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Takaful Concept & Practical Aspects

Takaful Concept & Practical Aspects

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Takaful Concept & Practical Aspects

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  1. TakafulConcept & Practical Aspects Tariq Saeed Chaudhry Group Manager – Corp Sales Pak-Qatar Family Takaful Limited 02 November ,2010 Lahore, Pakistan

  2. Agenda • About Pak-Qatar Takaful Group • Life is Full of Risks • Conventional Insurance vs. Takaful • The Practical Side of Takaful

  3. Pak-Qatar Takaful Group

  4. KEY FACTS: Pak-Qatar Takaful Group • First Takaful Group in Pakistan, • The Group is sponsored by leading financial institutions from the State of Qatar • Paid-up Capital: • Family Takaful : Rs. 533 million • General Takaful: Rs. 307 million • Total: Rs. 840 million

  5. Major Achievements • Received an “A” minus (having Stable Outlook) rating from JCR-VIS Credit Co. while still in second year of operations • Have Re-Takaful arrangements with some of the best Re-Takaful global companies in the world • Are present in 14 cities having 25 branches • Have a trained sales force of 900+ strength in the market in less than 3 years or operations • Have on board 300+ corporate clients in less than 3 years of operations • Have declared 15% Surplus for Individual customers for the financial year ended 31 December 2009, in second year of operation

  6. Awards & Recognition • WON: Declared as the “Best Family Takaful Operator” in Pakistan by 1st National Achiever Award (2009) • NOMINATED: for “Best Takaful Operator” in the world by CPI Financial, UAE (2009) • WON for “Best Use of Technology” in Islamic Finance Industry by CPI Financial, UAE (2009) • RANKED: Top 4 in “Best Marketing Strategy” by World Takaful Summit, London, UK (2009) • WON:Brands of the Year Award – 2009

  7. Life is full of Risks…

  8. Motor Fire Marine Health Travel Machinery Life

  9. Risk Mitigation Since the beginning, people have tried to protect themselves from risks and resulting losses • What is Risk? • Risk is the potential danger that threatens to harm or destroy an object, an event or a person

  10. Risk Mitigation Tools Available Risk Mitigation Tools? • Avoid Risk Mitigation: • A concept generally misunderstood as Tawwakul. Tawakkaulby definition however is employment of all Halal available means/resources and entrusting Allah SWT with the outcome • Self-Insurance or setting aside contingency money for the rainy day • Conventional Insurance: • A commercially viable system but inherently flawed with Shari’ah defined ills such as Riba, Gharar, and Qimar/Maysir • Takaful: • A Halal and Ethical alternate to conventional insurance

  11. Risk Mitigation in Islam • Is the concept of risk mitigation permissible in Islam? • This very concept is not only lawful/permissible in Islam but is in fact encouraged • Islamic history is replete with examples featuring activities involving risk mitigation: • Hadith: • “Tie the Camel and then Submit to the Will of Allah” • DhamanKhatr al-Tareeq: • A person would undertake another person’s risks without any consideration/fee in return • Dhaman Al-d’ark: • A person would influence a sale by promising to compensate for the loss if the subject-matter proved faulty • Aqila: • A risk sharing mechanism in which community members pooled their share of Diyat (blood money) • The underlying theme in all these examples is the concept of brotherhood and mutual solidarity

  12. TAKAFUL CONVENTIONAL INSURANCE Conventional Insurance vs Takaful

  13. The Conventional Insurance Process • The customer pays premiums in exchange for claim (at the time of risk actualization) from the Insurer CLAIMS (Upon Risk Actualization) PREMIUMS (MONEY)

  14. Shariah’s Stance on Conventional Insurance ? concept of Insurance? practice of Insurance? Shariah has no objections as to the concept or objectives of insurance ; it only has reservations with the way it is being practiced…

  15. Shariah’s Stance on Conventional Insurance Point # 1 • It is a sales-purchase contract. In Shari’ah terms it is called AqdMuawaza Point # 2 • Premiums belong to the company Point # 3 • Insurance company pays the claims from its own pockets Point # 4 • Premiums are invested in all kinds of investment avenues, including Riba-based businesses

  16. Riba, Gharar, Qimar/Maysir • Because this is sales-purchase contract i.e. Aqd Muawaza, this kind of risk mitigation involves: R I B A G H A R A R Q I M A R / M A Y S I R DIRECT RIBA The difference between the premiums paid by the policyholder and the claims received IN-DIRECT RIBA Premiums are invested in Riba-based investment avenues

  17. Riba, Gharar, Qimar/Maysir • Because this is sales-purchase contract i.e. Aqd Muawaza, this kind of risk mitigation involves: R I B A G H A R A R Q I M A R / M A Y S I R In Aqd Muawaza, Shariah does not allow Gharar & Qimar/Maysir. Gharar is present because the Subject Matter of the contract does not exist, is not specifiable, and the time of delivery is uncertain G H A R A R

  18. Riba, Gharar, Qimar/Maysir • Because this is sales-purchase contract i.e. Aqd Muawaza, this kind of risk mitigation involves: R I B A G H A R A R Q I M A R / M A Y S I R In Aqd Muawaza, Shariah does not allow Gharar & Qimar/Maysir. Total loss of premiums paid by the participant in case the risk doesn’t actualize Q I M A R / M A Y S I R

  19. T A K A F U L

  20. Definition of Takaful • The word “Takaful” originates from Arabic language. • Its root word is “kafala” which means “to guarantee”. • Through inflection it changed to “takafala” which means “to help each other” or to “jointly guarantee each other.”

