Islamic Insurance: Evolution, Models and Issues PDF

P OLICY PERSPECTIVES Volume 13 2016 Number 2 Realizing Sustainable Development Goals (SDGs) Need for an Indigenous Approach Islamic Insurance: Evolution, Models and Issues Middle East Refugees' Crisis Europeans' Three Dimensional Approaches Pan-Arabism: A Tool...

P OLICY PERSPECTIVES Volume 13 2016 Number 2 Realizing Sustainable Development Goals (SDGs) Need for an Indigenous Approach Islamic Insurance: Evolution, Models and Issues Middle East Refugees' Crisis Europeans' Three Dimensional Approaches Pan-Arabism: A Tool of Ruling Elites or a Politically-Relevant Ideology? U.S.-Israel Special Aid Relationship Dynamics and Implications for Pakistan Afghanistan: Finding Peace Amidst Chaos Gwadar: A Historical Kaleidoscope Nuclear Energy Security: Emerging Trends and Pakistan Review of Government's Performance in Power Sector (2013-2016)  Contents Editor’s Note 01 Realizing Sustainable Development Goals (SDGs): 03 Need for an Indigenous Approach Khalid Rahman Islamic Insurance: Evolution, Models and Issues 29 Atiquzzafar Khan Middle East Refugees’ Crisis: Europeans’ Three 63 Dimensional Approaches Bakare Najimdeen Pan-Arabism: A Tool of Ruling Elites or a 93 Politically-Relevant Ideology? Faheem Sheikh U.S.-Israel Special Aid Relationship Dynamics and 109 Implications for Pakistan Murad Ali, Glenn Banks and Nigel Parsons Afghanistan: Finding Peace Amidst Chaos 131 Syed Ibrahim Moiz Gwadar: A Historical Kaleidoscope 149 Azhar Ahmad Nuclear Energy Security: Emerging Trends and 167 Pakistan Rizwana Abbasi Review of Government’s Performance in Power 193 Sector (2013-2016) Ashfaq Mahmood Summary of Dialogues at IPS 213  Islamic Insurance Evolution, Models and Issues Atiquzzafar Khan* Abstract [Insurance has become an important field to take practical steps in the light of theoretical debate generated by Muslim scholars for an alternative economic paradigm. Several Takāful companies are also operating all around the Muslim world. These companies have adopted diverse working models such as Muḍārabah, Wakālah and Waqf-Wakālah – each having its strengths and shortcomings. Takāful however is an evolving field both in theory and practice; and the work is ongoing in both the dimensions. Maximum possible benefits with an all-important sense of satisfaction for the consumers, and sustainability and profitability for the company providing such services, need to be ensured through continuous research and development. – Editors.] Introduction The negative impacts of the prevailing global economic paradigm and its occasional failures have provided a sound basis for consideration of an alternative economic system. Flaws and drawbacks of the prevailing system need to be debated, and economic thought based on human welfare needs to be promoted. Besides, establishing an institutional mechanism/ machinery that is reflective of viability and utility of such an alternative thought based on human welfare is also needed. Muslim scholars have produced considerable theoretical work in this connection. However, there are certain difficulties in taking this work forward on operational level – due mainly to the fact that the prevailing economic system is intertwined with the processes of globalization; any major change or transformation, in this situation, can hardly be expected in the short term. Nevertheless, though a host of institutions working on the basis of Takāful (the Islamic insurance) are operating in various parts of the world. However, the discipline is yet in the formative phase. There is need to make a comprehensive program while analyzing the diverse experiments having been conducted so far, in this regard. This paper is an endeavor to present and analyze the development of Takāful over time in different regions in the world. * Dr. Atiquzzafar Khan is Associate Professor in International Institute of Islamic Economics (IIIE), at International Islamic University, Islamabad and an IPS Associate. 29  Policy Perspectives Evolution of Takāful While some works on Takāful trace its history from the period of early Islamic state in Madinah (7th century) mentioning institution of ‘Aaqilah as a system of mutual cooperation and joint responsibility, this view is not accepted by majority of Muslim scholars as ‘Aaqilah was a social institution without a commercial motive. Contemporary Takāful experience as an alternate to conventional insurance started in 1979 from establishment of Islamic Insurance Company Sudan and then soon spread in other parts of the world. To give the overall picture at a glance, the timeline below shows important events and developments in this connection, over time.  1976, Makkah: First International Conference on Islamic Economics  1977, Saudi Arabia: Fatwa issued by higher council in favor of Islamic insurance model  1979, Sudan: Takāful launched with the establishment of Islamic Insurance Company Sudan  1980, Saudi Arabia: Islamic Arab Insurance Company formed, later relocated to UAE  1981, Switzerland: Dar Al Mal Al Islami Trust formed to setup Islamic banks and Takāful Companies  1983, Luxembourg: Takāful launched with the establishment of Takāful SA.  1984, Malaysia: Takāful act 184 enacted; Takāful launched with the establishment of Takāful Malaysia Bhd.  1985, Saudi Arabia: OIC Islamic Fiqh Academy Resolution 9 (9/2) prohibited conventional insurance and allowed Islamic cooperative insurance (Takāful)  1985, Tunisia: RE- Takāful launched with the establishment of Saudi Takāful Limited  1991, Bahrain: AAOIFI issued accounting, governance and Shari’ah standards for IFIs  1992, Pakistan: CII report on Islamization of insurance 30  Islamic Insurance: Evolution, Models and Issues  1994, Indonesia: Takāful launched with the establishment of PT Syarikat Takāful  1995, Qatar: Takāful launched with the establishment of Qatar Islamic Insurance Co.  1995, Singapore: Takāful launched with the establishment of Syarikat Takāful  1997, Dubai: Takāful launched with the establishment of Dubai Islamic Insurance Co.  1999, Sri Lanka: Takāful launched with the establishment of Amana Takāful  2002, Malaysia: Islamic Financial Services Board (IFSB) was established. IFSB issued global standards and guiding principles for IFIs  2002, Lebanon: Takāful launched with the establishment of Al- Aman Takāful  2005, Saudi Arabia: SAMA Regulations for cooperative insurance  2005, Bahrain: Bahrain Monetary Authority Rules enacted which included rules for Takāful Companies  2005: Pakistan: SECP issued Takāful Rules 2005  2006, Pakistan: Takāful launched with the establishment of Pak-Kuwait Takāful Co.  2007, Germany: Hannover Re-entered the Re-Takāful Industry  2008, Britain: Takāful launched with the establishment of Salaam Insurance.  2009, Malaysia: IFSB-8 on Takāful governance and IFSB-10 on Shari’ah Governance principles issued  2009, Switzerland: Swiss re-entered the re-Takāful Industry  2010, Bahrain: AAOIFI Islamic Insurance Standard No.26 issued 31  Policy Perspectives  2010, Brunei: Takāful launched with the establishment of Takāful Brunei Darussalam  2010, Malaysia: IFSB-11 issued on solvency for Takāful  2010, Germany: Munich re-entered the re-Takāful Industry  2011, Kenya: Takāful launched with the establishment of Takāful Insurance Africa  2011, Palestine: Takāful launched with the establishment of Al Takāful Palestine Insurance  2012, Pakistan: SECP allowed insurance companies to start Takāful  2013, Oman: Takāful regulations drafted.  