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APPLICATION OF INSTITUTION OF WAKF IN

PROMOTING ECONOMIC AND SOCIAL UPLIFT OF


SOCIETY THROUGH TAKAFUL (ISLAMIC INSURANCE)
CONCEPT OF INSURANCE
provides for a system whereby

a realistic evaluation is made of the eventualities and of the


risk faced by individual members of the Society
AND

provides relief to offset the resultant loss, through mutual


assistance.

The loss caused is borne by the Community or the Group to

which the affected member belongs by affinity, vocation or


profession etc, and at the same time, the scheme of Insurance
is so managed that the Insurance Company also receives
benefit (profit) after making good the loss of the individual

HISTORICAL PRACTICE OF
INSURANCE
This concept of Insurance in original, appears to be not suffering from
any deficiency as per principles of Shariah, rather it is a commendable
concept and prevalence of such transactions were found operating since
before advent of Islam.
HISTORIAN: IBNE KHALDOON
Traced history of this institution with the observation that Arabs used to
undertake two journeys in a year one in summer and the other in winter
season. These are the journeys mentioned in Sura Al Quresh (30 :
106).
SIMPLEST FORM OF INSURANCE
A tacit agreement between the participants of the journey that all of
them would share the loss, if any, caused or occurring to any of them.
PRACTISE OF THE TRADERS
As many a time merchandise of the Traders conducting sea trade would
be lost in the sea causing immense loss and rendering the Traders
pauper. The solution found was to offset the loss through mutual
contributions. This simple arrangement grew into marine insurance.

ACCEPTABLE LIMITS UNDER


ISLAMIC LAW & THE PRINCIPLE
INVOLVED
REASONING AND PRINCIPLES OF
INTERPRETATION OF SHARIAH

If there is neither any contrary provision nor a


negative and adverse Ruling against any rule or
custom prevailing and in vogue since prior to dawn of
Islam, then such a rule or custom will be taken as
approved and permissible and the same may be
continued and followed.
MAJORITY OF SCHOLARS
The concept of Insurance as originally in vogue meets
approval
of
Shariah
reasoning,
though
the
conventional Insurance and its operations in practice
are held to be repugnant to and violative of Shariah
reasoning and principles. This is the view of the
majority Scholars of Islamic Law.

HISTORICAL
PERSPECTIVE
Western World - Origin of the modern insurance: - Practices adopted by
Italian merchants from fourteenth century onwards, although there is
little doubt that the concept of insuring was known long before then.
Losing ships and cargoes at sea instigated the practice of medieval
insurance for many years.
The habit spread to London merchants in the sixteenth century. A group
of traders would agree to bear each others risks amongst themselves.
The common law for a long time played no role in the regulation of
disputes concerning insurance, as these disputes were outside normal
legal system.
Lord Chief Justice Lord Mansfield
In mid eighteen century took interest in insurance contracts by applying
principles derived from the law merchant as well as more traditional law
concepts. The jurisdiction of courts over insurance matters thus came to
be established by the time Lord Mansfield retired in 1788.

LLOYD - THE COFFEE HOUSE


OWNER LONDON
17TH CENTURY
Developed the practice that the merchant wishing
insurance would pass round to the people, willing to
provide it and who were gathered at the Coffee-house, a
slip of paper on which he had written details of the ship,
voyage and cargo etc. The slip used to be initiated by
those willing to accept a portion of risk and when the
total amount of insurance required was under-written,
the contract was complete. The influence of Lloyd on
insurance and insurance law is significant as the
standard Lloyds Marine Insurance Policy was adopted as
the statutory form in Marine Insurance Act 1906. The
principles of Marine Insurance have by and large been
applied to other types of insurance subsequently
developed.

APPPLICABLE LAW IN MALAYSIA


Leong Brothers Industries Sdn. Bhd v

Jerneth Insurance Crp. Sdn. Bhd


Wan Adnan J:
HELD
that
the
English
Marine
Insurance Act 1906 was applicable in
Malaysia by virtue of Section 5 of the
Malaysian Civil Law Act 1956.
Takaful (Islamic Insurance) and its
operations stand regulated in Malaysia
by statue called Takaful Act 1984.

VERDICT OF ISLAMIC FUQHA


FIRST FAQIH ALLAMA IBN ABIDIN SHAMI:
Who has examined Insurance with reference to Sharia. He in
his book has commented upon Sookarah which is a specific
kind of Insurance.
Sookarah has its origin and is derived from French word
Sookortah in Arabic Lexicon. This term signifies a type of
Marine Insurance of the time.

