Role of Takaful in Islamic Finance Capt. M. Jamil Akhtar Khan

8/8/2019 Role of Takaful in Islamic Finance Capt. M. Jamil Akhtar Khan

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Role of Takaful in Islamic FinanceRole of Takaful in Islamic Finance

By:Capt. M. Jamil Akhtar Khan

ACII, MCIT, Master Mariner

Managing Director

The Universal Insurance Company Ltd.

4th International Conference on Islamic

Banking & Takaful, LahoreNovember 2, 2010.


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Outline of PresentationOutline of Presentation

Takaful DefinedTakaful Defined

Historical PerpectiveHistorical Perpective

Takaful todayTakaful today Islamic Finance Versus Conventional BankingIslamic Finance Versus Conventional Banking

Exposures in Islamic FinanceExposures in Islamic Finance

Coverage of exposures BancaTakafulCoverage of exposures BancaTakaful

Cutting Edge!Cutting Edge!

The Universal Insurance Company Ltd.The Universal Insurance Company Ltd.

ConclusionConclusion


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TakafulTakaful defineddefined


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TakafulTakaful comescomes fromfrom thethe ArabicArabic rootroot--wordword kafalakafala

guaranteeguarantee..

Takaful Takaful meansmeans mutualmutual protection protection andand jointjointguaranteeguarantee..

Operationally,Operationally, takafultakaful refersrefers toto participantsparticipants mutuallymutually

contributingcontributing toto aa commoncommon fundfund with with thethe purposepurpose ofof

havinghaving mutualmutual indemnityindemnity inin thethe casecase ofof perilperil oror lossloss..

Meaning of TakafulMeaning of Takaful


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ReferenceReference Al Quran:Al Quran:

HelpHelp (taawan)(taawan) oneone anotheranother inin furtheringfurthering virtuevirtue (birr)(birr)

andand AllahAllah consciousnessconsciousness (taqwa)(taqwa) andand dodo notnot helphelp oneone

anotheranother inin furtheringfurthering evilevil andand enmityenmity.. AlAl MaidahMaidah:: verseverse22 ((55::22))..

Takaful Takaful isis aa formform ofof mutualmutual helphelp (taawun)(taawun) inin

furtheringfurthering good/virtuegood/virtue byby helpinghelping othersothers whowho areareinin needneed // inin hardshiphardship ..


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ReferenceReference Hadith:Hadith:

tietie thethe camelcamel first,first, thenthen submitsubmit (tawakkal)(tawakkal) toto thethewillwill ofof AllahAllah

The The hadithhadith impliedimplied aa strategystrategy toto

mitigate/reducemitigate/reduce riskrisk.. Takaful Takaful provides provides aa strategystrategy ofof risk risk

mitigation/reductionmitigation/reduction byby virtuevirtue ofof collectivecollective riskrisk

takingtaking thatthat distributesdistributes risksrisks andand losseslosses toto aa largelarge

numbernumber ofof participantsparticipants.. This This mitigatesmitigates thetheotherwiseotherwise very very damagingdamaging losses,losses, ifif borneborne

individuallyindividually..


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TakafulTakaful Historical PerspectiveHistorical Perspective


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Takaful through TimeTakaful through Time OriginsOrigins inin thethe FirstFirst ConstitutionConstitution ofof MadinaMadina..

ItIt evolvedevolved andand continuedcontinued inin oneone formform oror thethe otherotherthroughoutthroughout thethe Abbaside Abbaside period period andand eveneven laterlater

duringduring thethe OttomanOttoman empireempire..

SeriousSerious effortsefforts werewere mademade inin modernmodern times,times, inin 19701970sstoto comecome upup with with anan IslamicIslamic alternativealternative toto thethe

conventionalconventional insuranceinsurance..

TheThe firstfirst TakafulTakaful companycompany waswas setset upup inin SudanSudan inin19791979,, almostalmost simultaneouslysimultaneously followedfollowed byby anotheranother

oneone setset upup inin BahrainBahrain..


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Takaful TodayTakaful Today ThereThere areare nownow aroundaround 180180++ TakafulTakaful companiescompanies inin overover 4040

countriescountries..

TheThe totaltotal insuranceinsurance premiumpremium ofofOICOIC countriescountries forfor 20062006 waswasUSDUSD 7575 BillionBillion;; ofof this,this, TakafulTakaful contributioncontribution accountsaccounts forfor 55%%(i(i..ee.. USDUSD 33..55 Billion)Billion).. ThisThis isis expectedexpected toto increaseincrease toto USDUSD 1212BillionBillion byby 20152015..

PoorPoor InsuranceInsurance penetrationpenetration inin thethe MuslimMuslim countriescountries (


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Takaful Prospects in PakistanTakaful Prospects in Pakistan

9797%% MuslimMuslim populationpopulation..

DemandDemand forfor insuranceinsurance shallshall increaseincrease withwith increaseincreaseinin perper capitacapita incomeincome..

PersonalPersonal lineslines insuranceinsurance businessbusiness (leasing,(leasing, health,health,Medicare)Medicare) growinggrowing atat aa higherhigher raterate thanthan otherotherconventionalconventional classesclasses..

IslamicIslamic bankingbanking alreadyalready onon soundsound footingfooting..


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PeoplePeople whowho dodo notnot insureinsure duedue toto religiousreligious reasonsreasons..

PeoplePeople whowho insureinsure andand areare insensitiveinsensitive toto religiousreligious

reasonsreasons..