2013, Indonesia: 43% growth recorded in Takāful assets. Now a brief description of working of some early experiences – first five years after 1979 – is presented to understand the gradual improvement in the concept, by having a look at the following experiences of Islamic insurance (Takāful) companies:1 Table 1 Early Islamic Insurance Companies Name of Company Country Year The Islamic Insurance Company Sudan 1979 The Islamic Arab Insurance Saudi Arabia 1979 Company The Islamic Takāful Company Geneva 1981 Syarikat Takāful al-Islamiah Bahrain 1983 Islamic Takāful and Re-Takāful Bahamas 1983 Company Syarikat Takāful Malaysia Bhd. Malaysia 1984 1 Mohammad Ma’sum Billah, Principles & Practice of Takāful and Insurance Compared, International Islamic University Malaysia, 2001, p 10. The information presented here is not comprehensive enough to cover each and every aspect of Takāful business. However, it does help understand the evolution of the concept and practices of Takāful over time. 32  Islamic Insurance: Evolution, Models and Issues The Islamic Insurance Company (IIC), Sudan IIC was the first Takāful Company was founded under the title of the Islamic Insurance Company Sudan by Faisal Islamic Bank Sudan (FIBS), after a fatwa (Legal opinion) was issued by its Shari’ah board, urging the bank to establish an Islamic cooperative insurance company to handle transactions according to Shari’ah principles. The main thrust of the fatwa was that there is no need for shareholders or founders to raise capital and achieve profit as contributors or policyholders themselves are the shareholders under the Islamic cooperative philosophy. However, since the Sudanese law did not allow establishment of a cooperative company, IIC was incorporated as a Sudanese public company under the companies Act 1925 on 22nd January, 1979. FIBS holds 98% of the shares of IIC.2 The Islamic insurance company operates on Muḍārabah basis, managing two funds separately namely the shareholders’ fund and the policyholders’ fund. The investment profits from the shareholders’ fund are distributed to shareholders, while those from policyholders’ fund are added into policyholders’ fund. After deducting claims related expenses, the surplus is distributed among policyholders proportionately based on their premium paid. Alternatively, part or whole of the surplus can either be reserved or invested in the benefit of policyholders as long as there is agreement among policyholders. Policyholders also have their own representative body that has regular general assembly, examine accounts, review the status of surpluses and elect their representative(s) on the Board of Directors. As no Islamic re-insurance company was available by that time, in order to meet the regulatory requirements, the Shari’ah board of IIC allowed the company to arrange re-insurance protection from well reputed conventional re-insurance companies as a matter of necessity till the availability of Islamic alternate, subject to the following restrictions: It should not receive any commission from its re-insurers and It should not pay any interest on the premium reserves retained by it from its re-insurers. The Islamic insurance company proved to be very successful and it is second largest company among the fifteen (15) Sudanese companies.3 2 Encyclopedia of Islamic Banking and Finance, Institute of Islamic Banking and Finance, 1995, p 197-208. 3 Please see www.Takāful.coop/images/stories/Islamic Insurance in Sudan.paper.pdf) 33  Policy Perspectives The Islamic-Arab Insurance Company Soon after IIC in Sudan, the Islamic-Arab insurance company was incorporated in Saudi Arabia on April 29, 1979. The company named their product as "the Islamic Mudarabah for Investment, Saving and Takāful between Muslims." The company’s product was examined and approved by the Council of Senior Ulama of Saudi Arabia 4. Under this product, Muslim individuals between the ages of 20 to 50 years were asked to provide $ 1000 as annual contribution for twenty (20) years on the basis of Muḍārabah. An issuance fee was to be paid equal to three percent (3%) out of the first installment. The managerial expenses and the Mudarib’s direct expenses were to be deducted from the Muḍārabah fund. The participants were supposed to willingly donate a part from their share of profit for the purpose of Takāful. Takāful benefits were available from the second year of participation and withdrawal from the scheme was possible only after the completion of two years of participation. The ratio for profit between the company and the participants was 10 and 90 percent respectively. In case of death of the participant (excluding death due to punishment or penalty (Qiṣaṣ or Had), the heirs were deemed to receive; a. the contributions paid by the participant during his life time along with his share from the profit. b. the aggregate amount of the remaining contribution the participant was supposed to pay till the maturity of Muḍārabah. While the attempt proved that at the conceptual level the Shari'ah principles are rich enough to cope with the contemporary needs of life there were problems at the operational level due to which it did not fully succeed. The most serious of these problems were as follows: A number of things were fixed, like amount of contribution, payment period, period of policy etc. and no flexibility was available to the participants to decide on the basis of risk associated with each of them. No Takāful cover was available during the first year of participation. Takāful benefits were denied to heirs if death occurred due to punishment or penalty. 4 Syed Hamid Hassan, Insurance from Islamic Perspective: A case study of Sudan, Paper Presented at international seminar on: Business & Economic Challenges and Islamic Institutions, organized by Institute of Policy Studies, Islamabad in 1996. 34  Islamic Insurance: Evolution, Models and Issues The coverage was limited to death only. No rider policies like permanent, total or partial, disability, hospitalization expanses etc. were available. The amount allocated for the purpose of risk coverage was insufficient which created problems in payment of claims. The company was later relocated to Dubai, UAE under the new name of SALAMA. Now it is a leading company in the field of Shari'ah Compliant Takāful solutions and the world's largest Takāful and Re-Takāful player with paid-up capital of AED 1.21 billion (USD 330 Million). Currently (2016) it is operating in more than 60 countries with 6 direct Takāful companies in the United Arab Emirates, Saudi Arabia, Egypt, Senegal, Algeria, and Jordan.5 The Islamic Takāful Company Gulf The third Islamic insurance company was established in 1981 by Darul Māl al-Islami (DMI), a well-known group of Islamic finance companies, under the name of ‘The Islamic Takāful Company’. This company tried to avoid the demerits of the previous experience, by offering policies of different maturities ranging from 5 to 20 years, asking for a variety of contributions from different participants on the basis of actuarial techniques and allocation of participants' contributions into two separate accounts: the Investment account and the Takāful account. The amount allocated to Takāful fund was considered as a donation (Tabarru). The percentage of contribution allocated between the two accounts was different depending on the policy duration as shown in the following table: Table 2 Allocation of Contribution between Investment and Takāful Accounts Duration Investment Account Takāful Account 5 years 97.5 % 2.5% 10 years 95 % 5% 15 years 92.5 % 7.5% 20 years 90 % 10% The logic for allocating lesser fraction to Takāful account for relatively short-term policies was the lesser chances of death and hence the lesser chance of payment out of Takāful fund to the heirs. 