Allama Shami, the Sookarah fails to fulfil conditions of Shariah

and as such is impermissible as herein obligation is undertaken


which Shariah does not oblige the party to undertake.
This contract makes binding which is not legally binding due to
the absence of any of the pre-requisites of a valid guarantee.
The reasoning noted was not adopted or repeated by the other
scholars (Fuqha) who later examined the Insurance operations.
Majority of scholars declared these operations impermissible
and repugnant to the injunctions of Islam.

Contd

Mufti of Egypt, Mufti Muhammad Abdu

Held a specific kind of Insurance as permissible, likewise


another scholar, Abdul Wahab Khallaf also held a similar
type of Insurance permissible.
It is clear that they were asked about a specific kind of
Insurance and the answer, therefore, should be
restricted to that kind of Insurance and considered in
the context of the question posed.
GIST OF THE QUESTION
MUFTI MUHAMMAD ABDU
A group of persons provide finances to a company
which may invest the same with the intent to earn profit
arising there-from and in case of death of any of them,
the profit may be received by their heirs.
Answer: It is a sort of Muzarabat and as per Shariah, it
is not necessary that Mudharib should necessarily be an
individual and Mudharib can be more then one person,
so such a venture is valid and permissible.
Contd

SHEIKH ABDUL WAHAB KHALLAF

A situation presented to him as a kind of Muzarabat and though


ordinarily in Mudharabah the ratio of profit must be laid down and
determined but as in case in hand the element of mutual help and
cooperation is present, the deficiency regarding laying down
specifically of profit sharing ratio can be ignored.
MUALANA ABUL KALAM AZAD OF INDIA

When asked about Insurance, observed that such a type of


arrangement should also be prevalent amongst Muslims.

It is obvious that opinion returned by these

scholars was premised on the information


provided and in the context of the features of the
particular transaction described to them. So the
answer given has to be seen and understood in
the context of the question asked.
Had the
situation and the elements of the Insurance Policy
and its scheme been fully and completely
presented, the opinion would have been different.
Contd.

ABDUL WAHAB KHALLAF & MUHAMMAD ABDU


Describing the transaction as amounting to Mudharabat,
the comments of Wahbah Al Zuhayli read as under:-

It is not valid to consider insurance a form of silent


partnership (mudharaba) with one party working and the
other financing, for two reasons:

(a) The instalments and payments paid by the insured


become property of the insurer (insurance company). Thus
the insurance company may use such monies anyway it
wishes, and the insured loses those monies if no accident
befalls him.

(b) A condition for the validity of a mudharaba is that the

profits be shared according to fixed proportions between


the financier and the entrepreneur e.g. one quarter or one
third to one party, and the rest to the other. In insurance,
however,
the
insured
is
often
given
a
fixed
percentage/interest payment (e.g. 3% or 4%), thus
rendering the mudharaba invalid.

Even if this reason does not apply in

a given contract, the first reason


remains. Moreover, if the insured
dies, the money instead of going to
his heirs, may go to the one
designated in the insurance contract.
This is contrary to the case of death
of a financier in a silent partnership
(mudharabh).
Contd..

It is not valid to consider insurance a

guarantee or surety, due to the absence


of the four legitimate reasons which
exist in a guarantee. Also, many
insurance contracts do not have an
element that may be considered the
object of surety (makful), and even
when such an element exists (e.g. in the
case of auto accidents), it is unknown.

FACTORS FOR WHICH FUQHA HOLD


CONVENTIONAL INSURANCE AS INVALID

(I) UNCERTAINITY (GHARAR)


(II) INTEREST (RIBA)
(III) GAMBLING (QIMAR)

GHARAR CONTRACTS
Insurance Contracts fall in this category:(a) The outcome is probabilistic (depending
on the existence of the object of contract
or non-existence thereof).
(b)Holy Prophet (PBUH) forbade Gharar sales
and an analogy may be made to cover
financial commutative contracts. Thus
Gharar affects such contracts in the same
manner as it affects sales.
(c) Since insurance by necessity deals with
future events that may or may not occur,
Gharar is a necessary component of
insurance.

