post graduate diploma in islamic banking &...

www.alhudacibe.com/dlp

Flexible - Elegant - Convenient & Self-Managed Study

CENTRE OF ISLAMICBANKING & ECONOMICS

Simply the best Automated Learning Solution

TAKAFUL & RISK MITIGATION TOOLS IN ISLAMPOST GRADUATE DIPLOMA IN ISLAMIC BANKING & FINANCE

IB&F: 408: Different Models, Products & Type of Takaful

AlHuda CIBE

DIFFERENT MODELSIB&F: 408

“Shari'ah principles would help asset managers to step back from financial engineering and shift toward risk and profit sharing, which is much healthier.”

Jaques Tripon, BNP Paribas

PRODUCTS & TYPES OF TAKAFUL

C O N T E N T S

www.alhudacibe.com/dlp

· Takaful (Islamic Insyrance)

· Shrai’ah Ruling for Takaful

· Takaful Models

01

09

12

17

· Types of Takaful

· Products of Takaful

· Discussion Questions

· Summary

· Reference Material

01

09

12

17

IB&F: 408: Different Models Products & Type of Takaful

01

TAKAFUL (ISLAMIC INSURANCE)

Takaful is an Islamic alternative to the conventional Insurance. The words 'Takaful' has been derived from the Arabic verb 'Kafala' which is also referred to as 'Kafalat' in Urdu language, its mean means to guarantee, to help, to take care of one another's needs. The Takaful system has been structured keeping in view the Islamic system of Dait (Blood Money) which is the philosophy behi

nd mutual assistance/Kafalat. Before going into further details about Takaful, we shall have a look at the conventional insurance system and the factors that led to it being considered Haram or illegal in the society. If the importance of insurance is observed in detailed, the following aspects emerge:

n To bear the risk/threatn To protect othersn To share the loss

Keeping in view the basic elements of insurance, it is evident that nowhere in Islam the above mentioned aspects are prohibited and that there is no reason to be considered haram or illegal since Islam itself encourages to help others. Narrated by Hazrat Abu Huraira (R.A.) that the Prophet Muhammad (PBUH) said: “Whosoever removes a worldly hardship from a believer, Allah will remove from him one of the hardships on the Day of Judgment” (Sahih Muslim, Hadith. 59)

Islam teaches us not only to have total dependence on Allah but also emphasizes on self protection against risks and threats. Narrates by Hazrat Anas Bin Malik (R.A.), one day Prophet Muhammad (PBUH) noticed a Bedouin leaving his camel without tying it. He (PBUH) asked the Bedouin, “Why don't you tie down your camel?” The Bedouin answered,

Glossary:

Article Reference:

Kafala: to guarantee

This article is written by Muhammad Zubair Mughal, CEO, AlHuda Centre of Islamic Banking and Economics.

Islam teaches us not

only to have total

dependence on Allah

but also emphasizes

on self protection

against risks and

threats.

TIP

“I put my trust in Allah.” The Prophet (PBUH) then said, “Tie your camel first, and then put your trust in Allah.” (Sunan At-Tirmidhi, 1981)

Islam in fact, even goes to the length of ensuring that incase of one's death, there should be enough to support the widow for at least a year. Therefore, it is decided that the philosophy of Insurance does not contain any flaws from the Shariah perspective and it can not be considered Haram or illegal. Research has shown that the fault lies not in the philosophy itself, but in the methodology carried out by the insurance companies due to which it is looked upon narrow mindedly.

n Riba (Interest/Usury)n Gharrar (uncertainty)n Maysir

Conventional insurance contains both direct and indirect forms of Riba. The direct Riba is in the of Premium and indirect Riba in the shape of interest earned on interest based Investments e.g. by giving loans to financial institutes and banks on interest or by investing in interest based activity at stock exchange etc. thus promoting interest.

Second factor is Gharar, where the person being insured does not know when he would bear the loss and to what amount, or the insurer can ascertain the amount and time with respect to profitability. Third element is Maysir, which involves a chance of total loss to one party in the contract, where profit to one person is directly related to another person's loss. While the relationship of claim between the insurance company and its client is related to each others profit and loss. Thus, by removing these three harmful elements of Riba, Gharrar and Maysir from the conventional insurance, we can call it 'Takaful'. Now, we shall examine how these elements have been removed in the Takaful system.

02

Elements of

Conventional

Insurance are:

Riba (Interest),

Gharar (Uncertainty)

and Maysir

TIP

Keep In Mind

From the above discussion, it is decided that the philosophy of Insurance

does not contain any flaws from the Shariah perspective and it can not be

considered Haram or illegal.


03

The first ever Takaful Company in the world was established 27 years ago in Sudan in 1979 by the name of Sudan Islamic Insurance. It would be interesting to know that the founder of the company was a Pakistani. Following suite, in the same year another company by the name of Islamic Arab Insurance company (IAIC) was formed in United Arab Emirates but it took sometime for the company to establish.

There are approximately more than 108 Takaful and 6 Re-Takaful companies operating globally with an approximate sum of $ 3 Billions Takaful contribution. Out of these companies 60% are General Insurance Companies while the remaining 40% are working as Life and Family Insurance Companies. Geographically, 56% of them are located in South East Asia, 36% in Middle East, 17% in Africa and !% in Europe and America. For the 23% of the Muslim population of the world, the existence of 260 Billion US dollars worth of Islamic Financial Market is a very encouraging factor for the Takaful Companies.

The systems used by Takaful companies in the world can be divided into three models. The models are:

n Mudarba Model (Sudan, African states)n Wakalah Model (Malaysia and other countries)n Wakalah Waqf Model (Pakistan)

SECP is the regulatory authority for Takaful companies in Pakistan and has formulated rules and regulations for the companies by making amendments in the Insurance ordinance 2000 while keeping in view the Islamic perspective/principles of Wakalah and Waqf.

Pak Kuwait Takaful was the first Takaful Company in Pakistan to be introduced. Another company by the name of Takaful Pakistan came into existence formed by Capt. Jamil Akhtar with the mutual collaboration of

The first ever

Takaful Company in

the world was

established 27 years

ago in Sudan in 1979

by the name of

Sudan Islamic

Insurance.

TIP

The first Takaful

Company,

introduced in

Pakistan was Pak

Kuwait Takaful

Company

TIP

Keep In Mind

There are approximately more than 108 Takaful and 6 Re- Takaful

companies operating globally with an approximate sum of $ 3 Billions

Takaful contribution. Out of these companies 60% are General Insurance

Companies while the remaining 40% are working as Life and Family

Insurance Companies.


