APPLICATION OF INSTITUTION OF WAKF IN APPLICATION OF INSTITUTION OF WAKF IN PROMOTING ECONOMIC AND SOCIAL UPLIFT OF PROMOTING ECONOMIC AND SOCIAL UPLIFT OF

SOCIETY THROUGH TAKAFUL SOCIETY THROUGH TAKAFUL (ISLAMIC INSURANCE)(ISLAMIC INSURANCE)

CONCEPT OF INSURANCECONCEPT OF INSURANCE

provides for a system whereby provides for a system whereby

•a realistic evaluation is made of the eventualities and of the a realistic evaluation is made of the eventualities and of the risk faced by individual members of the Society risk faced by individual members of the Society

ANDAND

•provides relief to offset the resultant loss, through mutual provides relief to offset the resultant loss, through mutual assistance.assistance.

•The loss caused is borne by the Community or the Group to The loss caused is borne by the Community or the Group to which the affected member belongs by affinity, vocation or which the affected member belongs by affinity, vocation or profession etc, and at the same time, the scheme of Insurance profession etc, and at the same time, the scheme of Insurance is so managed that the Insurance Company also receives is so managed that the Insurance Company also receives benefit (profit) after making good the loss of the individual benefit (profit) after making good the loss of the individual member.member.

HISTORICAL PRACTICE OF HISTORICAL PRACTICE OF INSURANCEINSURANCE

This concept of Insurance in original, appears to be not suffering from This concept of Insurance in original, appears to be not suffering from any deficiency as per principles of Shariah, rather it is a commendable any deficiency as per principles of Shariah, rather it is a commendable concept and prevalence of such transactions were found operating concept and prevalence of such transactions were found operating since before advent of Islam.since before advent of Islam.

HISTORIAN: IBNE KHALDOONHISTORIAN: IBNE KHALDOONTraced history of this institution with the observation that “Arabs used Traced history of this institution with the observation that “Arabs used to undertake two journeys in a year one in summer and the other in to undertake two journeys in a year one in summer and the other in winter season. These are the journeys mentioned in Sura Al Quresh winter season. These are the journeys mentioned in Sura Al Quresh (30 : 106)”.(30 : 106)”.

SIMPLEST FORM OF INSURANCESIMPLEST FORM OF INSURANCEA tacit agreement between the participants of the journey that all of A tacit agreement between the participants of the journey that all of them would share the loss, if any, caused or occurring to any of them. them would share the loss, if any, caused or occurring to any of them.

PRACTISE OF THE TRADERSPRACTISE OF THE TRADERS As many a time merchandise of the Traders conducting sea trade As many a time merchandise of the Traders conducting sea trade would be lost in the sea causing immense loss and rendering the would be lost in the sea causing immense loss and rendering the Traders pauper. The solution found was to offset the loss through Traders pauper. The solution found was to offset the loss through mutual contributions. This simple arrangement grew into marine mutual contributions. This simple arrangement grew into marine insurance.insurance.

ACCEPTABLE LIMITS UNDER ACCEPTABLE LIMITS UNDER ISLAMIC LAW & THE PRINCIPLE ISLAMIC LAW & THE PRINCIPLE

INVOLVEDINVOLVEDREASONING AND PRINCIPLES OFREASONING AND PRINCIPLES OF INTERPRETATION OF SHARIAHINTERPRETATION OF SHARIAH

If there is neither any contrary provision nor a If there is neither any contrary provision nor a negative and adverse Ruling against any rule or negative and adverse Ruling against any rule or custom prevailing and in vogue since prior to dawn custom prevailing and in vogue since prior to dawn of Islam, then such a rule or custom will be taken of Islam, then such a rule or custom will be taken as approved and permissible and the same may be as approved and permissible and the same may be continued and followed.continued and followed.

MAJORITY OF SCHOLARSMAJORITY OF SCHOLARSThe concept of Insurance as originally in vogue The concept of Insurance as originally in vogue meets approval of Shariah reasoning, though the meets approval of Shariah reasoning, though the conventional Insurance and its operations in conventional Insurance and its operations in practice are held to be repugnant to and violative practice are held to be repugnant to and violative of Shariah reasoning and principles. This is the of Shariah reasoning and principles. This is the view of the majority Scholars of Islamic Law.view of the majority Scholars of Islamic Law.

HISTORICAL HISTORICAL PERSPECTIVEPERSPECTIVE

• Western World - Origin of the modern insurance: - Practices adopted Western World - Origin of the modern insurance: - Practices adopted by Italian merchants from fourteenth century onwards, although there by Italian merchants from fourteenth century onwards, although there is little doubt that the concept of insuring was known long before then.is little doubt that the concept of insuring was known long before then.

Losing ships and cargoes at sea instigated the practice of medieval Losing ships and cargoes at sea instigated the practice of medieval insurance for many years.insurance for many years.

The habit spread to London merchants in the sixteenth century. A The habit spread to London merchants in the sixteenth century. A group of traders would agree to bear each other’s risks amongst group of traders would agree to bear each other’s risks amongst themselves. The common law for a long time played no role in the themselves. The common law for a long time played no role in the regulation of disputes concerning insurance, as these disputes were regulation of disputes concerning insurance, as these disputes were outside normal legal system.outside normal legal system.

Lord Chief Justice Lord MansfieldLord Chief Justice Lord Mansfield• In mid eighteen century took interest in insurance contracts by In mid eighteen century took interest in insurance contracts by

applying principles derived from the law merchant as well as more applying principles derived from the law merchant as well as more traditional law concepts. The jurisdiction of courts over insurance traditional law concepts. The jurisdiction of courts over insurance matters thus came to be established by the time Lord Mansfield matters thus came to be established by the time Lord Mansfield retired in 1788.retired in 1788.

LLOYD - THE COFFEE LLOYD - THE COFFEE HOUSE OWNER LONDON HOUSE OWNER LONDON

1717THTH CENTURY CENTURYDeveloped the practice that the merchant wishing Developed the practice that the merchant wishing insurance would pass round to the people, willing to insurance would pass round to the people, willing to provide it and who were gathered at the Coffee-house, provide it and who were gathered at the Coffee-house, a slip of paper on which he had written details of the a slip of paper on which he had written details of the ship, voyage and cargo etc. The slip used to be ship, voyage and cargo etc. The slip used to be initiated by those willing to accept a portion of risk initiated by those willing to accept a portion of risk and when the total amount of insurance required was and when the total amount of insurance required was under-written, the contract was complete. The under-written, the contract was complete. The influence of Lloyd on insurance and insurance law is influence of Lloyd on insurance and insurance law is significant as the standard Lloyd’s Marine Insurance significant as the standard Lloyd’s Marine Insurance Policy was adopted as the statutory form in Marine Policy was adopted as the statutory form in Marine Insurance Act 1906. The principles of Marine Insurance Act 1906. The principles of Marine Insurance have by and large been applied to other Insurance have by and large been applied to other types of insurance subsequently developed.types of insurance subsequently developed.

APPPLICABLE LAW IN MALAYSIAAPPPLICABLE LAW IN MALAYSIA• Leong Brothers Industries Sdn. Bhd v Leong Brothers Industries Sdn. Bhd v

Jerneth Insurance Crp. Sdn. BhdJerneth Insurance Crp. Sdn. Bhd

Wan Adnan J: Wan Adnan J:

HELDHELD that the English Marine that the English Marine Insurance Act 1906 was applicable in Insurance Act 1906 was applicable in Malaysia by virtue of Section 5 of the Malaysia by virtue of Section 5 of the Malaysian Civil Law Act 1956.Malaysian Civil Law Act 1956.

• Takaful (Islamic Insurance) and its Takaful (Islamic Insurance) and its operations stand regulated in Malaysia operations stand regulated in Malaysia by statue called Takaful Act 1984. by statue called Takaful Act 1984.

VERDICT OF ISLAMIC FUQHAVERDICT OF ISLAMIC FUQHAFIRST FAQIH ALLAMA IBN ABIDIN SHAMI: FIRST FAQIH ALLAMA IBN ABIDIN SHAMI:

Who has examined “Insurance” with reference to Sharia. He Who has examined “Insurance” with reference to Sharia. He in his book has commented upon “Sookarah” which is a in his book has commented upon “Sookarah” which is a specific kind of Insurance. specific kind of Insurance.