5 https://www.google.com.pk/#q=the+islamic+arab+insurance+company+(salama) 35  Policy Perspectives The other positive features of this attempt were making the amount of annual contribution flexible instead of being fixed (like in Islamic-Arab insurance company) at US$ 1000 using the actuarial techniques. Yet, some of the inflexibilities, as mentioned above, also stayed annexed to this new experience. This attempt, while improved the concept, did not succeed due to insufficient allocation of amount to the Takāful funds from the participants' contributions. This company stopped its operations and does not exist now. Sharikah al-Takāful al-Islamia Bahrain Sharakat al-Takāful al-Islamia Bahrain was established by Dar-ul-Māl al- Islami (DMI) in 1983. In this attempt the idea of Modarabah was combined with that of insurance. The company here acts as the agent (Modarib) of the policyholders. The contract form with the heading "Islamic Modarabah" reads: "This contract is a Modarabah or Qirad contract constituted pursuant to the rulings of Islamic Shari'ah among subscribers to ModarabahSaak (certificates) as beneficial owners of Modarabah Assets (Participants) on the one hand and Sharakat Al- Takāful Al-Islamia Bahrain as Modarib (the Manager) on the other hand. The objectives of the Modarabah are: a) Collective investment of private savings; b) Systematic savings over a long term and c) Takāful benefit for the participants in case of death of a participant before the end of the participation period. The installment appearing on the face of the Modarabah Saak of each participant is divided into two components; a) Amount allocated for the purchase of investment units. No Takāful benefits are deducted from this amount or the profits generated therefrom. b) Amount specified in the contract is donated to the Takāful fund. Each participant has accepted in goodwill and consents to relinquish a portion or all of profits of this amount for payment of Takāful benefits. Shari’ah Supervisory Board of Dar-ul-Māl al-Islami (DMI) Trust was also the Shari’ah Supervisory Board of Sharikat al-Takāful al-Islamia Bahrain. The company has to abide by Shari'ah regulations, interpretation of which is the responsibility of the Shari’ah Supervisory Board. The resultant income (profit) from the investment was to be shared by the Moḍarib (the company) and the fund in the ratio of 20% and 80% 36  Islamic Insurance: Evolution, Models and Issues respectively. Unlike the life Insurance, no portion of the premium is meant for Modarabah in case of Marine insurance. However, the clause pertaining to the intention of donating a part of the profit or the whole is also present in such contracts. The relevant clause reads: "Each participant has accepted in goodwill and consent to relinquish a portion or all of profits of this amount for payment of Takāful benefits to its recipients in this type of Takāful. The Participant has also donated, if such profit is insufficient, part or total amount specified in this paragraph to the Takāful fund, if necessary". Another important clause is 11(c), which reads: “Should a surplus result in the Takāful account, the Manager shall distribute half of such surplus only to Participants, who have received their consignments and to whom no Takāful has been due, and that in proportion to their respective amount of participation. The participants have donated the remaining surplus to support the Takāful account, as per their declarations and donations stated in the applications for participation signed by them.”6 Islamic Takāful and Re-Takāful Company, Jeddah (Saudi Arabia) and Manama (Bahrain) This company was also incorporated in 1983 as a limited joint stock company with an approved capital of US$ 50 million, fifty percent (50%) of which was paid up. It was allowed by its religious board to provide re- Takāful facilities to other smaller Takāful companies and to do business on reciprocal and non-reciprocal basis with such insurance companies who do business on lines approved by Islam, subject to certain conditions. The company is not allowed to realize insurance commission from commercial insurance or reinsurance companies. It was envisaged that there will be two separate funds; the shareholders fund and the policy holder fund. The latter would consist of: a) Insurance premiums; b) Claims paid and c) Such portion of the surplus, as may be determined by the Board of Directors. There is also a provision that if all the surplus is not transferred to the Reserve fund, the balance will be returned to the policyholders in proportion to the premiums paid by them during the year. If the 6 The Council of Islamic Ideology Pakistan, Report on Islamic Insurance System, 1992, p.97. 37  Policy Perspectives policyholders fund shows a loss in any particular year, the deficit will be made up from the reserves. If that too is insufficient, the deficit will be made up by taking Qarz-e-Hasan from the shareholders fund.7 Sharikat Takāful Malaysia Sendirian Berhad In Malaysia, the operation of Takāful is licensed and regulated by the Takāful Act 1984. The Act was specially promulgated and passed by the Malaysian Parliament to ensure that Takāful as a sector within the Islamic financial framework should grow in an orderly manner. Although the insurance industry in Malaysia is regulated under the Insurance Act 1963, the same however, cannot be applied to Takāful as it contains provisions which are not in line with the requirements of Shari'ah. Sharikat Takāful Malaysia Berhad (STMB), the first company of its nature in Malaysia, was incorporated on 29 November 1984 as a private limited company, with an authorized capital of RM100 million and a paid-up capital of RM10 million. It officially commenced business operation on August 1, 1985. It was converted into a public limited company on October 19, 1995. At present, the supervisory authority vested under the Act in the Central Bank of Malaysia (Bank Negara Malaysia) whereby the Governor of the Bank is also the Director General of Takāful. The following are the main bodies of the Sharikat Takāful Malaysia include a) Board of Directors, b) Shari'ah Supervisory Council, and c) Management Committee. The Shari'ah Supervisory Council comprises eight eminent scholars to guide the management committee and to ensure that functioning of Sharikat is in accordance with the Islamic principles. Sharikat Takāful Malaysia is a subsidiary of the Bank Islam Malaysia Berhad with, 87.15% of its equity held by the Bank. Other shareholders are States Islamic Councils and Bait-ul-mals of various states in Malaysia. The Sharikat not only operates through its branch offices but also through open Takāful desks in various branches of Bank Islam Malaysia Berhad. As a composite company, SharikatTakāful Malaysia transacts both types of Takāful business, namely; 1. Family Takāful Business (Islamic life insurance) 2. General Takāful Business (Islamic general insurance) 7 Ibid. p.98. Although it exists in the list of Takāful companies of Bahrain but no further details regarding the current performance is available. 