House Building Finance Corporation (HBFC, Emirates Global Islamic Bank, Arif Habib, Sitara Chemical, Emirates Investments Group (U.A.E.) and Al-Buhaira National U.A.E. Pak Qatar Takaful has also recently started their operation in General & Life Takaful Business in Pakistan.

All the Takaful companies operating in Pakistan are based on the Wakalah Waqf model. The operational methodology/system of the model can be explained through the following example; Some individuals form a Fund on the basis of Waqf and subsequently donate/contribute in the fund, hence giving it the name Participation Takaful Fund (P.T.F) with an understanding that if any calamity/risk befalls any of the participants of the fund, a decided amount would be donated (Tabbaru) to the effected. The fund would be monitored by an organization (Takaful Company) on the pattern of Waqf, to safeguard the deposits and to increase the profitability of the fund. Subsequently, the company would be paid its Wakalah agency fee. The example of a Waqf is similar to that of a Mosque Waqf Committee which receives its contributions from people for the maintenance of the Mosque. Likewise, Takaful Company also acts as a Waqf operator. It will receive donations from the people and strengthen the fund. Incase of a calamity to either of the members of the Fund, the company would pay the compensation. Furthermore, it would do its level best to make the Waqf Fund/Takaful contribution more profitable and for that, it would receive its Wakalah fees which would be its profit.

The element of Riba (Interest) is removed from the whole system in such a manner that the Takaful company would invest in interest free institutions to make the fund more profitable while adhering to the rules and regulations of the Shariah and instead of premium, it would receive Tabbaru. As far as Gharrar is concerned, Takaful company is a Waqf and it does not have any direct relationship with the profit and loss of the

04

Keep In Mind

Takaful Company also acts as a Waqf operator. It will receive donations

from the people and strengthen the fund. Incase of a calam ity to either of

the members of the Fund, the company would pay the compensation.


Person insured, instead the Takaful participants would share the risk from their given donations through mutual consent. Thus, the non compliant elements of the Shariah are removed along with the objections on Islamic banking that if Islamic banking defies interest then how come it practices conventional insurance which contains the elements of interest.

Now a new market will emerge in Pakistan, which would support the Islamic Financial system. Those who abstained from Conventional Insurance by calling it un-Islamic, also their savings will increase due to Takaful. With the increase in Takaful funds, the funding resources of Islamic Banks and Islamic Financial institutions will also increase alongside. Since Takaful companies have to invest without interest, their best choice would be the Islamic Banks or Financial institutions or they would opt for Sukuk (Islamic Bond), which would help in promoting the Sukuk market in Pakistan.

Actually, the promotion of 'Takaf' is related to the expansion of Sukuk market because whenever the issues of underwriting hedge, Insurance of underlying assets etc. will arise, only Takaful will cover them due to

05

The Takaful

participants would

share the risk from

their given

donations through

mutual consent.

TIP

Keep In Mind

The element of Riba (Interest) is removed from the whole system in such a

manner that the T akaful company would invest in interest free institutions

to make the fund more profitable while adhering to the rules and

regulations of the Shariah and instead of premium, it would receive

Tabbaru.

Keep In Mind

With the increase in Takaful funds, the funding resources of Islamic

Banks and Islamic Financial institutions will also increase alongside.

Since Takaful companies have to invest without interest, their best

choice would be the Islamic Banks or Financial institutions or they would

opt for Sukuk (Islamic Bond), which would help in promoting the Sukuk

market in Pakistan.


which both will be promoted dually. Thus the Sukuk would be more easily available as compared to the shares to the general public in the market and they would be assets backed. Consequently, the creative evolution of

06

money in the country will come to a halt because of the asset base which would definitely be helpful in the stability and positive economic growth of the monetary system and short term Sukuk would be the cause of formation of Inter bank market between Islamic Banks and Financial Institutes. We can compare Takaful with a social organization where the Micro Takaful Ideology should be kept in view and used as a weapon to eliminate poverty in Pakistan. To eliminate the poverty from the country, while keeping in view the economic, social and geographical conditions of Pakistan, if Zakat, Waqf and the ideology of Micro Takaful are brought forward together, then it would be no less than a revolution.

If Dr. Younas persists that the interest based micro finance system is the only solution for the elimination of poverty, then was the same existent at the time when there was no Zakat receiver. If we try and find solutions to our social and economic problems in the light of the Holy Quran and Sunnah, then there is success both in the world and hereafter. With the Shari'ah compliant combination of Micro Takaful, Zakat and Waqf and with both positive and constructive thinking, beneficial results with regards

to poverty elimination can be achieved. The question remains, who would think in a positive and broad minded manner when there is no Nobel Prize given on Islamic economics and finance, but only a question.


SHARI'AH RULING FOR TAKAUFUL

Takaful is derived from Arabic word which is defined as joint guarantee, a pact among a group of person who agree to jointly indemnify themselves against any specified calamity or loss. The amount comes out of a common pool created with individual contributions of participating members.This is in line with the command of Allah to assist other those in trouble. Allah says in Al Quran:

“Help one another in furthering virtue and God consciousness (Taqwa) and do not help one another in furthering evil and enmity” (Surah Al Maidah: verse 2)In this verse, Allah says that we need to help each other in doing good deeds but not help each other to commit sin and rancor. In Takaful there are rule and requirements of the Shariah rulings that govern its operation.Allah also says in Al Qur'an (Surah Al Maidah: 90):

“O ye who believe, Intoxicants and gambling, (dedication of) stone and (divination by) arrows, are an abomination of satan's handiwork: eschew such (abomination), that ye may prosper.” (surah Al Maidah : verse 90)

07


08

As we have mentioned before in introduction that takaful is run in line with shari'ah and doesn't implement any elements which is contradicting with the command of Allah such a al-Gharar, al-Maisir and al-Riba'. As long as Shari'ah is concern, all products under Takaful as well as “General Takaful Scheme” product not implement these three elements in their operation. It also in line with another verse in Surah Al Baqarah: 275,

“Allah hath permitted trade and forbidden usury.”In addition, according to the majority of Islamic scholars and ulama' now their made consensus that, “ Takaful will be acceptable in Islamic Ruling as long as there are no element of unjust and cruelty practice among both party. This shariah ruling is also applicable for General Takaful Scheme.


TAKAFUL MODELS

Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden." The role of this practice indicates that the policyholders are in fact the managers of the fund and the ones in ultimate control. However, the commercialization of Takaful has produced several types of Islamic insurance, each reflecting a different experience, environment and perhaps a different school of thought.

