TAKAFUL

TAKAFULISLAMIC FINANCIAL INSTITUTIONS

PRESENTED FOR:MDM AIMEEPRESENTED BY:FATIN NUR MAISARAH BT MOHD GHAZALI0933057NAZRIAH BT JAINI0933138NUR KHALILAH BTE ABD RAHMAN0933139

Lecture OutlineConcept & DefinitionMechanism & OperationProductsDifferences between Insurance and TakafulDevelopment and growth of Takaful in Malaysia

DefinitionFrom the Arabic language meaning guaranteeing each other.Individuals in the community jointly guarantee themselves against loss and damages.E.g. Individuals making charity donations to a common fund from which they may each draw in the event that they suffer loss to their houses or livelihood.

ConceptBasis of Co-operation Allah will always help his servant for as long as he help others. (Narrated by Imam Ahmad and Imam Abu Daud)Basis of ResponsibilityThe place of relationships and feelings of people with faith , between each other, is just like the body; when one of its part is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim) Basis of Mutual ProtectionBy my life, which is in Allahs power, nobody will enter Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam Ahmad)

OperationMainly four parties:ParticipantsOperator InsuredBeneficiary

Operation contd..Participants Contribute to the mutual funds.Insured Among the participants that face the risk and are assisted by the funds.Beneficiary Actually benefiting from the funds.Takaful operator Registered or licensed body or corporation that manages the funds.

MechanismPolicyholders co-operate among themselves for their common good.Every policyholders pays his subscription to help those that need assistance.Losses are divided and liabilities spread according to the community pooling system.Uncertainty is eliminated in respect of subscription and compensation.Does not derive advantage at the costs of others. Therefore known as co-operative insurance.

Contracts of TakafulAbsence ofRiba (Usury)Maysir (Gambling)Gharar (Excessive risk or Uncertainty)

Takaful Operation in MalaysiaParticipants contribute a sum of money in a common fund.Fund used to mutually assist members against a defined loss or damage.Takaful operator manages the fund. Takaful operator run the operation commercially as business venture for profit.

Sources of income for operatorProfit from the investment of its shareholders funds;Agency/Wakalah fee;Share of investment profit of Takaful funds;

Underlying conceptsTakaful.Tabarru donation, gift or contribution.Mudharabah / Wakalah .

ProductsTakaful MysiswaTakaful MysinarTakaful Myimpian

Differences between Insurance and TakafulISSUESTAKAFUL INSURANCEOPERATION- Al-Mudharabah financing- Principle of interestACCOUNTING- Cash accounting preferred- Cash, accrual, deferred, embedded valueBENEFIT- Paid from defined funds under joint indemnity borne by participants- Paid from the fund legally owned by the companyBONUS- Exact specification of profits- No exact specification of profitsELEMENT- Spiritual sincerity- Spiritual sincerity not requiredCONTRACT- Funds owned by participants managed by Takaful operators.- Buy-Sale contract

Takaful development and growthEstablished alongside the establishment of Islamic Bank. Governed under Takaful Act 1984.First Takaful company established in 1985Allow Muslim to have a Shariah compliant alternative. Industry expected to grow by 15-20% annually. As at 2007, total assets amounted to US$ 2.8 billion.

ConclusionIt is a profitable industry.It is a way for Muslims to help each other.Lack of awareness by MalaysianStill many potential customers and beneficiary.