““Sookarah” has its origin and is derived from French word Sookarah” has its origin and is derived from French word “Sookortah” in Arabic Lexicon. This term signifies a type of “Sookortah” in Arabic Lexicon. This term signifies a type of Marine Insurance of the time.Marine Insurance of the time.

• Allama Shami, the “Sookarah” fails to fulfil conditions of Allama Shami, the “Sookarah” fails to fulfil conditions of Shariah and as such is impermissible as herein obligation is Shariah and as such is impermissible as herein obligation is undertaken which Shariah does not oblige the party to undertaken which Shariah does not oblige the party to undertake. undertake.

This contract makes binding which is not legally binding due to This contract makes binding which is not legally binding due to the absence of any of the pre-requisites of a valid guarantee. the absence of any of the pre-requisites of a valid guarantee. The reasoning noted was not adopted or repeated by the The reasoning noted was not adopted or repeated by the other scholars (Fuqha) who later examined the Insurance other scholars (Fuqha) who later examined the Insurance operations. Majority of scholars declared these operations operations. Majority of scholars declared these operations impermissible and repugnant to the injunctions of Islam.impermissible and repugnant to the injunctions of Islam.

Contd……Contd……

• Mufti of Egypt, Mufti Muhammad AbduMufti of Egypt, Mufti Muhammad AbduHeld a specific kind of Insurance as permissible, Held a specific kind of Insurance as permissible, likewise another scholar, Abdul Wahab Khallaf also likewise another scholar, Abdul Wahab Khallaf also held a similar type of Insurance permissible.held a similar type of Insurance permissible.

• It is clear that they were asked about a specific kind of It is clear that they were asked about a specific kind of Insurance and the answer, therefore, should be Insurance and the answer, therefore, should be restricted to that kind of Insurance and considered in restricted to that kind of Insurance and considered in the context of the question posed. the context of the question posed.

GIST OF THE QUESTIONGIST OF THE QUESTIONMUFTI MUHAMMAD ABDUMUFTI MUHAMMAD ABDU

A group of persons provide finances to a company A group of persons provide finances to a company which may invest the same with the intent to earn which may invest the same with the intent to earn profit arising there-from and in case of death of any of profit arising there-from and in case of death of any of them, the profit may be received by their heirs.them, the profit may be received by their heirs.

Answer: Answer: It is a sort of Muzarabat and as per Shariah, It is a sort of Muzarabat and as per Shariah, it is not necessary that Mudharib should necessarily be it is not necessary that Mudharib should necessarily be an individual and Mudharib can be more then one an individual and Mudharib can be more then one person, so such a venture is valid and permissible.person, so such a venture is valid and permissible.

Contd……Contd……

SHEIKH ABDUL WAHAB KHALLAFSHEIKH ABDUL WAHAB KHALLAFA situation presented to him as a kind of Muzarabat and though A situation presented to him as a kind of Muzarabat and though ordinarily in Mudharabah the ratio of profit must be laid down and ordinarily in Mudharabah the ratio of profit must be laid down and determined but as in case in hand the element of mutual help and determined but as in case in hand the element of mutual help and cooperation is present, the deficiency regarding laying down cooperation is present, the deficiency regarding laying down specifically of profit sharing ratio can be ignored. specifically of profit sharing ratio can be ignored.

MUALANA ABUL KALAM AZAD OF INDIAMUALANA ABUL KALAM AZAD OF INDIA

When asked about Insurance, observed that such a type of When asked about Insurance, observed that such a type of arrangement should also be prevalent amongst Muslims.arrangement should also be prevalent amongst Muslims.

• It is obvious that opinion returned by these It is obvious that opinion returned by these scholars was premised on the information scholars was premised on the information provided and in the context of the features of the provided and in the context of the features of the particular transaction described to them. So the particular transaction described to them. So the answer given has to be seen and understood in answer given has to be seen and understood in the context of the question asked. Had the the context of the question asked. Had the situation and the elements of the Insurance Policy situation and the elements of the Insurance Policy and its scheme been fully and completely and its scheme been fully and completely presented, the opinion would have been different.presented, the opinion would have been different.

Contd….Contd….

ABDUL WAHAB KHALLAF & MUHAMMAD ABDUABDUL WAHAB KHALLAF & MUHAMMAD ABDU Describing the transaction as amounting to Mudharabat, Describing the transaction as amounting to Mudharabat, the comments of Wahbah Al Zuhayli read as under:-the comments of Wahbah Al Zuhayli read as under:-

• It is not valid to consider insurance a form of silent It is not valid to consider insurance a form of silent partnership (mudharaba) with one party working and the partnership (mudharaba) with one party working and the other financing, for two reasons:other financing, for two reasons:

• (a)(a) The instalments and payments paid by the insured The instalments and payments paid by the insured become property of the insurer (insurance company). Thus become property of the insurer (insurance company). Thus the insurance company may use such monies anyway it the insurance company may use such monies anyway it wishes, and the insured loses those monies if no accident wishes, and the insured loses those monies if no accident befalls him.befalls him.

• (b)(b) A condition for the validity of a mudharaba is that A condition for the validity of a mudharaba is that the profits be shared according to fixed proportions the profits be shared according to fixed proportions between the financier and the entrepreneur e.g. one between the financier and the entrepreneur e.g. one quarter or one third to one party, and the rest to the other. quarter or one third to one party, and the rest to the other. In insurance, however, the insured is often given a fixed In insurance, however, the insured is often given a fixed percentage/interest payment (e.g. 3% or 4%), thus percentage/interest payment (e.g. 3% or 4%), thus rendering the mudharaba invalid. rendering the mudharaba invalid.

• Even if this reason does not apply in Even if this reason does not apply in a given contract, the first reason a given contract, the first reason remains. Moreover, if the insured remains. Moreover, if the insured dies, the money instead of going to dies, the money instead of going to his heirs, may go to the one his heirs, may go to the one designated in the insurance contract. designated in the insurance contract. This is contrary to the case of death This is contrary to the case of death of a financier in a silent partnership of a financier in a silent partnership (mudharabh).(mudharabh).

Contd…..Contd…..

• It is not valid to consider insurance a It is not valid to consider insurance a guarantee or surety, due to the guarantee or surety, due to the absence of the four legitimate reasons absence of the four legitimate reasons which exist in a guarantee. Also, many which exist in a guarantee. Also, many insurance contracts do not have an insurance contracts do not have an element that may be considered the element that may be considered the object of surety (makful), and even object of surety (makful), and even when such an element exists (e.g. in when such an element exists (e.g. in the case of auto accidents), it is the case of auto accidents), it is unknown.unknown.

FACTORS FOR WHICH FUQHA HOLD FACTORS FOR WHICH FUQHA HOLD CONVENTIONAL INSURANCE AS CONVENTIONAL INSURANCE AS

INVALIDINVALID

(I)(I) UNCERTAINITY (GHARAR)UNCERTAINITY (GHARAR)

(II)(II) INTEREST (RIBA)INTEREST (RIBA)

(III)(III) GAMBLING (QIMAR)GAMBLING (QIMAR)

GHARAR CONTRACTSGHARAR CONTRACTS

Insurance Contracts fall in this category:-Insurance Contracts fall in this category:-(a)(a)The outcome is probabilistic (depending The outcome is probabilistic (depending

on the existence of the object of contract on the existence of the object of contract or non-existence thereof).or non-existence thereof).

(b)(b)Holy Prophet (PBUH) forbade Gharar Holy Prophet (PBUH) forbade Gharar sales and an analogy may be made to sales and an analogy may be made to cover financial commutative contracts. cover financial commutative contracts. Thus Gharar affects such contracts in the Thus Gharar affects such contracts in the same manner as it affects sales.same manner as it affects sales.

(c)(c)Since insurance by necessity deals with Since insurance by necessity deals with future events that may or may not occur, future events that may or may not occur, Gharar is a necessary component of Gharar is a necessary component of insurance. insurance.

