CHAPTER 4; TAKAFUL

Concept of Takaful
Takaful Operating Model
Takaful Basis of Insurance

Development of Takaful
in Malaysia

2001
Total of Takaful Players
Worldwide
Expansion
of
Takaful38
Players.
Total of Takaful Players Malaysia

2006

2010

133

181

12

DEFINITION OF TAKAFUL
Takaful is an Arabic word meaning
guaranteeing each other or joint
guarantee.
1. It is a syariah compliance mutual risk
transfer arrangement which involves
participants and operators.
It has been practiced between Muslims of
Mecca and Medina by system of aqila.

Takaful
Concept of INSURANCE does not
contradict with the Islamic Principles since
Islam encourages mutual help and loss
sharing amongst its ummah.
The Islamic Insurance model is based on
the principles of mutual &
Shariah compliance

PRINCIPLE OF TAKAFUL
OPERATION

1. TAKAFUL AND ISLAMIC

SYARIAH
Al-Gharar
Gharar can be defined as uncertain or
ambiguity.
By Islamic law, ambiguity must be avoided
in contract in order to prevent conflicts
between parties.

Al-Maisir
refers to gambling.
Islam rejects any contracts that are related
with the gambling elements where
financial gain comes from chance or
speculation.
This element is arises due to the
consequences of the presence of alGharar.

Concept of Takaful
Takaful means "guaranteeing each other "in Arabic
It is a system of Islamic insurance based on the
principle of Taawun (mutual assistance) and
Tabarru(donation)where the risk is shared
collectively by the group of participant voluntarily.
This is a pact among a group of members or
participants who agree to jointly guarantee among
themselves against loss or damage to any of them
as defined in the pact.
Profit is not ultimate objectives in a Takaful contract
but mutual protection and it based on Syariah
principles.

Al-Riba
The practice of al-Riba which means
interest and other related practices in the
investment activities in conventional
insurance that are not in the line of the
syariah law.

AL-MUDARABAH
Contractual agreement between provider
of capital and entrepreneur for business
purpose whereby both parties agree on
profit sharing agreement.
Fair commercial dealing.
Takaful company as the enterpreneur and
participant as capital provider.

CAPITAL FROM
PARTICIPANT
Fund+profit
investment
(RM 110million)
Surplus
(RM80million)
Compan
y
60%

Operation cost
Compensation
to participant
Retakaful
(RM30 million)

Participan
t
40%

AL-TABARU
Donate
The participants of takaful plan make an
agreement to deposit a certain proportion
of takaful installments as donation into risk
fund.
Used to assist participants who might
suffer unexpected financial losses.

THE OPERATION OF TAKAFUL

Licensed and regulated by the Takaful Act
1984
Other insurance industry using the
Insurance Act 1996
The Takaful Act 1984 was announced and
passed by the Malaysian Parliament

 Control by Central Bank of Malaysia

Takaful is a Syariah compliance and the
risk transfer arrangement which involves
participants and operators.
Syariah is based on the Quran and
Assunah underlining the importance of
complying with the religion of Islam.
It approved by
all business of the company will be
transacted in accordance with Islamic
principles, rules and practise.

 a Religious Supervisory Council, whose

members would be made up of Muslim religious
scholars in the country, shall be established to
advise the company on the operations of its
takaful business in order to ensure that they do
not involve any element which is not approved
by the Religion of Islam

ACTIVITIES OF SYARIKAT
TAKAFUL
Family Takaful Fund under the Family
Takaful Business
General Takaful Fund under the General
Takaful Business

SOURCES OF COMPANY
INCOME
Profit from investment of shareholders
fund
share the profit from management of both
takaful businesses in accordance with the
profit sharing agreement of alMudharabah.

PROFIT
The profit sharing based on the ratio 70:30
and 50:50 between the company of
insurance and the participants.
Contribute to the total company income
and credited to the shareholders fund.
Get their payment of dividends when the
company make a profit.
Identify profit or loss of company

MARKETING OF TAKAFUL
Syarikat Takaful Malaysia does not adopt
the agency for its channel of distributions
It has its own branch networks
Eg: branch offices of the Islamic bank,
district offices of the Pilgrimage
Management Fund Board (a government
statutory body).