GENERAL INSURANCE AND


GHARAR

(a)Uncertainty is present as the

premium which is paid is


known
but the interest payment that the
Company may have to pay is not
known.
(b)The quantum of damage or loss is
not known.
(c)How much loss would be
compensated is not known.

LIFE INSURANCE AND GHARAR


(a) Policy holder pays the premium and the

Company maturity pays the insured sum of


money with profit on the basis of a formula.
(b)The amount of the premium paid monthly or
annually is pre-determined and known.
(c) What amount will be paid on maturity to the
insured is not known.
(d)The time for which the insured will live is not
known.
(e) It is also not known whether the insured will
live till period for which policy has been
taken.
All the above factors contribute to uncertainty.

RIBA
(INSURANCE OPERATIONS INFESTED WITH
AN ELEMENT OF RIBA)

(a) When a claim in General Insurance is paid, it

is in cash.
(b) If the amount of the claim to be paid is more
than the amount of premium, then the
additional amount is Riba/interest.
(c) If the premium paid is more than the claim,
the amount retained by the Company is
Riba/interest.
Market Position
(i) Ordinarily the position is that the Company
hands out less sum of money in claims than
the amount of the premium received.
(ii) Such retention is usurpation and illegitimate.

ANOTHER INFESTATION OF RIBA

(a)Investments made by the Insurance

Companies in such businesses


which are not approved by Shariah.
(I)
Advancing loans on interest.
(II)
Making investments in Riba
infested and Haram businesses.
Example:The investment in shares of
Companies producing liquor.

QIMAR (GAMBLING)
INSURANCE?

Some scholars are of the view that


gambling is not involved. Others hold
otherwise.
REASON FOR DIVERSION OF
OPINIONS IS THE DEFINITION OF
QIMAR

DIFINITION OF QIMAR
Maysir and Qimar are used as
identically in Arabic.
HOLY QURAN
Maysir is the word used for
prohibition of gambling and wagering
(2:219 & 5:90, 91)
HADITH LITERATURE
Discusses this act generally in the
name of Qimar.

VIEW OF JURISTS
Difference between Maysir and Qimar is
that Qimar is an important kind of Maysir.
Maysir derived from Yusr wishing
something valuable with ease and
without
paying
an
equivalent
compensation (iwadh) for it or without
working for it, or without undertaking any
liability against it., by way of game of
chance.

Qimar also means receipt of


money, benefit or usufruct at the
cost of others, having entitlement to
that money or benefit, by resorting to
chance.
A person puts his money at stake
wherein the amount being risked,
might bring huge sums of money or
might be lost or damaged.

MAULANA MUFTI TAQI


USMANI
His view on the basis of Quran,
Sunnah and books of Fiqh reveals
that four elements must exist to
certify presence of Qimar.
(i) The
transaction
under
consideration
amounts to AqdMuawadh between both the parties.
(ii) Every party to the transaction
places his part of Asset on risk.

The transaction is such that


accrual of additional value is dependant
on an event, which may or may not
occur.
(iv)
The transaction is such that
property/ Asset of one party may pass
on to the
other party without any
corresponding
consideration or one
party takes over
the property/Asset of
the other without
consideration.
Convention Insurance due to presence of
the above factors, as per Shariah
scholars, is violative of the principles of
Shariah.
(iii)

MALAYSIA, PAKISTAN AND


SUDAN
Scholars started search for alternate
modes and modals making mutual
insurance as basis of study.
To provide security in the face of
distress, calamity and loss, three
distinctive modals were adopted by
the scholars in the three countries.

MALAYSIA MUDHARABAH
Takaful pattern of Mudharabah.
Though some sort of donation
(Tobarru) is also involved but as this
type
of
transaction
resembles
Mudharabah concept, hence the
name.

OBJECTIONS BY SOME SENIOR


SCHOLARS
According to them:
Mudharabah
does
not
receive
anything from the surplus pool but in
Mudharabah modal the Company
receives a share from the surplus.
Providing guarantee is objectionable.

SUDAN WAKALA MODAL


Operator creates a pool of contributions
received from participants and manages
it for their benefit.
OBJECTIONS BY SCHOLARS
Contributors constitute a Board and the
ownership of the amount contributed vests
in the Board, as the understanding is that
the amount of premium contributed is a
donation to the Board which in case of loss
accruing to any participant, will make
donation to the said participant.