GENERAL INSURANCE AND GENERAL INSURANCE AND GHARARGHARAR

(a)(a)Uncertainty is present as the Uncertainty is present as the premium which is paid is premium which is paid is known known but the but the interestinterest payment that the payment that the Company may have to pay is not Company may have to pay is not known.known.

(b)(b)The quantum of damage or loss is The quantum of damage or loss is not known.not known.

(c)(c)How much loss would be How much loss would be compensated is not known.compensated is not known.

LIFE INSURANCE AND GHARARLIFE INSURANCE AND GHARAR

(a)(a)Policy holder pays the premium and the Policy holder pays the premium and the Company maturity pays the insured sum of Company maturity pays the insured sum of money with profit on the basis of a formula.money with profit on the basis of a formula.

(b)(b)The amount of the premium paid monthly The amount of the premium paid monthly or annually is pre-determined and known.or annually is pre-determined and known.

(c)(c) What amount will be paid on maturity to What amount will be paid on maturity to the insured is not known.the insured is not known.

(d)(d)The time for which the insured will live is The time for which the insured will live is not known.not known.

(e)(e) It is also not known whether the insured will It is also not known whether the insured will live till period for which policy has been live till period for which policy has been taken.taken.

All the above factors contribute to uncertainty.All the above factors contribute to uncertainty.

RIBA RIBA (INSURANCE OPERATIONS – INFESTED WITH (INSURANCE OPERATIONS – INFESTED WITH

AN ELEMENT OF RIBA)AN ELEMENT OF RIBA)

(a)(a) When a claim in General Insurance is paid, When a claim in General Insurance is paid, it is in cash.it is in cash.

(b)(b) If the amount of the claim to be paid is If the amount of the claim to be paid is more than the amount of premium, then more than the amount of premium, then the additional amount is Riba/interest.the additional amount is Riba/interest.

(c)(c) If the premium paid is more than the claim, If the premium paid is more than the claim, the amount retained by the Company is the amount retained by the Company is Riba/interest.Riba/interest.

Market PositionMarket Position(i)(i) Ordinarily the position is that the Company Ordinarily the position is that the Company

hands out less sum of money in claims than hands out less sum of money in claims than the amount of the premium received.the amount of the premium received.

(ii)(ii) Such retention is usurpation and Such retention is usurpation and illegitimate.illegitimate.

ANOTHER INFESTATION OF RIBAANOTHER INFESTATION OF RIBA

(a)(a)Investments made by the Insurance Investments made by the Insurance Companies in such businesses Companies in such businesses which are not approved by Shariah.which are not approved by Shariah.

(I)(I) Advancing loans on interest.Advancing loans on interest.

(II)(II) Making investments in Riba Making investments in Riba infested and Haram businesses.infested and Haram businesses.

Example:-Example:-

The investment in shares of The investment in shares of Companies producing liquor.Companies producing liquor.

QIMAR (GAMBLING) QIMAR (GAMBLING) INSURANCE?INSURANCE?

Some scholars are of the view that Some scholars are of the view that gambling is not involved. Others hold gambling is not involved. Others hold otherwise. otherwise.

REASON FOR DIVERSION OF REASON FOR DIVERSION OF OPINIONS OPINIONS IS THE DEFINITION OF IS THE DEFINITION OF

QIMARQIMAR

DIFINITION OF QIMARDIFINITION OF QIMAR

Maysir and Qimar are used as Maysir and Qimar are used as identically in Arabic.identically in Arabic.

HOLY QUR’ANHOLY QUR’AN

““Maysir” is the word used for Maysir” is the word used for prohibition of gambling and wagering prohibition of gambling and wagering (2:219 & 5:90, 91)(2:219 & 5:90, 91)

HADITH LITERATUREHADITH LITERATURE

Discusses this act generally in the Discusses this act generally in the name of “Qimar”.name of “Qimar”.

VIEW OF JURISTSVIEW OF JURISTS

Difference between Maysir and Qimar is Difference between Maysir and Qimar is that Qimar is an important kind of that Qimar is an important kind of Maysir.Maysir.

““Maysir” derived from ‘Yusr’ – wishing Maysir” derived from ‘Yusr’ – wishing something valuable with ease and something valuable with ease and without paying an equivalent without paying an equivalent compensation (iwadh) for it or without compensation (iwadh) for it or without working for it, or without undertaking working for it, or without undertaking any liability against it., by way of game any liability against it., by way of game of chance.of chance.

““Qimar” – also means receipt of Qimar” – also means receipt of money, benefit or usufruct at the money, benefit or usufruct at the cost of others, having entitlement to cost of others, having entitlement to that money or benefit, by resorting that money or benefit, by resorting to chance. to chance.

A person puts his money at stake A person puts his money at stake wherein the amount being risked, wherein the amount being risked, might bring huge sums of money or might bring huge sums of money or might be lost or damaged.might be lost or damaged.

MAULANA MUFTI TAQI MAULANA MUFTI TAQI USMANIUSMANI

His view on the basis of Qur’an, His view on the basis of Qur’an, Sunnah and books of Fiqh reveals Sunnah and books of Fiqh reveals that four elements must exist to that four elements must exist to certify presence of Qimar.certify presence of Qimar.

(i)(i) The transaction under The transaction under consideration consideration amounts to Aqd-amounts to Aqd-Muawadh between Muawadh between both the both the parties.parties.(ii)(ii) Every party to the transaction Every party to the transaction places places his part of Asset on risk.his part of Asset on risk.

(iii)(iii) The transaction is such that accrual The transaction is such that accrual of of additional value is dependant on an additional value is dependant on an

event, which may or may not occur.event, which may or may not occur.(iv)(iv) The transaction is such that The transaction is such that property/ property/ Asset of one party may Asset of one party may passpass on to the on to the other party without other party without any corresponding any corresponding consideration or consideration or one party takes over one party takes over the the property/Asset of the other without property/Asset of the other without consideration.consideration.Convention InsuranceConvention Insurance due to presence due to presence

of the above factors, as per Shariah of the above factors, as per Shariah scholars, is scholars, is violativeviolative of the principles of of the principles of

ShariahShariah..

MALAYSIA, PAKISTAN AND MALAYSIA, PAKISTAN AND SUDANSUDAN

Scholars started search for alternate Scholars started search for alternate modes and modals making mutual modes and modals making mutual insurance as basis of study. insurance as basis of study.

To provide security in the face of To provide security in the face of distress, calamity and loss, three distress, calamity and loss, three distinctive modals were adopted by distinctive modals were adopted by the scholars in the three countries.the scholars in the three countries.

MALAYSIA – MUDHARABAH MALAYSIA – MUDHARABAH

Takaful – pattern of Mudharabah. Takaful – pattern of Mudharabah.

Though some sort of donation Though some sort of donation (Tobarru) is also involved but as this (Tobarru) is also involved but as this type of transaction resembles type of transaction resembles Mudharabah concept, hence the Mudharabah concept, hence the name.name.

OBJECTIONS BY SOME SENIOR OBJECTIONS BY SOME SENIOR SCHOLARSSCHOLARS

According to them:According to them:

Mudharabah does not receive Mudharabah does not receive anything from the surplus pool but in anything from the surplus pool but in Mudharabah modal the Company Mudharabah modal the Company receives a share from the surplus.receives a share from the surplus.

Providing guarantee is objectionable.Providing guarantee is objectionable.

SUDAN – WAKALA MODAL SUDAN – WAKALA MODAL Operator creates a pool of contributionsOperator creates a pool of contributions

received from participants and manages received from participants and manages it for their benefit.it for their benefit.

OBJECTIONS BY SCHOLARSOBJECTIONS BY SCHOLARS

Contributors constitute a Board and the Contributors constitute a Board and the ownership of the amount contributed vests ownership of the amount contributed vests in the Board, as the understanding is that in the Board, as the understanding is that the amount of premium contributed is a the amount of premium contributed is a donation to the Board which in case of loss donation to the Board which in case of loss accruing to any participant, will make accruing to any participant, will make donation to the said participant. donation to the said participant.