  21. The Concept of Takaful • Takaful is a community-pooling system in which participants contribute their savings into the common fund to help those who need it most in times of financial difficulty • It is based on the concept of brotherhood and mutual solidarity. • EXAMPLES: The concept of Takaful is manifested in the system of BaitulMaal, the cooperative societies and the joint-family set ups etc…

  22. Takaful Process • Takaful Operator creates the Waqf Fund or the “Taburru Fund” • Participants contribute their premiums/contributions on the basis of “Taburru” into this Waqf Fund • The Waqf Fund pays the claims Surplus WAQF FUND Claims Takaful Operator Contributions

  23. WAQF Key Points on Takaful Process Point # 1 • Contributions are paid on the basis of Taburru. In Shariah such a contract is called Aqd Taburru Point # 2 • Contributions are credited to the Waqf Fund; Operator acts as Wakeel Point # 3 • The Waqf Fund pays the claims Point # 4 • Contributions are invested only in Shari’ah Compliant investment avenues Point # 5 • An independent Shariah Board supervises business activities for Shariah compliance

  24. WAQF Recap – Fundamental Differences between Conventional Insurance & Takaful AQD TABURRU AQD MUAWAZA CONTRIBUTIONS CREDITED TO TABURRU FUND PREMIUMS BELONG TO COMPANY COMPANY PAYS THE CLAIM TABURRU FUND PAYS THE CLAIM RIBA-BASED PROFITS HALAL INVESTMENT PROFITS

  25. The Practical Side of Takaful

  26. Takaful Bridges the Vital Gap Public Needs Present Financial Protections Tools Gap!!! Public Beliefs Public Awareness

  27. Applied Takaful:from Investors’ Perspective • Global Market Size : • “Current Global Trends suggest US$ 8.9 billion in gross contributions by 2010” (E&Y, WTC 2010) • Takaful is growing 35% faster than conventional insurance worldwide (Dr. Ahmed Al Janahi, Managing Director NOOR Takaful, WTC 2009) 134 Approx. 36 15 >18 + # Takaful Operators in 2009 Window Operators Irani Operators Re-Takaful Operators • KEY FACT: 60% of customers of Takaful in Malaysia are non-Muslims.

  28. Applied Takaful: from Customer’s Perspective • Takaful resonates with the beliefs and values system of people from different cultures: Shariah & Socially Responsible Investments Transparent & Full-Disclosure Shariah Compliant Ethical Surplus Sharing

  29. Family Takaful Model

  30. How can Takaful Help you?- Corporate Takaful Products- Individual Takaful Products

  31. Family Takaful Products, Corporate Group Healthcare 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.

  32. Family Takaful Products, Corporate 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)

  33. Family Takaful Products, Corporate Retirement Income This Plan enables the employer to provide its employees with retirement benefits, in either lump sum payment or as periodic income

  34. Family Takaful Products, Individual Savings & Protection Why borrow loans and incur debts? A more dignified way of fulfilling your needs is through savings. Maximize your savings through Takaful

  35. Family Takaful Products, Individual 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

  36. Family Takaful Products, Individual 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

  37. Family Takaful Products, Individual Retirement Income A Plan that provides regular income upon your retirement

  38. Share ‘n Care Savings TakafulThe NEEDS Share ‘n Careaccumulates small savings amount and grows it into a large fund to fulfill all your financial needs

  39. Salient Features of Share ‘n Care

  40. Share ‘n Care Savings Takaful

  41. ABC Education Takaful ABC Takafulensures the continuity your child’s education even when you are not around or cannot afford the tuition fees

  42. Difficulties in Ensuring Continuity of Children’s Education • Affordability of Higher Education • TUITION FEES • FAMILY SIZE Untimely Death of Income-Generator Children become breadwinners of the family Loans Are Short-term solution Loans incur debts and debts further create problems Who should acquire education and to what extent? Sons given more preference

  43. The Escalating Cost of Education • An average of 5 children / family in Pakistan • To afford quality education of every child is becoming increasing difficult • Cost of tuition fees and textbooks increasing exponentially • IBA BBA = Rs. 640,000/- • LUMS BBA = Rs. 960,000/- MBA = Rs. 900,000/- • KU BBA = Rs. 158,000/- • SZABIST BBA = Rs. 502,720/- • CBM EMBA = Rs. 400,000/-

  44. A Simple Illustration of ABC Education Takaful

  45. Jazaak Allah Khairan for your patience • For Feedback: • Email: tariq.chaudhry@pakqatar.com.pk • familytakaful@pakqatar.com.pk • URL: www.pakqatar.com.pk