Takaful derivers
This concept is driven by the following:
-The successful development of Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment.
-Islamic banks and financial institutions play a strategic and important role in the distribution of Takaful products.
-A strong demand from a public who would not insure because of religious beliefs.Bancatakaful is an important driver for Takaful.
Takaful is one of the fastest growing segments in insurance at around 20% per annum on average. World Takaful contributions are conservatively estimated at around US$ 3billions, comprising; 60% General Takaful, and 40% Family Takaful
Furthermore Takaful has positive global Geographical spread south and East Asia at 56%, Middle East at 36%, Africa at 7%, and Europe, USA and others at 1%.Only eighty million out of the world’s 2.5 billion poor are currently covered by some form of micro insuarance.Only 0.3% of the poor are insured in Africa. Also in 23 of the poorest 100 countries in the world, there is no micro insurance activity.
The number of Takaful operators worldwide is estimated at 200 Takaful companies operating in more than 40 countries, with more than 10 Retakaful and more than 23 Islamic windows by conventional Reinsurance companies. These countries are: Malaysia, Singapore, Indonesia, Sri Lanka, Bangladesh, Turkey, Luxembourg, Senegal, Tunisia, Bahrain, Brunei, Pakistan, Kuwait, Jordan, Qatar, UAE, Egypt, Saudi Arabia, Sudan, and Iran.
Models of Takaful
Based on the relationship between the company and the participants, there exists various models like Wakalah (agency) model,Mudarabah(Profit and Loss sharing) model and the combination of Agency and Mudarabah models. There is a model where every policy holder is also the shareholder of the Takaful Company. There is a board that runs the business on behalf of all the participants and there is no separate entity managing the business-as is the case in Sudan. While in some climes Takaful companies work as separate entity on the basis of Mudarabah (as in Malaysia) and on the basis of Wakalah (as in the Middle East region).
In Mudarabah model that is practiced in Asia pacific region, the policy holders get profit on their part of funds only if Takaful Company make profit.
The sharing basis is determined in advance and is a function of the developmental stage and earnings of the company. The Shariah committee of Takaful Company approves the sharing ratio for each year in advance. Most of the expenses are charged to the shareholders.
In Wakalah model, the surplus of policyholders’ funds investments-net of the management fee or expenses goes to the policyholders. The shareholders charge Wakalah fee from contributions that covers most of the expenses in the business. The fee rate is fixed annually in advance in consultation with Shariah committee of the company. In order to give incentive for good governance, management fee is related to level of performance.
Definition of Waqf
Waqf is an Arabic word meaning to stop to withhold and not to let go. In technical meaning Waqf means to allocate or donate some property or cash for a defined specific purpose to get pleasure of God and not to let it go through consumption or sale. The Waqf property comes in to ownership of God and Waqif will have no property rights on it.Waqif has right to set the rules for Waqf and mange the Waqf.It may be general purpose or specific, however Waqf is a legal entity
Wakalah with Waqf Model
The objectives of the Waqf fund if to provide relief to participants against defined losses as per the rules of the Waqf fund. In this modified Wakalah Model with Waqf,the relationship of the participants and of the operator is directly with the Waqf fund and the participants pay one? sided donation to the WAQF fund, not conditional which also eliminates the issue of Gharar.
The WAQF fund rules may define the sharing of surplus and other rules in which he will operate, but there is no obligation to distribute surplus.Qard would be given by the shareholders to the Waqf entity and not to individuals as in typical Wakalah
Working of the Takaful Business
Furthermore Takaful business is based on the twin concepts of Mudarabah and Tabarru.Involvement of these two Islamic forms of business eliminates the elements of Riba from insurance contract and converts Gharar into tolerable form.
In family Takaful each Takaful installments is divided and credited into two separate accounts namely, the Participants’ Accounts(PA)and the Participant’ Special Accounts(PSA).A significance proportion of the installment is credited in to the PA solely for the purpose of savings and investment.
The balance of installments is created into the PSA as ‘Tabarru’ for Sharikah Takaful, company to pay the Takaful benefits to the heirs of any participant who may die before the maturity of the contract.
The amount calculated in the PA is invested in various businesses according to Islamic finance techniques, and the resultant profits are divided between the company and the participants according to the agreed upon ratio.i.e 70-30
The participant’s share is calculated according to their individual share in PA, and credited into their respective accounts, the PA and the PSA.
Payment of claims
Should the participant die or suffer permanent and total disability in the tenth year of participation, Takaful benefits will be paid in the following manner:
-From Participants Account (PA) equal N22, 500(N2500x9), and profit if any, let say N4000.00
-From Participants Special Accounts (PSA) equal N50, 000 when (N10, 000X5)
-Total Takaful benefit payable stood at N76, 500 equal (22500+4000+50000)
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In case the Participant survived
In case the participants survive until the maturity of his FTP, payment of Takaful benefit will be made to him as follow:
-From his Participant’s Account (PA) equal N33, 000 at (N3000x11), with profit from investment at N5, 000
-From Participants Special Account (PSA) equal N0.00
Total Takaful benefit equal N38, 000.00 plus surplus determined by Shariah Takaful
Gaps in the Nigerian Insurance Market
There exists huge untapped insurance market in Nigeria, it’s argued that the Nigeria Insurance market is underdeveloped, and looks promising.
Assets underlying Islamic banking contracts need to be insured namely;
-Property: Fire, Rainfall, Agriculture, Theft, Floods, Price, Livestock
-Disability: permanent, Partial, Total, Temporary, Dismemberment, Personal Accident
-Health: Optical, Surgical, Hospitalization, Out-patient, Dental, Dread Diseases.
-Life Insurance (Transition funds), Credit Life, endowments, Pension, Funeral, Education Life, Unemployment, Marriage,
-More Potential Areas: Construction of a House, Marriage, Death, Prolonged Illness, Education of Children, Business Failure/Loss of Job, Birth of Children.
Others are Vehicle insurance, Shipment of goods etc.Also need for Life Insurance e.g. Housing Finance.