RETAKAFUL
Reinsurance of takaful business on
islamic principles is known as retakaful.
An insurance company can transfer all of
its liabilities to another insurer.
To protect itself against risk that its total
claims costs is so large.

CONDITIONS:
It should not receive any commission from
reinsurance and reinsure on premium basis
It should not pay any interest.
An islamic insurance companies cannot
participate in the losses suffered by the
reinsurers from their own business.
It cannot receives inward retakaful cession
from the conventional insurance or
reinsurance companies.

TYPES OF TAKAFUL
BUSINESS

FAMILY TAKAFUL BUSINESS

Syarikat Takaful Malaysia provides various
types of product called Family Takaful
Plan-long term al-Mudharabah contracts.
cover their member for those who pay
their contribution by company fund
(tabarru)
Serve both individual and corporate sector

INDIVIDUAL SECTOR
Long term saving and investment
programmed
Provides mutual financial assistance among
its participants
Age of participation: 18-55 years

Enable any individual to participate with

several aims:
to save regularly for a fixed period
to invest in a manner acceptable to Syariah
to avail of cover

CORPORATE SECTOR
a minimum number of participants are
needed to qualify this plan
Offers Group Family Takaful Plan and
Group Medical Takaful
Based on al-Mudharabah principle
will receive benefits in form of mutual
financial benefits in the event of death,
bodily injured or hospitalization

GENERAL TAKAFUL
BUSINESS
Offers takaful product based on the
principle of al-Mudharabah
General Takaful Scheme- short term basis
(generally 1 year)
Helps to compensate its members or
participants
Needs for protection of both individuals
and corporate bodies in relation to
material loss or damage

5 Key Element of Takaful

Differing Treatments
( Insurance vs Takaful)

Takaful Operating Model

There are two funds in takaful organization; Policyholders fund &

Shareholders fund
Contributions by participants are accumulated into the Takaful fund;
whereby a portion is aside as Tabarru ( donation) to pay claims to
fellow participants who suffer specific loss.
The balance of the contribution forms the participants savings &
investment.
Source of income to the Takaful Operator comprise the
management fee or share of underwriting surplus.
2 main Takaful Operating Model;
Al Mudharabah (Profit sharing) Model
Al Wakalah( Agency) Model

Al Mudarabah ( Profit Sharing)

One party ( participant) provides the
capital and the other part( Takaful
Operator) provides the entrepreneurial
skills to manage the capital.
Both parties share the profit generated
from the employment of capital in a pre
agreed ratio eg; 50;50,60;40 etc.

Al Wakalah( Agency) Model

Relationship between Takaful Operator and
participants are based on an agency
agreement
Takaful Operator acts as an agent (wakeel)
to the participants and earns fees for
services provided
Does not share in any underwriting results
but earns fees; which may be fixed or
agreed ratio.

Family Takaful Model

Similar to Conventional Endowment( Savings plus

Investment) which participants may choose fixed period of
coverage ( 10,15,20 years).
Objective:
Save regularly over a fixed period through
contributions
Earn returns on contributions from investments in
Shariah compliance
Receive a takaful protection prior to maturity period
Contribution is divided into two separate account;
Participants Account (PA)
Participants Special Account(PSA)

General
Takaful Model

Provides compensation to individuals and businesses against financial loss

due to damage on properties or assets
It is a short term mutual financial help; 12 months.
Contributions on a annual basis
Contribution paid is wholly bases on Tabarru; Participants agrees to donate
his contribution to mutually help & jointly guarantee fellow participants.
Compensation is paid put of the general takaful funds to the unfortunate
participants.
If there is a surplus to the fund , it will be shared between the participant and
operator; provided the participant has not incurred any claim.
Scope of General Takaful Insurance;

Marine
Fire
Motor
Burglary

Takaful vs Insurance