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PervaizAHMED

CEO Pak-Qa ta r FamilyTakaful Limited

8 Feb , 2011, Islamab ad

T A K A F U L

Shari’ahCompliant Alternate to

Conventional Insurance

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Flow o f Presentation

› Risk Mitiga tion from Shariah’s Perspec tive

› How does Taka ful Function?

› Origin & Development of Takaful Worldwide & in Pakistan

› Need for Takaful & How to imp rove insurance penetration

› How can Takaful produc ts and services can help in soc io-economic development.

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Risk Mitigation from Shariah’s Perspec tive

Is the c onc ept of risk mitigation permissible in Islam?

• This v ery c onc ep t is not o nly law ful/ pe rmissible in Islam b ut is in fac tencouraged

What are the available risk mitiga tion tools?

• A co ncept m isunderstood as against Tawakul..Avo id using Risk Mitiga tion

Tools

• Fundsm ay no t be suffic ient to compensa te theloss

Self-Insurance or setting asidecontingenc y money for the

rainy da y

• A commerc ia lly v iab le system but con ta ins theelem ent of Riba, Gharar, and Qim ar/Maysir

Conventional Insurance

• A c omm erc ia lly v iable system w hic h is alsoShariah Com pliant

Taka ful

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Risk Mitigation in Islam

Islamic history is rep lete with examples fea turingrisk mitiga tion ac tivities:

Hadith:

“ Tie the Ca m eland then Subm it

to the Will o fAllah”

DhamanKhatr a l-Tareeq:

A p erson wo uldunde rta ke anot her

person’ s riskswithout a ny

consideration/feein return

Dhaman Al-d’ark:

A p erson wo uldinfluence a sa le by

promising tocomp ensat e for

the loss if thesubject-matterprov ed faulty

Aqila:

A risk sharingmecha nism in

wh ich c ommunitymemb ers pooled

their sha re o f Diya t(blood money)

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Shariah’s Ruling on Conventional Insuranc e

Concept of 

Insurance?

Content of 

Insurance?

?Shariah has no objections as to the concept or objectives

of insurance ; it only has reservations with the way it is

carried out i.e. the process of insurance

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What is Allowed?› Risk Transfer without Consideration (premium)

› Risk Sharing between Partic ipants

› Basisof Contract: Tab urru i.e. unilate ral non-c om mutative

› Takaful Operator has no ownership c la im on the contributions

(prem iums) paid by the part ic ipants› The Part ic ipants lose ownerships rights onc e the c ontribution is

paid on the basisof Taburru

› The co ntribution bec om esthe property of the Waqf

› Waqf isowned by Allah Almighty

What is not Allowed?› Risk Transfer Against Fixed Consideration (premiums)

› Basisof Contract: Muaw aza i.e. bi-lateral sales& purc hase

› Reason: Such a c ontrac t involvesRiba, Gharar, & Qim ar/M aysir

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How does it Func tion? General Takaful

Wakalah Wakala

h

Wa kalahWakalah

Takaful

Operator

Investment Participant

Participant

Participant

Participant

Waqf Pool

Risk sharing

Between

Participants

Wa kalahWakalah

Surplus

Wakalah Fee, Claims, Re-Takaful

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Participant’s

Investment

Ac c ount (PIA)

Waq f FundOp erato r / 

Wakeel

ParticipantContributions

Profit s from Inv est ment

Wakalee Fee(s)

for Inv est mentManagement

Cont ribu t ions forTakaful Bene fit

Paymen t of

Claims

Surp lusDist ribut ion ( ifany)

Waka la Fee forOperating Waq f

Fund

1

23

4

5

6

7

How does it Func tion? Family Takaful

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Origin of Modern Taka ful

› During co loniza tion, the Muslims lost their va lue system to westernsoc io-eco nomic, p olit ical,a nd legal orde r

› M uslim Rev ival and Rena issance bega n ea rly 1940s

› Asa result, d ev elopment of Islamic Banking started in 1970s

› First Islamic Comm ercial Ba nk, the ‘ Dubai Isla mic Bank’ , w asesta b lished in 1975

› There was a legal requirement that the underlying assets financed byIslamic Banksneed to be insured e.g. Car Ijarah

› Islamic Banks c ould not avail insurance from c onventional compa nies

asthat would be detrimental to the ir image and the overa ll ca use

› AsIslamic Banking ind ustry grew the need for Ta kaful futherincrea sed

› First Takaful company wa s estab lished in Sudan in 1979, fo ur yea rsafter the estab lishment of the first Islamic Ba nk

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Need for Taka ful was felt after the development of

Islamic Banking

1975First Islam ic Bank

1979First Taka fu l Co.