OBJECTIONS OBJECTIONS (Contd…)(Contd…)Same position as in conventional insurance, Same position as in conventional insurance, there is also a Board, which is considered there is also a Board, which is considered owner of the pool and which makes payment owner of the pool and which makes payment of claims.of claims.

When a participant pays the premium, he When a participant pays the premium, he would stand divested of this amount and in would stand divested of this amount and in such a case, ownership vests in whom?such a case, ownership vests in whom?

Some operators do not establish a Board and Some operators do not establish a Board and themselves carry out the activities of the themselves carry out the activities of the Board.Board.

The Board should have a separate legal entity The Board should have a separate legal entity to qualify and meet the standards of Shariah. to qualify and meet the standards of Shariah.

ANSWERS TO SOME OF THE ANSWERS TO SOME OF THE OBJECTIONSOBJECTIONS

Participants/policy holders pay the premium with Participants/policy holders pay the premium with the understanding of making donation to the the understanding of making donation to the Board, so this amount goes out of their ownership Board, so this amount goes out of their ownership and vests in the Board.and vests in the Board.

ISSUE IN PRACTICEISSUE IN PRACTICE

In case the participants stand divested of the In case the participants stand divested of the ownership, then on what basis these participants ownership, then on what basis these participants can lay claim to receive a share from the “Surplus can lay claim to receive a share from the “Surplus Pool” and if they still are the owners, then they Pool” and if they still are the owners, then they are liable to pay Zakat on their amount and in are liable to pay Zakat on their amount and in case of this, it will form part of contributable case of this, it will form part of contributable property. However, in practice such is not the property. However, in practice such is not the case. case.

WAKF MODAL – PAKISTAN WAKF MODAL – PAKISTAN

DISTINCTION BETWEEN WAKALA DISTINCTION BETWEEN WAKALA

& WAKF MODAL& WAKF MODAL

Wakf has a sole legal entity.Wakf has a sole legal entity.

Contributions made to Wakf Pool come Contributions made to Wakf Pool come under its ownership. under its ownership.

Under Wakala Modal, the pool does not Under Wakala Modal, the pool does not have its separate legal entity and to have its separate legal entity and to provide for this deficiency, a Board is provide for this deficiency, a Board is constituted, the legal capacity of which is constituted, the legal capacity of which is not recognized fully.not recognized fully.

Shariah recognizes Wakf to have its Shariah recognizes Wakf to have its own entity.own entity.

It is capable of owning property and It is capable of owning property and managing its assets for achieving the managing its assets for achieving the objectives of the Trust. objectives of the Trust.

Any activity not within the goals and Any activity not within the goals and objectives of the Trust Deed, cannot objectives of the Trust Deed, cannot be carried out without amending it, be carried out without amending it, subject to the rider that no activity, subject to the rider that no activity, business or trade prohibited by business or trade prohibited by Shariah cannot form part of its Shariah cannot form part of its business. business.

MOST IMPORTANT FEATURE MOST IMPORTANT FEATURE OF WAKF MODALOF WAKF MODAL

Property, money or asset Property, money or asset donated to Wakf goes out of donated to Wakf goes out of the ownership of the person the ownership of the person

making the donation and making the donation and vests in the Wakf which has a vests in the Wakf which has a

sole legal entity.sole legal entity.

ISLAMIC INSURANCE – TAKAFUL ISLAMIC INSURANCE – TAKAFUL

AS A WAKFAS A WAKFCompany after incorporation will Company after incorporation will constitute a Wakf by contributing a constitute a Wakf by contributing a specified part of its capital to it. specified part of its capital to it.

Wakf has to fulfill conditions of a valid Wakf has to fulfill conditions of a valid Wakf pertaining to the legal character of Wakf pertaining to the legal character of Wakf, the asset of the property Wakf, the asset of the property bequeathed and the beneficiaries.bequeathed and the beneficiaries.

Wakf so constituted as the Company being Wakf so constituted as the Company being itself a legal entity, is competent to create itself a legal entity, is competent to create a Wakf and the amount related to the a Wakf and the amount related to the Wakf is owned by it. Law does not prohibit Wakf is owned by it. Law does not prohibit it from creating a Wakf.it from creating a Wakf.

The asset being bequeathed is The asset being bequeathed is currency which is specified and known currency which is specified and known and has intrinsic value and having and has intrinsic value and having lasting characteristic.lasting characteristic.

A thing, which is consumable, cannot A thing, which is consumable, cannot be bequeathed but the currency, be bequeathed but the currency, which is contributed to Wakf, will be which is contributed to Wakf, will be invested and reinvested in low risk invested and reinvested in low risk avenues. This amount is not to be avenues. This amount is not to be utilized for paying the claims or for utilized for paying the claims or for meeting other expenses.meeting other expenses.

Contd…Contd…

ArgumentArgument:-:-The currency (amount) bequeathed The currency (amount) bequeathed stands consumed when it is invested stands consumed when it is invested and reinvested, so it does not possess and reinvested, so it does not possess lasting characteristic, considered lasting characteristic, considered essential for the property to be essential for the property to be bequeathed.bequeathed.

Jurists’ ExplanationJurists’ Explanation:-:-One of the principles is that in case of One of the principles is that in case of currencies, Dinars and Derhams, currencies, Dinars and Derhams, specification of some currency specification of some currency towards a towards a

Contd…..Contd…..

certain deal or merchandize does not certain deal or merchandize does not amount to such a specification that the amount to such a specification that the seller of goods gets a right to get those seller of goods gets a right to get those very currency notes, which were shown at very currency notes, which were shown at the time of deal or conclusion of contract, the time of deal or conclusion of contract, as neither principle of Shariah ordains to as neither principle of Shariah ordains to deliver those very currency notes as deliver those very currency notes as other notes of same value can be given other notes of same value can be given nor any court can be approached for such nor any court can be approached for such a relief.a relief.

It follows that capital which the Company It follows that capital which the Company has bequeathed that is not the particular has bequeathed that is not the particular currency notes but it is the amount or currency notes but it is the amount or value, which constitutes Wakf.value, which constitutes Wakf.

The third component is the The third component is the beneficiaries who are also beneficiaries who are also known, as Wakf Deed will not known, as Wakf Deed will not only specify the persons but only specify the persons but also the circumstances on also the circumstances on account of which they will account of which they will receive the benefit.receive the benefit.

WAKF DEEDWAKF DEED

For the administration of the Wakf For the administration of the Wakf property, two things are most property, two things are most important:-important:-

1.1. Wakf Deed; andWakf Deed; and

2.2. Wakf RulesWakf Rules

The said Deed is an irrevocable document. The said Deed is an irrevocable document. Every Wakif (person creating a Wakf) Every Wakif (person creating a Wakf) under Shariah, is entitled:-under Shariah, is entitled:-

(i)(i) to prescribed conditions for the Trust;to prescribed conditions for the Trust;(ii)(ii) to specify the beneficiaries; to specify the beneficiaries; (iii)(iii) to specify the circumstances in which to specify the circumstances in which they they will receive benefit; will receive benefit; (iv)(iv) to specify in whom will vest the to specify in whom will vest the authority authority to administer the Wakf property to administer the Wakf property and and assets; andassets; and(v)(v) to lay down the rules and bylaws of to lay down the rules and bylaws of

administering the Wakf.administering the Wakf.

ENTITLEMENT OF THE ENTITLEMENT OF THE COMPANYCOMPANY

The Company being Wakif is The Company being Wakif is entitled to execute a document entitled to execute a document wherein all the principles and wherein all the principles and rules pertaining to the Wakf are rules pertaining to the Wakf are to be provided, complying all to be provided, complying all essential requirements of essential requirements of institution of Wakf as laid down institution of Wakf as laid down by Shariah. by Shariah.