Models of Takaful are:

n Mudarabah Modeln Wakala Modeln Waqf Model

Mudarabah Model

The surplus is shared between the participants with a Takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5, 6:4 etc. as mutually agreed between the contracting parties. Generally, these risk sharing arrangements allow the Takaful operator to share in the underwriting results from operations as well as the favorable performance returns on invested premiums.

Mudarabah is also de?ned as the contract between one party, known as the Rabul mal (capital provider), with another party known as the Mudarib (entrepreneur) where the Rabul mal provides the capital, and the Mudarib provides the skills in a business venture. When there is pro?t, it is shared between the Rabul mal and the Mudarib in a pre-agreed manner. In this case, the Takaful operator is the Mudarib and the participants are the capital providers. The pure Mudarabah model conforms to this definition and is practiced mainly in the Asia Paci?c region.

In this Mudarabah model, the Shariah committee generally approves the sharing ratio for each year in advance. The sharing of such pro?t (surplus) may be in a ratio of 5:5, 6:4, 7:3, etc. Generally, these risk-sharing arrangements allow the Takaful operator to share in the

09

Under Mudarabah

Model, the Takaful

operator is the

Mudarib and the

participants are the

capital providers.

TIP

Musarabah Model

is practiced mainly

in Asia Pacific

region.

TIP


underwriting results from operations, as well as the favorable performance returns on invested premiums.

In a pure Mudarabah model, the Takaful operator and the participant share direct investment income only and the participant is entitled to a 100% share of the surplus. This model is applicable to family Takaful as the fund is entirely distributed to the participants.

In a modi?ed Mudarabah model, the investment income is ploughed back into the Takaful fund and the Takaful company shares with the participant the surplus from the Takaful fund. According to Mr. Azman Bin Ismail, under the modi?ed Mudarabah model, no pro?t from the venture is shared between the operator and the participants. Instead, what is shared under the modi?ed Mudarabah model is the actual balance of the fund at the end of the period (also called underwriting surplus), and not the surplus between the balance of the Takaful fund at the end of the period (meaning the Mudarabah contract) and the balance of the Takaful fund at the beginning of the period.

In general Takaful business, the balance (or underwriting surplus) of the fund at the end of the period is always less than the balance of the fund at the beginning of the period. Under a pure Mudarabah model, if there is a loss, the Rabul mal loses (some of) his capital and the Mudarib loses in terms of effort. Therefore, the modi?ed Mudarabah model is not really Mudarabah, and that is why some scholars, especially in the Middle East do not condone it. It is important to note that under Mudarabah, the Takaful fund belongs to the participants and not the Takaful operator. The Takaful operator therefore has no right to a share of the surplus. We can express the Mudarabah Model in below given diagram.

10


Wakalah Model

The Wakala Model, commonly used in the Middle East, distinguishes between the operating company (wakeel) and the Takaful fund. The operating company does not share in the underwriting result, but rather it is compensated by a fee deducted from contributions made by participants and/or investment pro?ts generated by the Takaful fund. The fee rate is ?xed annually in advance in consultation with the Shariah committee of the company.

In order to give incentive for good governance, the management fee is related to the level of performance. The surplus of the Takaful fund belongs to the members; the operating company does not have a claim on it under any circumstances.

If the Takaful operator is to generate a pro?t from its efforts, it must manage the operations (including salaries, overhead, selling commissions, sales and marketing expenses, etc) entirely within the disclosed wakala fees.

11

The Wakalah Model

is commonly used in

the Middle East.

TIP


Since there is no other bene?t to the takaful operator other than the declared wakala fees, the wakala model “demands” that all other charges/ costs to the program be provided to the participants at the lowest possible cost level that can be negotiated by the operator on their behalf.

The Wakala model can be viewed as transparent as fees a re clearly related to the operator's operational costs. Mudharaba practices are usually preferred for investment aspects of takaful, while wakala practices are favored for risk sharing/underwriting aspects of the operation.

The diagram of Wakala Model is given below:

12

Keep In Mind

Mudharaba practices are usually preferred for investment a spects of

takaful, while wakala practices are favored for risk sharing/under -

writing aspects of the operation.

Payment of

Contribution

by

Participant

(based on

Tabarru’

and

Wakalah

contract)

Surplus

(if any)

Takaful Fund (TF)

(100 - Y) %

Underwriting cost & reserves

• retakaful • claims • reserves

Provisions

• doubtful debt

Shareholder Fund (SF)

+ Wakalah fee

+ Share of surplus (if any)

+ Investment income of SF

Investment Income

Participants

Wakalah Fee (Y%)

Qard Hassan

to cover deficit

50 % of

Surplus

50 % of

Surplus


Waqf Model

This non profit model includes social governmental owned enterprises and programs operated on a non-pro?t basis which utilizes a contribution that is 100% tabarru (donation) from participants who willingly give to the less fortunate members of their community.

Waqf, in contrast to wakala and mudharaba, operates as a public foundation. Whereas the takaful fund is owned models in waqf, it belongs to nobody in particular. While any surplus from the ?rst two models can theoretically be distributed between members (although this rarely occurs in practice, other than in family takaful), such distribution is not possible in the waqf model, similar to the build-up of unallocated surplus commonly seen in some Western European life insurance models. Other things being equal, this may have a positive effect on the company's ?nancial strength over time. Justice Muhammad Taqi Usmani, who has vast knowledge in the interpretation of Islamic jurisprudence, in particular relating to the Shariah laws governing ?nance and economics, believes strongly in the waqf model. He feels that waqf is more compatible with the co-operative concept of Takaful as it is created for the very purpose of co-operation. He said that if one establishes a fund for Takaful, then the fund should have a legal entity. So whenever one contributes to this fund, the contribution is regarded as a contribution for the common good. When the Waqf fund distributes the funds between the members according to its own rules, the fund needs to have its own legal entity, and according Islamic jurisprudence, waqf is an independent entity, hence he prefers this model and now in Pakistan the combined model name Wakala-

Waqf model is under practice and it is illustrated in below figure.

13

Waqf, in contrast to

wakala and

mudharaba,

operates as a public

foundation.

