Transcript Takaful - History and Development around the World

Takaful
History and Development around the
World
5th June, 2015, Manila – Philippines
Muhammad Zubair Mughal
Chief Executive Officer
centre of Islamic banking and economics
Contents
Source of Takaful
 Meaning and Need of Takaful,
 Global Scenario of Takaful
 Global Takaful Industry & The Global Takaful
Models
 Developments of Takaful Industry.
 Comparison of Takaful with Conventional Products.

Islam & Shariah
Islam
Aqidah
(Faith & Belief)
Shariah
(Practices & Activities)
IBADAT
(Man to God Worship)
Political Activities
Akhlaq
(Morality & Ethics)
Muamalat
(Man to Man Activities)
Economic Activities
Banking & Financial Activities
Social Activities
Source of Islamic Finance/Takaful Products
Sources of Islamic
Finance
•Quran
•Sunnah
•Ijma’a (jurist
consensus)
•Ijtihad &
Qiyas
(analogy)
Islamic Finance Product
Mechanism
The Industry Size
Meaning of Takaful
“Takaful” is the Sharia Compliant brand name for the Islamic
alternative to conventional insurance. Its based on the principle
of Ta’awan or mutual assistance.
 Takaful comes from the Arabic root-word ‘kafala’ — guarantee.
 Operationally, takaful refers to participants mutually
contributing to a common fund with the purpose of having
mutual indemnity in the case of loss.

Why Takaful
Prohibition of Interest.
 Risk Sharing & Prohibition of speculative
behaviour ( Gharar).
 Care for the poor is a religious obligation in
Islam.
 Asset Based Financing
 Micro Takaful ( Micro Islamic Insurance)
 Approximately 46% conventional microfinance
clients worldwide reside in Muslim countries
 Higher Impact than to Conventional Takaful

Basics Elements of Takaful
Mutuality and cooperation.
 Takaful contract pertains to Tabarru as against Aqd – emu’awadat
 in case of conventional insurance.
 Payments made with the intention of Tabarru (contribution)
 Eliminates the elements of Gharrar, Maisir and Riba.
 Wakalah/Modarabah basis of operations.
 Joint Guarantee / Indemnity amongst participants – shared
responsibility.
 Constitution of “Shariah Supervisory Board.”
 Investments as per Shariah.

Main Driver of Takaful

Piety (individual purification)

Brotherhood (mutual assistance)

Charity (Tabarru or contribution)

Mutual Guarantee

Community well-being as opposed to profit
maximization.
What’s Wrong with Insurance Practice ?
The contract between the insurer & insured is technically
wrong from the sharia perspective because of
Interest (Riba)
 Gharar (Uncertainty))
 Gambling (Qamar & Maisir)
 Risk Transfer Issue

History of Takaful



Origins in the First Constitution of Madina.
Serious efforts were made in modern times, in 1970s to come
up with an Islamic alternative to the conventional insurance.
The first Takaful company was set up in Sudan in 1979, almost
simultaneously followed by another one set up in Bahrain.
History of Takaful



Poor Insurance penetration in the Muslim countries (<1% of
GDP).
Average growth rate higher than conventional insurance
companies (around 25%).
Non–Muslims increasingly opting for Takaful products for
commercial benefits.
Current Status of Takaful
The number of Takaful operators worldwide is now estimated at:

281+ Takaful companies/Operators/Re-Takaful,

Total Size 28 Billion

13 Re-takaful companies

In 46 Countries.
Different Models of Takaful

Wakalah Based on Waqf Model : The participant's donate the fund
and operator charge an agency fee.

Pure Mudarabah Model : The participants and operator enter into
modarabah Contract.

Wakalah Model : An Agency Agreement is made between
participants and Operators on the basis of Wakalah ( Agency
agreements)
Comparison
Issue
Conventional Insurance
Takaful
Organization Principle
Profit for shareholders
Mutual Benefit for Participants
Basis
Risk Transfer
Risk sharing
Value Proposition
Profits maximization
Affordability and spiritual
satisfaction
Laws
Regulations
Sharia plus regulations
Ownership
Shareholders are Owners
Participants
Management status
Managed by Company Management
Operator
Form of Contract
Contract of Sale
Islamic contracts of Wakala or
Mudarbah with Tabar’ru
(contributions)
Investments
Interest based
Sharia compliant, Riba-free
Surplus
Profit of Insurance Company.
Distribution to Participants on pro
rata basis.
JazzakAllah
Thank you for listening with
patience