Latest from TAKAFUL - Islamic Insurance - Malaysia

Sunday, November 28, 2010

Workshop on Islamic Wealth Management & Financial Planning : 5 Jan 2011 - Kuala Lumpur, Malaysia



Workshop on Islamic Wealth Management and Financial Planning

Date : 5 Jan 2011

Venue : Quality Hotel Kuala Lumpur, Malaysia

Topics:

i) Overview and issues on Islamic wealth management and financial planning
ii) Islamic wealth creation and accumulation
iii) Islamic investment : recommended Islamic investment avenues
iv) Islamic wealth protection / risk management : takaful
v) Islamic wealth distribution / Islamic estate planning : Islamic wills, faraid etc
vi) Islamic wealth purification : zakat etc
vii) Retirement planning


Facilitator:

Ahmad Sanusi Husain
-Certified Islamic Financial Planner (IFP)
-Islamic Finance and Investment Consultant
-Motivator
(profile: http://ahmad-sanusi-husain.blogspot.com)

Who Should Attend:

Managers, officers of financial institutions and corporations, Islamic financial planners and consultants, university lecturers and students, lawyers, investors and other related parties.



Your investment (fee structure):

NORMAL FEE:

RM600 - Malaysians
USD250 - International

Early bird fee: (registration with payment by 10 December 2010)
RM500 - Malaysian
USD200 - International

GROUP DISCOUNT: (3 persons and above)

After early bird date (10 December 2010):
RM500 - Malaysians
USD200 - International

Before of by early bird date (10 December 2010):
RM400 - Malaysians
USD150 - International

Special fee for FULL-TIME university students:
RM300 - students in Malaysia
USD120 - students outside Malaysia


Organiser:

AlFalah Consulting
UOA 2 Centre (KLCC)
Kuala Lumpur

Tel: +6019-234 8786 / +6012-610 0526 / +010-295 7990

organiser's web site : http://alfalahconsulting.com

e-mail: info@alfalahconsulting.com

Sunday, November 22, 2009

Socio Benefits Of Takaful / Islamic Insurance

Introduction

Takaful derives from the Arabic root word ‘Kafalah’ which means to jointly guarantee among themselves, against loss or damage that may be inflicted upon any of them as defined in the pact. Should any member or participant suffer a catastrophe or loss, he/she would receive a certain sum of money or Financial benefit from a fund in order to help him/her reduce the difficulties. Section 2 of Malaysian Takaful Act 1984 defines Takaful as “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”. In short, it refers to a group of people, pooling their efforts to support the most needy among them. It is similar to the very concept of insurance i.e. the fortunate many helps the unfortunate few. It refers to the very concept of mutual help and mutual benefit - everyone is expected to help everyone else in virtue and good deeds. This social cooperation stems from the religious duty by virtue of a celebrated Quranic teaching and the practice of the Holy Prophet (saw)1:
“……….help ye one another in righteousness and piety but help ye not one another in sin and rancour” (5:2)

“The relationship between the believer to another believer is just like a body, if one part suffers from illness, the other will equally feel the same”(Hadith narrated by Al- Bukhari and Muslim)
From the above, the fellow participants undertake to contribute some money to the fund in view of any calamity or disaster which will certainly create pain and suffering for the victim and the family. The money can channeled to the unfortunate in order to minimize or reduce the risk one will have in life.


In Takaful, one interesting feature is that the fellow participants/policyholders are acting both as insurer and insured as they are mutually contributing to and mutually benefit from the fund. As such, the contract governing each of the policyholders is one of gratuity/donation (Tabarru’). A Tabarru’ contract requires each policy- holder to willingly relinquish a portion of his/her paid premium or contribution to other policyholders who may need the financial assistance.
As such, the Takaful operator only acts as a manager to administer the fund in a good and profitable manner. The legal relationship between the policyholders and the company is one of partnership. The Islamic contract is known as Mudarabah. Here, the policyholders are regarded as the provider of capital (Rabb al-mal) while the company is the manager (al-Mudarib). The company as the manager is entrusted to invest the money in a good and prudent manner. In investing the money, the company has to give paramount concern to the legality aspect i.e. the investment must be Islamically approved (Halal). The company certainly cannot be involved in interest-based investment portfolios since Islam strictly prohibits interest (Al-Baqarah (5):verse 275) and other unapproved activities such as gambling, alcoholic drink production and immoral industries. The takaful operator and the policy holders as business partners will share a profit based on the performance of the business. The ratio of profit sharing will be determined in advance, such as 50-50, 60-40 or 70-30. The takaful concept is similar to cooperative insurance with the exception that takaful investment money should not be invested in certain business activities.

Interestingly since each policy holder mutually guarantees eachother and mutually benefits from the fund, the claimant should abide by the true spirit of Tabrru’ and realize that the amount paid to them, is actually derived from fellow policy holders. Logically, they should try not to be involved in any activities which are potentially detrimental to the interests of other policyholders. All participants must avoid cheating and other such money making tendencies in view of making a claim for Takaful money.

From the foregoing discussion, one could easily sum up that Islamic insurance mainly reaffirms the social-ethical values that used to be predominant in the early civilisation of human life. The society in those days was willing to physically help each other such as the construction of schools, houses etc. In the modern life, when the society is more complex and busy, the physical help is impossible, in turn; the help is financial such as collecting donations for fire or war victim, etc. Takaful, besides being a social-welfare and social security programme, above that, it is also an investment tool for the economic advantage of the participants. The virtues of Takaful to the participants are enormous and the following are the discussion connected therewith.

The Socio-Economic Benefits of Takaful

Takaful intends to provide the Muslim community and other interested par ties with a five in one advantage as categorically spelt out as follows:-

Insurance Coverage/Protection Benefits

Takaful plans provide cover in the form of mutual financial aid from payment of Takaful benefits to the policy-holder or heir (s). The benefits can be divided into two i.e. Family Takaful Plan (similar to Conventional Life Insurance) and General Takaful Plan (General Insurance. Family Takaful offers a maturity plan of 10, 15, 20, 25, 30, 35 or 40 years. Supplementary contracts in the form of hospitalisation, accident and permanent total disability may be incorporated in the plan. Other supplementary contracts in the form of ‘family rider’ may also be attached to the Family Takaful Plan such as Takaful Mortgage Plans, Takaful Plans for Education and Group Takaful Plan.2
The various types of General Takaful scheme for both individuals and the corporate sector provided by a Takaful company are shown as follows3:
a) Fire Takaful scheme-basic fire, house owners, house holders, industrial all risks.
b) Motor Takaful Scheme - motor car, motorcycle.
c) Accident/miscellaneous Takaful scheme-personal accident/group personal accident, personal accident for pilgrims, all risk, workmen’s compensation, public liability, money equipment all risks, employers’ liability, plate glass, fidelity Takaful, sprinkler likage.
d) Marine Takaful scheme-cargo.
e) Engineering Takaful scheme-machinery breakdown, erection all risks, boiler, pressure vessel, contractors all risk, bond.

Mobilisation of Savings

The birth of Takaful companies is complimentary to the establishment of Islamic banks. It adds to the colour of Islamic finance by giving more alternatives to the Muslims to save their money in a safe and more systematic manner. Previously, Muslims in Malaysia used to park their money under the mattress, in the pillows, even in earthen jars and buried them for safety so as to avoid interest. With the existence of Takaful, a Takaful company can mobilize the savings in a safe and profitable manner. As such, Takaful intends to advocate the custom of regular savings for a fixed period with a view to creating a kind of retirement or long-term contingency fund.In sum, a Takaful company plays the role as savings institution and a custodian of money deposited in its custody to serve the future interest of the Muslim community (Ummah).

Islamically approved (Halal) Investment Opportunity

In connection to the above (savings tool), a Takaful company will mobilize the savings of the contributors in Islamic-approved counters (Stocks and Shares). In other words, by joining a Takaful plan, the policy holder gains the added benefit of a golden opportunity to invest the money in accordance with Islamic principles.

Participate in the economy in a collective way (Jama’ah)

Takaful also invites Muslims, and non-Muslims for that matter, to participate in the economy in the collective and systematic way. As indicated earlier, it refers to a group of people pooling their resources in the spirit of joint benefits and shared responsibilities. In Malaysia, especially in the rural areas, we have the concept of “gotong-royong” (mutual help). For instance, the daughter of one family is going to get married. So, all the residents without being asked will try to assist in whatever way, their labor preparing food, another may donate materials like grain, sugar etc, while others might prepare the dais-the stage where the new bride and groom are shown to the visitors. By this illustration it shows one thing i.e. the need to collectively participate in the social activity organized by one fellow resident so that the burden can be minimized, while at the same time it is out of respect and love to one’s fellow Muslims (as indicated by the Hadith quoted earlier).

Likewise if at the social-level, one can easily collectively help and protect another for the good cause, why not in the economic sphere as well. In addition, in Takaful, those fellow residents do not have to physically go into the “battle field” himself/herself rather they can delegate that collective work to the company. In another words, by joining a Takaful scheme, every policy holder has already served the same function as the illustration above. Each policy holder has already collectively pooled their money in advance in anticipation that the money will be channeled to a good cause, i.e. to assist any person in need of help. In addition, Takaful does not only collectively help others, but also oneself. If one suffers misfortune, it will be a great relief if someone else could share in alleviating it. Ultimately, Takaful is meant for that purpose, i.e. financial, rather than emotional consolation.

Opportunity to perform good deeds and to do charitable works

By joining takaful, one is indirectly involved in charity and welfare. In this challenging, by force or voluntarily, one is too busy with never ending mundane pursuits for survival and convenience, to nthe extent that there is practically no time to physically be involved in charitable and social welfare, although by natural instinct is reflected in one’s intention.4 So, by participating in a Takaful Scheme, that noble intention could be a reality as part of the contribution money (premium) is donated to the Special fund and will be used for any claim by other fellow participants (or the dependants) who are suffering from loss or misfortune. So, this portion of the money does not belong to the policyholder, as upon entering into the Takaful contract, he/she has already promised to donate it to this Special fund.