TIP


14


TYPES OF TAKAFUL

There are basically three types of Takaful, named as:

n Banca takafuln Re-Takafuln Micro Takaful

Let us discuss each of them in detail:

Bancatakaful

Bancatakaful is defined as the delivery and distribution of a suitable range of tailored 'bankable' protection and long-term savings, education and retirement plans designed to meet the lifecycle needs of the consumer base of a bank or other financial institution. In Bancatakaful, Takaful products are being distributed by a bank. Lifecycle needs of the consumer are shown in the diagram:

15

Bancatakaful is

defined as the

distribution of

Takaful products by

Banks (Normally

Islamic Banks)

TIP


Bancatakaful makes sense from all perspectives: Customer, Bank, and Takaful Operator. From customer perspective it is trust worthy and convenient. From Bank/Takaful Company Perspective, it contains additional distribution & manufacturing profits, leveraging of existing infrastructure and ready customer database.

Bancatakaful Models

Integrated Models of Bancatakaful may offer the greatest potential for long term growth. The models are as follows:Distribution Arrangements

n Relatively quick and easy to set up.n Questionable commitment of Banking Partner Fully Integrated in

Financial Groupn Acceptance with Banking Group.n Associated with higher levels of commitments.n Greater efforts to set up and sustain.

Joint Venture

n Hybrid of the above two modelsn Increased level of commitment as Bank also shares in Takaful

Company profitability.n Banking Culture versus Insurance / Takaful Culture

Banking Channels

Successful Bancatakaful players use multiple banking channels and service touch points to acquire and service the Takaful Participants. The channels can be:

n Bank marketing Staffn Takaful marketing Staffn Third Partyn Face to Face

o Brancho Mobile

n Telemarketing, internet, ATM

16


Banks' Target Market for Takaful (Insurance)

Banks targets the following entities for Takaful (Insurance):

n Existing Account holdersn Card holders

o Credit Cardo Debit Cardo Relationship Card

n Loan Customerso Mortgageo Personalo Auto etc.

n Potential New Customersn High Net Worth Clientsn Islamic Banking Customers

Bancatakaful as a Growing Opportunity

Financial Crisis is an opportunity to Establish Bancatakaful as a Force. The financial crisis has severely impacted financial institutions and the ensuing recession has severely affected growth forecasts in all sectors and regions. Takaful operators that successfully manage their business risks and think “out of the box” will be well-placed to take advantage of emerging opportunities Bancatakaful is one of these opportunities.

Advantages and Benefits of Bancatakaful

Bancatakaful has many advantages for banks, Takaful companies and the customers. Let us discuss the advantages one by one:

Advantages for the Banks:

n The Bank sees Bancatakaful as a way of creating a new revenue flow and its extensive branch network is efficiently used.

n Diversifies its business activitiesn Covers all customers' needs – whether financial or protection

related.n The distribution costs are marginal since it is the Bank's existing

employees who sell the products.

17


Advantages for the Takaful Company:

n Extends its client base due to Bank's extensive network.n Provides access to clients who were otherwise difficult to reachn Varies the distribution channels.n The Takaful Company often benefits from the well-established

brand image and service reliability that people attribute to Banks.n Lower cost compared to the cost of the traditional sales

representatives.

Advantages for the Customers

n The client enjoys greater access to all financial services from the Bank including protection – “One Stop Shop” or “Islamic Financial Supermarket”

n The client benefits from cheaper Takaful products than through traditional channels.

n Contribution payment methods are simplified since they are collected directly from Bank accounts.

Re-Takaful

Re-takaful is a form of insurance whereby the Takaful operator pays an agreed upon premium from the Takaful fund to the reinsurance company or Re-takaful operator, and in return, the Reinsurance company or the Retakaful operator will provides security for the risk reinsured. Reinsurance is best thought of as "insurances for insurance companies”. Or we also can say that Re-takaful is a “takaful for takaful operators”. It is a way for a primary insurer to protect against unforeseen or extraordinary losses.

Reinsurance serves to limit liability on specific risks, to increase individual insurers' capacity, to share liability when losses overwhelm the primary insurer's resources, and to help insurers stabilize their business in the face of the wide swings in profit and loss margin inherent in the insurance business.

18

Reinsurance is best

thought of as

"insurances for

insurance

companies” or we

also can say that Re-

takaful is a “takaful

for takaful

operators”.

TIP


From the above diagram, takaful holders are individuals or companies that buy the Takaful products either General Takaful products or Family Takaful products and pay an agreed upon premium to the Takaful operator to protect them from unforeseen risk and also extraordinary losses. Then, the Takaful operator will take a portion of money from Takaful fund and pays premium to the Re-takaful operator to get reinsurance protection to spread its risks. Reinsurance contracts may cover a specific risk or a broad class of business.

Nature of Re-Takaful

Re-takaful or Islamic reinsurance is essentially about handling risk. It is a risk aversion method in which the Takaful ceding company resorts to either a conventional reinsurer or a Re-takaful operator to reinsure original insured risks against an undesirable future situation if the risk insured were above the normal underwriting or claim. Thus, a Takaful ceding company may, based on limited financial resources, hedge against possible incapability to meet all Takaful reinsurance protection from a financially capable reinsurer, which will take over the coverage of the large proportion of the risk.

The Shariah principles applying to Takaful apply to Re-takaful operations as well. The difference, if any, is that in the Re-takaful operations, the participants are Takaful operators instead of individual participants. It is argued that the current practice of insurance business has shown that a Takaful ceding company cannot do without Re-takaful facility. Therefore, there is a need for Takaful

19

Takaful

Holders

Takaful

Operator

Re-takaful

Operator

General

Takaful

Product

Family

Takaful

Product

Pays

Premium

From Takaful

Fund


operators to split risks by way of establishing Re-takaful operators. By doing so, they share their risks with Re-takaful companies. The Re-takaful operator, on the other hand, assumes the responsibility of managing and investing the premiums of Takaful operators on the basis of Profit Loss Sharing.

Conceptually, the function of reinsurance is not against the principles of shariah. However, the operations of the conventional re-insurance companies are not in compliance with the rules and principles of the Shariah.

Parties involved in Re-takaful Operations

There are two parties involved in Re-Takaful operations:

n Takaful Operator: The insured (ceding company), that is, the direct insurer, which desires to relieve itself from the part of the risks, insured.

n Re-Takaful Operator: The insurer, (a company), which accepts that portion of risk, which is reinsured.

Re-Takaful operators cannot operate without the operation of Takaful operators. In addition, the Shariah laws leading the process of Takaful also apply generally to the Re-Takaful operator.