WAKF DEED OF TAKAFUL WAKF DEED OF TAKAFUL COMPANYCOMPANY

It inter alia includes the following matters:-It inter alia includes the following matters:-

(i)(i) Original Wakf capital shall be preserved Original Wakf capital shall be preserved by by making investment and reinvestment in making investment and reinvestment in low low risk ventures and transactions;risk ventures and transactions;(ii)(ii) Description of Assets which include Description of Assets which include original original Wakf Wakf Asset and Profit;Asset and Profit;(iii)(iii) Rights and obligations of the Operator;Rights and obligations of the Operator;(iv)(iv) Sources of income of Wakf Pool and items Sources of income of Wakf Pool and items

on which expenses may be incurred;on which expenses may be incurred;Contd…Contd…

(v)(v) The extent to which the claims The extent to which the claims of those of those who make donations to the who make donations to the Wakf, are Wakf, are to be compensated;to be compensated;(vi)(vi) Deed also explains the manner Deed also explains the manner in in which from the surplus pool, if which from the surplus pool, if any, the any, the persons other than donors persons other than donors to the Wakf to the Wakf are to be provided relief are to be provided relief as was being as was being extended to the extended to the Donors of the Wakf Donors of the Wakf Fund;Fund;(vii)(vii) In case of winding up of In case of winding up of Company, Company, what treatment is to be what treatment is to be given to the given to the Wakf Fund;Wakf Fund;

(viii)(viii) Wakf specifies the person in Wakf specifies the person in whom whom shall vest management and shall vest management and

administration of the Wakf; andadministration of the Wakf; and

(ix)(ix) Wakf Deed also lays down that Wakf Deed also lays down that Company has the power and the Company has the power and the right to modify and amend the right to modify and amend the Rules and bylaws of the Wakf Rules and bylaws of the Wakf and and also make additions therein.also make additions therein.

The Wakf Rules and Bylaws contain The Wakf Rules and Bylaws contain the mode and manner of achieving the mode and manner of achieving the objectives set forth in the Trust the objectives set forth in the Trust Deed. Deed.

These are essentially explanatory of These are essentially explanatory of the provisions contemplated therein the provisions contemplated therein and has to conform to scheme and and has to conform to scheme and the principles of Wakf enunciated by the principles of Wakf enunciated by Islamic Law.Islamic Law.

FORMATION & COMMENCEMENT FORMATION & COMMENCEMENT OF TAKAFUL OPERATIONSOF TAKAFUL OPERATIONS

(i)(i) A body corporate is constituted and A body corporate is constituted and established under law as a legal established under law as a legal

entity.entity.

(ii)(ii) It obtains a license after complying It obtains a license after complying with the legal formalities and execution with the legal formalities and execution of proper documents to enable it to of proper documents to enable it to commence the Takaful operations.commence the Takaful operations.

(iii)This legal entity creates a Wakf but (iii)This legal entity creates a Wakf but donating a reasonable amount from its donating a reasonable amount from its capital.capital.

(iv)(iv) IImmediate utilization of the mmediate utilization of the capital capital of of the Company to create the Company to create “reserves” “reserves” so so as to invest this as to invest this amount which will amount which will remain with the remain with the Company in order to Company in order to provide Qardh provide Qardh Hasan to the Waqf as Hasan to the Waqf as and when and when required.required.

(v)(v) Participants are then invited to Participants are then invited to make donations to the Waqf by make donations to the Waqf by determining the amount of determining the amount of

contribution contribution to be made by them so to be made by them so as to as to give give them membership.them membership.

(vi)(vi) AAmount of contribution should be mount of contribution should be sufficient sufficient to make good the loss to make good the loss suffered and the suffered and the insurable risk covered insurable risk covered

of the person so of the person so obtaining obtaining membership.membership.(vii)(vii)IInsurable risk being covered of all the nsurable risk being covered of all the participants should be of the same kind or participants should be of the same kind or

category.category.(viii)(viii)Insurable risk coverage normally is on Insurable risk coverage normally is on the the same lines as is in vogue in same lines as is in vogue in conventional conventional insurance.insurance.(ix)Contributions made by participants (ix)Contributions made by participants belong to belong to Wakf Fund, invested by the Wakf Fund, invested by the Company and Company and the losses of the insured is the losses of the insured is paid out of the paid out of the profit earned and the profit earned and the contribution of the contribution of the participants.participants.

MALAYSIAN TAKAFUL ACT, MALAYSIAN TAKAFUL ACT, 1984 1984

SECTION 13SECTION 13:-:-Statutory Requirement:-Statutory Requirement:-At the time registration, a Takaful At the time registration, a Takaful Operation has to deposit RM 3,00,000 for Operation has to deposit RM 3,00,000 for each class of Re-Takaful business, which is each class of Re-Takaful business, which is to be placed with the Accountant General to be placed with the Accountant General of Malaysia.of Malaysia.

SECTION 14SECTION 14:-:-Alternatively, a Bank Guarantee (Waad Alternatively, a Bank Guarantee (Waad Bank) can be furnished by the Re-Takaful Bank) can be furnished by the Re-Takaful Operator and as prescribed in the format Operator and as prescribed in the format of the Bank Negara, Malaysia.of the Bank Negara, Malaysia.

ASSET/CAPITAL VALUE OF A ASSET/CAPITAL VALUE OF A WAKFWAKF

It is what the Company establishing the It is what the Company establishing the Wakf contributes out of its capital. No limit Wakf contributes out of its capital. No limit of this contribution toward Wakf has been of this contribution toward Wakf has been prescribed by Islamic Jurists. prescribed by Islamic Jurists.

Any appropriate amount may be Any appropriate amount may be contributed by Company to constitute contributed by Company to constitute Wakf. Wakf.

In Pakistan One Takaful Company In Pakistan One Takaful Company contributed Rs.500,000/-, the other contributed Rs.500,000/-, the other contributed Rs.10,00,000/- another contributed Rs.10,00,000/- another constituted Wakf with the declaration that constituted Wakf with the declaration that it shall keep on contributing necessary it shall keep on contributing necessary amount as and when needed. amount as and when needed.

MANNER OF USE OF THE MANNER OF USE OF THE BEQUEATHED AMOUNT IN BEQUEATHED AMOUNT IN

TAKAFUL:-TAKAFUL:- (i)(i) It may be given on loan to the needy and It may be given on loan to the needy and receive receive the amount once the need stands the amount once the need stands served or met.served or met.(ii)(ii) It may be invested and reinvested in low risk It may be invested and reinvested in low risk

ventures and the profit accruing from these ventures and the profit accruing from these operations may be utilized. This very use has operations may be utilized. This very use has

been been adopted in Takaful Operations.adopted in Takaful Operations.

The originally contributed amount (seed capital) is The originally contributed amount (seed capital) is preserved either by investing in low risk ventures preserved either by investing in low risk ventures or at the time of account taking of a or at the time of account taking of a transaction/venture, the seed amount of Wakf is transaction/venture, the seed amount of Wakf is taken out and separated and, thereafter, it is taken out and separated and, thereafter, it is determined whether any profit or loss has determined whether any profit or loss has occurred. In this manner, it is seen whether the occurred. In this manner, it is seen whether the Fund has got any surplus or has suffered deficit.Fund has got any surplus or has suffered deficit.

OBJECTIVES OF WAKF IN A OBJECTIVES OF WAKF IN A TAKAFUL (COMPANY)TAKAFUL (COMPANY)

(i)(i) To receive contributions, charity or gift from To receive contributions, charity or gift from participants and other persons;participants and other persons;

(ii)(ii) To invest all the pooled resources in Shariah To invest all the pooled resources in Shariah approved approved permissible business;permissible business;

(iii)(iii) To provide relief out of accrued profit to the To provide relief out of accrued profit to the participants participants as per rules and principles of Wakf.as per rules and principles of Wakf.

(iv)(iv) The Company in consultation with Shariah The Company in consultation with Shariah Board will Board will give charity to needy including the give charity to needy including the participants participants whenever there is a surplus so that whenever there is a surplus so that welfare of the welfare of the needy, a special trait of the needy, a special trait of the institution of Wakf, is taken institution of Wakf, is taken care of and fulfilled. care of and fulfilled. The welfare aspect The welfare aspect of the Wakf is of the Wakf is being being highlighted to satisfy those highlighted to satisfy those who opine that if who opine that if scope of Wakf’s funds are applied to the participants scope of Wakf’s funds are applied to the participants

only, the overall welfare objectives of the only, the overall welfare objectives of the institution of institution of Wakf will remain unrealized.Wakf will remain unrealized.