As such, there will be no issue or objection raised if he/she is not given that portion of money when the Takaful policy expires or when the policy holder should survive after the expiration of the policy or in the case when he/she does not suffer from any loss from the defined risk stated in the policy. Furthermore, those who want to make a claim from this Special fund will have to do it in a bonafide manncr, without any ulterior or hidden motives of self unjust enrichment as he/she should knows that the money that he/she might get from the Takaful operator is adonation exclusively designated to those who really suffer from misfortune. This is in view of the concept of “fortunate many assists the unfortunate few”, Stemming from this awareness and consciousness, there should be no unreasonable claims from the participants seeking the compensation money from the operator.As a result, Takaful operators have fewer claims and this will give more surplus to be distributed to the policy-holder and the company at the end of the year based on the pre-agreed profit sharing ratio.

Conclusion

The underlying features of Takaful or Islamic insurance primarily lies on its philosophical and ideological Quranic ordain to “mutually help each other in righteousness and piety”.From this joint benefit and shared responsibility(al-kafalah)culture,begets another important principle of Tabarru’ that one has to donate some part of the money in order to help and protect the one who needs it.With the presence of tabarru’, it makes the business of Takaful devoid of uncertainty (al-Gharar) and gambling tendencies(al-Maisir).In essence, Tabarru’ would enable the Takaful participants who suffer a misfortune as defined in the policy.The sharing of the profit or surplus is allocated only until and after the obligation of helping the unfortunate few has been completed.At the outset,Takaful is a type of co-operative insurance based on profit sharing and interest-free investment.

Endnotes
1. In Islamic law (Shariah), the Quran (Holy Book for Muslims) and the Prophet Muhammad’s Prophet (peace be upon him) “The Holy (peace be upon him) statements on specified issues, called Hadith, form a primary source of Islamic law which are legally binding on the Muslims.
2. The model is taken from the practice of Takaful operations in Malaysia, particularly Syarikat Takaful Malaysia (STM). For details, see BIRT, Takaful (Islamic Insurance): Concepts and Operational System: From the Practitioner’s Perspective, KL, 1996. See various pamphlets of STM.
3. ibid, pp. 17-18
4. Every religion encourages its followers to involve in good deeds because the reward is overwhelming. Islam is no exception and puts greater emphasis as evident in the Quranic verse quoted earlier (Al-Maidah: Verse 2) and the traditions of the Holy Prophet (peace be upon him) “The Holy Prophet said: “…whosoever removes a worldly grief from a believer, Allah (swt) will remove from him one of the grieves of the day of Judgement. Whosoever alleviates a needy person, Allah (swt) will alleviate from him in this world and the Hereafter” (Narrated by Muslim). In another Hadith, the Holy Prophet is reported to have said “The one who looks after the welfare of the widow and the poor is like a warrior fighting in the cause of Allah (swt) or like a person who fasts during the day and prays during the night” (Narrated by Bukhari).

(This work is made possible by a shortresearch grant from the Research Centre, IIUM)

By Dr. Norhashimah Mohd Yasin

List of Licensed Takaful Operators in Malaysia

List of licensed takaful operators in Malaysia (in alphabetical order):

1 CIMB Aviva Takaful Berhad
2 Etiqa Takaful Berhad
3 Hong Leong Tokio Marine Takaful Berhad
4 HSBC Amanah Takaful (Malaysia) Sdn Bhd
5 MAA Takaful Berhad
6 Prudential BSN Takaful Berhad
7 Syarikat Takaful Malaysia Berhad
8 Takaful Ikhlas Sdn. Bhd.

Takaful Insurers Urged To Keep Premium Rates Low To Create Better Demand

KUALA LUMPUR, Nov 5 (Bernama) -- To create better demand, local takaful insurers should learn from pioneering countries such as Bangladesh, India and Indonesia, to kickstart pilot schemes in their own locality, Deputy Finance Minister Datuk Awang Adek Hussain on Thursday said.

He said in some countries, the access to insurance coverage could be as low as US$2 per month, which is not available here.

According to Awang Adek, by keeping the premium rates as low as possible, it would not only create better demand for takaful products, but also enable many businesses and families to have access to insurance protection.

"Many can benefit from this product.In the context of Islamic finance, the integration of micro-takaful schemes with Zakat, Waqf and other similar benevolent-activity institutions, are for the purpose of poverty alleviation," he said in his speech at the Takaful Rendezvous 2009 conference here.

He noted that for the takaful industry to emerge from the shadows of its conventional counterpart, there was still much to be done.

On the development of the industry, he said interest in the takaful sector remains intact despite the challenging environment, driven by strong demand for its services and keen interest shown by insurers in search of new avenues for revenue as well as market diversification.

Awang Adek said the values inherent in takaful schemes, which meet the demand for finance and socially responsible investments, had further enhanced the value proposition and market prospects for this sector.

He also highlighted that the takaful global industry, which has seen an annual growth rate of 25 per cent annually for the past few years, will continue to be strong over the next few years.

In line with the global growth, he said the local industry is expected to maintain its course, reinforced further by the liberalisation measures announced earlier this year, including the issuance of up to two new takaful family takaful licenses.

These new licenses, Awang Adek said, should be able to further instill innovation and competition and act as an impetus to further growth and expansion of the industry.

"We need to venture into new areas, including the non-traditional sectors. We need a vision, the will and the confidence to bring the industry forward.

"Supplemented with the culture for financial innovation and creativity, great strides can be achieved," he added.

Awang Adek also suggested that local players look into medical and health coverage as well as micro-finance services, particularly the micro-takaful, which is expected to offer tremendous opportunities for growth.

"In the case of medical and health coverage, demographics changes and escalating medical and healthcare costs, have led to the demand for financial security against morbidity risks," he said.

He explained that the life expectancy by year 2020 would increase to 79 for females and 75 for males and the number of active persons to retirees would fall by 40 per cent.

"This presents an enormous opportunity, as currently only approximately 15 per cent of Malaysias have medical health coverage," he added.

Meanwhile, the two-day conference, starting today, is organised by the Malaysian Takaful Association. Its participants are local and from the region with 20 speakers presenting papers.

Saturday, November 21, 2009

Takaful IKHLAS - bridging the gap for Islamic insurance in the Halal industry

"Speak of us not just because we are progressive. Think of us not just because of our innovations. Look at us simply because above all else...we are IKHLAS." - excerpt from Takaful Ikhlas' print ad.

Islam does not object to insurance per se. Nevertheless, conventional insurance contracts involve the elements of Gharar (uncertainty), Maisir (gambling) and Riba (interest) which contravene Shariah principles. Takaful seeks to bridge the areas deemed objectionable by the Shariah for the benefit of society.

Takaful is an insurance concept grounded on Islamic Muamalat, observing the rules and regulations of Shariah. It is based on mutual cooperation, responsibility, assurance, protection and assistance between groups of participants. In other words, it is the provision of shared contributions to assist people in need of help. The Takaful system stresses the spirit of co-operation and joint responsibility among participants (policyholders).

Takaful also allows participants the opportunity to obtain two forms of profit. First, with monetary benefits from the Takaful plan and the profit-sharing arrangement. Second, the spiritual benefit whereby participants can fulfil their religious and social responsibilities through Tabarru’. The added value benefits not just the Muslims, but all participants, irrespective of their religious belief.

Takaful IKHLAS Sdn Bhd (Takaful IKHLAS), the country’s fourth Takaful provider, operates in accordance with the Shariah principles. Fully committed to ensuring equity and fairness in all its dealings, a Shariah Advisory Committee oversees all operational matters, investment dealings, management and marketing.

In line with international and local developments in the practice of Islamic financial protection services, Takaful IKHLAS adopts the Wakalah (agency) system. It allows the use of intermediaries as a medium to better serve customer needs, payment of surpluses and profits where applicable to participants and calculation of investment profits on a monthly basis. Takaful IKHLAS’ Family protection plans focus on savings or investment-linked plans and mortgage protection plans. Its General protection offerings feature innovative plans to cover properties such as vehicles, buildings and other assets.

“We aim to provide comprehensive Family and General Takaful protection and place strong emphasis on product innovation, coupled with differentiating features to ensure market acceptance,” said Syed Moheeb Syed Kamarulzaman, Managing Director of Takaful IKHLAS. Its services are supported by state-of-art technology, designed to ensure accuracy and timeliness of information.

“We believe this will help enhance our efficiency and professionalism when dealing with customers, as well as adding value to our stakeholders,” Syed Moheeb added.

Takaful IKHLAS had performed remarkably fast and agilely right from the beginning. For instance, the insurer took only 90 days to commence its business operation upon being granted license. This is no mean feat as its ability to fast track its operation reflected its readiness to conduct business. Merely 3 years into operations, Takaful IKHLAS has established an extensive agency network. It is now present in all the major centres as well as a number of smaller towns through Malaysia. These include Kuala Lumpur, Kota Bharu, Sungai Petani, Johor Bharu.

Insha’llah, Takaful IKHLAS will expand its wings to East Malaysia by 2007. The high ethical standards set for its staff and business partners underscores its responsiveness to the customers and reputation for fair and fast claims. Takaful IKHLAS has no “back log” in claim payments as most cases are approved within 24 hours. Its efficiency in claim management spells out its belief in providing “ease of doing business” to its participants. To date, more than 350,000 individuals and corporations have placed their trust in Takaful IKHLAS and have become participants in the company’s Takaful schemes.In line with the company’s aspiration to be the preferred Takaful provider, Takaful IKHLAS intends to continue playing a significant role with its contribution towards the Halal industry, in general, and the Takaful industry, in particular.

An Introduction to Takaful – An Alternative to Insurance

Islamic finance has developed mainly in two directions namely Islamic banking and Islamic insurance (Takaful). While information about Islamic banking is being increasingly disseminated, features, models and structures of Takaful are little known particularly in Pakistan. Purpose of this brief article is to describe main features and models of Takaful system operating in various parts of the world.