PeoplePeople whowho currentlycurrently dodo notnot insureinsure atat allall..

TakafulTakaful Target MarketTarget Market


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Islamic Finance VersusIslamic Finance Versus

ConventionalConventional BankingBanking

ConventionalConventional bankingbanking isis moneymoney lendinglending..

IslamicIslamic financefinance isis partnershippartnership inin tradingtrading..

IjaraIjara financingfinancing RentalRental agreementagreement

Musharaka/MudarabaMusharaka/Mudaraba PartnershipPartnership AgreementAgreement

MurabahaMurabaha Sale with profitSale with profit

SalamSalam cropcrop financingfinancing

IstasnaIstasna manufacturingmanufacturing financefinance


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Exposures in Islamic FinanceExposures in Islamic Finance In Islamic finance, full or part ownership isIn Islamic finance, full or part ownership is

retained by the bank.retained by the bank.

This entails considerable exposures for the bankerThis entails considerable exposures for the banker

in the various forms of its trade financing.in the various forms of its trade financing. The banker lacks handsThe banker lacks hands--on expertise for several ofon expertise for several of

such trading exposures.such trading exposures.

Takaful as a means for hedging such exposures.Takaful as a means for hedging such exposures.

Takaful exists even independently of IslamicTakaful exists even independently of Islamic

Finance but Islamic Finance dependsFinance but Islamic Finance depends

uponTakaful!uponTakaful!


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BancaTakaful and Coverage ofBancaTakaful and Coverage of

ExposuresExposures BackgroundBackground

RangeRange ofof ProductsProducts

SavingsSavings PersonalPersonal Accident,Accident, HomeownersHomeownersComprehensive,Comprehensive, CreditCredit Cards,Cards, etcetc..

Financing,Financing, IndividualsIndividuals CarCar Ijarah,Ijarah,

HousingHousing Musharika,Musharika, MortgageMortgage TakafulTakaful..

Financing,Financing, SMEsSMEs TradeTrade CreditCredit Takaful,Takaful,

Business,Business, Office,Office, Equipment,Equipment, AssetsAssets..

EE--CommerceCommerce


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Bancatakaful (Contd)Bancatakaful (Contd)

AdvantagesAdvantages ofof BancaTakafulBancaTakaful::

FacilitationFacilitation DeskDesk // EquipmentEquipment..

FastFast TurnaroundTurnaround TimeTime..OneOne--StopStop shopshop forfor ClientsClients..

ConceptConcept ofof IslamicIslamic FinancialFinancial SupermarketSupermarket..

ValueValue AddedAdded ServicesServices..

LawLaw ofof LargeLarge NumbersNumbers..

LowerLower ContributionContribution RatesRates..

AttractionAttraction forfor DepositorsDepositors..

SynergySynergy..


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CUTTING EDGE !CuttingCutting Edge!Edge!


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InvestmentIncome

OperationalCost of Takaful

/ ReTakaful

Claims &Reserves Surplus

(Balance)

P A R T I C I P A N T S T A K A F U L F U N D(P.T.F.)

MudaribsShare of PTFs

InvestmentIncome

WakalahFee

Investment

Income

ManagementExpense of

theCompany

Profit/Loss

S H A R E H O L D E R S F U N D (S.H.F.)

Participant

WAQF

TakafulOperator

Share

Holder

Wakala-WaqfModel

Investment bythe Company


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THE UNIVERSAL INSURANCETHE UNIVERSAL INSURANCE

COMPANY LIMITEDCOMPANY LIMITED

TheThe CompanyCompany hashas enteredentered 5050thth yearyear ofof itsits operationsoperations..

MajorityMajority sharesshares areare heldheld byby thethe prestigiousprestigious BIBOJEEBIBOJEE GroupGroup ofof CompaniesCompanies..

TheThe CompanyCompany isis listedlisted inin allall thethe stockstock exchangesexchanges ofof PakistanPakistan..

ItIt isis anan AA ratedrated generalgeneral insuranceinsurance companycompany..

DulyDuly certifiedcertified asas ISOISO 90019001 compliantcompliant..

ManagedManaged byby dedicateddedicated insuranceinsurance && financefinance professionals,professionals, thethe CompanyCompany hashas ananextensiveextensive countrycountry--widewide branchbranch networknetwork..

TheThe CompanyCompany isis nownow planningplanning toto expandexpand itsits operationsoperations byby settingsetting upup IslamicIslamicinsuranceinsurance windows/brancheswindows/branches inin strategicstrategic regionsregions..

InIn additionaddition toto dealingdealing inin allall classesclasses ofof generalgeneral insuranceinsurance business,business,

wewe areare focusingfocusing onon providingproviding MicroMicro--insuranceinsurance

atat grassgrass--rootsroots levellevel..


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ConclusionConclusion

TakafulTakaful introducedintroduced

TakafulTakaful throughthrough TimeTime

TakafulTakaful currentcurrent perspectiveperspective IslamicIslamic FinanceFinance andand ConventionalConventional BankingBanking

ExposuresExposures inin IslamicIslamic FinanceFinance

CuttingCutting edgeedge TheThe TakafulTakaful advantage!advantage! TheThe UniversalUniversal InsuranceInsurance CoCo.. LtdLtd..


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Thankyou for your attentionThankyou for your attention

[email protected]@uic.com.pk

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Role of Takaful in Islamic Finance Capt. M. Jamil Akhtar Khan