Objectives and Functions of Re-Takaful

Re-Takaful is “to enhance Takaful activity by distributing risks. It is mainly for covering large risks and large accumulation of risks subject to common loss”. It is to ensure that Takaful funds are managed to meet indemnity obligations of the insured and reinsured and to assure the continuity of Takaful operations. Thus the objectives of Re-takaful can be summarized in the following:

n Protecting the Takaful operator from the threat of insolvency, underwriting and interest of the participants, forging co-operation among the participants and investing the accumulated fund in an Islamic way

n Provides underwriting flexibility and further consolidating the financial stability of the Takaful operator in order to compete with

20


conventional insurance companies in accepting risks. This means Re-Takaful “build a very close continuing business interest in common between the Takaful ceding company and the reinsurer because they are both at risk.”

n It may allow the Takaful operator to utilize the retained deposit reserves of the Re-Takaful fund in the interest of its clients without paying interest as a process of making the reinsurance industry an interest free business.

Methods of Re-Takaful

From the above chart, facultative reinsurance means that reinsurance of individual risks by offer and acceptance wherein the reinsurer retains the “faculty” to accept or reject each risk offered. Then, from the treaty, it is divided into two; proportional and non-proportional.

Under proportional we have quota share and also surplus where quota share is the basic form of participating treaty whereby the reinsurer accepts a stated percentage of each and every risk within a defined category of business on a pro rata basis. Participation in each risk is fixed and certain. Statutory surplus is an insurer's or reinsurer's capital as determined under statutory accounting rules. Surplus determines an insurer's or reinsurer's capacity to write business.

21

Surplus is the excess

of assets over

liabilities

TIP


On the other hand, non-proportional consists of excess of loss and stop loss. Excess of loss is a form of reinsurance under which recoveries are available when a given loss exceeds the cedant's retention defined in the agreement. While stop loss is a form of reinsurance under which the reinsurer pays some or all of a cedant's aggregate retained losses in excess of a predetermined dollar amount or in excess of a percentage of premium.

General Re-Takaful Products

General Re-Takaful products include the following:

n Fire/Property Re-Takaful

The Fire/Property Re-Takaful normally covers or protects the policyholder's property from damage or loss due to fire, lightning, explosion (domestic) or any other related perils. The additional coverage is extended also to any damages, which are caused by:

n Riot, strike, or malicious damagen Explosionn Impact damagen Bursting or overflowing of water tanks or pipen Earthquake or volcanic eruptionn Floodn Aircraft damagen Windstorm

This Fire/Property Re-Takaful policy covers building and/or machine, stocks and also householders.

22

Glossary:

Cedant: Cedant is a ceding insurer or a reinsurer. A ceding insurer is an insurer that

underwrites and issues an original, primary policy to an insured and contractually

transfers (cedes) a portion of the risk to a reinsurer. A ceding reinsurer is a reinsurer

that transfers (cedes) a portion of the underlying reinsurance to a retrocessionnaire.


n Misc Accident Re-Takaful

It offers coverage for misc accident for individual for instance misc accident on the way to the workplace or traveling, coverage for drivers and also passengers where the scope of coverage is the medical expenses, suffering from physical or mental disability either temporary or permanent and also death.

n Marine Re-TakafulMarine Re-Takaful covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. There are two types of Marin Re-Takaful:

n Marine Cargo Re-Takafuln Marine Hull Re-Takaful

n Motor Re-TakafulIt offers coverage for private car or motorcycle as well as commercial transportation.

n Engineering Re-Takaful

Engineering Re-Takaful normally covers loss of profit due to machinery breakdown, boiler and pressure vessel, erection all risk, storage tanks, and others.

n Special Risks Re-Takaful

It covers all the risks or hazards of a special or unusual nature.

23


Differences between Re-Takaful and Reinsurance

24


Differences Re-Takaful Reinsurance

Riba and

Gharar

Re-Takaful operation does not earn commission as a profit or interest, because this commission is subject to Riba and dilutes the purpose of setting up a Takaful operation. The Re-Takaful operation is dependent on actual expenses spent by the Takaful operator in the process of Re-Takaful

The conventionalreinsurance operation is subject to Riba and gharar, which are not in line with Shariah principle. For instance, the reinsurance commission which the direct insurance company earned from thereinsurance treaty. It is because this commission is frame in a way that renders the commission ribawi and implicate in a high degree of gharar.

Principle of

Insurable

interest

According to Islamic laws with regards to insurable interest, which is holding specific financial interest in the subject matter of the insurance as a cardinal principle of the legality of the Retakaful, contract. Under Islamic laws, the reinsured party does not get an insurable interest or to reinsure the property of the original insured party without permission from the policyholder. However, because the Re-takaful operation is based on mudharabah principle, it vested a right to reinsure on the insurer because the permission from the policyholder isautomatically inherent in the contract ofmudharabah

Insurable interest is vested in the reinsured party. The fact that the reinsured party has issued a policy and assumed liability to its original insured party has been held to give it insurable interestsufficient to enable it to reinsure. The point is that although the reinsured party (direct insurance company) has no actual legal interest in the property, the subject matter of the original insurance policy, it has assumed responsibility in regard to it, and has therefore put itself into a position, recognized by law, in which it would be prejudiced by its loss

The Example of Re-Takaful Flow Chart Operation

The Flowchart above shows Re-Takaful operation. Firstly, the company invests Rs. 1,000,000 that are taken from Re-Takaful Fund. Let say the investment brings profit of Rs.100, 000 to the company; this profit will be added back to the Re-Takaful Fund. Now the company has Rs. 100,000 in the Re-Takaful Fund. This amount of money will be used for operational cost of Re-Takaful to pay for claims up to Rs. 500,000 and also reserve for Rs. 300,000. Then, the surplus profit of Rs. 300,000 will be divided between Re-Takaful Company and also cedants, which are the Takaful operators. The Re-Takaful company will get 60% from the profit which is Rs. 180,000 and Takaful operators will get 40% from the surplus profits which is Rs. 120,000.

Micro Takaful

Insurance is now recognized as an important tool for poverty alleviation. Micro Takaful is the Takaful scheme for low-income people. All the Takaful products like Takaful financing, Takaful education, fire, pension, etc, can be delivered to the poor with some modification to allow low premium contributions collected on a periodic basis.

“Takaful is the second most important social institution to counter poverty and deprivation.” (Omar Fischer, 1999)

25

Profits

Rs. 100000

Re-Takaful

Fund

Rs. 1,100,000

Re-Takaful

Fund

Rs. 1,000,000

Operational Cost of Re-Takaful

Claims

Rs.500, 000

Reserve

Rs. 300,000

Surplus

Profit

Rs. 300,000

Company

Rs.180, 000

Cedants

Rs.120, 000


26

Generally, “Micro-insurance is viewed just like other normal insurance on small scale for low-income people” it can be redefined as “A mechanism to provide Shariah-based protection to the blue collared, under-privileged individuals at an affordable cost”.