38  Islamic Insurance: Evolution, Models and Issues The fundamental objectives and basic working operations differ widely between these two types of business. Under the Family Takāful Business, Sharikat (the company) offers various types of Family Takāful Plan, which are generally long-term Mudharabah contracts. Basically, a ‘Family Plan’ provides cover of mutual aid among its members or participants expressed in the form of financial benefits paid from a defined fund should any of its members be inflicted by a tragedy. For the General Takāful Business, the company manages various types of General Takāful Schemes, usually on a short-term basis. The schemes provide protection in the form of mutual financial help to compensate its members or participants for any material loss, damage or destruction that any of them might suffer arising from a catastrophe, disaster or misfortune that might inflict upon his properties or belongings.8 Sharikah Takāful Malaysia has shown a remarkable all-round performance. Indicators like, number of branches and participants, total collected contribution, profit paid to participants, total assets etc. show an improving trend. It is the leading Takāful company in Malaysia which provides a wide range of products both in Family and General Takāful. Takāful business which started from a very simple Mudarabah based product reached to a maturity level with the establishment of STMB and its working model and products are now replicated in other countries of the South-East Asia. In other regions where scholars were having certain reservations regarding Modarabah model as being practiced by STMB, amendments have been proposed and new models have been developed over time. Review of Existing Models of Takāful We shell now present the basic Takāful models which are being used in different parts of the Muslim world. An in-depth Shariʻah and economic analysis of these models will also be presented in this section. Three basic models of Takāful are operational in different regions. These include; Muḍārabah model which is common in Malaysia and other countries of South-East Asian region, therefore it is generally referred to as Malaysian model. 8 BIMB Institute of Research and Training, Takāful: Concepts and Operational System, 1996, p.8 39  Policy Perspectives Wakālah model which is being practiced in Gulf region. It is also referred to as Bahrain model, since it was first launched in Bahrain. Waqf-Wakālah model which was initiated in Pakistan and South Africa. It is also known as Pakistan’s model of Takāful. The basic difference in all three models is in the nature of contractual relationship between the Takāful company and the participants. The management of Takāful business is almost same in different models though with minor variations. We shall first describe the working of each model and then highlight the Shariʻah issues involved in each case. Besides, before discussing the operational details, the basic underlying contract will be introduced for a clear understanding of the model. Being the first model, the Muḍārabah model will be discussed in detail while only the distinguishing features will be emphasized in other models. Muḍārabah Model Definition of Muḍārabah Muḍārabahis defined as a profit-and-loss sharing principle applied normally to a business or commercial contract between the party that provides the fund or capital (called Rab-ul-Māl) and the party that manages the business (called Mudarib). For Takāful business, this would mean the contract of profit sharing taking place between the participants and the operator from the profit, if any, of the Takāful business. Under this arrangement, a profit sharing contract is signed between the operator, as the entrepreneur (Mudarib) who is entrusted with managing the Takāful business and the participant(s) as the provider of capital (Rab-ual-mal) who is obliged to pay the Takāful contribution as the capital. The contract would define the profit of the Takāful business and the ratio to be shared between the participant and operator respectively such as 50:50, 60:40 or 70:30. In essence, profit in Takāful is defined as returns on the investment and surplus from the underwriting in respect of the Takāful funds only. As such, this does not include profit posted by the Shareholders Fund. For the family Takāful business it includes the mortality surplus to be allocated to the eligible participants as declared by the actuarial valuation at the end of every financial year. However, unlike the Muḍārabah contract for Islamic banking product, profit sharing in Takāful will be undertaken only after all the obligations of Takāful have been accounted for, wherein the biggest factor is the claims. In the event of a loss or deficit of Takāful fund, the loss will be borne wholly by the participant(s) as provider of capital. 40  Islamic Insurance: Evolution, Models and Issues Notwithstanding the above, it is the responsibility of the operator to safeguard the interests of the participants in order to ensure that the business will not be seriously affected, or loss incurred that might jeopardize the credibility and confidence of Takāful business as a whole. For this obvious reason good governance, prudence and professionalism in managing the business on the part of the operator is inevitable. However, In the event of any loss, under the Muḍārabah it is incumbent upon the operator to model, management make good the loss by qard-e- expenditure is not hasan or interest free loan from the shareholders fund. An important charged on the Takāful feature to note is that under the fund, instead it is borne Muḍārabah model, management by the shareholders’ expenditure is not charged on the Takāful fund, instead it is borne by fund. the shareholders’ fund. Revenue of the latter comprise a portion from the profit sharing of the Takāful funds with the participants, and returns on the investment of the shareholders fund itself. The fact that management expenses are not charged to the Takāful fund provides better opportunity for the positive underwriting performance. The actual profit payable to each entitled participant would vary according to the profit sharing ratio and period of participation as well as the time of payment of the contribution. In general, however, the above business model has been successful in paying attractive profits to its participants. Similarly, as there is no upfront leakage of the installment contribution to cover management expenses or agency cost, a participant of a long-term family product would be refunded all the installments meant for his savings, inclusive of its returns, on investment should he chose to cancel or surrender the participation in the first year. Thus the mudarabah model presents a unique difference of Takāful from the conventional insurance; the difference is not only in the underlying basis of contract (aqad) that is founded on Shariʻah, but also in the business operation being advantageous to the consumers. Moreover, along with the concepts of Muḍārabah, Takāful Business is based on Tabarru (donation). Involvement of these two Islamic elements eradicate the element of Ribā from the insurance contract and convert Gharar into a tolerable form. As the relationship between the participants and the Takāful fund under Takāful arrangement is based on the concept of unconditional donation from both sides, any discrepancy in the amount of contribution and the compensation does not amount to Ribā al-Faḍl. The operator is bound to 41  Policy Perspectives invest Takāful fund in Shariʻah compliant investments only, and with the approval of respective Shariʻah Supervisory Board, so the element of Ribā al-Nasiyyah disappears from the contract. Similarly issue of Gambling and other objections are resolved in the wake of contractual form and structure of Takāful. The operational details of Family Takāful and General Takāful businesses under Muḍārabah model are as follows: Working of Family Takāful under Muḍārabah Model-I: Any individual, between the ages of 18 to 55 years can participate in the Family Takāful business. Participants are required to pay regularly the Takāful installments which are credited to a defined fund known as the Family Takāful Fund. Each Takāful installment