TAKAFUL
Shari’ah Compliant Alternative
to Conventional Insurance
Pervaiz AHMED
CEO Pak-Qatar Family
Takaful Limited
16th January, 2012, Lahore
Flow of Presentation

Risk Mitigation from Shari’ah Perspective

Global and National development of Takaful

How does Takaful Function?

Regulatory Framework in Pakistan
Risk Mitigation from Shari’ah Perspective
Is the concept of risk mitigation permissible in Islam?
• This very concept is not only lawful/permissible in Islam but is in fact
encouraged
What are the available risk mitigation tools?
Avoid using Risk Mitigation
Tools
• A concept misunderstood as against Tawakul..
Self-Insurance or setting aside
contingency money for the
rainy day
• Funds may not be sufficient to compensate the
loss
Conventional Insurance
• A commercially viable system but contains the
element of Riba, Gharar, and Qimar/Maysir
Takaful
• A commercially viable system which is also
Shariah Compliant
Risk Mitigation in Islam
Islamic history is replete with examples featuring
risk mitigation activities:
Hadith:
Dhaman
Khatr alTareeq:
Dhaman Ald’ark:
Aqila:
“Tie the Camel
and then Submit
to the Will of
Allah”
A person would
undertake another
person’s risks
without any
consideration/fee
in return
A person would
influence a sale by
promising to
compensate for
the loss if the
subject-matter
proved faulty
A risk sharing
mechanism in
which community
members pooled
their share of Diyat
(blood money)
Shari’ah Ruling on Conventional Insurance
Concept of
Insurance?
?
Content of
Insurance?
Shari’ah 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
What is Allowed?

Risk Transfer without Consideration (premium)

Risk Sharing between Participants
 Basis of Contract: Taburru i.e. unilateral non-commutative
 Takaful Operator has no ownership claim on the contributions
(premiums) paid by the participants
 The Participants lose ownerships rights once the contribution is
paid on the basis of Taburru
 The contribution becomes the property of the Waqf
 Waqf is owned by Allah Almighty
What is not Allowed?

Risk Transfer Against Fixed Consideration (premiums)
 Basis of Contract: Muawaza i.e. bi-lateral sales & purchase
 Reason: Such a contract involves Riba, Gharar, & Qimar/Maysir
Origin of Modern Takaful

Western socio-economic, political, and legal orders overshadowed Islamic and
traditional local norms
 Muslim Revival and Renaissance began around the 1920s on multiple fronts

As a result, development of Islamic Banking started in 1970s

Dubai Islamic Bank, the first commercial Islamic bank, was established in 1975

There was a legal requirement that Islamic banks’ underlying assets be insured
e.g. Car Ijarah

Islamic banks could not avail insurance from conventional companies as that
would be antithetical to the cause

The need for a practical risk mitigation mechanism grew as the Islamic banking
industry grew

First Takaful company was established in Sudan in 1979, four years after the
establishment of the first Islamic bank
Need for Takaful was felt after the development of
Islamic Banking
1975
First Islamic Bank
1979
First Takaful Co.
Development of Takaful Industry
Worldwide Takaful Developments & Growth
8
36
4.3
Approx.
15
1.4
Irani
Operators
(USD) BILLION
3.4
Window
Operators
134
2
# of Takaful
Operators in
2009
Re-Takaful
Operators
>18
2004
2006
2007
2010
2012
Global Market Size (2009) E&Y
Re-Takaful Worldwide
Islamic Takaful & Retakaful Co. (IRTCo.) (Bahamas)
 Hannover ReTakaful B.S.C. © (Bahrain)
 Solidarity Islamic Takaful & Retakaful Co. (Bahrain)
 PT Reassuransi Internasional Indonesia (Indonesia)
 Amin Reinsurance Company (Iran)
 Al Fejr Retakaful Insurance Co. (Kuwait)
 Asean Re-Takaful International (Malaysia)
 MNRB Retakaful Berhad (Malaysia)
 Islamic Takaful & Re-takaful Co. (Saudi Arabia)
 Islamic Takaful and Re-Takaful Co. (ITRCo.) (Saudi Arabia)
 Tokio Marine Nichido Retakaful Pte Ltd (Singapore)
 National Re-insurance Co. (NRICo.) (Sudan)
 Sheikhan Insurance & Reinsurance (Sudan)
 Sudanese Insurance & Reinsurance Co (Sudan)
 BEIT Iaadat Ettamine Tounsi Saoudi Re-insurance (B.E.S.T. Re)
(Tunisia)
 ACR ReTakaful Holdings Limited (UAE)
 Dubai Islamic Insurance & reinsurance Co. (UAE)
 Takaful Re Limited (UAE)
Source: ICMIF Takaful, www.takaful.coop