OBJECTIONS (Contd)
Same position as in conventional insurance,
there is also a Board, which is considered
owner of the pool and which makes payment
of claims.
When a participant pays the premium, he
would stand divested of this amount and in
such a case, ownership vests in whom?
Some operators do not establish a Board and
themselves carry out the activities of the
Board.
The Board should have a separate legal entity
to qualify and meet the standards of Shariah.

ANSWERS TO SOME OF THE


OBJECTIONS
Participants/policy holders pay the premium with
the understanding of making donation to the
Board, so this amount goes out of their ownership
and vests in the Board.
ISSUE IN PRACTICE
In case the participants stand divested of the
ownership, then on what basis these participants
can lay claim to receive a share from the Surplus
Pool and if they still are the owners, then they are
liable to pay Zakat on their amount and in case of
this, it will form part of contributable property.
However, in practice such is not the case.

WAKF MODAL PAKISTAN


DISTINCTION BETWEEN WAKALA
& WAKF MODAL
Wakf has a sole legal entity.
Contributions made to Wakf Pool come
under its ownership.
Under Wakala Modal, the pool does not
have its separate legal entity and to
provide for this deficiency, a Board is
constituted, the legal capacity of which is
not recognized fully.

Shariah recognizes Wakf to have its


own entity.
It is capable of owning property and
managing its assets for achieving the
objectives of the Trust.
Any activity not within the goals and
objectives of the Trust Deed, cannot be
carried out without amending it,
subject to the rider that no activity,
business or trade prohibited by Shariah
cannot form part of its business.

MOST IMPORTANT FEATURE


OF WAKF MODAL
Property, money or asset
donated to Wakf goes out of
the ownership of the person
making the donation and
vests in the Wakf which has a
sole legal entity.

ISLAMIC INSURANCE TAKAFUL


AS A WAKF
Company after incorporation will constitute a

Company after incorporation will constitute a


Wakf by contributing a specified part of its
capital to it.
Wakf has to fulfill conditions of a valid Wakf
pertaining to the legal character of Wakf, the
asset of the property bequeathed and the
beneficiaries.
Wakf so constituted as the Company being
itself a legal entity, is competent to create a
Wakf and the amount related to the Wakf is
owned by it. Law does not prohibit it from
creating a Wakf.

The asset being bequeathed is currency


which is specified and known and has
intrinsic value and having lasting
characteristic.
A thing, which is consumable, cannot be
bequeathed but the currency, which is
contributed to Wakf, will be invested
and reinvested in low risk avenues. This
amount is not to be utilized for paying
the claims or for meeting other
expenses.
Contd

Argument:The currency (amount) bequeathed


stands consumed when it is invested
and reinvested, so it does not possess
lasting
characteristic,
considered
essential for the property to be
bequeathed.
Jurists Explanation:One of the principles is that in case of
currencies,
Dinars
and
Derhams,
specification of some currency towards
a
Contd..

certain deal or merchandize does not


amount to such a specification that the
seller of goods gets a right to get those
very currency notes, which were shown at
the time of deal or conclusion of contract,
as neither principle of Shariah ordains to
deliver those very currency notes as other
notes of same value can be given nor any
court can be approached for such a relief.
It follows that capital which the Company
has bequeathed that is not the particular
currency notes but it is the amount or
value, which constitutes Wakf.

The third component is the


beneficiaries who are also
known, as Wakf Deed will not
only specify the persons but
also the circumstances on
account of which they will
receive the benefit.

WAKF DEED
For the administration of the
property, two things are
important:1. Wakf Deed; and
2. Wakf Rules

Wakf
most

The said Deed is an irrevocable document.


Every Wakif (person creating a Wakf)
under Shariah, is entitled:(i) to prescribed conditions for the Trust;
(ii) to specify the beneficiaries;
(iii) to specify the circumstances in which
they
will receive benefit;
(iv)
to specify in whom will vest the
authority
to administer the Wakf
property and
assets; and
(v) to lay down the rules and bylaws of
administering the Wakf.

ENTITLEMENT OF THE
COMPANY
The Company being Wakif is
entitled
to
execute
a
document wherein all the
principles and rules pertaining
to the Wakf are to be provided,
complying
all
essential
requirements of institution of
Wakf as laid down by Shariah.

