Presentation on opening of

SHAHEEN TAKAFUL
WINDOW
SHAHEEN INSURANCE COMPANY
LIMITED

ORIGIN OF TAKAFUL
The proposal pertains to the establishment of Takaful
Window in SICL to be named as Shaheen Takaful.
The word Takaful originates from the Arabic language.
Its root word is kafala which means to look after.
Through inflection it changed to takafala which means
to help each other.
The word Takaful means joint guarantee.

OBJECTIVE OF TAKAFUL
The objective of Takaful is cooperation and mutual help
among the members of a defined group.
In a practical sense Takaful can be visualized as a method of
joint guarantee among a group of members or participants
against loss or damage that may inflict upon any of them.
The members of the group agree to guarantee jointly that
should any of them suffer a catastrophe or disaster, he
would receive certain sum of money to meet the loss or
damage.
All members of the group pool together their efforts to
support the needy.

OPINION OF SHARIAH SCHOLARS

Opinion of Shariah scholars is divided on insurance. We can
classify them into three major groups.
Those who consider both the concept and practice of commercial
insurance un-Islamic. Those who are in agreement with the
present insurance and find nothing wrong in it.
Those who accept the concept of insurance, but find prohibited
elements in its present practice.

According to these Fiqhi bodies Conventional Insurance is unlawful

because of involvement of prohibited elements like, Riba (Interest), Qimar
(Gambling), Gharar (Uncertainty, Doubt, Risk), Unlawful appropriation of
others property. Violation of law of inheritance in case of life insurance.

The Islamic Substitute of Conventional Insurance, according to

these Fiqhi bodies, may be some scheme based on mutual
cooperation and Joint Responsibility. That alternative is introduced
under the title of Takaful in recent past.

HISTORY OF TAKAFUL
Takaful started some 30 years ago in the Middle East with the launching of
two companies in 1979 The Islamic Arab Insurance Co. (IAIC) in the UAE
and The Islamic Insurance Co. of Sudan.
But it took some time for the movement to take shape. Later in 1984,
Malaysia played a pioneering role in setting the first Legal framework
specific to Takaful (Takaful Act Malaysia).
This was instrumental in the successful launching of the Takaful movement
in Malaysia and in other countries of South East Asia.
Other markets such as the Sudan and Iran have Islamic regulatory
environments and became naturally Takaful markets.
In the Gulf countries specific Takaful legislations are coming through in
Bahrain and in Saudi Arabia.
In Pakistan Takaful Act was enacted in 2005. SECP formulated and issued
comprehensive Rules in this regard in 2012 (S.R.O 877(1)2012)

CURRENT STATUS IN
PAKISTAN
According to Para 4 of subject S.R.O only registered conventional insurance
companies can transact Takaful Business.
Insurer Registered to transact non life insurance business shall be eligible to
transact General Takaful.
Currently around 10 conventional insurance companies have been authorized
by the respective Board of Directors to process the case for opening of Takaful
Window in addition to current conventional business.
Some of the banks like, Meezan bank, Dubai Islamic bank are completely
operating on Islamic System of Banking while almost all conventional banks
already operating in country have opened Islamic Banking Windows.
The existing conventional banking system if being switched to Islamic banking
on fast track.
Since the business of Insurance industry is largely dependent on banks, it is
getting mandatory for insurance sector to provide cover under Takaful instead
of conventional system.

SALIENT FEATURES OF TAKAFUL

Conventional Insurance
Scholars view the insurance contract as an
exchange contract under which money is being
exchanged for money over time. This brings
about the problem of gharrar (Uncertainty ).
which leads to maisir (Gambling) and in
investments aspect, riba (interest)
Note that the Scholars do not object to
insurance per se
but only to certain
weaknesses in the insurance contract.

UNCERTAINTY (GHARRAR)

Conventional insurance contract is basically a contract of exchange

(muawadat) i.e. buying and selling whereby policy (indemnity) is
sold as goods, with the premium as the price or consideration.
The consideration must be certain for exchange contract.
Gharrar in insurance contracts pertains to deliverability of
subject matter, i.e. uncertainty as to:

Whether the insured will get the compensation promised?