is divided and credited to two separate accounts namely, the Participants' Account (PA) and the Participants Special Account (PSA). A substantial portion of the installment is credited to the PA solely for the purpose of savings and investment. The balance of the installment is credited to the PSA as `tabarru' (donation) for Sharikah Takāful Malaysia to enable it pay the Takāful benefits to the heir(s) of any participant who may die before the maturity of his Family Takāful Plan. Takāful operator manages these two accounts but owns none of them. PA solely belongs to the participants and every participant receives back whatever is available in this account in case of maturity or discontinuation of Takāful policy. Takāful pool or PSA belongs to the participants collectively. The amount accumulated in the PA is invested in various businesses according to Islamic financing techniques, and the resultant profits are divided between the Shirakat and the participants according to the agreed upon ratio under Mudarabah. The participants' share is calculated according to their individual contributions to the PA, and credited into their respective accounts, the PA and the PSA. For example a participant has purchased a 10 years Family Takāful policy and pays RM 1000 to Takāful company as his annual contribution; the allocation of contribution between PA and PSA is 97.8% and 2.2% respectively. The investment profit is shared between Takāful company and the participant at the rate of 30% and 70%. Out of 70% of profit each participant’s share is calculated according to his individual contribution in PA and the resultant amount is added into PA and PSA with the ratio of allocation of installment. Next year the participant would again provide RM1000 as his contribution which is again added into PSA and PA. Both the accounts swell over time. The management of both accounts can be explained with the help of the following chart: 42  Islamic Insurance: Evolution, Models and Issues Chart 1 Allocation of Contribution and Management of PA and PSA In case of an unhappy situation such as disability or death, the company makes payment to the policy holder or his heirs an amount equal to what has been deposited in the PA along with the profit accumulated during that period plus an amount from the PSA, equivalent to remaining installments which were supposed to be paid by the Participant till the maturity. 43  Policy Perspectives In case of participant’s survival until the maturity of his FTP, payment of Takāful benefit will include the amount he had deposited from the date of entry to the maturity in PA and the accumulated profits on this amount during this period but nothing is given from PSA fund as this fund is meant to provide support to the family in case of death or disability of any participant. Takāful company receives income as mudarib’s share from the profit and return by investing the shareholders capital. After deducting companies administrative and management expenses remaining is distributed among the shareholders of the company. The operation of Family Takāful under Mudarabah model is outlined in the flow-chart diagram below; Figure 1 Mudarabah Model: Family Takāful Mudarabah Model II: General Takāful: General Takāful scheme is basically a contract of joint guarantee made for short-term and based on the principle of Muḍārabah, between the groups of participants to provide mutual compensation in the event of a defined loss. As the coverage period of general Takāful policies range for very short periods i.e. from few hours to one year, it is not feasible to receive some amount from the participants for investment purpose and earn income by investing the same there is no PA in general Takāful schemes. The schemes are designed to meet the needs for protection of both individuals and corporate bodies in relation to material loss or damage consequent upon a catastrophe or disaster inflicted upon properties, assets or other belongings of the participants. 44  Islamic Insurance: Evolution, Models and Issues The participants agree or undertake to pay Takāful contributions as tabarru for the purpose of creating a defined asset as illustrated in the 'General Takāful Fund'. The amount of Takāful contribution would very according to the value of property or asset to be covered under the scheme. It is from this mutual fund that compensation is made to any participant who suffers a ‘defined loss’ or damage arising from a catastrophe or disaster affecting his property or belongings. On the other hand, Takāful company, as the Mudarib, invests the Fund. All returns on the investment are pooled back to the Fund. All operational costs for managing the General Takāful Business such as payment of claims, the cost for arranging re-Takāful and setting-up of reserve are deducted from the Fund. In case no claims are made or incurred and after deducting all the operational costs, and the Fund registers a surplus, it would be shared between the participants and Takāful operator at an already agreed ratio. Profits attributable to the participants are paid as surplus on expiry of their respective General Takāful Schemes, provided they have not received or incurred claims during the period of participation. Takāful company, in this way, earns income from two sources; investment income on shareholders fund and a share out of surplus as being Mudarib. Then Takāful operator deducts all administrative and management related costs from this income and the remaining will be the profit attributable to the shareholders. The operation of General Takāful business is explained using flow chart diagram as below; Figure 2 Mudarabah Model: General Takāful 45  Policy Perspectives Shari’ah Concerns Regarding Mudārabah Model: Despite the success and popularity of Muḍārabah model, some scholars and Islamic jurists expressed concern on the suitability of applying the Muḍārabah contract for Takāful operation. According to them, it is not appropriate to link a contract of tabarru between participants to profit sharing contract of Muḍārabah. Some of the major concerns are mentioned as follows; A major objection against commercial insurance was the presence of gharar which considered being intolerable in a commercial contract. Nevertheless, the presence of uncertainty about future is the basic cause of existence of insurance contract, its complete eradication is not possible from the contract. To solve this problem, it was proposed to arrange insurance scheme as a donation based contract (Aqd-e-Tabarrʻu) instead of commutative contract (Aqd-e-Muawaḍah). Muḍārabah being a commutative contract does not sound appropriate to be used in a donation based scheme. The capital of Muḍārabah remains in the ownership of Rab-ul Mal, whereas the donor loses the ownership rights over the donated amount. Being opposite in nature, two status may not be possible for an amount at the same time. It will either be capital for Muḍārabah or a donation. In case of Family Takāful product, where installment is distributed into two components, it may be possible to apply Muḍārabah contract for investment component (PA) and donation for the risk component (PSA), but in case of General Takāful where whole of the amount is given as donation, it is not appropriate to treat it like capital for Muḍārabah. Intention of the participant should be clear; whether the amount is being given as donation or for a business on Muḍārabah basis; the two are very different in their motivation and impact. In a Muḍārabah business, the Rab-ul-Māl shares the profit, if any, according to predefined ratio. But in case of Takāful it is not necessary to get a share out of profit or surplus. It is on the discretion of the operator whether to distribute surplus or keep it as reserve. The Takāful operator receives a share out of surplus instead of profit and thus it is against the requirements of Muḍārabah. Surplus is defined after subtracting operational costs of Takāful, including direct business costs, claims and cost of re-Takāful, from the profit. 