Takaful plays an important role in Islamic finance by providing protection against risks through mutual cooperation and solidarity. Takaful has evolved from early Islamic principles and existed throughout history in various forms. Today there are over 180 Takaful companies globally, with the market expected to grow significantly. Takaful helps address the low insurance penetration in many Muslim-majority countries and provides alternatives for both Muslims and non-Muslims. BancaTakaful allows banks to offer integrated financial and insurance services, hedging risks in Islamic finance transactions through specialized Takaful products. The Universal Insurance Company is well-positioned to expand its Takaful offerings in Pakistan and provide innovative Shariah-compliant micro-insurance.

1. Role of Takaful in Islamic FinanceRole of Takaful in Islamic Finance
By:
Capt. M. Jamil Akhtar Khan
ACII, MCIT, Master Mariner
Managing Director
The Universal Insurance Company Ltd.
4th
International Conference on Islamic
Banking & Takaful, Lahore
November 2, 2010.

2. Outline of PresentationOutline of Presentation
 Takaful DefinedTakaful Defined
 Historical PerpectiveHistorical Perpective
 Takaful todayTakaful today
 Islamic Finance Versus Conventional BankingIslamic Finance Versus Conventional Banking
 Exposures in Islamic FinanceExposures in Islamic Finance
 Coverage of exposures ― BancaTakafulCoverage of exposures ― BancaTakaful
 Cutting Edge…!Cutting Edge…!
 The Universal Insurance Company Ltd.The Universal Insurance Company Ltd.
 ConclusionConclusion

3. TakafulTakaful defineddefined

4.  Takaful comes from the Arabic root-wordTakaful comes from the Arabic root-word ‘kafala’‘kafala’ ——
guarantee.guarantee.
 Takaful means mutual protection and jointTakaful means mutual protection and joint
guarantee.guarantee.
 Operationally, takaful refers to participants mutuallyOperationally, takaful refers to participants mutually
contributing to a common fund with the purpose ofcontributing to a common fund with the purpose of
having mutual indemnity in the case of peril or loss.having mutual indemnity in the case of peril or loss.
Meaning of TakafulMeaning of Takaful

5. Reference — Al Quran:Reference — Al Quran:
 ““Help (ta’awan) one another in furtheringHelp (ta’awan) one another in furthering
virtue (birr) and Allah consciousnessvirtue (birr) and Allah consciousness
(taqwa) and do not help one another in(taqwa) and do not help one another in
furthering evil and enmity”. Al Maidah:furthering evil and enmity”. Al Maidah:
verse 2 (5:2).verse 2 (5:2).
 Takaful is a form of mutual help (ta’awun) inTakaful is a form of mutual help (ta’awun) in
furthering good/virtue by helping others who arefurthering good/virtue by helping others who are
in need / in hardship .in need / in hardship .

6. Reference – Hadith:Reference – Hadith:
 ““tie the camel first, then submittie the camel first, then submit
(tawakkal) to the will of Allah”(tawakkal) to the will of Allah”
The hadith implied a strategy toThe hadith implied a strategy to
mitigate/reduce risk.mitigate/reduce risk.
 Takaful provides a strategy of riskTakaful provides a strategy of risk
mitigation/reduction by virtue of collective riskmitigation/reduction by virtue of collective risk
taking that distributes risks and losses to a largetaking that distributes risks and losses to a large
number of participants. This mitigates thenumber of participants. This mitigates the
otherwise very damaging losses, if borneotherwise very damaging losses, if borne
individually.individually.

7. Takaful – Historical PerspectiveTakaful – Historical Perspective

8. Takaful through TimeTakaful through Time
 Origins in the First Constitution of Madina.Origins in the First Constitution of Madina.
 It evolved and continued in one form or the otherIt evolved and continued in one form or the other
throughout the Abbaside period and even later duringthroughout the Abbaside period and even later during
the Ottoman empire.the Ottoman empire.
 Serious efforts were made in modern times, in 1970sSerious efforts were made in modern times, in 1970s
to come up with an Islamic alternative to theto come up with an Islamic alternative to the
conventional insurance.conventional insurance.
 The first Takaful company was set up in Sudan inThe first Takaful company was set up in Sudan in
1979, almost simultaneously followed by another1979, almost simultaneously followed by another
one set up in Bahrain.one set up in Bahrain.

9. Takaful TodayTakaful Today
 There are now aroundThere are now around 180+180+ Takaful companies in over 40Takaful companies in over 40
countries.countries.
 TheThe totaltotal insurance premium of OIC countries for 2006insurance premium of OIC countries for 2006
was USD 75 Billion; of this, Takaful contributionwas USD 75 Billion; of this, Takaful contribution
accounts for 5% (i.e. USD 3.5 Billion). This is expected toaccounts for 5% (i.e. USD 3.5 Billion). This is expected to
increase to USD 12 Billion by 2015.increase to USD 12 Billion by 2015.
 Poor Insurance penetration in the Muslim countries (<1%Poor Insurance penetration in the Muslim countries (<1%
of GDP).of GDP).
 Average growth rate higher than conventional insuranceAverage growth rate higher than conventional insurance
companies (around 25%).companies (around 25%).
 Non–Muslims increasingly opting for Takaful productsNon–Muslims increasingly opting for Takaful products
for commercial benefits.for commercial benefits.

11. Takaful Prospects in PakistanTakaful Prospects in Pakistan
 97% Muslim population.97% Muslim population.
 Demand for insurance shall increase with increaseDemand for insurance shall increase with increase
in per capita income.in per capita income.
 Personal lines insurance business (leasing, health,Personal lines insurance business (leasing, health,
Medicare) growing at a higher rate than otherMedicare) growing at a higher rate than other
conventional classes.conventional classes.
 Islamic banking already on sound footing.Islamic banking already on sound footing.

