Understanding Islamic Finance - Doha Academy of Tertiary Studies

Takaful: An Alternative to Conventional Insurance 425part is invested by the company on a Mudarabah basis and is redeemed to the policyholderon a NAV basis at maturity of the policy. The investment profit is shared between thecompany and the fund. As per the contents of the policies, the company distributes the profitamong the beneficiaries.Box 16.1:Flowchart of the Wakalah with Waqf Model of TakafulCOMPANYTakaful operator fees forAdministration expenses25% to 30%Share of Profitfor the CompanyManagementExpenses ofCompanyProfit / lossAttributable toShareholders40%initial donation byShareholders tocreate Waqf fundProfit sharing onMudarabah basesWAQFInvestmentby FundProfits fromInvestment60%PARTICIPANTDONATIONPAID byParticipantWAQFFUND75%TO70%WAQFFUNDOperationalCost ofTakaful/RetakafulSurplusShare ofsurplus forThe participant100%Prepared by Abdul Rahim Abdul Wahab of Sidat Hyder Murshid Associates, Karachi1. Shareholders create a Waqf for the purpose of Takaful; policyholders/participantsdonate to the Waqf fund.2. The company invests 70 % to 75 % of the Waqf fund on a Wakalah basis. 25–30 %is the management fee for the company, from which it shall incur all managementexpenses.3. Claims/operational costs of Takaful and re-Takaful are charged to the Takaful fundand the UWS or UWL belongs to the participants as a group.4. A Mudarabah contract for investment purposes takes place between the fund and thecompany. The profit-sharing ratio between the company and the fund in this case is40 % and 60 % (it can be any ratio as per agreement).Besides the usual technical reserves, the Waqf fund is allowed to create a contingencyreserve fund from the contributions and the profit earned on investment. This reserve is also