All human beings are invariably exposed to the possibility of meeting catastrophes and disasters giving rise to misfortunes and sufferings such as death, loss of limbs, accident, destruction of business or wealth, etc. Notwithstanding the belief of all Muslims in Qadha-o-Qadr, Islam provides that one must find ways and means to avoid such catastrophes and disasters wherever possible, and to minimize his or his family's financial losses should such events occur. One possible way out is to buy an insurance cover as in the conventional system.

Different views have been expressed about the status of conventional insurance from the point of view of Islam. An overwhelming majority of the Shariah scholars believe that it is unlawful due to involvement of Riba (interest), Maisir (gambling) and Gharar (uncertainty).@ Takaful, the Islamic alternative to insurance, is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members. It is a pact among a group of persons who agree to jointly indemnify the loss or damage that may inflict upon any of them, out of the fund they donate collectively. The Takaful contract so agreed usually involves the concepts of Mudarabah, Tabarru´ (to donate for benefit of others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty.

Takaful is not a new concept in Islamic commercial law. The contemporary jurists acknowledge that the foundation of shared responsibility or Takaful was laid down in the system of ‘Aaqilah’, which was an arrangement of mutual help or indemnification customary in some tribes at the time of the Holy Prophet (pbuh). In case of any natural calamity, every body used to contribute something until the loss was indemnified. Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe. Islam accepted this principle of reciprocal compensation and joint responsibility.

The contract of Takaful provides solidarity in respect of any tragedy in human life and loss to the business or property. The policyholders (Takaful partners) pay subscription to assist and indemnify each other and share the profits earned from business conducted by the Company with the subscribed funds. Takaful companies normally divide the contributions into two parts, i.e., donations for meeting mortality liability or losses of the fellow policyholders and the other part for investment. Accordingly, the clause of Tabarru´ is incorporated in the contract. How much of the contribution is meant for mortality liability and how much for investment account is based on a sound technical basis of mortality tables and other actuarial requirements. Both the accounts are invested and returns thereof distributed on Mudarabah principle between the participants and the Takaful operators. The profit attributable to the participants is credited into the two accounts separately. To describe from another angle, a Takaful contract may comprise clauses for either protection or savings/investments or both the benefits of protection as well as savings and investment. The protection part of Takaful works on the donation principle according to which individual rights are given up to indemnify the losses reciprocally. In the Savings part, individual rights remain intact under Mudarabah principle and the contributions alongwith profit (net of expenses) are paid to the policyholders at the end of policy term or before, if required by him.

The distinction between the conventional insurance and Takaful business is more visible with respect to investment of funds. While insurance companies invest their funds in interest-based avenues and without any regard for the concept of Halal-o-Haram, Takaful companies undertake only Shariah compliant business and the profits are distributed in accordance with the pre-agreed ratios in the Takaful Agreement. Likewise they share in any surplus or loss from the pool collectively. Takaful system has a built-in mechanism to counter any over-pricing policies of the insurance companies because whatever may be the premium charged, the surplus would normally go back to the participants in proportion to their contributions.

The terms ‘Family Takaful’, ‘Takaful Ta´awani’ or just ‘Takaful’ are generally used for family solidarity in place of conventional life insurances. Other products available in various countries are General Takaful, Education/Medical Takaful, etc. Based on the nature of relationship between the company and the participants, there are various models like Wakalah (agency) Model, Mudarabah Model and the combination of agency and Mudarabah models. In the Sudanese Takaful Model that is preferable to majority of the contemporary Shariah experts, every policyholder is also the shareholder of the Takaful Company. There is a Board that runs the business on behalf of all the participants and there is no separate entity managing the business. The legal framework in other Islamic countries normally does not allow this arrangement and Takaful companies work as separate entities on the basis of Mudarabah (as in Malaysia) and on the basis of Wakalah (as in the Middle East region). In Mudarabah model that is practised mainly in the Asia Pacific region, the policyholders get profit on their part of funds only if Takaful Company earns profit. The sharing basis is determined in advance and is a function of the developmental stage and earnings of the Company. The Shariah committee approves the sharing ratio for each year in advance. Most of the expenses are charged to the shareholders.

In Wakalah Model, the surplus of policyholders’ funds investments – net of the management fee or expenses - goes to the policyholders. The shareholders charge Wakalah fee from contributions that covers most of the expenses of business. The fee rate is fixed annually in advance in consultation with Shariah committee of the company. In order to give incentive for good governance, management fee is related to the level of performance.

The Takaful business has proved its viability in a period of only two decades. It has been growing at the rate of 10-20% p.a. compared to the global average growth of insurance 5% p.a. A large number of Takaful Companies exist in the Middle East, Far East, Iran, Turkey, and Sudan and even in some non-Islamic countries. There are over 60 companies offering Takaful services (including Windows- 5%) in 23 countries around the world. Malaysia has developed Re-Takaful business as well. Takaful products are available to meet the needs of all sectors of the economy, both at individual as well as corporate levels to cater for short and long term financial needs of various groups of the society.

A Convention of D-8 countries was held in Kuala Lumpur in November, 2002 on “The Emergence of Takaful in the Wake of Globalization”. It is worth noting that among D-8 countries it is only Pakistan where Takaful business has not been introduced so far. Islamic banks and financial institutions require Takaful services for their operations. Although, the insurance business in Pakistan falls in the jurisdiction of the Securities & Exchange Commission, Pakistan, institutions operating Islamic banking would have to deal with insurance. As such, the Central Bank should desire that Takaful business be introduced in the country at the earliest. In the revised Insurance Act, the Government of Pakistan has added the provisions for Takaful companies in the country. As reported in the press, Pak Kuwait Investment Corporation has recently been allowed by the SEC to establish a Takaful Company in Pakistan under the name of “First Takaful Insurance Company Limited” with authorized capital of Rs 100 million.

By: Muhammad Ayub

Bank Aljazira ( BAJ ) Takaful Model

Bank Al Jazira (BAJ) having reviewed many of the Takaful models in operation worldwide has decided to propose the following model. This model is based on the Ta'awun concept and Wakalah contract.

In the context of takaful, ta'awun meaning mutual help allows participants make donations with the intention of helping one another within the takaful group. The elements underpinning the ta'awun the ta'awun concept as applied in takaful, can be broken down into the following:

1) Mutual responsibility
2) Mutual cooperation
3) Mutual protection
All these principles are based on the Quran and the Sunnah.

1 ) Mutual Responsibility

The feeling of responsibility towards one another is the foundation of solidarity of Islamic community. The poor feel safe being sheltered by the rich and the sick do not feel much hurt because they know the healthy will provide help. This principle is established through the following hadith:

"The attitude of the believer and feeling of brotherhood to one another is like that of the single body. When one member of the body is hurt, it will have an effects on the whole body." (Mutafaq 'alihi).

" The relationship between one believer and another (in a community) is like that of a building where one part of the building strengthens the other parts." (Mutafaq 'alaihi).

"Each one of you has a responsibility and each one of you is responsible towards those under your responsibility." (Mutafaq 'alaihi).

"One is not judged as righteous until he cares for his brother as much as he cares for himself." (Bukhari).

"If any one does not have compassion towards others then he does not get any compassion from God". (Mutafaq 'alaihi).

2 ) Mutual Co-operation

The principle of cooperation is established both through the Quran and the Sunnah. Some of the Quranic injunctions are:
"Help one another in furthering virtue and God-consciousness (taqwa), and do not help one another in furthering evil and enmity" (Quran 5:2).

It is not righteousness that you turn your faces towards east or west but righteousness is whoever believes in God and the Last Day and the angels and the Book and the messengers; and spending out of his wealth for His love towards kin, and orphans and the poor and the wayfarer and those who ask and the freeing of slaves and those in debt; to be steadfast in prayer and practice regular charity; to fulfil the contracts which you have made; and to be firm and patient in pain or suffering and adversity and throughout all periods of panic. Such are the people of the truth, the God-fearing." (Quran 2:177).

The Sunnah has also established the principles of co-operation. Some of the hadith that urge cooperating are:

A Muslim is the brother of a fellow Muslim. He should neither commit oppression upon him nor ruin him; and he who meets the needs of a brother. God will meet his needs and he who relieves his brother from hardship Allah will relieve him from the hardness to which he could be put on the day of judgement (Muslim).

Whosoever fulfils the intention of a brother, God will fulfil his intentions. (Ahmad & abu Daud).

God always help those who helps his brother (Abu Daud).

Help your brother either those oppressed or those who oppress. The companions ask "Oh Messenger of God, we understand about helping the oppressed how do we help those who oppress?" The Messenger replied "relieve them of their power." (Mutafq 'alaihi).

3 ) Mutual Protection

This principle is established by both the Quran and the sunnah. The Quran mentions in several places regarding protection from hunger and fear. The Quran Says:

"(He) who has fed them against hunger, and has made them safe from fear." (Surah Quraish verse: 4).
"And remember when Abraham said "My Lord, make this city (Mecca) a place of security." (Quran 2:126).

Some of the hadiths that discussed protection are as follows:

"Indeed a believer is one who can give security and protection to the life and property of mankind". (Ibn Majah).
By God in Whose power I am under, one will not enter paradise unless he provides protection to a neighbor in difficulty." (Ahmad).
Aishah reported that The Prophet of God (s.a.w.) said, "Jibrail impressed upon me the kind treatment towards neighbors so much that I thought as if he would confer upon them the rights of inheritance."
"A person is not a believer if he sleeps comfortably on a full stomach while his neighbor suffers from hunger". (Al-Bazzaar).