Some of the critics observe that a small Some of the critics observe that a small amount out of the surplus separated for amount out of the surplus separated for charity will hardly enable the Wakf to carry charity will hardly enable the Wakf to carry out any meaningful welfare activity, as for out any meaningful welfare activity, as for ameliorating social conditions of the needy ameliorating social conditions of the needy huge resources are required.huge resources are required.

Takaful operations are not primarily meant Takaful operations are not primarily meant to promote charity of needy in the society to promote charity of needy in the society though Takaful carries an element of social though Takaful carries an element of social welfare of its participant but even without welfare of its participant but even without that the role of a Wakf, in providing relief that the role of a Wakf, in providing relief to the distressed participant, is well to the distressed participant, is well recognized and appreciated.recognized and appreciated.

ASSETS OF WAQF COMPRISE ASSETS OF WAQF COMPRISE OF:-OF:-

(i)(i)Seed amount i.e. the Asset or the amount Seed amount i.e. the Asset or the amount bequeathed originally at the creation of Waqf.bequeathed originally at the creation of Waqf.

(ii)(ii) Contributions made by the participants.Contributions made by the participants.(iii)(iii) Profit accruing from investment.Profit accruing from investment.(iv)(iv) Contributions and donations made by Contributions and donations made by

members of members of public and philanthropists public and philanthropists to to the Takful Company to the Takful Company to support its welfare activities support its welfare activities of providing relief to of providing relief to distressed segments of distressed segments of society.society.

(v)(v) Creation of special fund by the Takaful Creation of special fund by the Takaful Company Company from its own resources in from its own resources in two ways:-two ways:-(a)(a) If a separate Wakf of the Asset/amount is If a separate Wakf of the Asset/amount is sought to be established, a separate Sub sought to be established, a separate Sub Deed Deed will be executed.will be executed.(b)(b) If the Takaful Company makes donations to If the Takaful Company makes donations to the Waqf like participants, the amount so the Waqf like participants, the amount so donated will belong to and vest in the Waqf.donated will belong to and vest in the Waqf.

INCOME & EXPENDITURE OF INCOME & EXPENDITURE OF THETHE FUND FUND

• Income will constitute of the following:-Income will constitute of the following:-

(i)(i) Contributions of the participants;Contributions of the participants;(ii)(ii) Claim amount received from Claim amount received from Retakaful Company;Retakaful Company;(iii)(iii) Amount received as share from surplus from Amount received as share from surplus from Retakaful CompanyRetakaful Company;;(iv)(iv) Profit earned on investment of Seed amount of and Profit earned on investment of Seed amount of and

donation to the Waqf/Takaful Company;donation to the Waqf/Takaful Company;(v)(v) Amount provided by shareholders of Amount provided by shareholders of Takaful Takaful CompanyCompany as as donation (Tabarru) or Qardh-Hasan;donation (Tabarru) or Qardh-Hasan;(vi)(vi) Donations given by Donations given by CompanyCompany from time to time; & from time to time; &(vii)(vii) Commission received from Retakaful Company.Commission received from Retakaful Company.

TREATMENT OF EXPENSESTREATMENT OF EXPENSESOPERATOR’S UTILIZES THE “FUND” IN THE CAPACITY OF “MUDHARIB” OR OPERATOR’S UTILIZES THE “FUND” IN THE CAPACITY OF “MUDHARIB” OR

WAKIL ISTISHMAR (AGENT) WAKIL ISTISHMAR (AGENT)

Explanation Required: - Which type of expense will be borne by the Explanation Required: - Which type of expense will be borne by the OperatorOperator and the kind of expense to be incurred! and the kind of expense to be incurred!

Takaful CompanyTakaful Company incurs expense towards incorporation, setting up of incurs expense towards incorporation, setting up of administration and on commencement of operations e.g. legal fees and administration and on commencement of operations e.g. legal fees and marketing its products. marketing its products.

Some expenses, incurred for the benefit of the Company Some expenses, incurred for the benefit of the Company others for the benefit of the Wakf Fund others for the benefit of the Wakf Fund while some are for the benefit of the both the Company and the Fund. while some are for the benefit of the both the Company and the Fund.

Larger the volume of the pool, the more will be profit and more will be Larger the volume of the pool, the more will be profit and more will be volume of the Fees. volume of the Fees.

Expenses incurred for establishing the Company, the Expenses incurred for establishing the Company, the legal fees and other expenses paid for commencing the legal fees and other expenses paid for commencing the operations and marketing are to be borne by the operations and marketing are to be borne by the Company.Company.

Such expenses which are incurred for Such expenses which are incurred for marketing the products and from which Wakf marketing the products and from which Wakf Fund is recipient of some benefit, can be Fund is recipient of some benefit, can be charged to the Fund, if the Wakf is in a charged to the Fund, if the Wakf is in a position to bear this charge. The Operator is position to bear this charge. The Operator is basically working for Wakf and, the Company basically working for Wakf and, the Company is indirectly receiving benefit through the is indirectly receiving benefit through the Wakf. It is, however, advisable that all the Wakf. It is, however, advisable that all the expenses should be paid out of the Fee being expenses should be paid out of the Fee being received by the Operator as the extent of the received by the Operator as the extent of the benefit received by the Wakf or the Company benefit received by the Wakf or the Company cannot be precisely and exactly determined.cannot be precisely and exactly determined.

Moreover, when the Company is to incur Moreover, when the Company is to incur expenditure from its Fee, proper care will be expenditure from its Fee, proper care will be taken to economise the expenditure and to taken to economise the expenditure and to keep the expense within appropriate limits.keep the expense within appropriate limits.

• The amount received from all above sources will be The amount received from all above sources will be invested in low risk ventures and all the following invested in low risk ventures and all the following expenses will be defrayed from these resources, expenses will be defrayed from these resources, except that Seed amount/Asset will not be except that Seed amount/Asset will not be expended on any count towards expenses:-expended on any count towards expenses:-

• (i)(i) Claims.Claims.• (ii)(ii) Contribution payable to Retakaful company.Contribution payable to Retakaful company.• (iii)(iii) Fee payable to Operator.Fee payable to Operator.• (iv)(iv) Payment of share of Operator from profit Payment of share of Operator from profit

earned.earned.• (v)(v) Division of surplus to participants as per Division of surplus to participants as per

prescribed prescribed principles.principles.• (vi)(vi) Operator may in consultation with Shariah Operator may in consultation with Shariah

Board Board grant money out of Charity to the grant money out of Charity to the needy.needy.

• (vii)(vii) Return of the loan advanced by shareholders.Return of the loan advanced by shareholders.• (viii) To pay other expenses and charges payable (viii) To pay other expenses and charges payable

out of out of Waqf Fund. Waqf Fund.

LIABILITIES & OBLIGATIONS OFLIABILITIES & OBLIGATIONS OF TAKAFUL COMPANYTAKAFUL COMPANY

• (i)(i) Rendering of Takaful Services i.e. management Rendering of Takaful Services i.e. management of of the Takaful Fund in the the Takaful Fund in the light of the Wakf Deed, light of the Wakf Deed, Sub Deed if any, Waqf Rules and principles.Sub Deed if any, Waqf Rules and principles.

• (ii)(ii) Invite people to obtain Takaful Policy and to Invite people to obtain Takaful Policy and to receive receive contribution from Policy holders.contribution from Policy holders.

• (iii)(iii) To invest the amount of the Fund in suitable To invest the amount of the Fund in suitable and and permissible (Halal) business and to give relief to permissible (Halal) business and to give relief to

offset the loss incurred by participants.offset the loss incurred by participants.• (iv)(iv) To frame rules for utilization of Waqf Fund in To frame rules for utilization of Waqf Fund in

accordance with the guidelines of the Waqf Deedaccordance with the guidelines of the Waqf Deed in consultation with Shariah Board.in consultation with Shariah Board.

• (v)(v) To invest the Waqf Fund being mudharib or To invest the Waqf Fund being mudharib or Wakil.Wakil.

• (vi)(vi) To make good the loss occurring to Waqf Fund To make good the loss occurring to Waqf Fund on on account of misfeasance, negligence, want of account of misfeasance, negligence, want of due due care and caution of the management of the care and caution of the management of the Company.Company.