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Deve lopment of Takaful Industry

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2004 2006 2007 2010 2012

   1 .   4

 

   2 

   3 .

   4 

   4

 .   3 

   8

(USD) BILLION134# of TakafulOperators in2009

Approx.

36WindowOperators

15IraniOperators

>18Re-TakafulOperators Global Market Size (2009) E&Y

Worldwide Takaful Developments & Growth

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Re-Takaful Worldwide› Islamic Taka ful & Retaka ful Co. (IRTCo.) (Bahamas)

› Hannove rReTaka fulB.S.C. © (Bahrain)

› Solida rity Islam ic Tak a ful & Retak aful Co. (Bahrain)

› PTRea ssuransi Internasiona l Indonesia (Indonesia)

› Amin Reinsurance Comp any (Iran)

› Al Fejr Retak aful Insurance Co. (Kuwait)

› Asea n Re-Taka ful Internationa l (Malaysia)

› MNRBReta ka ful Berhad (Malaysia)

› Islam ic Taka ful & Re-ta ka ful Co. (Saud i Arab ia)

› Islamic Taka ful and Re-Taka ful Co. (ITRCo.) (Saud i Arab ia)

› Tokio Marine Nichido Retak aful Pte Ltd (Sing apore)

› Nationa l Re-insurance Co. (NRICo.) (Sud an)

› Sheikhan Insurance & Reinsurance (Sud an)

› Suda nese Insurance & Reinsurance Co (Sud an)

› BEIT Iaada t Ettamine Tounsi Saoudi Re- insurance (B.E.S.T. Re)(Tunisia)

› ACRReTaka ful Hold ingsLim ited (UAE)

› Duba i Islamic Insurance & reinsurance Co. (UAE)

› Taka ful Re Limited (UAE)

Source: ICMIFTakaful, www.takaful.coop

> 18Re-Takaful

Operators

worldwide

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• Insuranc e Ordinanc e is issued whic h inc lude s prov ision fo r Taka ful;the w ord “ Takafu l” is used

2002

• IJTIMA’ he ld in Darul Uloom , Karac hi on perm issib ility of Takaful2003

• A c om m ittee to fram e Takaful rules wa s founded2004

• SECP no tifie s Takaful Rule s2005

• First General Takaful Company established ( Pak-Kuwait

General Takaful )

2006

• First Family Takaful Company est ab lished (Pak-Qa t a r Family Takaful)

• First Takaful Group c a t ering b ot h Family (Life) an d G eneral Takaful needs est ab lished (Pak-Qa t ar Ta kaful Group)

2007

Tota l 5 Opera tors: 3 fo r Gene ral Takaful & 2 for Fam ily Takaful, sinc ethe prom ulgation of Takaful Rules in 2005

History of Takaful in Pakistan

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Need for Taka ful – from Public’s Perspective

Gap!!!

Present

Financial

ProtectionsTools

Public

Beliefs

Public

Awareness

Public

Needs

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Important Points !

Takaful is now a legitimate and commerc iallyviable alternate to conventional insurance.

• M ore than 60% of Takaful c ustom ers in Ma laysia in Ma laysiaare non-M uslims

• This mea ns tha t p e op le a re op ting for Ta ka ful on the b a sis ofperforma nce and not religioussentiments

With the exc ep tion of few most o f the Muslim

domina nt c ountries ha ve poor insuranc epenetra tion ra te.

• Only 8% to 10% of families in Pakistan have a ny form ofinsurance

• Takaful can imp rove this sta tistic

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Takaful Produc ts?

› Takaful has a rich produc t portfolio and provides a ll the fea turesand benefits which conventional insurance has to offer

› Family/Life: Group Life, Health, Retirement Income, Savings &

Protec tion Plans, Mo rtgage Takaful, Critica l Illness, etc

› Gene ral: Mo tor, Fire, Trav el, Ma rine, Persona l Acc ident etc

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How Takaful can help in soc io-ec onomic

development ?

By inc rea sing penetra tion of Ta kaful, theconc ep t of self relia nce can be p romoted .

• Protec t a ga inst loss of income in ca se ofdea th or d isab ility

• M ob ilize sma ll savings to meet long termsinvestment need s

Family Ta ka fulp rod ucts canhelp to

• Prote c t a ga inst fina ncial losses d ue to thedamage to a ssets and p rop erties

Genera l Takafulp rod ucts canhelp to

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Way-Forward?

Structure o f Waq f

Knowledge andtools of risk

management

Institutionsand p roduc tswhich c ould

result in soc io-economic

development

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Jazaakum Allahu Khairan

May Allah Reward you

p.ahmed@pakqatar.com.pk

www.pakqatar.com.pk