WAKF DEED OF TAKAFUL


COMPANY
It inter alia includes the following matters:(i) Original Wakf capital shall be preserved by
making investment and reinvestment in
low
risk ventures and transactions;
(ii) Description of Assets which include original
Wakf
Asset and Profit;
(iii)
Rights and obligations of the Operator;
(iv)
Sources of income of Wakf Pool and
items on which expenses may be incurred;
Contd

(v) The extent to which the claims of


those who make donations to the
Wakf, are to be compensated;
(vi) Deed also explains the manner in
which from the surplus pool, if any,
the
persons other than donors to
the Wakf
are to be provided relief
as was being
extended to the
Donors of the Wakf Fund;
(vii) In case of winding up of Company,
what treatment is to be given to the
Wakf Fund;

Wakf specifies the person in


whom
shall vest management
and administration of the Wakf;
and
(viii)

Wakf Deed also lays down that


Company has the power and the
right to modify and amend the
Rules and bylaws of the Wakf and
also make additions therein.
(ix)

The Wakf Rules and Bylaws contain the


mode and manner of achieving the
objectives set forth in the Trust Deed.
These are essentially explanatory of
the provisions contemplated therein
and has to conform to scheme and the
principles of Wakf enunciated by
Islamic Law.

FORMATION & COMMENCEMENT


OF TAKAFUL OPERATIONS
(i) A body corporate is constituted and
established under law as a legal entity.
(ii) It obtains a license after complying
with the legal formalities and execution
of proper documents to enable it to
commence the Takaful operations.
(iii)This legal entity creates a Wakf but
donating a reasonable amount from its
capital.

utilization of the
capital
of the Company to create
reserves so as to invest this amount
which will remain with the Company in
order to
provide Qardh Hasan to the
Waqf as
and when required.
(v) Participants are then invited to
make donations to the Waqf by
determining the amount of contribution
to be made by them so as to give
them membership.
(iv)

Immediate

(vi) Amount of contribution should be

sufficient
to make good the loss
suffered and the insurable risk covered
of the person so obtaining membership.
(vii)Insurable risk being covered of all the
participants should be of the same kind or
category.
(viii)Insurable risk coverage normally is on
the
same lines as is in vogue in
conventional
insurance.
(ix)Contributions made by participants
belong to
Wakf Fund, invested by the
Company and
the losses of the insured
is paid out of the profit earned and the
contribution of the
participants.

MALAYSIAN TAKAFUL ACT,


1984

SECTION 13:Statutory Requirement:At the time registration, a Takaful Operation


has to deposit RM 3,00,000 for each class
of Re-Takaful business, which is to be
placed with the Accountant General of
Malaysia.
SECTION 14:Alternatively, a Bank Guarantee (Waad
Bank) can be furnished by the Re-Takaful
Operator and as prescribed in the format of
the Bank Negara, Malaysia.

ASSET/CAPITAL VALUE OF A
WAKF

It is what the Company establishing the


Wakf contributes out of its capital. No limit
of this contribution toward Wakf has been
prescribed by Islamic Jurists.
Any appropriate amount may be contributed
by Company to constitute Wakf.
In
Pakistan
One
Takaful
Company
contributed
Rs.500,000/-,
the
other
contributed
Rs.10,00,000/another
constituted Wakf with the declaration that it
shall keep on contributing necessary
amount as and when needed.

MANNER OF USE OF THE


BEQUEATHED AMOUNT IN
TAKAFUL:(i) It may be given on loan to the needy and receive
the amount once the need stands served or met.
(ii) It may be invested and reinvested in low risk
ventures and the profit accruing from these
operations may be utilized. This very use has been
adopted in Takaful Operations.
The originally contributed amount (seed capital) is
preserved either by investing in low risk ventures or
at
the
time
of
account
taking
of
a
transaction/venture, the seed amount of Wakf is
taken out and separated and, thereafter, it is
determined whether any profit or loss has occurred.
In this manner, it is seen whether the Fund has got
any surplus or has suffered deficit.

OBJECTIVES OF WAKF IN A
TAKAFUL (COMPANY)
(i) To receive contributions, charity or gift from
participants and other persons;
(ii)
To invest all the pooled resources in Shariah
approved
permissible business;
(iii) To provide relief out of accrued profit to the
participants
as per rules and principles of Wakf.
(iv) The Company in consultation with Shariah Board will
give charity to needy including the participants
whenever there is a surplus so that welfare of the
needy, a special trait of the institution of Wakf, is taken
care of and fulfilled. The welfare aspect
of the
Wakf is being highlighted to satisfy those who opine
that if
scope of Wakfs funds are applied to the
participants
only, the overall welfare objectives of
the institution of
Wakf will remain unrealized.