Micro Takaful Delivery Models

Micro Takaful can be delivered through these models:

n Full Service ModelRegulated insurers downsizing insurance services like Delta Life (Bangladesh), which offers a long-term savings product (annuity) with life insurance and a premium affordable by the poor. Some MFIs also assume the role of insurers. Most of these offer only basic credit life insurance to protect their loan portfolios.

n Community-Based Model

Local communities form groups that capitalize and manage a risk pool for their members.

n Provider Model

Hospitals and clinics create prepaid or risk pooling coverage for people at their facilities.

n Social Protection Model

National governments often underwrite cover for certain risks through social insurance programs such as with healthcare, crops and livestock, and covariant risk.

n Partnership Model

Insurers, with products, are pairing with MFIs and others, with low-income markets, to provide micro Takaful, as AIG does with MFIs in Uganda.


27

As complexity of

Micro Takaful

products increases,

the value for

policyholders

increases too.

TIP

Micro Takaful Products

Most common types of micro Takaful product like credit life, term life/Personal Accident, saving life, property insurance, endowment life, agriculture and health insurance. Credit life is a simple product hence its degree of difficulty is lower than term life or health insurance. Therefore degree of success offering credit life is higher than offering savings life or health insurance.

These short-term, credit-linked products represent building blocks. Beginning with Credit Life, each builds on the systems and experiences of the previous product. For example, if an MFI has effective systems to manage a Credit Life product, it is easy to add Credit Disability, and not too complicated to offer an Additional Benefit policy. It is anticipated that these products would be introduced one-by-one over a period of years as the MFI develops expertise, although of course an MFI need not provide all of them.

As complexity of these products increases, the value for policyholders increases too. With Credit Life and Credit Disability, the protection largely accrues to the MFI since insurance reduces its credit risk.

The Need for Micro Takaful

Micro Takaful is needed due to following reasons:

n Social services are inadequate or unavailable.n Many large sectors are in poverty in many Muslim countries.n Over half of the world's lowest developed countries have a

majority Muslim population.n Increasing inequality in Middle East and Gulf Countries.n Religious considerations are important in Villages and small

communities.n Established Takaful sector is neglecting low income sector.


28

Benefits of Micro Takaful

How can Micro Takaful be provided?

Micro Takaful can be provided by using following methods:

n Establish informal Micro Takaful schemes.n Encouragement of Pro-poor organizations.n Education at government and donor agencies.n Involvement of Takaful sector by using technical

expertise, financial assistance or Partner-Agent Model.

Some Tips for a Successful Micro Takaful

To ensure the success of micro Takaful, a Takaful operator must look at the following:

n Real, integral partnerships with people's organizations; n Products decided/agreed on by partner organizations;n Trust and transparency between the partner and the insurer; n Simple products; n Group insurances; n Minimal marketing costs; avoidance of commissions; n Risk-only coverage;n “Automatic” coverage linked to other activities;n Aggregated premium payments; n Stream-lined administration;n Simple claims procedure and verification; n Rapid delivery for benefit payments;n A profit-Sharing Mechanism


29

Case Study: Micro Takaful in Practice

Takaful IKHLAS Generally, Takaful IKHLAS protection plans are made to fulfill the needs of various customers, from the lower income group to those with higher income. These days there are many Takaful protection products that emphasize on product innovations offering special characteristics to ensure market acceptance as well as providing alternatives in choosing the right product as an asset and family protection.

If we have made all the right planning, then there is no reason for us to worry. Should a disaster or calamity like flood strikes, at least a form of protection has been made on our properties as well as ourselves and families, and therefore we can continue with our lives comfortably and calmly without much hassle.

Acquiring Takaful protection plans is a wise decision and necessary for an individual or a family, and as in the saying 'be prepared for the rainy days', with Takaful protection you will have the ease of mind because your valued belongings are assuredly protected.


30

PRODUCTS OF TAKAFUL

A number of Takaful insurance companies are operating in different countries. The basic trust of Takaful is to foster the spirit of cooperation among the members of the society. The principle of bearing the losses by the participants on a cooperative basis ensure enhancement of this spirit. There are generally two types of products of Takaful business, offered by the Takaful companies:

n General Takafuln Family Takaful

The prime idea of establishing Islamic insurance company is to provide the Islamic Banking system in Malaysia with a complete supporting institution that is in the line with Shari'ah. Let us discuss the types in detail.

General Takaful

Basically, the general Takaful scheme is based on tabarru' and mudarabah principle, where the participants enter into a contract with the company (operator). This short-term contract of joint guarantee is to provide protection against losses, which may be due to the personal accidents and loss or destruction of property. The amounts of participants' contribution are determined by the terms agreed in the contract, by considering the value of the property and risk involved.

In general Takaful, the company raises a fund, which called as 'tabarru' fund or account, where the participants pay their contribution to the fund. The company will invest the remainder of the fund after deducting the operational cost of the scheme. Any profit or return from the investment will be returned back to the fund. If there is any participant who has occurred loss or damage to his property or belonging, then the particular participant will be compensated from this fund, by considering the level of damages and losses that the participant has suffered.

As stated earlier, the profits from the investment out of 'tabarru' fund will be returned back to the fund, so that the company will be able to apportion a greater amount of money into more profitable investment


31

areas. Moreover, when the company is always making the profits from its investment, which generate a stable financial position throughout the company, then it enable the company to return the profits back to the participants.

The return of profits or profit sharing is the term or condition, which actually stated in the contract agreement between company and participants, which provides the portion of both parties to the profits arising from the investment. The profits will be divided just after deducting the operational costs, provided that it is still profit position after the deduction. However, the profits sharing will exclude those who get compensation from their claims. Generally, the sharing ratio will be determined by the both parties according to the principle of al- Mudarabah, such as 50:50 or 60:40.

In Malaysia, there are two main companies which currently operate the Takaful scheme, which are:

n Syarikat Takaful Malaysian Takaful National

As we mentioned before, General Takaful Scheme provides a form of cover against material loss and damage. The General Takaful products offered by Takaful Nasional are as follows: fire, accident, motor, engineering, miscellaneous, and marine takaful schemes.