12.  People who do not insure due to religious reasons.People who do not insure due to religious reasons.
 People who insure and are insensitive to religiousPeople who insure and are insensitive to religious
reasons.reasons.
 People who currently do not insure at all.People who currently do not insure at all.
TakafulTakaful – Target Market– Target Market

13. Islamic Finance VersusIslamic Finance Versus
ConventionalConventional BankingBanking
 Conventional banking is money lending.Conventional banking is money lending.
 Islamic finance is partnership in trading.Islamic finance is partnership in trading.
 Ijara financing – Rental agreementIjara financing – Rental agreement
 Musharaka/Mudaraba – Partnership AgreementMusharaka/Mudaraba – Partnership Agreement
 Murabaha – Sale with profitMurabaha – Sale with profit
 Salam – crop financingSalam – crop financing
 Istasna – manufacturing financeIstasna – manufacturing finance

14. Exposures in Islamic FinanceExposures in Islamic Finance
 In Islamic finance, full or part ownership is retainedIn Islamic finance, full or part ownership is retained
by the bank.by the bank.
 This entails considerable exposures for the banker inThis entails considerable exposures for the banker in
the various forms of its trade financing.the various forms of its trade financing.
 The banker lacks hands-on expertise for several ofThe banker lacks hands-on expertise for several of
such trading exposures.such trading exposures.
 Takaful as a means for hedging such exposures.Takaful as a means for hedging such exposures.
Takaful exists even independently of IslamicTakaful exists even independently of Islamic
Finance but Islamic Finance dependsFinance but Islamic Finance depends
upon Takaful…!upon Takaful…!

15. BancaTakaful and Coverage ofBancaTakaful and Coverage of
ExposuresExposures
 BackgroundBackground
 Range of ProductsRange of Products
 SavingsSavings →→ Personal Accident, Homeowners’Personal Accident, Homeowners’
Comprehensive, Credit Cards, etc.Comprehensive, Credit Cards, etc.
 Financing, IndividualsFinancing, Individuals → Car Ijarah,→ Car Ijarah,
Housing Musharika, Mortgage Takaful.Housing Musharika, Mortgage Takaful.
 Financing, SMEsFinancing, SMEs → Trade Credit Takaful,→ Trade Credit Takaful,
Business, Office, Equipment, Assets.Business, Office, Equipment, Assets.
 E-CommerceE-Commerce

16. Bancatakaful (…Cont’d)Bancatakaful (…Cont’d)
Advantages of BancaTakaful:Advantages of BancaTakaful:
 Facilitation Desk / Equipment.Facilitation Desk / Equipment.
 Fast Turnaround Time.Fast Turnaround Time.
 One-Stop shop for Clients.One-Stop shop for Clients.
 Concept of Islamic Financial Supermarket.Concept of Islamic Financial Supermarket.
 Value Added Services.Value Added Services.
 Law of Large Numbers.Law of Large Numbers.
 Lower Contribution Rates.Lower Contribution Rates.
 Attraction for Depositors.Attraction for Depositors.
 Synergy.Synergy.

17. CUTTING EDGE… !CuttingCutting Edge…!Edge…!

18. Investment
Income
Operational
Cost of Takaful
/ ReTakaful
Claims &
Reserves Surplus
(Balance)
P A R T I C I P A N T S’ T A K A F U L F U N D
(P.T.F.)
Mudarib’s
Share of PTF’s
Investment
Income
Wakalah
Fee
Investmen
t
Income
Management
Expense of
the
Company
Profit/Loss
S H A R E H O L D E R S’ F U N D (S.H.F.)
Participant
WAQF
Takaful
Operator
Share
Holder
Wakala-Waqf Model
Investment by
the Company

19. THE UNIVERSAL INSURANCETHE UNIVERSAL INSURANCE
COMPANY LIMITEDCOMPANY LIMITED
 The Company has enteredThe Company has entered 5050thth
year of its operations.year of its operations.
 Majority shares are held by the prestigious ‘BIBOJEE Group of Companies’.Majority shares are held by the prestigious ‘BIBOJEE Group of Companies’.
 The Company is listed in all the stock exchanges of Pakistan.The Company is listed in all the stock exchanges of Pakistan.
 It is an ‘A’ rated general insurance company.It is an ‘A’ rated general insurance company.
 Duly certified as ISO 9001 compliant.Duly certified as ISO 9001 compliant.
 Managed by dedicated insurance & finance professionals, the Company hasManaged by dedicated insurance & finance professionals, the Company has
an extensive country-wide branch network.an extensive country-wide branch network.
 The Company is now planning to expand its operations by setting up IslamicThe Company is now planning to expand its operations by setting up Islamic
insurance windows/branches in strategic regions.insurance windows/branches in strategic regions.
 In addition to dealing in all classes of general insurance business,In addition to dealing in all classes of general insurance business,
we are focusing on providing Micro-insurancewe are focusing on providing Micro-insurance
at grass-roots level.at grass-roots level.

20. ConclusionConclusion
 Takaful introducedTakaful introduced
 Takaful through TimeTakaful through Time
 Takaful – current perspectiveTakaful – current perspective
 Islamic Finance and Conventional BankingIslamic Finance and Conventional Banking
 Exposures in Islamic FinanceExposures in Islamic Finance
 Cutting edge – The Takaful advantage!Cutting edge – The Takaful advantage!
 The Universal Insurance Co. Ltd.The Universal Insurance Co. Ltd.

21. Thankyou for your attentionThankyou for your attention
captain.jamil@uic.com.pkcaptain.jamil@uic.com.pk