How much the insured will get?
When will the compensation be paid?

Thus, it involves an element of uncertainty in the subject matter of

the insurance sales contract, which renders it void under the Islamic
law.

GAMBLING (MAISIR)
Insurance
is
speculation.

contract

upon

The insured loses the money paid for

the premium when the insured event
does not occur.
The company will be in deficit if claims
are higher than premium.

INTEREST (RIBA)
Allah has permitted trading
and forbidden riba (Al Baqarah
2 : 275).
Insurance funds are invested in
financial instruments which contain
the element of Riba.

TAKAFUL MODELS
Mudaraba Model
The surplus is shared between the participants with a
takaful operator.
The sharing of such profit (surplus) may be in a ratio
5:5 , 6:4 etc. as mutually agreed between the
contracting parties.
Generally, these risk sharing arrangements allow the
takaful operator to share in the underwriting results
from operations as well as the favorable performance
returns on invested premiums.

TAKAFUL MODELS
Wakala Model
Cooperative risk sharing occurs among
participants where a takaful operator earns
a fee for services (as a Wakeel or Agent)
and does not participate or share in any
underwriting results as these belong to
participants as surplus or deficit.
Under the Al- Wakala model, the operator
may also charge a fund management fee
and performance incentive fee.

TAKAFUL MODELS
Wakala -Waqf Model

It is a WAKALAH model with a separate legal entity of WAQF in-between.

The relationship of the participants and the operator is directly with the
WAQF fund.

The operator is the Wakeel of the fund and the participants pay
contribution to the WAQF fund by way of Tabarru.

The contributions received would also be a part of this fund and the
combined amount will be used for investment and the profits earned
would again be deposited into the same fund which also eliminates the
issue of Gharar.

Losses to the participant are paid by the company from the same fund.

Operational expenses that are incurred for providing Takaful services are
also met from the same fund.

TYPES OF TAKAFUL
General Takaful
General Takaful offers all kinds of non-life
risk coverage.
It is normally divided into following
classes:

Property Takaful
Marine Takaful
Motor Takaful
Miscellaneous Takaful

TYPES OF TAKAFUL
ReTakaful
Currently few ReTakaful companies worldwide listed
below are offering Re-Takaful services.

Sudan (1979) National Reinsurance.

Sudan (1983) Sheikhan Takaful Company.
Bahamas (1983) Saudi Islamic Takaful and ReTakaful
Company.
Bahrain/Saudi Arabia (1985) Islamic Insurance and
Reinsurance Company.
Tunisia (1985) B.E.S.T. Re
Malaysia (1997) ASEAN ReTakaful International.
Dubai (2005) TakafulRe by ARIG.
Lloyds of London to have a ReTakaful Syndicate in 2007.
SwissRe has formed a separate ReTakaful Pool
MunichRe to form a separate ReTakaful Pool
In case of Pakistan Provision exists in Takaful Rules 2005.

PROPOSAL FOR TAKAFUL WINDOW

cont..

The proposal is
submitted to
Honorable chairman/BoD for seeking
the approval to initiate the case with
SECP for authorizing SICL to establish
and
operate
Takaful
Window
(Shaheen Takaful).

PROPOSAL FOR TAKAFUL WINDOW

cont

Prior to initiation of case 3 meetings with Shariah

Advisory Committee of Dubai Islamic Bank & Mufti
Muhammad Hasaan Kaleem (Assistant to Mufti
Taqi Usmani), were held to seek the guideline in JanFeb, 2015.
The proposal for acquiring Shariah Advisory Services
from Dubai Islamic Bank was discussed in length.
Time frame of about 2 to 3 months is expected to be
consumed with SECP to get the license for opening of
the Takaful Window.

PROPOSAL FOR TAKAFUL WINDOW

Bank has submitted one time and regular service
charges estimate. One time service charges will be
paid over a period of 6 months time.
SICL is expecting quit a large business under Takaful
from various banks and corporate clients and is
expected to emerge as advanced company in
insurance sector.
Air Commodore (R) Hussain Bux Uner has been
assigned this additional task of preparation and
pursuance the Shaheen Takaful case at all levels under
the guidance CEO, DFSF and Chairman.