Some of the critics observe that a small


amount out of the surplus separated for
charity will hardly enable the Wakf to carry
out any meaningful welfare activity, as for
ameliorating social conditions of the needy
huge resources are required.
Takaful operations are not primarily meant
to promote charity of needy in the society
though Takaful carries an element of social
welfare of its participant but even without
that the role of a Wakf, in providing relief to
the
distressed
participant,
is
well
recognized and appreciated.

ASSETS OF WAQF COMPRISE


OF:-

(i) Seed amount i.e. the Asset or the amount


bequeathed originally at the creation of Waqf.
(ii)
Contributions made by the participants.
(iii) Profit accruing from investment.
(iv) Contributions and donations made by members
of
public and philanthropists
to the Takful
Company to
support its welfare activities of
providing relief to
distressed segments of society.
(v)
Creation of special fund by the Takaful Company
from its own resources in two ways:(a) If a separate Wakf of the Asset/amount is
sought to be established, a separate Sub
Deed
will be executed.
(b) If the Takaful Company makes donations to
the Waqf like participants, the amount so
donated will belong to and vest in the Waqf.

INCOME & EXPENDITURE OF


THE FUND
Income will constitute of the following:(i) Contributions of the participants;
(ii) Claim amount received from Retakaful Company;
(iii) Amount received as share from surplus from
Retakaful Company;
(iv) Profit earned on investment of Seed amount of
and
donation to the Waqf/Takaful Company;
(v) Amount provided by shareholders of Takaful
Company as
donation (Tabarru) or Qardh-Hasan;
(vi) Donations given by Company from time to time; &
(vii)
Commission received from Retakaful
Company.

TREATMENT OF EXPENSES
OPERATORS UTILIZES THE FUND IN THE CAPACITY OF MUDHARIB OR
WAKIL ISTISHMAR (AGENT)
Explanation Required: - Which type of expense will be borne by the Operator
and the kind of expense to be incurred!
Takaful Company incurs expense towards incorporation, setting up of
administration and on commencement of operations e.g. legal fees and
marketing its products.
Some expenses, incurred for the benefit of the Company
others for the benefit of the Wakf Fund
while some are for the benefit of the both the Company and the Fund.
Larger the volume of the pool, the more will be profit and more will be volume
of the Fees.

Expenses incurred for establishing the Company, the legal


fees and other expenses paid for commencing the
operations and marketing are to be borne by the Company.

Such expenses which are incurred for


marketing the products and from which
Wakf Fund is recipient of some benefit, can
be charged to the Fund, if the Wakf is in a
position to bear this charge. The Operator is
basically working for Wakf and, the
Company is indirectly receiving benefit
through the Wakf. It is, however, advisable
that all the expenses should be paid out of
the Fee being received by the Operator as
the extent of the benefit received by the
Wakf or the Company cannot be precisely
and exactly determined.
Moreover, when the Company is to incur
expenditure from its Fee, proper care will be
taken to economise the expenditure and to
keep the expense within appropriate limits.

The amount received from all above sources will be

invested in low risk ventures and all the following


expenses will be defrayed from these resources,
except that Seed amount/Asset will not be expended
on any count towards expenses:(i) Claims.
(ii) Contribution payable to Retakaful company.
(iii) Fee payable to Operator.
(iv) Payment of share of Operator from profit earned.
(v) Division of surplus to participants as per
prescribed
principles.
(vi) Operator may in consultation with Shariah Board
grant money out of Charity to the needy.
(vii)
Return
of
the
loan
advanced
by
shareholders.
(viii) To pay other expenses and charges payable out
of Waqf Fund.

LIABILITIES & OBLIGATIONS OF


TAKAFUL COMPANY
(i) Rendering of Takaful Services i.e. management of

the Takaful Fund in the light of the Wakf Deed,


Sub Deed if any, Waqf Rules and principles.
(ii) Invite people to obtain Takaful Policy and to
receive contribution from Policy holders.
(iii) To invest the amount of the Fund in suitable and
permissible (Halal) business and to give relief to
offset the loss incurred by participants.
(iv) To frame rules for utilization of Waqf Fund in
accordance with the guidelines of the Waqf Deed
in consultation with Shariah Board.
(v) To invest the Waqf Fund being mudharib or Wakil.
(vi) To make good the loss occurring to Waqf Fund on
account of misfeasance, negligence, want of due
care and caution of the management of the
Company.