Wakalah (Agency)

In this modern and complex financial world many skills are required to successfully manage a takaful operation. By management one would include ensuring that the rights of the participants in the mutual fund are protected. What follows is a sample of what a takaful operator should do so as to run a successful takaful operation. This is not meant to be an exhaustive list:

Promote participation of new members (e.g. via advertising). Takaful is not sold but participation is invited.
Explain the concept of a takaful cooperative to the masses
Set up a proper administrative system to run the takaful program
Keep records of newly registered members
Maintain records of all participants in the event there is a change in information about a member
Invest the donations in halal investments
Develop new takaful products to meet the needs of participants
Maintain statistical information and perform experience studies
Determine the appropriate contribution to be made by each member such contribution shall be determined actuarially to enable an adoption of an equitable and fair charging to all members
Pay takaful benefits when a participant makes a claim
Prepare the balance sheet, revenue accounts and other financial statements - to enable public accountability of the management
Perform actuarial valuation to determine the surplus of tabarru' at fund
Distribute the surplus equitably to participants

The question that comes to one's mind is : who will carry out such responsibilities with effectiveness, accuracy and efficiency? One option is that it could be performed by volunteers who are members of the takaful program. Alternatively, it can be sourced out to a third party who possess the skills, qualifications and experience to handle such a complicated job.

Under the first alternative, volunteers who are existing members of the takaful program may help carry out the above functions on a charitable basis. As the takaful fund gets bigger, and as more and more people enter into the takaful program, the administrative activities will become more complicated and cumbersome to the extent that there is need to seek assistance from an outside party to ensure that the takaful operation is run in the most efficient, productive and professional manner for the benefit of the members. Thus, an entity who possesses the necessary expertise in running the takaful program needs to be established. Islam permits the establishment of such entity with the view of administering the takaful program under the concept of wakalah.

According to the Encyclopedia of Islamic Banking and Insurance, wakalah is a concept of a businessman entrusting another to act in his stead or as his representative. It has been a long standing custom to appoint an agent to facilitate trade operations. The Encyclopedia of Islamic Banking and Insurance further elaborates conditions which must be met under wakalah. Some of these conditions are:

The essence of the appointment of an agent (wakil) is the proposal and acceptance of the position
It is a condition that the person who appoints an agent be legally competent to do the work for which the agent is appointed. Thus an insane person or an infant cannot appoint an agent.
A person can appoint an agent to conduct all business transactions that he would be able to do personally. Thus, it is lawful to appoint an agent for selling or buying, letting or hiring, giving or taking a pledge for depositing or receiving a thing for safe keeping, making or receiving a gift, making a compromise, bringing an action, paying or receiving a debt and for receiving anything.
An agent appointed to sell and buy or to pay or receive a debt, is a custodian of his principal's property and in the position of an amin (rustee).
An agent is entitled to receive remuneration only when so contracted.


The rationale behind the concept of wakalah can be seen from the following arguments:

It is difficult for takaful members to voluntarily carry our the administrative works as the scheme gets bigger.
To set up a takaful operation system during the initial phase of the program requires heavy expenditure on the part of members. The question now is whether all members agree or can afford to contribute towards meeting this high start up cost.
During the early phase of implementation, it is possible that claims, retakaful cost and expenses could exceed collected contributions together with investment income. This would mean a loan to the participants is needed to avoid insolvency of the takaful program (i.e. inability to pay claims). From an Islamic perspective this is undesirable for it may reflect poor management of the takaful program.
Members may not have all the technical expertise associated with managing the takaful funds. The skills required are underwriting, marketing, claims management, legal, accounting, actuarial, IT and so on.
The takaful program may not be managed in an organized or structured manner unless a dedicated, professional, highly skilled and financially reputable party is involved.

The structure of Wakalah for Bank Aljazira

In the context of a takaful model for Bank Aljazira, takaful members, through the contract they enter voluntarily, give consent in the form of absolute authority to Bank Aljazira to act on their behalf as an agent to run the takaful program under the ta'awun concept explained earlier. In other words, collectively Bank Aljazira is entrusted to act on behalf of all participants to ensure that all administration work pertaining to preserving the financial and nonfinancial soundness and solvency of the takaful fund and operation are adhered to.

Bank Aljazira, being an outside party to the takaful program, voluntarily agrees to act as trustee and hence lend support to ensure the above tasks and many other tasks not mentioned can be performed effectively and efficiently to meet all takaful operating requirements. It is proposed such support is provided on the basis that Bank Aljazira will be compensated for this effort via agency fees in the form of:

A percentage of contribution. This percentage will cover the operating cost of Bank Aljazira in running the takaful program
A performance related commission in the form of a percentage of underwriting surplus in general is defined as the excess of contributions over claims. This additional fee will provide an incentive for Bank Aljazira to:

Ensure that prudent underwriting is carried out at all times;
Optimize investment performance of the takaful funds
Minimize direct expenses related to the takaful fund such as issue cost, stamp duty, legal fees, reinsurance cost etc
Minimize claims amount payable (i.e. control fraud) without sacrificing the objectives of takaful
Ensure that contributions for participation in takaful is set at a reasonable level to ensure adequacy, equity and fairness among participants.


The application of Qardul Hasan

It is important to highlight that the involvement of a third party wakala contract is not merely restricted to operating or managing the takaful funds but also extends beyond this, Under wakala, the agent or representative of takaful participants is charged with the following obligations:

It has the financial obligation to ascertain that all initial or start-up costs, which usually are substantial at the beginning, under modern operating conditions, are met.
It has the financial obligations though not a shariah one, to ensure that in the event of a deficit of the takaful fund (defined in general as claims exceeding contributions), the agent will assist. Hence it requires the application of the principal of qardul-hasan (benevolent loan) on the part of takaful operator on a voluntary basis. To the agent this role as the 'lender of the last resort' would require having capital on standby at all time.

It is emphasized that the takaful operator is not obligated under sharia to finance the deficit as the takaful operator only acts as a wakil. Its job is to manage the fund. Participants among themselves are in effect required to finance any deficit under the concept of ta'awun established earlier. At the first instant under the proposed model the deficit can be financed by a qardul hassan from the participants from their saving account. Each participant's contribution toward this loan can be determined in proportion to the participant's tabarru in the year the deficit occurs. As a gesture of mutual help the takaful operator can also voluntarily provide this qardul hassan

Bank Aljazira Takaful Accounts

For practical purposes, it is proposed that all contributions from the participants should first be deposited in an Inividual Investment Account (IIA). This account is maintained for each individual participant. The funds in this account will be invested by the operator. The participants agree at the outset to transfer from his (IIA) agreed amounts periodically being his contribution to a second account Ta'awuni Ta'awuni Account (TTA).

1.5. Conclusion

The relationship between Bank Aljazira and the participants as described above would be fair to both parties as BAJ as the manager of the fund would be compensated fairly and the participants would receive a majority share of the surplus if any.

The concept of takaful and comparison with conventional insurance

Takaful is an Arabic word mean "guaranteeing each others". In takaful business, the understanding of the definition is imperative and of perennial concern to takaful practitioners. It must be entrenched in the minds of all participants who take up takaful protection that the participation into takaful scheme must be performed with utmost sincerity in order to help those faced with difficulties.

The concept introduced by Takaful is similar that of conventional insurance. Both of them are financial instruments that assist the unfortunate groups who are confronted with financial predicaments. These instruments are modern methods of shifting risks with a reward awarded to the parties that are willing to accept the exchange in these risks.

The Comparison between Takaful and Conventional Insurance

The insurance concept, of "The fortunate many helping the unfortunate few" is a concept recognized by Islam. The surah Al-Maidah from the 2nd verse in the Al-Quran states:
"Help ye one another in righteousness and piety, but help ye not one another in sin and rancor" is regarded as the main source of how this concept of helping one another is inculcated by Islam.
It is the characteristics that demarcate Takaful from Conventional Insurance? In June 15 1972 Malaysian National Fatwa Committee conducted a research on the conventional insurance contract. The Malaysian National Fatwa Committee in its fifth conference decided that life insurance implemented by the current insurance companies as a muamalah is fasid (illegal/damaged) and is not in compliance with the Islamic principles under the 'aqd aspect because it contains elements of gharar (uncertainty), maisir ( gambling), and riba'.

Elements of Gharar, Maisir, and Riba’ in the Insurance Contract

A. Gharar

Gharar means "Uncertainty".
The definition of uncertainty in the muamalah transaction is:
"When there is a matter that wants to be concealed by one party where it can raise a sense of inequality as well as tyranny to another party".

According to Ibn Rush, Gharar means:
"The lack of information known about a certain product (object), the existence of uncertainty towards the presence of that object, and the lack in quantity and conciseness on the information about the object".

Ibn Taimiyah stated that Al-Gharar means:
"When a party obtains his rights and the other party does not get what are rightfully his".

Al-Gharar is stated in the Kitab Qalyubi wa Umairah which mentions that the Mazhab Imam A-Shafie as defining gharar as:
"An (‘aqd) that has a hidden outcome from us or a situation between two possibilities where the frequent one happens to be the most feared."

Prof Madya Dr. Saiful Azhar Rosly states that:
"Al-Gharar is defined as a contract that refers to a risk and uncertainty raised from one’s manipulation that causes anguish towards a person that has been oppressed. For example in the used car business, the customer is not told of the true condition of the car. After the trade of the car is completed, the gharar in the object of trade can be made a reason to cancel the contract. This is because gharar is a result of an oppressive act done intentionally."

An insurance contact contains gharar because:
"When a claim is not made, one party (insurance company) may acquire all the profits (premium) gained whereas the other party (participant) may not obtain any profit what so ever."

This reasoning is in consonance with the definition of gharar given by Ibn Taimiyah:
"Gharar found in the contract exists because one party acquired profit while the other party did not."

According to a report made by the Islamic Insurance Company Set up Action Committee in Malaysia,
"It is clear that in the insurance contract practiced today contains elements of gharar because Ma’qud Alaih (object) is not clear, and it is connected with :-


The uncertainty of whether the payment will be accepted as promised.

The unknown amount to be paid.

The unknown time it will occur.


The committee stated that the existence of gharar in an insurance contract is due to "trade". In Islam, if a subject is involved in the trade of muamalah then it must satisfy the basic principles found in trade. Some of the principles are:


The buyer and seller


(Ijab and Qabul) Sighah


(Object/Subject Matter) Ma’qud Alaih

What remains a questions now is the existence of uncertainty in the "object" found in the insurance contract due to the unfulfilled conditions determined by the Syariah. For Islam, the conditions for each of the principles are important and must be fulfilled. A few of the principles an object must satisfy include:


The object can be given in the aqad.


