Policy Perspectives 2016: Volume 13, No. 2

A profit-and-loss sharing principle in a business contract between the capital provider (Rab-ul-Mal) and the business manager (Mudarib). In Takāful, it's a profit-sharing contract between participants and operator.

The party in a Mudarabah contract who provides the capital.

The party who manages the business in a Mudarabah contract.

Islamic insurance.

A Takāful model used in the Gulf region, often called the Bahrain model.

Takāful model initiated in Pakistan and South Africa. Also known as Pakistan's Model of Takaful.

The agreement between a Takaful company and participants determines how the business is managed in different models.

The practical workings of different Takaful models, largely the same across models, but differing in details.

A type of interest-free loan in Islamic finance, often given for charitable purposes.

A common custom or established practice that is accepted as a legal basis in Islamic law.

A common business practice that is considered a basis for Islamic finance rulings.

A donation (Tabarru) is made by Takaful participants in case of a loss, with the intention to help those affected.

The profit earned by a Takaful company from its operations, after covering expenses and claims.

In General Takaful, the actual amount of Tabarru needed is determined only after a loss occurs.

The initial capital contributed by Takaful participants, used to start and operate the Takaful business.

Takaful 'Urf considers profit from general business operations, including underwriting surplus, to be part of the Takaful business.

A pool of money created from contributions by participants in a Takāful scheme, used to compensate members for losses.

A voluntary contribution made by participants in a Takāful scheme, with the intent to help others in case of loss.

The Mudarib acts as the manager of the General Takāful Fund. They invest the funds and share the profits with participants.

Any surplus in the General Takāful Fund, after expenses and claims are paid, is shared between the participants and the Takāful operator according to an agreed ratio.

The presence of Gharar, which refers to uncertainty or ambiguity in a contract, is considered unacceptable in Islamic finance, as it is seen as gambling.

Some scholars argue that directly linking a voluntary contribution (Tabarru) to a profit-sharing contract (Mudarabah) blurs the distinction between charity and business, potentially conflicting with Islamic principles.

It allows for risk sharing, promotes ethical investment, and aligns with Islamic principles of profit-sharing, transparency and accountability.

The Takāful company acts as the Mudarib, managing the General Takāful Fund, investing the funds, and sharing profits with the participants.