• (vii)(vii) The “Reserves” which the Takaful Company The “Reserves” which the Takaful Company has to has to keep with the Central Bank, the keep with the Central Bank, the amount of these amount of these deposits will be paid out of the deposits will be paid out of the Shareholder’s Shareholder’s Capital and not from the Waqf Capital and not from the Waqf Fund as these Fund as these “Reserves” serve interest of the “Reserves” serve interest of the Operator.Operator.

• (viii) Operator can also make donation to the Fund (viii) Operator can also make donation to the Fund with with the permission of share holders.the permission of share holders.

• (ix)(ix) Annual valuation of the Assets of the Wakf is Annual valuation of the Assets of the Wakf is to be to be conducted to find out whether the Fund is in conducted to find out whether the Fund is in surplus surplus or deficit. In case of “Surplus”, or deficit. In case of “Surplus”, Operator is to Operator is to determine policies according to determine policies according to Rules of the Waqf Rules of the Waqf and then to take steps to and then to take steps to implement these policies.implement these policies.

• (x)(x) To take measure to offset risk as per Rules To take measure to offset risk as per Rules and and principles of Takaful.principles of Takaful.

• (xi)(xi) To arrange Retakaful as per Rules & To arrange Retakaful as per Rules & principles of principles of Takaful with concurrence of Takaful with concurrence of Shariah Board.Shariah Board.

• (xii)(xii) To appoint Shariah Board for conducting To appoint Shariah Board for conducting Takaful Takaful business under its supervision.business under its supervision.

QUESTION ABOUT QUESTION ABOUT “SEED AMOUNT OR ASSET”“SEED AMOUNT OR ASSET”

Whether it can be deposited with the Central bank as Whether it can be deposited with the Central bank as “Reserve” is still under consideration of the Jurists of Islamic “Reserve” is still under consideration of the Jurists of Islamic JurisprudenceJurisprudence

The (Fuqha) in favour of “Reserve deposit” purpose to argue The (Fuqha) in favour of “Reserve deposit” purpose to argue that such a deposit can be made under following that such a deposit can be made under following conditionsconditions:-:-

• (a)(a) The amount of “Reserve” is not being given merely The amount of “Reserve” is not being given merely as a loan to as a loan to Government.Government.

• (b)(b) The Reserve deposit is not used for purposes The Reserve deposit is not used for purposes prohibited by prohibited by Shariah and is to be invested in Shariah Shariah and is to be invested in Shariah approved ventures.approved ventures.

• (c)(c) The “Reserve Deposit” is to be utilized in the mode The “Reserve Deposit” is to be utilized in the mode or for the or for the objects, which conform to the use of seed objects, which conform to the use of seed money of Waqf and money of Waqf and in low risk ventures.in low risk ventures.

• (d)(d) Even the technical reserves, which the Takaful Even the technical reserves, which the Takaful Company Company maintains with itself, will be from the Waqf maintains with itself, will be from the Waqf Fund.Fund.

RECOVERY OF LOSS CAUSEDRECOVERY OF LOSS CAUSED •Whether loss has been caused Whether loss has been caused

and if so how much; and if so how much; •Whether loss occurred due to Whether loss occurred due to

Operator’s negligence, Operator’s negligence, misfeasance or lack of due care misfeasance or lack of due care and caution, and caution,

•How the questions are to be How the questions are to be resolvedresolved

•Who will be complainant in the Who will be complainant in the action against the Operator for action against the Operator for recovery of the loss so caused?recovery of the loss so caused?

Fiqh literature Fiqh literature It does not specify the person who is to take up these It does not specify the person who is to take up these matters. matters.

Two parties: -Two parties: -(1) The Waqf &(1) The Waqf &(2) The Operator. (2) The Operator.

Operator is the party, which has caused the loss, so it will not Operator is the party, which has caused the loss, so it will not lodge proceedings (complaint) against itself. It is obvious that lodge proceedings (complaint) against itself. It is obvious that need to lodge legal proceeding will not arise if the Operator is need to lodge legal proceeding will not arise if the Operator is ready to initiate action or to make good the loss.ready to initiate action or to make good the loss.

• The Company is liable to make good the loss, in case of loss The Company is liable to make good the loss, in case of loss caused due to negligence, lack of prudent care etc., otherwise caused due to negligence, lack of prudent care etc., otherwise the Company is not liable. This principle has been deduced the Company is not liable. This principle has been deduced keeping in view the legal position that Operator holds vis-à-vis keeping in view the legal position that Operator holds vis-à-vis the Fund. the Fund.

The Operator of Takaful Company legally speaking is a: - The Operator of Takaful Company legally speaking is a: - (1) Mudharib or (1) Mudharib or (2) a Mutwalli or(2) a Mutwalli or(3) a Wakif, or(3) a Wakif, or(4) a Wakil Istishmar.(4) a Wakil Istishmar.

• OPERATOR WHEN NOT LIABLEOPERATOR WHEN NOT LIABLE, if , if negligence or acting beyond the limits laid negligence or acting beyond the limits laid down is not the cause of the loss. down is not the cause of the loss.

• WHY SHOULD THE POLICIES OFFERED BY WHY SHOULD THE POLICIES OFFERED BY TAKAFUL COMPANY BE ACCEPTABLE IN TAKAFUL COMPANY BE ACCEPTABLE IN THE MARKET? THE MARKET?

• IF COMPANY IS MADE LIABLE TO MAKE IF COMPANY IS MADE LIABLE TO MAKE GOOD THE LOSS INCURRED IN ALL GOOD THE LOSS INCURRED IN ALL SITUATIONS, THEN IT WILL BE JUST LIKE SITUATIONS, THEN IT WILL BE JUST LIKE CONVENTIONAL INSURANCE.CONVENTIONAL INSURANCE.

ISLAMIC JURISTS ISLAMIC JURISTS Operator should make donation of sizeable amount Operator should make donation of sizeable amount to the Wakf Fund, to meet the deficit, which to the Wakf Fund, to meet the deficit, which amount will not be returnable being a donation. In amount will not be returnable being a donation. In the alternative the Operator may advance the alternative the Operator may advance reasonable amount to the Fund as Qardh-Hasan, reasonable amount to the Fund as Qardh-Hasan, which will be returned when the situation of the which will be returned when the situation of the Fund permits.Fund permits.

SECURING A DISTINCT AND DISSIMILAR THE SECURING A DISTINCT AND DISSIMILAR THE POSITION TO THAT OBTAINING IN POSITION TO THAT OBTAINING IN CONVENTIONAL INSURANCECONVENTIONAL INSURANCEOperator has to maintain its position of either Operator has to maintain its position of either being a (1) Wakif (2) Mutwalli (3) Mudharib or Wakil being a (1) Wakif (2) Mutwalli (3) Mudharib or Wakil Istishmar and in either capacity, the Takaful Istishmar and in either capacity, the Takaful Company should at the time of creating Wakf, Company should at the time of creating Wakf, make provision in the Wakf regarding making of make provision in the Wakf regarding making of loan to the Wakf as and when needed, despite the loan to the Wakf as and when needed, despite the knowledge that “Wakf” as an institution has limited knowledge that “Wakf” as an institution has limited obligations and possibility of non realization of loan obligations and possibility of non realization of loan also exists. In this way, distinction from also exists. In this way, distinction from conventional insurance will be visible and practical.conventional insurance will be visible and practical.

RIGHTS OF AN RIGHTS OF AN OPERATOROPERATOR

• (1)(1) to charge appropriate fee for managing the affairs of the to charge appropriate fee for managing the affairs of the Takaful Company. While fixing a reasonable fee, Shariah Takaful Company. While fixing a reasonable fee, Shariah Board as well as Actuary Experts are consulted.Board as well as Actuary Experts are consulted.

• (2)(2) There should not be much difference in the amount of There should not be much difference in the amount of contribution payable by contribution payable by the participants of the same the participants of the same category category as regards risk covered as discrimination amongst as regards risk covered as discrimination amongst participants participants of the same category is not approved. However, of the same category is not approved. However, operator operator may allow discount to the extent of its fee to a may allow discount to the extent of its fee to a specified specified participant. Moreover, Waqf Fund should continue participant. Moreover, Waqf Fund should continue to receive to receive its share from the donations made by its share from the donations made by participants. participants.