>
18
Re-Takaful
Operators
worldwide
History of Takaful in Pakistan
2002
• Insurance Ordinance is issued which includes provision for Takaful;
the word “Takaful” is used
2003
• IJTIMA’ held in Darul Uloom, Karachi on permissibility of Takaful
2004
• A committee to frame Takaful rules was founded
2005
• SECP notifies Takaful Rules
2006
• First General Takaful Company established (Pak-Kuwait
General Takaful)
2007
• First Family Takaful Company established (Pak-Qatar Family Takaful)
• First Takaful Group catering both Family (Life) and General Takaful needs established (PakQatar Takaful Group)
Total 5 Operators: 3 for General Takaful & 2 for Family Takaful, since
the promulgation of Takaful Rules in 2005
Takaful Arrangements can be broadly
divided into the following two categories:
Family Takaful covers
All risks associated with human life, like
- death,
- disability and illness
- short-term and long-term investment needs
General Takaful covers
All risks associated with Physical Assets and Property, like
- house,
- marine,
- motor,
- engineering and misc.
Three Operational Models
Pure Mudarbah
Practiced earlier, it is no longer in use.
Pure Wakalah
This model in not widely practiced.
Hybrid –
Wakalah +
Mudarbah
This is the most prevalent model.
HybridWakalah+
Mudarbah+
Waqf
This model was suggested by Shari’ah
Scholars in Pakistan.
How does it Function? Waqf Pool
Participan
t
Surplus
Wakalah Fee, Claims, Re-Takaful
Participan
t
Takaful
Operator
Waqf Pool
Wakala
Wakala
h Wakalah
Wakalah
h
Wakalah
Risk sharing
Between
Participants
Participan
t
Investment
Participan
t
How does it Function? Family Takaful
1
Participant
Contributions
Profits from Investment
Participant’s
Investment
Account (PIA)
5
3
7
Wakalee Fee(s)
for Investment
Management
Contributions for
Takaful Benefit
2
Payment of
Claims
Surplus
Distribution (if
any)
4
6
Waqf Fund
Wakala Fee for
Operating Waqf
Fund
Operator /
Wakeel
Takaful Funds
• Income and
expenses of
Shareholder’s are
managed
Shareholder’s
Fund
• Income and
expenses of
Tabarru/Waqf pool
are managed
Participant
Takaful Fund
• Investments of
Particpants are
managed. This
fund is Only
required in Family
Takaful companies
Participant
Investment
Fund
Surplus Distribution

After deducting the Wakalah Fees, Claims, Re-Takaful
Contributions, Contingency Reserves and Charities etc. the
remaining amount in the pool is to be distributed between the
participants; it does not go to the shareholders

Though Takaful companies are marketing surplus distribution as
USP of Takaful, very few have distributed surplus. This is mainly due
to high up front Wakalah fee and poor underwriting.

In some territories surplus is shared be y the operator as well which
makes Takaful similar to conventional insurance and is damaging
the overall industry image.
Pak-Qatar Takaful Group
First dedicated Takaful Group in Pakistan comprising of both
Family (Life) Takaful and General Takaful operations
100 percent Foreign Owned
Paid up Capital:
- Family Takaful
- General Takaful
- Total
: Rs. 708 million
: Rs. 307 million
: Rs. 1015 million
Pioneers of Family Takaful: S.E.C.P. issued
license to Pak-Qatar Family Takaful for
operations on 16 August 2007
Pak-Qatar Family is the fastest growing Family Takaful company in
the region
Our Sponsors
•
Sponsors include some of the most prominent
financial institutions from State of Qatar and
Munich-based FWU AG
•
Pak-Qatar Takaful Sponsors include:
– Qatar Islamic Insurance Company (QIIC)
– Qatar International Islamic Bank (QIIB)
– Qatar Islamic Bank (QIB)
– Qatar National Bank (QNB)
– Masraf Al Rayan
– The Amwal Group
– FWU AG
•
•
Total assets under management of our top
sponsors are more than US$26.12bn
Shari’ah Advisory Board
• Justice (R) Mufti Muhammad Taqi Usmani – Chairman
• Mufti Ismatullah – Member
• Mufti Hassaan Kaleem – Member
• Mufti Zubair Usmani – Member
Financial Strength Rating

In 2011, JCR-VIS Credit Rating Co. assigned Pak-Qatar Family Takaful a rating of
“A-” (Positive Outlook).

For Pak-Qatar General Takaful, it is “BBB+”
(Stable Outlook).
Family Branches
HO Karachi
Lahore
Islamabad
Rawalpindi
Faisalabad
Quetta
Peshawar
Multan
Hyderabad
Khairpur
Moro
Rahim Yar Khan
Gujrat
Gujranwala
Sialkot
Jehlum
Jhang
Kotli
Branch Network
Family Sub-branches
Khipro
Khanpur
Sargodha
Chishtian
Dera Ghazi Khan
Toba Tek Singh
Mardan
General Branches
HO Karachi
Lahore
Rawalpindi
Faisalabad
Peshawar
Multan
Rahim Yar Khan
Gujranwala
Sialkot
Alternative Distribution
Pak-Qatar is in partnership with top banks in Pakistan, and has established
partnerships with many banks for distribution of Takaful products.






Standard Chartered Bank,
Bank Al-Baraka,
Burj Bank,
Faysal Bank
MCB Bank
Emirates Global
Recent Performance
Gross Contribution 2011
Gross Contribution 2010
Percentage Increase
Pak-Qatar Family Takaful
1,866,211,783
1,044,475,621
79%
Pak-Qatar General Takaful
330,471,929
217,182,324
52.20%
Jazaakum Allahu Khairan
May Allah Reward you
p.ahmed@pakqatar.com.pk
www.pakqatar.com.pk
Thank You
HALAL RESEARCH COUNCIL
Head Office:
192- Ahmad Block, New Garden Town , Lahore, Pakistan
Ph: +92 42 35913096-8 , Fax: +92 42 35913056
E-mail : info@halalrc.org Web: www.halalrc.org