(vii)

The Reserves which the Takaful


Company has to
keep with the Central Bank,
the amount of these deposits will be paid out of
the Shareholders
Capital and not from the
Waqf Fund as these Reserves serve interest of
the Operator.
(viii) Operator can also make donation to the Fund
with
the permission of share holders.
(ix) Annual valuation of the Assets of the Wakf is to
be conducted to find out whether the Fund is in
surplus or deficit. In case of Surplus, Operator
is to
determine policies according to Rules of
the Waqf and then to take steps to implement
these policies.
(x) To take measure to offset risk as per Rules and
principles of Takaful.
(xi) To arrange Retakaful as per Rules & principles
of Takaful with concurrence of Shariah Board.
(xii)
To appoint Shariah Board for conducting
Takaful business under its supervision.

QUESTION ABOUT
SEED AMOUNT OR ASSET
Whether it can be deposited with the Central bank as
Reserve is still under consideration of the Jurists of Islamic
Jurisprudence
The (Fuqha) in favour of Reserve deposit purpose to argue
that such a deposit can be made under following conditions:-

(a) The amount of Reserve is not being given merely as a

loan to
Government.
(b) The Reserve deposit is not used for purposes prohibited
by Shariah and is to be invested in Shariah approved
ventures.
(c) The Reserve Deposit is to be utilized in the mode or
for the
objects, which conform to the use of seed
money of Waqf and
in low risk ventures.
(d) Even the technical reserves, which the Takaful
Company maintains with itself, will be from the Waqf Fund.

RECOVERY OF LOSS CAUSED

Whether loss has been caused

and if so how much;


Whether loss occurred due to
Operators negligence,
misfeasance or lack of due care
and caution,
How the questions are to be
resolved
Who will be complainant in the
action against the Operator for
recovery of the loss so caused?

Fiqh literature
It does not specify the person who is to take up these matters.
Two parties: (1) The Waqf &
(2) The Operator.
Operator is the party, which has caused the loss, so it will not
lodge proceedings (complaint) against itself. It is obvious that
need to lodge legal proceeding will not arise if the Operator is
ready to initiate action or to make good the loss.

The Company is liable to make good the loss, in case of loss

caused due to negligence, lack of prudent care etc., otherwise


the Company is not liable. This principle has been deduced
keeping in view the legal position that Operator holds vis--vis
the Fund.
The Operator of Takaful Company legally speaking is a: (1) Mudharib or
(2) a Mutwalli or
(3) a Wakif, or
(4) a Wakil Istishmar.

OPERATOR WHEN NOT LIABLE, if

negligence or acting beyond the limits laid


down is not the cause of the loss.

WHY SHOULD THE POLICIES OFFERED BY

TAKAFUL COMPANY BE ACCEPTABLE IN THE


MARKET?

IF COMPANY IS MADE LIABLE TO MAKE


GOOD THE LOSS INCURRED IN ALL
SITUATIONS, THEN IT WILL BE JUST LIKE
CONVENTIONAL INSURANCE.

ISLAMIC JURISTS
Operator should make donation of sizeable amount
to the Wakf Fund, to meet the deficit, which amount
will not be returnable being a donation. In the
alternative the Operator may advance reasonable
amount to the Fund as Qardh-Hasan, which will be
returned when the situation of the Fund permits.
SECURING A DISTINCT AND DISSIMILAR THE
POSITION
TO
THAT
OBTAINING
IN
CONVENTIONAL INSURANCE
Operator has to maintain its position of either being
a (1) Wakif (2) Mutwalli (3) Mudharib or Wakil
Istishmar and in either capacity, the Takaful
Company should at the time of creating Wakf, make
provision in the Wakf regarding making of loan to
the Wakf as and when needed, despite the
knowledge that Wakf as an institution has limited
obligations and possibility of non realization of loan
also exists.
In this way, distinction from
conventional insurance will be visible and practical.