The time surrender is determined.


The quantity of the object is determined.


The place of surrendering the object is determined.


The object does not consist any elements prohibited by the Syara’.

The same condition applies to a couple who are getting married. They must meet the basic principles of marriage. For instance a groom, bride, guardian, 2 male witnesses who are fair (Adil), and the ijab qabul. But, if one of the conditions are not satisfied then the marriage will not be valid.

What separates Takaful and Insurance is the aspect of "Belief". Let us compare what is the difference between a married couple and a couple that live together without the bond of marriage except by a contract that is legal in the eyes of the law? Surely there exists a distinction even though the contract made by the couple is complete with all the rights mentioned in the contract, however in Islam this still remains illegal as it is against the Syariah Principles.

B. Maisir (Gambling)

The muslim scholars stated that Maisir and Gharar is related. This means that if a transaction consists elements of gharar hence there exists an element of gambling.

These two are so interrelated.

Maisir (Gambling) exists in an insurance contract when:
The participant contributes a small amount of premium in hope to gain a large sum.

The participant loses the money paid for the premium when the insured event does not occur.

The company will be in deficit if it the claims are higher the amount contributed by the participants.

C. Riba

The element of riba exists in the policy loan business offered to the participant in a life insurance product. In this policy loan, the insurance company will charge interest to the participant who made the loan. It is clear here that the interest paid is a form of riba that is prohibited in Islam.

The riba element also exists from the profit of the investment fund that will be used for the payment of claims to the policyholders. This is because most of the insurance funds are invested in financial instruments such as bonds and also stocks which contain the element of riba’.

The solution to the Conventional Insurance

Islamic intellects have mutually agreed Takaful to be the substitute of conventional insurance. The tabarru' system will become the main core of the Takaful concept. This system makes insurance comply with the Islamic muamalah. Thus takaful is free from the elements of gharar and maisir.

Tabarru’

Tabarru' is an Arabic noun that means "donation; gift; contribution". Within the business context, each participant that needs protection from Takaful must be present with a sincere intention to donate in order to help other participants if they are faced with difficulties. In precise words, all participants agree to help one another.

The emphasis on this issue can be observed from a fatwa by Dr. Yusuf Al-Qardhawi that insisted Islamic insurance may exist in condition that each participant contributes into a fund used to support one another.

Today, most companies that practice Takaful is involved in the world of business. Due to that reason, the conditional tabarru' is introduced where each participant who involves in takaful need to donate sufficient amount to cover expected takaful claims. Thus, if a participant is of high risk to the company, then the rate of tabarru' contributed must be balanced with that risk.

Summary

The presence of the tabarru' principle within the takaful confriguration ensure that takaful is within the ambit of Syariah and at the same time eliminate the elements of gharar and maisir.

The use of Tabarru' in takaful contract has ensured that Islamic Insurance does not contradict Syara'. Gharar and Maisir can be eliminated with the existence of this principle. The existence of the Syariah Board (Religious Supevisory Council) ensure that each investment fulfills the Syara' laws likewise in product development. Therefore, there will not exist doubts in the Islamic Insurance muamalah and its transparence gives way to each race to together use the protection provided by Takaful.


Written by : Wan Haizan Wan Harun

The Concept of Takaful

Takaful is an insurance concept which is grounded in Islamic Muamalat, observing the rules and regulations of Shariah. It is a concept that has been in practice for over 1,400 years.

In principle, Takaful system is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. In other words, it is the provision of shared contributions to help those who are in need.

These fundamentals are based on the Holy Quran and the sayings of Prophet Muhammad S.A.W. Some of the examples are:


Basis of Co-operation

Allah said: “...Help Ye one another in righteousness and piety but help ye not one another in sin and rancour... (Al Maidah : 2).


Allah will always help His servant for as long as he helps others. (Narrated by Imam Ahmad and Imam Abu Daud).
Basis of Responsibility

The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam Al-Bukhari and Imam Muslim).


One true Muslim (Mu’min) and another true Muslim (Mu’min) is just like a building whereby every part in it strengthens the other part. (Narrated by Imam Al-Bukhari and Imam Muslim).
Basis of Mutual Protection

By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam Ahmad)
Based on the above basis, Islamic scholars had decided that there should be a concerted effort to implement the Takaful concept as the best way to resolve these needs.

Understanding the Takaful Contract

Although the concept of insurance is permissable under Shariah law, certain practices in conventional insurance breach Shariah law. The current Takaful Practise uses a combination of two types of main ‘Aqad (contracts). These are the contract of Tabarru’ (Donation) and contract of Wakalah (Agency) which are free from the elements of (Riba) usury, wager or Maisir (gambling) and Gharar (uncertainty). The Takaful system stresses the spirit of co-operation and joint responsibility among participants.

(Takaful Ikhlas)

Friday, November 20, 2009

Takaful Fatwa

The Majority viewpoint among contemporary Islamic scholars is that Takaful is fully consistent with Shariah principles. This view is upheld by numerous resolutions:

•Council of Saudi Ulama (1397 AH/1977CE) resolution.
•Fiqh Council of Muslim World League (1398/1978) resolution.
•Fiqh Council of Organization of Islamic Conference (1405/1985)
•Islamic Fiqh Week Conference, Damascus, 1961
•Second Conference of Muslim Scholars, Cairo, 1965
•Symposium on Islamic Jurisprudence, Libya, 1972
•First International Conference on Islamic Economics, Mecca, February 1976
•The Islamic Conference, Mecca, October 1976

Pengurusan kewangan Islam

PENGURUSAN dan perancangan adalah suatu yang amat mustahak dalam semua urusan kehidupan lebih-lebih lagi yang berkaitan dengan harta atau kewangan. Kegagalan mengurus dan merancang sebenarnya seseorang itu mengurus dan merancang untuk kegagalan. Kegagalan merancang harta atau kewangan dengan bijak dikenal pasti antara punca mudahnya seseorang itu terperangkap dengan pelbagai masalah dalam kehidupan.

Seseorang yang mempunyai perancangan dalam menguruskan kewangannya akan memperoleh gambaran yang jelas tentang kedudukan kewangan terkininya, memberi hala tuju yang tepat mengenai matlamat kewangan yang ingin dicapai yang akhirnya akan membolehkan seseorang itu mencapai matlamat yang diharapkan secara lebih efektif.

Islam sebagai agama yang sempurna mengajar umatnya agar sentiasa mempunyai perancangan dalam menguruskan hal ehwal kehidupan mereka. Hal ini dapat dilihat menerusi al Quran dan sunnah. Antaranya firman Allah dalam surah Yusuf ayat 67.

Pengajaran daripada ayat di atas antara lain ia menyentuh tentang persoalan perancangan di mana Allah menjelaskan bahawa dalam menguruskan kehidupan jangan bergantung kepada satu pendekatan semata-mata tetapi perlulah mempelbagaikan pendekatan dan strategi. Dan setelah segala persiapan dan perancangan dilakukan maka hendaklah bertawakal kepada Allah.

Ayat 47-48 di dalam surah yang sama Allah menegaskan pentingnya perancangan sebelum menghadapi atau melakukan sesuatu malah perlu bijak dalam menguruskan kehidupan agar tidak susah di kemudian hari.

Di dalam ayat 9, surah al-Nisa' juga Allah tegaskan perkara yang sama bahawa perlunya mempunyai perancangan untuk masa depan keluarga dan hendaklah bijaksana dalam menguruskan harta/kewangan. Sebagaimana dalam surah al Hasyr ayat 18.

Ayat ini cukup jelas menyentuh tentang kepentingan perancangan dalam kehidupan, kerana masa depan bergantung kepada perancangan kita hari ini selain daripada ketentuan Allah.

Harta dalam Islam

Dalam Islam mengurus dan membelanjakan harta adalah antara amanah Allah. Ia adalah satu keperluan yang bertujuan mencapai kehidupan yang diberkati. Perspektif yang tepat terhadap harta akan memastikan seseorang itu mencapai bahagia di dunia dan di akhirat menerusi hartanya.

Harta mempunyai kedudukan yang sangat mulia di sisi Islam. Islam menggalakkan umatnya memiliki, menghasil dan menggunakan harta dengan baik dan bijaksana.

Dari kaca mata Islam, harta adalah alat untuk menjamin keselesaan hidup manusia di dunia dan kebahagiaan di akhirat. Ia juga merupakan wasilah untuk mencapai takwa. Allah juga menganugerahkan harta kepada manusia untuk menguji manusia itu sama ada bersyukur atau sebaliknya sebagaimana yang ditegaskan oleh Allah dalam surah al-Munafiqun ayat 9.

Di samping mengajar manusia agar mempunyai perspektif yang jelas terhadap harta, Islam juga mengajar manusia agar mempunyai pandangan yang betul terhadap kehidupan. Hal ini penting bagi memastikan kehidupan mereka bermatlamat dan arah tuju yang jelas.

Islam menggariskan agar umat manusia berusaha bersungguh-sungguh untuk membangun dan membina kehidupan yang bahagia dan harmoni. Ini dijelaskan dalam surah Hud ayat 61.

Islam juga menyeru agar menjadikan kehidupan ini dapat memberi manfaat kepada orang lain sebagaimana hadis Rasulullah SAW yang bermaksud: "Sebaik-baik kamu adalah yang paling banyak memberi manfaat".

Di dalam ajaran Islam, dunia adalah tempat sementara yang hanya sebagai jambatan untuk ke akhirat, dunia sebagai tempat bercucuk tanam dan akhiratlah tempat untuk menuainya. Walaupun dunia bersifat sementara, Islam dengan pelbagai kaedah dan pendekatan mengajar umat manusia supaya mempunyai status sosial dan ekonomi yang baik.

Oleh itu, Islam memerintahkan supaya harta dan kehidupan diuruskan dengan baik dan bijaksana. Jika sebaliknya ia akan menjadi faktor keruntuhan manusia dan kemurkaan Allah seperti dalam surah Saba' ayat 15 - 16 dan surah al-Nisaa' ayat 10 dan 161.

