"Takaful " comes from an Arabic word “Kafalah” that means “Guaranteeing each other”
It is a system of Islamic Insurance where risk is shared by a group VOLUNTARILY.
It 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.
Al Takaful is based on the principles of
1) TA’AWUN (mutual assistance)
2) TABARRU’ (Gift, Give away, donation)
The concept of mutual assistance evolved 1400 years ago among tribal members in the Arabian Peninsula, even before the inception of Islam.
Some examples in pre-Islamic history where families and tribes voluntarily pooled their resources to help the needy include:
• the pooling system of Al A’qila;
• the surety system called “Daman Khatr Al-Tariq;” and
• the Trade Alliance Confederation using Al Hlif.
Such practices were accepted and validated by Prophet Mohammed and incorporated into the community of the first Islamic state.
These practices have led to Takaful, which has resulted from scholars being more appreciative and receptive of its similarities in the teaching of the Shariah.
Some examples of this are:
• The fatwa issued by the Higher Council of Saudi Arabia in 1976 in favor of the Islamic model.
• The fatwa issued by the Fiqh Council of Muslim World League in 1977 in favor of Islamic insurance.
• The fatwa issued by the Fiqh Council of the Organization of the Islamic Conference (OIC) in 1984 in favor of insurance under the Islamic model.
• The Grand Counsel of Islamic Scholars in Mekkah, Maja Al- Fiqh, approved the Takaful system in 1985 as the correct alternative to conventional insurance in full compliance with Shariah.
• The Takaful Act of 1984 authorized by the Ulama and Government of Malaysia.
In Takaful, one interesting feature is that the fellow participants/policyholders are acting both as insurer and insured as they are mutually contributing to and mutually benefit from the fund.
As such, the contract governing each of the policyholders is one of gratuity/donation (Tabarru’).
A Tabarru’ contract requires each policy- holder to willingly relinquish a portion of his/her paid premium or contribution to other policyholders who may need the financial assistance.
3 Types Of Takaful Models
All Takaful models have the same elements.
It’s being managed by the Takaful operator also known as the Mudarib.
The participants are known as the RabbulMal and they contribute the capital.
The Mudarib are given the amanah (trust) to manage the capital.
There are basically 3 types of Takaful models.
1. Mudaraba Model
2. Wakala Model (hybrid of Wakalah & Mudarabah)
3. Wakalah based on Waqf Model
Mudaraba Model
"Al Mudaraba" model is cooperative risk-sharing occurs among participants.
The participant and the operator enter into a Mudarabah contract from the beginning of the
relation, for indemnification and share of the underwriting results.
The Surplus is shared between the participants and the takaful operator in an agreed ratio.
This model allows the takaful operator to share in the underwriting results from operations as well as the favorable performance returns on invested premiums.
Wakalah Model
"Al Wakalah" model is cooperative risk sharing occurs among the participants/RabbulMal whereas the Mudarib/takaful operator earns a fee for services (as a Wakeel or Agent).
The Mudarib earns an upfront deductible fee and shares the profit of investments.
It does not share the results of underwriting.
Waqf Model
In order to eliminate the element of Maisir, the concept of ‘Waqf’ and ‘Tabarru’ is incorporated. In relation to this participants shall agree to relinquish as “donation” certain amount of money.
The Takaful Fund, consisting of the contributions paid as Tabarru, will be further invested by the Company based on the principle of Islamic modes of Trades, through which the element of interest (riba) will be replaced. |