The Operation of the General Takaful

General Takaful maybe participated in by an individual or a corporation in order to cover against any loss or damage of properties or goods due to fire, accident, flood, etc. Like Family takaful, participants of general takaful also enter into an agreement based on Al-Mudharabah, which stipulates the right and responsibilities of parties involved. The contract clearly defines the rights and obligations of both parties.

The participants pay installments as tabarru' to the company which are credited to the general takaful fund of the company. This fund is invested by the company according to the provisions of Shari'a and the profit generated from such investment is pooled back to the fund. In line with the virtues of cooperation, mutual assistance, and share responsibility as embodied in the concept of takaful. The company will pay compensation


32

or indemnity to the fellow participants who suffered as loss consequent upon the occurrence of any disaster as outlined in the contract. If, after deducting all the operational costs, there is a surplus of the general takaful fund, it will be distributed between the participants and the company as per conditions of the agreement.

Principles of General Takaful Operation

The principles of General Takaful operations are as follows:

n Participant's Interest

The competency of person to affect Takaful Contract is determined by his legal capacity to contract and his interest in the subject matter covered. The cover afforded under a Takaful contract is not the subject matter covered but the participant's pecuniary in the subject matter.

n Utmost Good Faith

The Takaful contract cast a duty on the proposer discloses all material facts bearing on the contract. The duty of good faith applies to both the participant and the Takaful operator, like the proposer must not withhold information to the proposer, which led him into a less favorable contract.

n Proximate Cause

The essence of the Takaful contract is the provision of indemnity for financial loss suffered by the participant as a result of the happening of an event covered against under the contract. It is necessary to state the perils against which cover is given, so that the intentions of the parties are clearly defined.

n Indemnity

The Takaful contract is a contract of indemnity; it is a contract to pay the actual loss sustained by the participant. It is a mechanism by which the Takaful Company provides financial compensation in an attempt to place the participant in the same pecuniary position after the loss as he enjoyed immediately before the loss.


33

n Subrogation (Hulul) And Contribution (Musahamah)

The Takaful contract not only upholds the principle of indemnity but also Equity. Both the Subrogation and the Contribution principles are corollaries to the principles of indemnity and Equity.

General Takaful Products

The coverage of the General Takaful products is similar with the conventional products except for the existence of takaful elements of Tabarru' and Mudharabah.

The element of Tabarru' differentiates the general takaful products from the conventional products. Tabarru' means that the participant (i.e. the policyholder) agrees to donate his contribution (premium) to the fund with a mission to help other participants of Takaful covered under the various Takaful schemes when in distress. Therefore, it is the members who are carrying the risk and the Takaful Operator is merely a custodian. If the contribution is made with the right intention of helping the fellow participants in need (i.e. the spirit of tabarru') hence the elements of gharar (uncertainty) and maisir (gambling) are eliminated.

The other is the element of Mudharabah or the profit sharing. The Takaful Operator is merely a custodian of the Takaful fund. The contribution receives from the participant will be kept in a fund and invested in the Islamic investments and at the end of the period of takaful, the profits (if any) will be shared with the participants provided there is no claim made by the participant. The profit sharing ratio will be made known to the participant up front and agreed by both parties. For General Takaful, the ratio is 50: 50.

Keep In Mind

The element of Tabarru' differentiates the general takaful products from

the conventional products. Tabarru' means that the part icipant (i.e. the

policyholder) agrees to donate his contribution (premium) to the fund

with a mission to help other participants of Takaful covered under the

various Takaful schemes when in distress.


34


35

Family Takaful

A family takaful plan is a long-term savings and investment programme with a fixed maturity period. Apart from enjoying investment profit, the plan provides mutual financial assistance among its participants.

The family takaful plan is a financial programme that pools efforts to help the needy in times of need due to untimely death and other mishaps resulting in personal injury or disablement.

The takaful plans designed by the takaful company would enable participants to participate in a takaful scheme with the following aims:

To save regularly; n

To invest with a view of earning profits which are Shari'ah- n

compliant; and To avail of cover in the form of payment of takaful benefits to n

heir(s) should a participant die before the maturity date of his takaful plan.

It covers all the risks associated with human life like death, disability and illness including short tem and long term investment needs.

Family takaful provides you with a protection and long-term savings. A person or his/her beneficiary will be provided with financial benefits if the person suffers a tragedy. At the same time, he will enjoy a long-term personal savings because part of your contribution will be deposited in an account for the purpose of savings. He will be able to enjoy investment returns from the savings portion based on a pre-agreed ratio. If the person participates in family takaful, he will be eligible for personal tax relief as in life insurance.

Takaful Concept in Family Takaful

When you participate in family takaful, you will contribute a certain amount of money to a takaful fund. You will undertake a contract (Aqad) for part of your contribution to be in the form of participative contribution (tabarru') and the other part for savings and investment. Your contribution in the form of tabarru' will be placed in a fund (Participants' Special Account or PSA) that will be used to fulfill your obligation of mutual help, should any of the participants face a


36

misfortune arising from death or permanent disability. If you survive until the date of maturity of the plan, you will be entitled to share the net surplus from the fund, if any. The takaful operator will invest your savings and investment contribution (Participant's Account or PA) and the profit will be shared between you and the takaful operator according to a pre-agreed ratio.

The Operations of Family Takaful

A person who participates in any family Takaful plan is called a participant. A participant may choose any one of the plans offered by the company. The family Takaful plans have a defined period of participation. The Takaful company and the participant will enter into a long-term Takaful contract, which is based on the principle of Al-

Mudarabah (profit-sharing). The takaful contract spells out clearly the rights and obligations of the parties to the contract. The participant is required to pay regularly the takaful installments in consideration for his participation in the takaful plan.

The participant will decide the amount of takaful installments that he wishes to pay, but such an amount shall be subject to the minimum sum as determined by the company.

Each takaful installment paid by the participant shall be divided and credited by the takaful company into two separate accounts, namely the participant's account and the participant's special account. A substantial proportion, for example, such as 93% of this installment is credited into his participant's account solely for the purpose of his savings and investment. The balance is credited into participant's special account as tabarru' for the purpose of mutual help. Mutual financial assistance such as takaful death benefits to fellow participants is paid from the participant's special account. What proportion of the takaful installment to be relinquished as tabarru' and credited into the participant's special account is determined based on sound actuarial principles.

The family Takaful

plans have a defined

period of

participation.

TIP


37

The takaful installment credited into these two accounts will be pooled as a single fund for the purpose of investment activities undertaken by the takaful company in a manner permitted by the Sharia.