46  Islamic Insurance: Evolution, Models and Issues Distribution of surplus among the participants in proportion of their contributions is like a conditional gift, (Hibabis-Sawab) which is not permissible.9 Participants’ collective ownership of Takāful fund creates the issue of payment of Zakat and inheritance in case of death of any one of them during the policy period. Accepting the responsibility of arranging Qarz-e-Hasan from the shareholders fund in case of any deficit in Takāful fund is also not correct as Mudarib is not a guarantor. Provision of Qarz-e-Hasan to PTF, which is owned by a group of participants, and recovering that loan some time in future from the donations given by other participants is also questionable. Sharing of the underwriting surplus tantamount to making Takāful into a commercial business venture instead of a contract of mutuality and joint protection. However, scholars and Islamic jurists supporting the permissibility of the above model base their opinion on the legal maxim where a ruling is ‘Urf’ is defined as the decided on the understanding of the issue at hand. In this regard, one of established norm and the approaches used is the principle common to the majority of ʻUrf’ as one of the secondary of people in a sources of Shari’ah. In Shari’ah Resolutions in Islamic Finance community either in the published by Bank Negara Malaysia, form of saying or doing. ‘Urf’ is defined as the established norm and common to the majority of people in a community either in the form of saying or doing. It is a common customary practice which is accepted and applicable as a legal basis of ruling so long as it does not contradict the Shari’ah ruling. In the context of Islamic banking and finance, ‘Urf iqtisadi (a common business practice) is considered as a basis of Shari’ah rulings.10 Guided by the above, the model recognizes contributions paid by participants as Raas-ul-Mal and only in the event of a loss incurred, the donation contract matures on the basis of tabarru. It is the ‘urf for General Takāful that the actual tabarru cannot be determined at the inception of the contract until a loss occurs. Similarly, it is also the ‘urf that profit of the General Business includes underwriting surplus, which, in the conventional operation, belongs to the shareholders. As the surplus 9 Conditional gift (Hiba bis-Sawab) means an act of giving a gift to someone with the intention to receive same or better gift in return from him. 10 Bank Nagara Malaysia, “Shari’ah Resolutions in Islamic Finance” Published Resolution No. 57. 47  Policy Perspectives forms part of the profit, under Takāful structure, it is subjected to profit sharing to enable the operator to pay for its management expenses and should there be any balance thereof to be declared as dividend to the shareholders. The transaction as a whole does not breach the doctrines of adland ihsan. Nevertheless, many scholars do not accept this argument as much convincing, especially when, in their opinion, it is possible to have alternate structure where the above mentioned issues could easily be resolved. The alternate model is termed as Wakālah model as in this model the basic contract between the participant and the Takāful operator is of Wakālah instead of Muḍārabah. Wakālah Model Definition of Wakālah The literal meaning of “Wakālah” is looking after, taking custody or application of skill or remedying on behalf of others. From this, the word “Tawkeel” is derived, which means It is necessary for a to appoint someone to take charge of something and also to delegate Wakil to discharge his any job to any other person. responsibility in the way Commonly Wakālah is translated as a trustee discharges his Agency and a Wakeel means Agent. Wakālah is also a responsibility. It is responsibility in the case therefore necessary for a Wakil to of Amanah discharge his responsibility in the way a trustee discharges his responsibility in the case of Amanah.11 Agency or delegated authority is proved by the texts of the Shariʻah. The Holy Prophet (SAW) himself delegated the job of purchasing a goat for him to a Companion named Urwah al Barqi (RA). Similarly, the fourth Pious Caliph, Ali (RA), and a number of other Companions (RAA) delegated their businesses to others. The subject matter of agency or the act to be performed by the agent should be known and well defined. If the agency is for the purchase of a commodity, the genus, kind, quality and other necessary attributes of the commodity to be bought should be clearly mentioned. Agency is not permissible in acts prohibited in the Shariʻah or acts of disobediences 11 Khalil Ahmad Aa’zmi, Islam ka Nizam-e-Awqaf (Urdu), Idara-e-Islamiat, Karachi, 2010, p. 33-36. 48  Islamic Insurance: Evolution, Models and Issues such as theft, usurpation of property or conducting Ribā-based business etc. An act to be carried out by an agent should be one that admits representation. Hence, appointment of an agent for an act such as prayer, fasting, giving evidence or for taking an oath is not permissible, because these acts are ought to be performed by the principal himself. Similarly an eyewitness to an incident, for instance, is required to give testimony himself. He is not allowed to delegate this task to another person. Some of the acts for which the agency contract can be invoked include sale and purchase, letting and hiring, borrowing and lending, assignment of debt, guarantee, pledge, gifts, bailment, taking and making payments marriage and divorce, litigation and relinquishment, admission and acknowledgement of rights etc. The agent must perform according to the instructions of the principal and exercise due care and skill. He cannot entrust the job to another person without the consent of the principal. He must also avoid conflicts of interest. Hence, for example, he cannot sell his own property to the principal without fully disclosing that it belongs to him. An action performed by an agent on behalf of the principal is deemed an action by the principal. Wakālah may be both commutative and non-commutative. A Wakālah contract comes to an end by mutual agreement, unilateral termination, discharging of obligation, destruction of the subject matter or death or loss of legal capacity. There are two versions of Wakālah model; Pure Wakālah model and Combined (or Hybrid) Wakālah model12. Pure Wakālah model: Under Pure Wakālah model, the Takāful operator acts as a Wakeel (agent) of the participants for managing the underwriting operations (or Takāful business) and investing activities against a remuneration known as Wakālah fee. The fee is normally defined as a percentage of contribution paid by the participants which is determined by the management in consultation with the Shariʻah Supervisory Board of the company. Takāful company earns income from 12 As we have discussed both Family and General Takāful under Mudarabah model in detail and have seen that the main difference between the two categories is presence of Investment account (PA) in Family Takāful, only General Takāful will be discussed in other models in order to avoid repetition. 