(1)

RIGHTS OF AN
OPERATOR
to charge appropriate fee for managing the affairs of the

Takaful Company. While fixing a reasonable fee, Shariah


Board as well as Actuary Experts are consulted.
(2) There should not be much difference in the amount of
contribution payable by the participants of the same category
as regards risk covered as discrimination amongst
participants
of the same category is not approved.
However, operator
may allow discount to the extent of its
fee to a specified participant. Moreover, Waqf Fund should
continue to receive
its share from the donations made by
participants.
(3) Operator as Mudharib in case of profit will receive its pre
prescribed share from the net profit. If the Operator is
making
investment as Wakil Istishmar, then it will receive the
prescribed fee as agreed already. The share in profit as
Mudharib and amount of fee as Wakil is to be determined at the
commencement of business in consultation with Actuary
Experts and permission of Sharia Board.
(4) The policies to be followed and the rules of business and
market practices should be got approved from Sharia Board.
(5) Operator has the first right to adjust Qardh Hasan from the
surplus as and when it is available.

ROLE OF THE SHARIAH


BOARD
a monitor and akin to a Mutwalli
but as the Takaful Companys role is that of a

Mutawalli, the position of Takaful Company vis--vis


Shariah Board and of the Shariah Board is as under:Takaful Company utilizes services of many and pays
their remuneration out of its own fee. The Shariah
Board is though rendering service to the Company,
its remuneration may also be adjusted from the said
Fee.

Shariah Board legally speaking is not Mutwalli though

is a monitor on the operations of the Company and


these two positions must be kept separate and
independent of each other as per requirements of
Shariah, hence the remuneration payable to Shariah
Board can be charged as expense from Waqf Fund.

WINDING UP Treatment of
Seed Capital and Assets.

What happens to
Capital
of Wakf in
winding up of a
Wakf
is it preserved?

How the assets, if any, are to


be
treated?

Original
case of
and how

WAKF DEED & WINDING OF WAKF:


(1)

Conducting valuation of assets as then existing.

(2)
liabilities of the Waqf Fund shall be discharged
first.
The amount of Qardh Hasan will be paid
from the surplus, if any, and the Assets/amount, if
any, will be distributed among participants and
the
remaining amount, if any, will go to
Charity as
directed by Sharia Board.
(3)
If there is any Sub Fund established for any
specific
purpose and in case there exists a
deficit in the Sub Fund, then the amount
available in the
surplus will first be paid to
clear the deficit in the
Sub Fund before
making any payment towards
Qardh Hasan of
the Company.

(4) If on valuation of the Assets, it transpires


that Fund is unable to meet its liabilities
and
obligations and the Fund cannot
continue to exist, then in such a situation,
it should not be obligatory for the Company
to make
available required funds.
However, the deposits which were kept with
the Central Bank should be withdrawn to
meet the obligations at the time of winding
up of the Company.
(5) The real or the seed amount of Wakf if
available will be transferred to a Wakf the
same kind and objectives. It is well settled
that the shareholders of the Company who
created the Wakf are not to receive any
share out of the Assets/seed amount of the
Wakf available at winding up.

If the Operator of the Wakf is being absolved

of his obligation to operate the Wakf and


there is change of Operator only, i.e. one is
being substituted for the other, this amounts
to change of guards, in other words Mutwalli
is changed and substituted, so the Wakf
continues and does not come to an end as
Wakfs administration falls into the hands of
new Operator (Mutwalli).

In case the Company itself is being liquidated

and has to become extinct, then the


substratum (original capital) of the Wakf is to
be passed on and merged into another Wakf
having the same or similar objectives as
these assets will continue to be used and
employed for the avowed objectives of the
Wakf.

In case a Wakf of the same and similar objectives is

not available for merger, then any of the following


options may be adopted:a) An asset of permanent nature will be purchased
from the property, Asset or valuable right of the
Wakf and the same will be bequeathed to
another Wakf and included in the assets of the
said Wakf.

b) The amount realised from the Assets/property of

the
Wakf, under liquidation, may be given to
the other
Waqf for utilization and investment
and the profit
accruing may be utilized for
defraying expenses or
for advancing loan to the
staff and to be retrieved
once the need of the
staff is fulfilled. So the amount
contributed will
remain secure and the objective of
the Wakif
(person creating the Wakf) will also be complied
with.

ALTERNATIVE TO TRANSFERRING
(1) Efforts to continue the Wakf;
(2) Hiring capable individual;
(3) Utilizing the capital at optimum level &
(4) Retrieving the invested money and
Assets with profit of the Wakf.
If a suitable person can not be procured to
administer Wakf on voluntary basis, even
service may be hired for appointment as
Mutwalli who may fulfil the needs of
deserving persons on the basis of profit.

THAN
K YOU

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