Transcript Mudaraba model A principal-manager agreement is used

Presenter :
 Fahim ullah khan
 Abdul waheed
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BSc economics
Group A
6th semester
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Fatwas on insurance
What is takaful?
Key features of takaful
Takaful glossary
Takaful models
Takaful worldwide
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Challenges facing Islamic insurance
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1977 – Fatwa of Higher Council of Saudi Ulama’
1978 – Fatwa of Fiqh Council of Muslim World
League
1985 – Fatwa of Islamic Fiqh Academy (OIC)
1985 – Fatwa of Islamic Fiqh Academy (OIC):
“The commercial insurance contract…
which is commonly used by commercial
insurance companies, is a contract, which
contains major element of risk, which voids
the contract and, therefore, is prohibited
(haram) according to the Shariah”.
Takaful (Arabic ‘mutual provision of
guarantees’): Islamic insurance. System based
on the principles of solidarity and mutual
assistance, under which the parties to the
contract support each other when any of
them suffers a loss (which means primarily a
monetary compensation).
“takaful means a scheme based on
brotherhood, solidarity and mutual assistance
which provides for mutual financial aid and
assistance to the participants in case of need
whereby the participants mutually agree to
contribute for that purpose”
(Takaful Act 1984, article 2)
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takaful is free from excessive gharar (al-gharar alkathir);
the installments paid, or a part thereof, may only
be used in operations that are permitted by
Shariah;
the takaful business is commonly based on a profit
sharing mechanism known as mudharabah;
the business of a takaful company is supervised by
the Shariah Supervisory Board;
takaful, as opposed to conventional insurance,
does not contravene the Shariah law of inheritance.
1979 – Islamic insurance company (Sudan)
1979 - Islamic Arab Insurance Company
(UAE)
1984 – Takaful Act (Malaysia)
1985 –Takaful Malaysia Berhad (Malaysia)
1997 –Retakaful company (Asean Retakaful
International, ARIL)
takaful
 Family takaful
 General
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Motor takaful scheme;
Accident takaful scheme;
Marine takaful scheme;
Engineering takaful scheme; etc.
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Individual family takaful plans;
Takaful mortgage plans;
Takaful plans for education;
Group takaful plans;
Health/medical takaful.
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Mudharabah model
Wakalah model
Modified Model (mudharabah+ wakalah)
Wakalah model with waqf
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The surplus is shared between the
participants with a takaful operator. The
sharing of such profit (surplus) may be in a
ratio 5:5 , 6:4 etc. as mutually agreed
between the contracting parties. Generally,
these risk sharing arrangements allow the
takaful operator to share in the underwriting
results from operations as well as the
favourable performance returns on invested
premiums.
Contributions, claims and distributions.
Qard al hasan
Combined fee
Combined fee is a percentage share of the underwriting
result, a combination of the technical result and
investment return
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Cooperative risk sharing occurs among
participants where a takaful operator earns a
fee for services (as a Wakeel or Agent) and
does not participate or share in any
underwriting results as these belong to
participants as surplus or deficit. Under the
Al- Wakala model, the operator may also
charge a fund management fee and
performance incentive fee.
Policyholders {participants}
Wakala fee is a percntage of upfront
Contributions. This sometimes includes
A performance element to encourage
efficient management .
Technical results
Contribution,claims and distributions.
Policyholders funds
Wakala fee
Investment result
Shareholders fund {takaful
operator }
Qard alhasan
Retakaful or Reinsurance
Wakala -Waqf Model
It is a WAKALAH model with a separate legal entity of WAQF inbetween.
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The relationship of the participants and the operator is directly
with the WAQF fund. The operator is the ‘Wakeel’ of the fund
and the participants pay contribution to the WAQF fund by way
of Tabarru.
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The contributions received would also be a part of this fund
and the combined amount will be used for investment and the
profits earned would again be deposited into the same fund
which also eliminates the issue of Gharar.
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Losses to the participant are paid by the company from the
same fund.
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Operational expenses that are incurred for providing Takaful
services are also met from the same fund.
Policyholders {participants}
Wakala fee is a percntage of upfront
Contributions.
Technical results
Contribution,claims and distributions.
Waqf funds
Wakala fee
Initial
donations
Shareholders fund {takaful
operator }
Investment result
Mudaraba fee is a percentage
returns from investment
Retakaful or Reinsurance
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Combination of wakala and mudaraba contracts: In
this model, the wakala contract is adopted for
underwriting activities, while the mudaraba contract
is employed for the investment activities of the
Takaful fund. This approach appears to be favoured
by some international organisations and is widely
adopted by Takaful undertakings in practice.
Policyholders {participants}
Technical results
Contribution,claims and distributions.
Wakala fee is a percntage of upfront
Contributions.
Policyholders fund
Wakala fee
Qard al
hasan
Shareholders fund {takaful
operator }
Investment result
Mudaraba fee is a percentage
returns from investment
Retakaful or Reinsurance
Profits
attributable
to
Shareholders
Mudaraba Model
Company’s
Admin. &
Mangt.
Expenses
Company
Investment
By
Company
Profit
From
Investments
Company’s
Share from
Surplus
Participant
Takaful
Contribution
paid by
Participant
General
Takaful
Fund
General
Takaful
Fund
Operational
Cost of
Takaful
Surplus
(Profit)
Participant’s
Share
from Surplus
Wakala Model
Company
(Capital)
Wakala
Fee
(30% to 35%)
Profit
From
Investments
Mudarib's’
Share
of PTF’s
Investment
Income
Management
Expense
of the Company
Profit/Loss
attributable to
Shareholders
Takaful
Contribution
Investment by
the Company
paid
Investment Income Sharing
on Mudaraba Basis
by Participant
Participants’
Takaful Fund
General
Takaful
Fund
Investment
Income
Operational
Cost of
Takaful/
ReTakaful
Reserves
Surplus
(Profit)
Surplus
Distribution
to
Participants
Wakala-Waqf Model
SHARE
Share
Holder
Wakalah
Fee
H O L D E R S’
Investmen
t
Income
F U N D (S.H.F.)
Mudarib’s
Share of PTF’s
Investment
Income
Management
Expense of
the
Company
Profit/Loss
Takaful
Operator
Investment by
the Company
WAQF
Participant
Operational
Cost of Takaful
/ ReTakaful
Investment
Income
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.)
The number of takaful operators worldwide:
- 75 takaful operators (including takaful
windows)
- 5 retakaful operators
Total assets: USD 1,5 billion
Contributions: USD 600 mln.
Share of takaful in insurance industry
 Malaysia: 27 % of total insurance market
 Asia Pacific: 9% of total insurance market
 Middle East: 63 % of total insurance market
 EU and US: 1 % of total insurance market
The takaful and retakaful market is expected
to grow to $10-12 billion by 2011.
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