49  Policy Perspectives two sources, the return on shareholders’ fund and Wakālah fee which is charged upfront from the contributions. The company meets all administrative and managerial expenses out of this income and remaining amount is distributed among the shareholders as profit. All underwriting profits go to participants’ Takāful fund (PTF) and after deducting operational cost of Takāful, which includes payment of claims, cost of re-Takāful and direct business costs, the remaining amount is known as surplus. Surplus belongs to the participants and after building of reserves, if needed, rest of the amount is distributed among the participants in proportion of their contributions in PTF. This model is not very popular and normally Takāful companies prefer to use combined model. The operation of General Takāful is explained using flow chart diagram as below; Figure 3 Pure Wakalah Model: General Takāful Combined (or Hybrid) Wakālah Model: Under this arrangement concept of Wakālah is combined with Muḍārabah. In this combined Wakālah model, the Wakālah contract is used for managing the Takāful underwriting operations while the Muḍārabah contract is adopted for investment of the Participants Takāful Fund. For the underwriting operations of Takāful business, which include receiving contributions, paying claims, arranging re-Takāful and all other necessary actions related to conduct of Takāful business, the 50  Islamic Insurance: Evolution, Models and Issues Takāful operator acts as Wakeel, and charges a Wakalah fee for acting on behalf of the participants, like in pure Wakālah model. This fee is determined by the management in consultation with the Shariʻah The Takāful operator committee of the company. acts as Wakeel, and On the investment side, the charges a Wakalah fee Takāful operator invests the for acting on behalf of Participants Takāful Fund in Shariʻah compliant assets and securities on the participants. the basis of the Muḍārabah. The operator thus acts as Mudarib for the participants who are the Rab-ul- Māl (Capital providers). The profit is shared between the operator and the PTF according to a fixed and agreed ratio, determined at the time of inception of the contract. In the event of loss or deficit in the PTF, the participants may be requested to pay higher contributions; however, in practice the Takāful operator would provide an interest free loan (Qarz- e-Hasan) from the shareholders fund to cover the shortfall. The loan would be repaid from the future contributions. In this model the operator earns income from three sources, which include: Investment income on Shareholders Capital; Wakālah fee, and Mudarib’s share from the investment income of PTF. The Takāful company meets all administrative and managerial expenses out of this income and remaining amount is distributed among the shareholders as profit. Whereas, the amount accumulated in PTF either through contributions (net of Wakālah fee) or share from investment income, is used for the payment of claims, re-Takāful contributions and direct business expanses. The remaining amount is declared as surplus, which is distributed among the participants in proportion of their contribution after maintaining the contingency reserves, if needed. The operation of General Takāful under hybrid Wakālah is explained using the flow chart diagram as below; 51  Policy Perspectives Figure 4 Combined Wakalah Model: General Takāful This model is more attractive for the Takāful operators as pure Wakālah model provides no incentive to the agent or Wakeel to act in the best interest of the participants and optimize returns on investment. In this model the operator gets one part as guaranteed income in the form of Wakālah fee while the other part is variable and increases with better management of the funds. Shari’ah Concerns Regarding Wakālah Model: A Wakālah based model is more acceptable to Shariʻah scholars as many concerns, shown regarding Muḍārabah model are not found under this arrangement. In this model Takāful operator acts as Wakeel of the participants to manage Takāful business on their behalf against a known remuneration. Yet, some of the concerns, which are raised in regard to Mudarabah model remain unresolved in this model. These concerns are as follows; The distribution of surplus among the participants in proportion of their donation to PTF makes it a conditional gift (Hibabis-Sawab) which is not allowed according to majority view. Participants’ ownership rights on the Takāful fund, although collective, raise the issue of payment of zakat and share of inheritance for the heirs in case of death of a participant during the period of Takāful cover. 52  Islamic Insurance: Evolution, Models and Issues In case of short fall in the Takāful fund, the operator undertakes to provide Qarz-e-hasan from the shareholders fund which is not correct, as Wakeel is not a guarantor. Provision of Qarz-e-Hasan to PTF, which is owned by a group of participants, and recovering that loan some time in future from the donations given by other participants is also questionable. Thus, Wakālah model is relatively more acceptable and Wakālah model is involves lesser concerns as relatively more compared to Mudarabah model. Yet the scholars in the sub-continent acceptable and involves were not easy with even Wakālah lesser concerns as model. The Council of Islamic Ideology of Pakistan studied the compared to Mudarabah issues in late 1980s and presented model. Yet the scholars a report in 1992. The report after in the sub-continent studying all the prevalent Takāful models found them less satisfactory were not easy with even to be used in Pakistan. The Council Wakālah model. suggested a model based on the concept of Waqf for both Family and General Takāful. Consequently in 2003 in a meeting of ʻUlama from Pakistan and Bangladesh and some insurance experts, the working details of another model, Waqf-Wakālah were prepared as a solution to the major issues raised by scholars about Muḍārabah and Wakālah models i.e. contractual relationship between the operator and the participants and collective ownership of the PTF by the participants. As investment of PTF, distribution of surplus and similar other activities are found in these models with commercial activities, it is found difficult to accept it as purely donation (Tabarru) based activity. It was proposed that if some legal entity is introduced in the model, to avoid direct contractual relationship between Takāful operator and the participants and to isolate the participants from all commercial nature activities of Takāful business, then all Shariʻah issues can be resolved; as Waqf is an institution which has its own legal entity and thus capacity to own things, enter into contracts and become party in legal matters. Waqf-Wakālah Model Definition and Characteristics of Waqf The meaning of Waqf in Arabic is to hold, confinement or prohibition. In North and West Africa, Waqf (plural Awqaf) is also called Habs (plural Ahbas or Hubus). The word Waqf is used in the Islamic Law in the meaning of holding a property and preserving it so that its fruits, 53  Policy Perspectives revenues or usufruct is used exclusively for the benefit of an objective of righteousness while prohibiting any use or disposition of it outside its specific objective. This definition accords continuity or perpetuity to Waqf, i.e., it applies to non-perishable properties whose benefit and usufruct can be extracted without consuming the property itself. Therefore, Waqf widely relates to land and buildings. However, there are Awqaf of books, agricultural machinery, livestock, shares and stocks, and cash money.13 Waqf is a juristic person also as it can enter into contract, own property, hire someone and become party in legal matters. 