Any profits generated from the investment shall be shared between the participant and the company in a ratio to be mutually agreed between the participant and the company in accordance with the contract of Al-

Mudharabah. For instance, if the ratio agreed is 7:3 then the participant shall be entitled to 70% of the profits whilst the company shall be entitled to 30%.

The participant's share of the profits shall be credited into his participant's account. With the accumulation of such profits, the balance in the participant's account will increase over a period.

Family Takaful Benefits

In the event that a participant should die before the maturity of his family takaful plan, the following takaful benefits shall be paid to him:

The total amount of the takaful installments paid by the n

participant from the date of inception of his takaful plan to the due date of the installment payment prior to his death and his share of profits from the investment of the installments which have been credited into his participant's account;

The outstanding takaful installments which would have been n

paid by the deceased participant should he survive. This outstanding amount is calculated from the date of his death to the date of maturity of his takaful plan which shall be paid from the participant's special account as agreed upon by all the participants in accordance with the takaful contract.

Keep In Mind

Any profits generated from the investment shall be shared between the

participant and the company in a ratio to be mutually agreed between the

participant and the company in accordance with the contract of Al -

Mudharabah. For instance, if the ratio agreed is 7:3 then the participant

shall be entitled to 70% of the profits whilst the company shall be entitled to

30%.

IB&F: 408: Different Models Products & Type of TakafulIB&F: 408: Different Models Products & Type of Takaful

38

If a participant survives until the date of maturity of his takaful plan, the following takaful benefits shall be paid to him:

The total amount of takaful installments paid by the participant n

during the period of his participation plus his share of profits from the investment of the takaful installments credited into his participant's accounts.

The net surplus allocated to his participant's special account as n

shown in the last valuation of the participant's special accounts.

In the event that a participant is compelled to surrender or withdraw from the takaful plan before the maturity of his takaful plan, he shall be entitled to the surrender benefits.

The participant is entitled to receive the proportion of his takaful installments that have been credited into the participant's account including his share of investment profits. However, the amount that has been relinquished as tabarru' will not be refunded to him.

Needs of Family Takaful

Family takaful is needed because of two reasons:

Protection n

It includes protection against financial loss from death, disability or medical illness. Example includes Participation Takaful fund (PTF).

Investment Growth n

Family Takaful is needed In order to fulfill short term and long term needs such as: children's education and marriage, purchasing a new house, affording Hajj/Umrah Expenses, Retirement and Income etc. Example includes Participation Investment Account (PIA).

IB&F: 408: Different Models Products & Type of TakafulIB&F: 408: Different Models Products & Type of Takaful

39

Family Takaful products (corporate customers)

n Group Healthcare for employees

The Group Health Takaful Plan is designed to cater to your employees' well-being. It covers their hospitalization due to any reason, major medical expenses, maternity/childbirth as well as day-to-day medical expenses.

n Retirement Income

This Plan enables the employer to provide its employees with retirement benefits, in either lump sum payment or as periodic income.

n Group Family Takaful

The Group Family Takaful is a risk coverage Plan that provides protection to participant's employees in the event of Death due to any cause (Natural, sickness, accident)

Family Takaful Products (Individual customers)

n Savings & Protection

Why borrow loans and incur debts? One can maximize his/her savings through takaful and can meet his/her contingencies.

n Education Plan

A Takaful plan which ensures the continuity of your child's education even when you are not around or cannot afford the tuition fees


Family Takaful Products

There are basically two types of Family Takaful Products: one to corporatecustomers and the other for Individual customers. Let us discuss the products under each head

40

n Mortgage Takaful

In an event of the participant's sudden death or disability, the Takaful Operator will settle the outstanding mortgage finances thus ensuring the security of home for loved ones.

n Retirement Income

A Plan that provides regular income upon one's retirement

How does Family Takaful function?

The functionality of Family Takaful can be explained by the following diagram:


n Takaful is an Islamic alternative to the conventional Insurance. The words 'Takaful' has been derived from the Arabic verb 'Kafala' which is also referred to as 'Kafalat' in Urdu language, its mean means to guarantee, to help, to take care of one another's needs. The Takaful system has been structured keeping in view the Islamic system of Dait (Blood Money) which is the philosophy behind mutual assistance/Kafalat.

n Conventional insurance contains both direct and indirect forms of Riba. The direct Riba is in the of Premium and indirect Riba in the shape of interest earned on interest based Investments e.g. by giving loans to financial institutes and banks on interest or by investing in interest based activity at stock exchange etc. thus promoting interest.

n The element of Riba (Interest) is removed from the whole system in such a manner that the Takaful company would invest in interest free institutions to make the fund more profitable while adhering to the rules and regulations of the Shari'ah and instead of premium, it would receive Tabbaru. As far as Gharar is concerned, Takaful company is a Waqf and it does not have any direct relationship with the profit and loss of the Person insured, instead the Takaful

41

Summary

participants would share the risk from their given donations through mutual consent.

n In this Mudaraba model, the Shari'ah committee generally approves the sharing ratio for each year in advance. The sharing of such pro?t (surplus) may be in a ratio of 5:5, 6:4, 7:3, etc. Generally, these risk-sharing arrangements allow the Takaful operator to share in the underwriting results from operations, as well as the favorable performance returns on invested premiums.

n Bancatakaful is defined as the delivery and distribution of a suitable range of tailored 'bankable' protection and long-term savings, education and retirement plans designed to meet the lifecycle needs of the consumer base of a bank or other financial institution. In Bancatakaful, Takaful products are being distributed by a bank.

n Generally, “Micro-insurance is viewed just like other normal insurance on small scale for low-income people” it can be redefined as “A mechanism to provide Shari'ah-based protection to the blue collared, under-privileged individuals at an affordable cost”.


n What is Islamic Insurance?n What are the Models of Takaful? Explain them in detailn Explain the types of Takaful in detail?n What are the differences between Re-Takaful and Reinsurance?n What are the products of Takaful?

For further study, you can consult our CD or e-library by getting log-in to your account. You

would get number of books, presentations, literature and reports on the following topics:

n Islamic Insurance Theory and Practice by Dr. Ahmed Salee

n Hedging in Islamic Finance by Bashir Ali Khallat

n Guiding principles of Risk Management for Institutions (other than insurance

companies) offering only Islamic financial services IIFS

E-Library:

n Booksn Articlesn Presentationsn Reports

42

Discussion Questions

Supplement Material


post graduate diploma in islamic banking &...

Documents