Konsep pengurusan harta

Secara umumnya ada lima aspek atau elemen utama pengurusan harta secara Islam. Pertama, Penghasilan Harta (Wealth Creation). Sebagai seorang Muslim yang sejati, Islam menggalakkan umatnya mencari harta dan tidak hanya pasrah pada qada' dan qadar seperti di dalam surah al-Juma'ah ayat 10.

Kedua, Pengumpulan Harta (Wealth Accumulation) atau dengan erti yang lain bermaksud pengembangan harta. Adalah tidak wajar jika harta yang kita ada disimpan begitu saja tanpa mengembangkannya. Pengembangan harta boleh dilakukan melalui simpanan dan pelaburan di institusi kewangan.

Malah Islam menggalakkan umatnya untuk membuat simpanan serta melaburkannya sebagaimana dalam surah Yussuf ayat 47-48.

Ketiga, Perlindungan Harta (Wealth Protection). Setiap manusia harus mempunyai matlamat dalam kehidupan dan pasti salah satu daripadanya ialah untuk dapat kehidupan yang selesa dan terjamin dari segi kewangan sepanjang hidup. Sebagai jaminan hidup di dunia ini selain mempunyai simpanan dan harta yang mencukupi, diri kita dan harta kita juga harus dijaga daripada sebarang musibah dan perkara-perkara yang tidak diingini.

Keempat, Pengagihan Harta (Wealth Distribution). Islam memperuntukan beberapa cara atau kaedah untuk pengagihan harta sebelum atau selepas mati. Antara instrumen perancangan harta adalah wakaf, wasiat, hibah dan sebagainya.

Kelima, Penyucian Harta (Wealth Cleansing). Sebagai seorang Muslim kita tidak sewenang-wenang membelanjakan atau mempergunakan mengikut kehendak dan hawa nafsu. Ini kerana setiap harta ada hak-hak yang tertentu untuk dibahagikan seperti berzakat dan amal jariah kita seperti sedekah. Ini terbukti dalam surah al-Baqarah ayat 195.

Pengurusan kewangan Islam

Pengurusan kewangan yang bijak itu adalah yang dapat mengimbangi perbelanjaan dan pengurusan hutang, pelaburan yang mengikut syariah dan pendapatan yang mendapat keberkatan. Perlu diingatkan bahawa merancang dan mengurus ini merupakan sunnah.

Dari sudut semasa, industri perancangan kewangan telah lama wujud di Malaysia tetapi bukan dalam bentuk satu disiplin profesional seperti yang ada sekarang. Diperakui oleh Suruhanjaya Sekuriti (SC) sejak tahun 2004 apabila SC menjadikan perancangan kewangan sebagai satu aktiviti yang memerlukan lesen.

Perancangan kewangan adalah satu aktiviti yang dikawalselia oleh undang-undang. Individu yang ingin menjadi "Perancang Kewangan Bertauliah" perlu mendapat lesen daripada SC (Jadual 2, Capital Markets and Services Act 2007).

Secara lebih mendalam, perancangan kewangan itu merujuk kepada 'Perancang Kewangan' sebagai "seseorang yang membuat analisis kedudukan kewangan individu lain dan mencadangkan perancangan pelan kewangan agar individu berkenaan mencapai matlamat dan objektif kewangannya." (Suruhanjaya Sekuriti).

Secara ringkas, perancangan kewangan Islam itu ialah "satu proses di mana matlamat kewangan keseluruhan individu digunakan untuk membangun dan melaksanakan pelan yang holistik untuk mencapai matlamatnya yang mematuhi syariah dan akhirnya mendapat keberkatan daripada Allah" (Mahadzir Ahmad, majalah VISI, Bilangan 95)

Perancangan kewangan yang didasarkan kepada Islam matlamat akhirnya menjadikan aspek kewangan sebagai satu wasilah mencapai hasanah di dunia dan di akhirat. Justeru, untuk memastikan matlamat ini dapat dicapai maka pelan perancangan perlu mengambil kira perbelanjaan untuk kemaslahatan sendiri seperti keperluan jasmani dan rohani, perbelanjaan untuk kemaslahatan orang lain seperti nafkah, sedekah dan juga perbelanjaan untuk kemaslahatan umum seperti membina masjid, hospital dan sebagainya.

Secara yang lebih sistematik perancangan kewangan dari perspektif Islam perlu mengambil kira komponen-komponen berikut; pengurusan kredit dan aliran tunai, pengurusan risiko dan perancangan takaful, perancangan pelaburan Islam, perancangan zakat dan cukai , perancangan persaraan dan perancangan harta pusaka dan wakaf.

Secara umumnya, ada dua aspek utama yang dititikberatkan oleh Islam dalam hal-hal yang bersangkutan dengan pengurusan harta, iaitu bagaimana harta itu diperoleh. Ia mestilah menerusi kaedah pemilikan yang sah dan jual beli, pelaburan secara Islam, hadiah dan sebagainya.

Aspek kedua adalah bagaimana harta itu dibelanjakan, sama ada untuk kebaikan ataupun untuk perkara-perkara yang dilarang Allah. Perkara ini dapat dilihat menerusi sabda Rasulullah SAW yang bermaksud: "Tidak akan berganjak kedua-dua kaki anak adam pada hari kiamat sehingga ditanya tentang umurnya pada apa ia dihabiskan, tentang usia mudanya pada apa digunakan dan tentang hartanya dari mana ia diperoleh dan bagaimana ia dibelanjakan dan tentang ilmunya pada apa ia diamalkan?"

Oleh itu, aspek utama yang perlu diambil kira di dalam perancangan kewangan Islam adalah memperoleh keberkatan. Harta yang melimpah ruah tidak membawa apa-apa erti jika tidak ada padanya keberkatan, malah harta boleh menjadi fitnah, boleh menjadikan seseorang itu sentiasa berasa tidak cukup sehingga sanggup melakukan apa sahaja termasuklah rasuah, penyelewengan dan sebagainya.

Keberkatan

Sebaliknya, harta yang berkat walaupun sedikit akan membawa ketenangan dan memberikan kesan yang baik dalam segenap kehidupan.

Keberkatan bermaksud mendapat restu, keredaan atau rahmat dari Allah SWT. Bagi mendapat keberkatan dan rahmat tersebut, sewajarnya kita mematuhi serta mentaati setiap perintah Allah.

Namun keberkatan boleh hilang jika melakukan perkara yang menyalahi apa yang digariskan oleh Allah SWT seperti terlibat dengan riba dan melakukan dosa serta mengabaikan solat.

Kesimpulannya, untuk menikmati kehidupan yang selesa dan bahagia kita perlulah mempunyai perancangan kewangan yang sempurna.



(Utusan Malaysia/11 Nov 009)

Malaysia sharia reinsurer sees more overseas business

KUALA LUMPUR, Nov 16 (Reuters) - Malaysian Islamic
reinsurer MNRB Retakaful expects gross contributions from its
overseas businesses to exceed that of domestic operations in
five years, its chief executive said. The firm, a subsidiary of Malaysian reinsurer MNRB Holdings
(MNRB.KL), sees growth opportunities in Indonesia, Brunei, Sri
Lanka and Pakistan as the sharia reinsurance industry grows,
said Ismail Mahbob. "I am talking about 70 overseas and 30 Malaysia," Ismail
said in an interview, referring to gross contributions. MNRB's overseas businesses are in 14 countries, including
Indonesia, Saudi Arabia and Kuwait. They account for about 31
percent of gross contributions. Retakaful contributions in Malaysia grew by nearly 50
percent to $162 million in 2008, but the expansion is largely
confined to the retail sector, such as fire or motor insurance,
since the industry is still young. MNRB Retakaful is also looking at business opportunities in
the Middle East, especially in the United Arab Emirates,
Kuwait, Saudi Arabia and Syria. "You cannot ignore the Middle East market," Ismail said.
"It's highly fragmented but I can see areas that can be
developed or which we are developing now," he said. He said a key problem in the Middle East was the lack of
homogeneity in the pool of assets underwritten by takaful
providers, making it difficult for retakaful firms to assess
and assume the risks. "They [takaful operators] need an overview of their
underwriting business," Ismail said. Global premiums in Islamic insurance, or takaful, total
about $2 billion to $3 billion and are expected to reach more
than $7 billion by 2015, industry figures show. The industry is relatively small and many takaful firms
currently cede part of their risks to conventional reinsurance
firms because there is a lack of Islamic reinsurance capacity.The Islamic reinsurance market is worth $1 billion, industry
estimates show. Islamic insurance works on the basis of mutual help, with
members contributing to a pool of funds, which is used to
indemnify participants who suffer a loss. The funds are invested according to the sharia which avoids
interest-bearing loans and gambling, pork and alcohol-related
activities. Profits made are distributed among members.

Help Ensure Malaysia's Position As Leading Takaful Provider Remains Intact

KUALA LUMPUR, Nov 5 (Bernama) -- The takaful industry should take meaningful and effective steps to ensure that the country's position as a leading global takaful provider remains intact, said Minister of Finance II, Datuk Seri Ahmad Husni Mohamad Hanadzlah.

"The global takaful landscape will change at an accelerated rate in the next five years and the growth potentials are too irrestitable for any player to ignore," he said at the Malaysian Takaful Association Dinner & Awards Nite 2009 here Thursday.

He said Malaysia has seen a compound annual growth rate of 39 per cent between 2005 and 2007.

"It is estimated that global gross takaful contributions will touch US$8 billion by 2012," he said.

Ahmad Husni said the current financial crisis has brought forth concerns to financial institutions across the globe, including the takaful operators.

"However, the Islamic financial system has proven to be resilient and immune to the cancerous malignant credit products that were the root cause of the current credit crisis," he said.

Thursday, January 1, 2009

International Takaful in Malaysia

Takaful (Islamic insurance) is a concept whereby a group of participants mutually guarantee each other against loss or damage. Each participant fulfils his / her obligation by contributing a certain amount of donation (or tabarru) into a fund, which is managed by a third party – the takaful operator.