• (3)(3) Operator as Mudharib in case of profit will receive its pre Operator as Mudharib in case of profit will receive its pre prescribed share from the net profit. If the Operator is prescribed share from the net profit. If the Operator is

making making investment as Wakil Istishmar, then it will receive investment as Wakil Istishmar, then it will receive the the prescribed fee as agreed already. The share in profit as prescribed fee as agreed already. The share in profit as Mudharib and amount of fee as Wakil is to be determined at Mudharib and amount of fee as Wakil is to be determined at the commencement of business in consultation with Actuary the commencement of business in consultation with Actuary Experts and permission of Sharia Board. Experts and permission of Sharia Board.

• (4)(4) The policies to be followed and the rules of business and The policies to be followed and the rules of business and market practices should be got approved from Sharia market practices should be got approved from Sharia

Board.Board.• (5)(5) Operator has the first right to adjust Qardh Hasan from Operator has the first right to adjust Qardh Hasan from

the the surplus as and when it is available.surplus as and when it is available.

ROLE OF THE SHARIAH ROLE OF THE SHARIAH BOARDBOARD• a monitor and akin to a Mutwalli a monitor and akin to a Mutwalli

• but as the Takaful Company’s role is that of a but as the Takaful Company’s role is that of a Mutawalli, the position of Takaful Company vis-à-vis Mutawalli, the position of Takaful Company vis-à-vis Shariah Board and of the Shariah Board is as under:-Shariah Board and of the Shariah Board is as under:-

Takaful Company utilizes services of many and pays Takaful Company utilizes services of many and pays their remuneration out of its own fee. The Shariah their remuneration out of its own fee. The Shariah Board is though rendering service to the Company, Board is though rendering service to the Company, its remuneration may also be adjusted from the said its remuneration may also be adjusted from the said “Fee”.“Fee”.

• Shariah Board legally speaking is not Mutwalli Shariah Board legally speaking is not Mutwalli though is a monitor on the operations of the though is a monitor on the operations of the Company and these two positions must be kept Company and these two positions must be kept separate and independent of each other as per separate and independent of each other as per requirements of Shariah, hence the remuneration requirements of Shariah, hence the remuneration payable to Shariah Board can be charged as expense payable to Shariah Board can be charged as expense from Waqf Fund.from Waqf Fund.

WINDING UPWINDING UP – Treatment of – Treatment of Seed Capital and Assets.Seed Capital and Assets.

• What happens to Original What happens to Original Capital Capital of Wakf in case of of Wakf in case of winding up of a winding up of a Wakf and Wakf and how is it preserved? how is it preserved?

• How the assets, if any, are to How the assets, if any, are to be be treated?treated?

WAKF DEED & WINDING OF WAKF:WAKF DEED & WINDING OF WAKF:

(1)(1) Conducting valuation of assets as then Conducting valuation of assets as then existing.existing.

(2)(2) liabilities of the Waqf Fund shall be liabilities of the Waqf Fund shall be discharged first. discharged first. The amount of Qardh Hasan will The amount of Qardh Hasan will be paid from the be paid from the surplus, if any, and the surplus, if any, and the Assets/amount, if any, will Assets/amount, if any, will be distributed be distributed among participants and the among participants and the remaining amount, if remaining amount, if any, will go to Charity as any, will go to Charity as directed by Sharia directed by Sharia Board. Board.

(3)(3) If there is any ‘Sub Fund’ established for any If there is any ‘Sub Fund’ established for any specific specific purpose and in case there exists a purpose and in case there exists a “deficit” in the “deficit” in the Sub Fund, then the amount Sub Fund, then the amount available in the available in the “surplus” will first be paid to “surplus” will first be paid to clear the “deficit” in the clear the “deficit” in the ‘Sub Fund’ before ‘Sub Fund’ before making any payment towards making any payment towards Qardh Hasan Qardh Hasan of the Company.of the Company.

(4)(4) If on valuation of the Assets, it If on valuation of the Assets, it transpires transpires that Fund is unable to meet that Fund is unable to meet its liabilities and its liabilities and obligations and the obligations and the Fund cannot continue to Fund cannot continue to exist, then in such exist, then in such a situation, it should not a situation, it should not be obligatory for be obligatory for the Company to make the Company to make available required available required funds.funds.

However, the deposits which were kept However, the deposits which were kept with with the Central Bank should be withdrawn the Central Bank should be withdrawn to to meet the obligations at the time of meet the obligations at the time of winding winding up of the Company.up of the Company.

(5)(5) The real or the seed amount of Wakf if The real or the seed amount of Wakf if available will be transferred to a Wakf available will be transferred to a Wakf

the the same kind and objectives. It is well same kind and objectives. It is well settled settled that the shareholders of the that the shareholders of the Company who Company who created the Wakf are not to created the Wakf are not to receive any receive any share out of the Assets/seed share out of the Assets/seed amount of the amount of the Wakf available at winding up.Wakf available at winding up.

• If the Operator of the Wakf is being absolved If the Operator of the Wakf is being absolved of his obligation to operate the Wakf and of his obligation to operate the Wakf and there is change of Operator only, i.e. one is there is change of Operator only, i.e. one is being substituted for the other, this amounts being substituted for the other, this amounts to change of guards, in other words Mutwalli to change of guards, in other words Mutwalli is changed and substituted, so the Wakf is changed and substituted, so the Wakf continues and does not come to an end as continues and does not come to an end as Wakf’s administration falls into the hands of Wakf’s administration falls into the hands of new Operator (Mutwalli). new Operator (Mutwalli).

• In case the Company itself is being In case the Company itself is being liquidated and has to become extinct, then liquidated and has to become extinct, then the substratum (original capital) of the Wakf the substratum (original capital) of the Wakf is to be passed on and merged into another is to be passed on and merged into another Wakf having the same or similar objectives Wakf having the same or similar objectives as these assets will continue to be used and as these assets will continue to be used and employed for the avowed objectives of the employed for the avowed objectives of the Wakf.Wakf.

• In case a Wakf of the same and similar objectives In case a Wakf of the same and similar objectives is not available for merger, then any of the is not available for merger, then any of the following options may be adopted:-following options may be adopted:-

• a)a) An asset of permanent nature will be An asset of permanent nature will be purchased purchased from the property, Asset or valuable from the property, Asset or valuable right of the right of the Wakf and the same will be Wakf and the same will be bequeathed to another bequeathed to another Wakf Wakf and included in the and included in the assets of the assets of the said Wakf.said Wakf.

• b)b) The amount realised from the The amount realised from the Assets/property of the Assets/property of the Wakf, under liquidation, Wakf, under liquidation, may be given to the other may be given to the other Waqf for utilization Waqf for utilization and investment and the profit and investment and the profit accruing may accruing may be utilized for defraying expenses or be utilized for defraying expenses or for for advancing loan to the staff and to be retrieved advancing loan to the staff and to be retrieved once the need of the staff is fulfilled. So the once the need of the staff is fulfilled. So the amount amount contributed will remain secure and contributed will remain secure and the objective of the objective of the Wakif (person creating the the Wakif (person creating the Wakf) will also be Wakf) will also be complied with.complied with.

ALTERNATIVE TO TRANSFERRINGALTERNATIVE TO TRANSFERRING

(1)(1) Efforts to continue the Wakf;Efforts to continue the Wakf;

(2)(2) Hiring capable individual;Hiring capable individual;

(3)(3) Utilizing the capital at optimum level &Utilizing the capital at optimum level &

(4)(4) Retrieving the invested money and Retrieving the invested money and Assets Assets with profit of the Wakf. with profit of the Wakf.

If a suitable person can not be procured to If a suitable person can not be procured to administer Wakf on voluntary basis, even administer Wakf on voluntary basis, even service may be hired for appointment as service may be hired for appointment as Mutwalli who may fulfil the needs of Mutwalli who may fulfil the needs of deserving persons on the basis of profit.deserving persons on the basis of profit.

THANTHANK YOUK YOU