banks, sharia-
compliant stocks
 Interest-bearing securities
and equities
Team 3 : Takaful 13

14. Takaful Conventional
Retakaful
(reinsurance)
 Takaful fund
 Sharia-compliant
 Company
 Not Sharia-compliant
Surplus
 Takaful fund: sharing among
participants
 Investment profits:
• Participants (Wakalah)
• Participants and shareholders
(Mudarabah)
 Shareholders
Deficit
 Qard (Interest-free loan) from
shareholders’ fund
 Company cover the
risks
Team 3 : Takaful 14
Differences

15. Summary
 Takaful promotes the spirit of mutual assistance and
tabarru (donation) between its participants guided by
the sharia law.
 Element of Gharar (Uncertainty), Maysir (Gambling)
and Riba (Interest).
 Takaful ≈ quasi-mutual insurance but fixes a service
entity (the Takaful Operator) at its helm.
Team 3 : Takaful 15
Model
Wakalah
Principal–
Service Agent
Mudarabah Profit sharing

16. Summary
16
Asset Investment
Strategy
= Takaful
Commitment
Team 3 : Takaful
Social Responsible
Investing

17. Thank you! Any Questions?

18. References
 EY
http://www.ey.com/Publication/vwLUAssets/EY_Global_Takaful_Insights_2014/$FILE/EY-global-
takaful-insights-2014.pdf
 Research and Market
http://www.researchandmarkets.com/research/bgm67s/market
 King Abdulaziz University
http://www.kau.edu.sa/Files/320/Researches/54999_25350.pdf
 Institute of Islamic Banking and Insurance
http://www.islamic-banking.com/takaful_insurance.aspx
 International Cooperative and Mutual Insurance Federation
http://www.takaful.coop/index.php?option=com_content&view=article&id=7%3Awhy-
is-conventional-insurance-not-permissible-in-islam&catid=44%3Afaq&Itemid=113
Team 3 : Takaful 18