In the event of loss or damage suffered, the takaful operator will disburse the funds accordingly to its participants. Any surplus is paid out only after the obligation of assisting the participants has been fulfilled. Through this principle, takaful operates as a protection and profit sharing venture between the takaful operator and the participants.

Globally, the takaful industry has been growing rapidly, appealing to both Muslims and non-Muslims. The industry is expected to grow by 15-20% annually, with contributions expected to reach USD7.4 billion by 2015.1 Currently, there are more than 110 takaful operators worldwide.

Malaysia has achieved significant milestones in the development of its takaful industry. With the enactment of the Takaful Act 1984, the first takaful company was established in 1985. Since then, Malaysia’s takaful industry has been gaining momentum and increasingly recognised as a significant contributor to Malaysia’s overall Islamic financial system.

As at 2007, total assets of Malaysia’s takaful industry amounted to USD2.8 billion, with market penetration of 7.2%.2 Takaful assets and net contributions experienced strong growth with an average annual growth rate of 27% and 19% respectively from 2003 to 2007.3

The rapid liberalisation of Malaysia’s Islamic financial industry has encouraged foreign institutions’ participation in Malaysia, thus creating a diverse and growing community of domestic and international takaful operators. There are currently eight takaful operators and two retakaful operators, with five foreign participations from the UK, Bahrain, Germany and Japan. These takaful operators conduct both domestic and foreign currency business.

Malaysia continues to progress and build on the industry’s rapid development by inviting financial institutions across the world to establish takaful and retakaful operations in Malaysia to conduct foreign currency business.

The domestic Islamic financial institutions may also apply for ICBU, a dedicated division to conduct foreign currency business. ICBU will also be accorded various tax incentives and privileges that lead to reduction in the cost of doing business and expedient market entry in foreign currency Islamic finance business. For more information on the establishment and application procedure for ICBU, please contact MIFC Secretariat.

(MIFC)

Monday, December 29, 2008

Sharia-compliant health insurance plan launched in UAE

Dubai: Dubai Islamic Insurance and Reinsurance Company (AMAN) has launched a health insurance scheme in the UAE.

The new plan will offer comprehensive products that are consistent with the Sharia rules and are based on Islamic Takaful principles. It will cover all parts of the world, and provide emergency care services at all times.

The scheme, targeted to the high-end market, has two variations. The scheme includes Al Shifa Silver plan at the value of $1 million with a worldwide cover excluding the US and Canada, and Al Shifa Gold Plan at the value of $5 million covering all parts of the world including the US and Canada.

Premiums

The premium, for the gold plan is approximately $4,500 annually, and $1,500 for the silver plan with similar conditions.

Both the plans are targeted for groups only, and require a minimum of ten employees per plan. However, a plan can be tailor-made to suit the needs of the clients, according to the company.

Hussain Al Meeza, CEO and Managing Director of AMAN said that they "found out that there is an urgent need for excellent health insurance services and an increasing demand on comprehensive and non-traditional products."

The company has entered into strategic partnerships with international companies and institutions that offer health insurance.

(Gulf News)

Thursday, December 25, 2008

Takaful stable rating 'a vote of confidence'

MANAMA: The stable rating from a top international agency to a Bahrain insurance giant is a vote of confidence to both the company and the kingdom.

Standard and Poor's has assigned its long term (BBB) credit and insurer financial strength ratings with a stable outlook to Bahrain-based Takaful International Company.

This rating was awarded to confirm the excellent and ever-improving performance of the company and the growth of its insurance operation over the last few years.

"We are very much pleased with the awarded credit rating in spite of the current crisis, which has affected the financial sector," Takaful International Company chief executive officer Younis J Al Sayed said.

"This proves to be an achievement in eradicating obstacles in the way of our progress.

"Our team of professionals has moved forward to accomplish this honourable triumph. At the same time, the rating proves the financial stability of the kingdom's financial institutions, which was ascertained by our wise government leadership, notwithstanding the international financial crisis.

"Especially that the rating was awarded by one of the most renowned and internationally accredited rating agencies.

"The rating has arrived as a result of our strategy and corporate culture, giving utmost significance to financial system prudency and transparency and absolute adherence to corporate governance protocols.

"It also mirrors our consistently improving performance record over the last 20 years, building a well managed business portfolio.

"This in turn has led to improved market share and expanded volume of business by gaining the confidence of all government, financial and industrial institutes," he said.

"This growth was realised according to strategic planning and to our board of directors' futuristic and strategic vision, which lays emphasis upon far-sighted financial planning," he added.

"Being the first Takaful company in the region we are proud to be the first rated Takaful company in Bahrain and of our position in the market when leadership and progress is the called upon. That is precisely what is accomplished by us at Takaful International."

S&P has said in its report that the rating came as a result of many elements, mainly the good operating performance in managing both policyholders and shareholders' funds, and the good financial flexibility and adequate capitalisation.

Mr Al Sayed dedicated the rating to Takaful International's team, which is very capable in insurance and risk management fields, innovating creative insurance solutions to provide the ultimate insurance protection.

He said that the company has now achieved its short-term goals for this year and will commence the new year by implementing the second part of future business plan prepared by the company in order to tackle the changes facing the regional and international markets.

(Gulf Daily News)

Tuesday, December 23, 2008

Takaful in the USA and the crazy lawsuit

Have you heard about crazy lawsuits in the US for example:

Sued after getting stuck on the house he was robbing
In October 1998, A Terrence Dickson of Bristol Pennsylvania was exiting a house he finished robbing by way of the garage. He was not able to get the garage door to go up, because the automatic door opener was malfunctioning. He couldn't re- enter the house because the door connecting the house and garage locked when he pulled it shut. The family was on vacation, so Mr. Dickson found himself locked in the garage for eight days. He subsisted on a case of Pepsi he found, and a large bag of dry dog food. This upset Mr. Dickson, so he sued the homeowner's insurance claiming the situation caused him undue mental anguish. The jury agreed to the tune of half a million dollars and change.

10 years later we hear about this equally crazy lawsuit (the story below is extracted from FoxNews):

The U.S. government's bailout of the American International Group is helping promote Shariah law, a lawsuit filed in federal court in Michigan alleges.

The suit — brought with the support of the Thomas More Law Center, a non-profit law firm that promotes conservative Christian values — claims that making U.S. taxpayers comply with Shariah, the Islamic legal framework based on the Koran, is unconstitutional.

This month, AIG announced that it would offer Shariah-compliant homeowner insurance policies, known as takaful, to U.S. customers through one of its subsidiaries. To be Shariah compliant, companies cannot earn interest and must agree to send a percentage of their revenue to Islamic charitable groups.

The lawsuit — by Iraq war veteran Kevin Murray, on behalf of U.S. taxpayers, against Treasury Secretary Henry Paulson and the Federal Reserve — claims that by subsidizing AIG, the federal government is conveying "...a message of endorsement and promotion of Shariah-based Islam ... and [a] message of disfavor of and hostility toward Christianity and Judaism."

In September, the U.S. Treasury and Federal Reserve took a nearly 80-percent stake in AIG when it injected $150 billion to help prop up the troubled company.

"The suit is aimed at persuading the U.S. government it is unconstitutional to engage in the promotion of a faith," Frank Gaffney of the Center for Security Policy told FOX News. "In this case, Islam, and its practices, which include among many other things, Shariah."

While takaful insurance is more common in Europe and Southeast Asia, it is relatively unknown in the U.S. The Ernst and Young professional services firm earlier this year called takaful insurance a growth industry, in part because it is perceived as more stable than conventional insurance, which allows for elements of speculation, interest and gambling.

Gaffney, who opposes Shariah, said the federal lawsuit sheds light on a problem that is under the radar. "There's also a host of other aspects of Shariah that are now beginning to be adopted or accommodated in our country. We think far from being frivolous or innocuous or innocent, these represent a form of, what I think [is] best described as stealth Jihad."

A constitutional law expert who reviewed the court documents for FOX News said he questioned whether the case will ever get to trial.

"The plaintiff is going to have a very hard time in showing they have standing under the establishment clause," said Robert Tuttle, who specializes in religion, law and the establishment clause of the Constitution at George Washington University. The establishment clause, part of the First Amendment, prohibits the establishment of a national faith.

"The question is whether the government has funded religion, not whether the religion is good or bad that the government has funded. Then the next question is whether the government is responsible for what AIG has done."

While the case raises interesting legal questions about the use of federal bailout money, Tuttle adds: "I can't imagine any court saying, under existing law, that the government will be responsible for what AIG does. And I think there's an interesting law professor question there."

Neither AIG nor the Treasury Department would comment on pending litigation, though a spokesman for AIG told FOX News that takaful insurance has been available in non-U.S. markets since 2006, and AIG has never had any problems.

(This article first appear in http://gifc.blogspot.com)

Monday, December 22, 2008

Insurance in emerging markets: overview and prospects for Islamic insurance

Swiss Re’s new sigma study explores the latest developments in the insurance sector of the emerging market economies, with a special focus on the growing market for takaful, a form of Islamic insurance.

The first half of the study covers the latest developments in the insurance industry in the emerging markets. The second half is devoted to a discussion of takaful, a form of financial protection based on mutual assistance and joint risk bearing that is widely accepted by Islamic scholars.

Non-life insurance in the emerging markets
In real terms, emerging market premiums in the non-life sector grew by 11.6% in 2007. Premium volume in 2007 amounted to USD 199bn. South and East Asia (+13%), Eastern Europe (+12%) and the Middle East (+12%) grew the fastest. According to Daniel Staib, one of the study’s co-authors, “The non-life sector benefited from the strong economic environment and the introduction of new compulsory lines in the Middle East.” Staib adds, “The motor and property businesses continued to dominate the emerging markets insurance landscape in 2007, with motor insurance outperforming the non-life market as a whole.”

Life insurance in the emerging markets
Growth in the life market slowed from 18% to 14% in 2007. Premium volume in 2007 amounted to USD 223bn. Co-author Prudence Ho notes, “The strong performance of the stock markets in the first three quarters of 2007 led to increased sales of investment-linked life products. The launch of new products and the increasing market share of bancassurance, the provision of insurance services by banks, also contributed significantly to the sector’s results.”

Most of the regions decelerated only marginally from their record high levels of the previous year. In South and East Asia, Indonesia (+57%) grew the fastest in 2007. In India, the second-largest market, growth of new business fell from 145.7% in 2006 to just 9.6% in 2007.

Insurance trends and the outlook for the emerging markets
One of the recent developments in the insurance sector of emerging markets is the decision by some regulators to push for the introduction of more stringent capital requirements. Another development is the expansion of microinsurance, which extends coverage to low-income individuals. Finally, bancassurance has continued to grow in importance as a distribution channel.

The financial crisis in industrialised countries has clouded the near-term economic outlook. Demand for products exported from emerging economies will shrink. Commodity prices have already fallen significantly and are expected to continue their slide, leading to lower inflation. Daniel Staib notes, “Insurance in the emerging markets is expected to grow at a slower pace in 2008 and 2009, but its longer term growth prospects remain positive.” He adds, “Factoring in these considerations, average annual growth is likely to drop from the 2002 to 2007 levels of 11.4% in life and 10.6% in non-life to 7-10% in life and 3-8% in non-life between 2008 and 2013.”

Islamic insurance – the growth of takaful as a solution
Various Islamic insurance models that comply with the shariah, the body of Islamic religious law, have been adopted in Muslim countries. Takaful, the focus of the sigma study, is the most accepted model.

Takaful is a system based on the principle of mutual assistance (ta’awun) and voluntary contribution (tabarru), where risk is shared collectively and voluntarily by a group of participants. Through payment of a voluntary donation and the clear definition of the type of loss, impermissible elements such as uncertainty (gharar) and excessive risk taking (maisir) are removed from the contract.

Takaful involves:

  • the creation of a shariah supervisory board that oversees insurance operations and compliance with the shariah;
  • the separation of shareholder funds from policyholder funds;
  • the commitment to distribute technical profits to policyholders;
  • the avoidance of investment in non-shariah-compliant assets.

Islamic insurance – future prospects
Between 2004 and 2007, the average annual growth rate for takaful was estimated at 25% (adjusted for inflation) versus 10.2% of that in the conventional market. Although takaful premiums of approximately USD 1.7bn were written in 2007, the global takaful market could reach USD 7bn by 2015. The 1.5bn Muslims around the world represent a growing client segment for the insurance sector.

For this sigma, five markets were analysed in detail: Bahrain, Indonesia, Malaysia, Saudi Arabia and the United Arab Emirates. The two takaful markets with the largest growth potential are Saudi Arabia and Malaysia.

According to Prudence Ho, “Takaful is set to grow because populations of Muslim countries are rapidly growing and because shariah scholars agree that Muslims should refrain from buying conventional insurance if a takaful operator is selling the same product and offering similar benefits and services.” She adds, “Many companies – global, regional and local – have set up new takaful operations over the past five years and retakaful capacity is also expanding continuously.”

Regarding the challenges facing takaful, Daniel Staib explains, “For takaful to prosper, staff with insurance and shariah expertise, shariah scholars, and solutions for coping with large risks are needed.” He adds, “Further standardisation of the operating models and regulations are required. Improving the general public’s awareness of takaful products is also key. ”

Both authors agree that if companies – with the support of regulators – rise to this challenge, the international takaful industry is well positioned to realise its full potential and attract customers from over the world, regardless of their religious affiliation.

This publication can be downloaded in English, German, French, Italian and Spanish. Japanese and Chinese (simplified) will follow shortly.

(Swiss Re)

Saturday, December 20, 2008

An Introduction to Takaful – An Alternative to Insurance

Islamic finance has developed mainly in two directions namely Islamic banking and Islamic insurance (Takaful). While information about Islamic banking is being increasingly disseminated, features, models and structures of Takaful are little known particularly in Pakistan. Purpose of this brief article is to describe main features and models of Takaful system operating in various parts of the world.

All human beings are invariably exposed to the possibility of meeting catastrophes and disasters giving rise to misfortunes and sufferings such as death, loss of limbs, accident, destruction of business or wealth, etc. Notwithstanding the belief of all Muslims in Qadha-o-Qadr, Islam provides that one must find ways and means to avoid such catastrophes and disasters wherever possible, and to minimize his or his family's financial losses should such events occur. One possible way out is to buy an insurance cover as in the conventional system.

Different views have been expressed about the status of conventional insurance from the point of view of Islam. An overwhelming majority of the Shariah scholars believe that it is unlawful due to involvement of Riba (interest), Maisir (gambling) and Gharar (uncertainty).@ Takaful, the Islamic alternative to insurance, is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members. It is a pact among a group of persons who agree to jointly indemnify the loss or damage that may inflict upon any of them, out of the fund they donate collectively. The Takaful contract so agreed usually involves the concepts of Mudarabah, Tabarru´ (to donate for benefit of others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty.

Takaful is not a new concept in Islamic commercial law. The contemporary jurists acknowledge that the foundation of shared responsibility or Takaful was laid down in the system of ‘Aaqilah’, which was an arrangement of mutual help or indemnification customary in some tribes at the time of the Holy Prophet (pbuh). In case of any natural calamity, every body used to contribute something until the loss was indemnified. Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe. Islam accepted this principle of reciprocal compensation and joint responsibility.

The contract of Takaful provides solidarity in respect of any tragedy in human life and loss to the business or property. The policyholders (Takaful partners) pay subscription to assist and indemnify each other and share the profits earned from business conducted by the Company with the subscribed funds. Takaful companies normally divide the contributions into two parts, i.e., donations for meeting mortality liability or losses of the fellow policyholders and the other part for investment. Accordingly, the clause of Tabarru´ is incorporated in the contract. How much of the contribution is meant for mortality liability and how much for investment account is based on a sound technical basis of mortality tables and other actuarial requirements. Both the accounts are invested and returns thereof distributed on Mudarabah principle between the participants and the Takaful operators. The profit attributable to the participants is credited into the two accounts separately. To describe from another angle, a Takaful contract may comprise clauses for either protection or savings/investments or both the benefits of protection as well as savings and investment. The protection part of Takaful works on the donation principle according to which individual rights are given up to indemnify the losses reciprocally. In the Savings part, individual rights remain intact under Mudarabah principle and the contributions along with profit (net of expenses) are paid to the policyholders at the end of policy term or before, if required by him.

The distinction between the conventional insurance and Takaful business is more visible with respect to investment of funds. While insurance companies invest their funds in interest-based avenues and without any regard for the concept of Halal-o-Haram, Takaful companies undertake only Shariah compliant business and the profits are distributed in accordance with the pre-agreed ratios in the Takaful Agreement. Likewise they share in any surplus or loss from the pool collectively. Takaful system has a built-in mechanism to counter any over-pricing policies of the insurance companies because whatever may be the premium charged, the surplus would normally go back to the participants in proportion to their contributions.

The terms ‘Family Takaful’, ‘Takaful Ta´awani’ or just ‘Takaful’ are generally used for family solidarity in place of conventional life insurances. Other products available in various countries are General Takaful, Education/Medical Takaful, etc. Based on the nature of relationship between the company and the participants, there are various models like Wakalah (agency) Model, Mudarabah Model and the combination of agency and Mudarabah models. In the Sudanese Takaful Model that is preferable to majority of the contemporary Shariah experts, every policyholder is also the shareholder of the Takaful Company. There is a Board that runs the business on behalf of all the participants and there is no separate entity managing the business. The legal framework in other Islamic countries normally does not allow this arrangement and Takaful companies work as separate entities on the basis of Mudarabah (as in Malaysia) and on the basis of Wakalah (as in the Middle East region). In Mudarabah model that is practised mainly in the Asia Pacific region, the policyholders get profit on their part of funds only if Takaful Company earns profit. The sharing basis is determined in advance and is a function of the developmental stage and earnings of the Company. The Shariah committee approves the sharing ratio for each year in advance. Most of the expenses are charged to the shareholders.

In Wakalah Model, the surplus of policyholders’ funds investments – net of the management fee or expenses - goes to the policyholders. The shareholders charge Wakalah fee from contributions that covers most of the expenses of business. The fee rate is fixed annually in advance in consultation with Shariah committee of the company. In order to give incentive for good governance, management fee is related to the level of performance.

The Takaful business has proved its viability in a period of only two decades. It has been growing at the rate of 10-20% p.a. compared to the global average growth of insurance 5% p.a. A large number of Takaful Companies exist in the Middle East, Far East, Iran, Turkey, and Sudan and even in some non-Islamic countries. There are over 60 companies offering Takaful services (including Windows- 5%) in 23 countries around the world. Malaysia has developed Re-Takaful business as well. Takaful products are available to meet the needs of all sectors of the economy, both at individual as well as corporate levels to cater for short and long term financial needs of various groups of the society.

A Convention of D-8 countries was held in Kuala Lumpur in November, 2002 on “The Emergence of Takaful in the Wake of Globalization”. It is worth noting that among D-8 countries it is only Pakistan where Takaful business has not been introduced so far. Islamic banks and financial institutions require Takaful services for their operations. Although, the insurance business in Pakistan falls in the jurisdiction of the Securities & Exchange Commission, Pakistan, institutions operating Islamic banking would have to deal with insurance. As such, the Central Bank should desire that Takaful business be introduced in the country at the earliest. In the revised Insurance Act, the Government of Pakistan has added the provisions for Takaful companies in the country. As reported in the press, Pak Kuwait Investment Corporation has recently been allowed by the SEC to establish a Takaful Company in Pakistan under the name of “First Takaful Insurance Company Limited” with authorized capital of Rs 100 million.

By: Muhammad Ayub

Consulting and Training - Islamic Finance and Management

Consulting and Training - Islamic Finance and Management
www.alfalahconsulting.com