14 A Waqf may be general (A’am) or specific (Khaas). General Waqf means that everyone is allowed to benefit from it, like a Masjid, A water cooler installed on a roadway, grave yard etc. A specific Waqf means that only the designated persons are allowed to benefit from the Waqf like, a community based school or hospital. In fiqh literature Waqfa’la al-Aulad (Trust for Offsprings) and Waqfa’la al-Aqarib (Trust for Relatives) are the examples of specific Waqf. As a special kind of benevolence Waqf has two characteristics: Perpetuity, and Permanence of Stipulations of the Waqf Founder. Perpetuity means that once a property, often a real estate, is dedicated as Waqf it remains Waqf forever. It implies that Waqf properties should not decrease. The second characteristic implies that the conditions specified by the founder must be fulfilled to their letter as long as they do not contradict or violate any of the Shari`ah rulings. This implies that revenues of Waqf should exclusively be used for the objectives stipulated by its founder. There is a legal maxim in this regard that; Shart-ul-Waqif Ka Nass us-Share, a condition stipulated by the creator of Waqf is like a Al-nass (condition stipulated by the law-giver). The Waqf founder also determines the type of management of his Waqf. The Waqf manager is usually called Mutawalli, Nazir or Qayyim and his responsibility is to administer the Waqf property and ensure maximization of the revenues for the beneficiaries. The Waqf document usually mentions the objectives of creation of Waqf, its beneficiaries, its management, and how the mutawalli (trustee organizer) would be compensated for his efforts and other related details. 13 Usmani, Muhammad Taqi, “Islam aur Jadeed Maeshat-o-Tijarat (Urdu)”, Idarah al- Ma’arif, Karachi, 1999, p.80 14 Sunan al-Tirmizi, Kitab ul Fadail lil Jihad, Hadith No. 3138. Also see Sunan al-Nissai’, Kitab ul Ahbas, Bab Waqf al-Masajid, Hadith No. 3550. 54  Islamic Insurance: Evolution, Models and Issues The founder of Waqf is allowed to benefit from the Waqf asset or property if he qualifies to do so according to rules set for the management of Waqf.15 General Takāful under Waqf-Wakālah Model: Under Waqf-Wakālah model, the shareholders of Takāful company donate a reasonable amount as seed money to create a Waqf for the purpose of indemnification of members of Waqf fund in case of specific losses. This Waqf is registered as an independent legal entity according to procedure laid down by law for this purpose. At the time of registering the Waqf, a document containing all details about management of Waqf, known as Waqf deed, is submitted to the registering authority. The main components of this Waqf deed include: the use/utilization or preservation of the Waqf; the beneficiaries and the rules for their eligibility; the rules for the managers of Waqf, and the use of Waqf in case of dissolution of the Takāful company. The Takāful company being the founder of Waqf (Waqif) assumes the role of manager (Mutawalli) and acts as Wakeel of Waqf for the management of Takāful business. The amount initially donated by the The Takāful company company as seed money is considered as Waqf. According to being the founder of concept of Waqf, the Waqif losses Waqf (Waqif) assumes the ownership rights on this amount and it becomes the the role of manager property of Allah (SWT). Takāful (Mutawalli) and acts as company as the manager of the Wakeel of Waqf for the waqf has to make sure that the waqf is managed in such a manner management of Takāful that Waqf money remain intact, business. and its returns should only be used for the purpose for which Waqf has been created which in this case is to indemnify its members against specific losses. After creation of Waqf, the company invites the people to become member of this Waqf by donating an amount to Waqf with the intention to indemnify members of Waqf, facing some specific loss. This donation is owned by the Waqf (Mamlokan lil Waqf) and can be used fully or partially for the satisfaction of Waqf objectives. 15 Hafiz Zulfiqar Ali, Dor-e-Hadhir ke Muamlat KaSharai Hukm (Urdu), Abu Huraira Academy, Lahore, 2008, p. 188. 55  Policy Perspectives With the inclusion of Waqf in Wakālah model, no direct contractual relationship exists between the Takāful operator and participant. The participants become member of Waqf by providing the donation as specified by the operator using actuarial techniques. This includes preparation of different Takāful products, marketing of these products, collection of contributions, payment of claims, arrangement of re-Takāful etc. For performing all these functions, the company charges a Wakālah fee upfront, defined as a percentage of contribution by each participant. This fee is defined annually with the consultation of Shariʻah board of the company. Usually it ranges from 25% to 35% in case of Pakistani companies. After deduction of Wakālah fee, contribution is added to Waqf fund which is also known as Participants Takāful Fund or PTF. This is the pool created for the purpose of indemnification of members facing some specific loss like, damage of property, car accident, third party liability etc. As claims come gradually during one financial year, a good amount of money always remains available in PTF. Considering it against the interest of Takāful business, the operator manages the investment of these surplus funds in Islamically approved investment opportunities to generate some additional income for PTF. Takāful operator manages the investment as Mudarib and the Waqf fund is Rabb ulMāl. The shareholders fund is also invested along with the PTF. Investment income is first shared between the Operator and the Capital according to pre- defined ratios, and then rest of the income is allocated between the PTF and shareholders fund according to their proportion in total capital. Takāful operator, in this manner, earns income in three ways which are: Wakālah Fee; Share of profit being Muḍārib, and Investment income on shareholders capital. Takāful company meets its administrative and management expanses from this income and may distribute the remaining profit among the shareholders of the company. On the other hand amount available in PTF is used for the payment of claims, contributions for re-Takāful arrangements and direct business cost of Takāful. The remaining amount in PTF is declared as surplus which is distributed among the participants after maintaining reserves if required. The operation of General Takāful under Waqf- Wakalah model is also explained through a flow chart diagram as below; 56  Islamic Insurance: Evolution, Models and Issues Figure 5 Waqf-Wakalah Model: General Takāful Waqf–Wakālah and Shariʻah Issues: As discussed earlier that institution of Waqf has been introduced to resolve the Shariʻah issues exist in Wakālah model. Here it is explained that how inclusion of Waqf resolves those issues; In Waqf –Wakālah model the amount given as donation by the participants becomes the property of Waqf and participants have no ownership rights over that amount, neither individually nor collectively. The participants have no connection with any business activity of the company as was the case in previous two models. Therefore no doubt of commutative contract is found in this set-up. As participants have no relation with PTF, no question of payment of Zakat or inheritance arises in this model. The operator provides Qarḍ Hasan to Waqf and receives back from the same entity, so no Shariʻah issue arises here. Surplus, if any, is distributed as per rules of Waqf not because of giving contribution or donation to the fund, thus no problem of conditional gift exists in this model. 57  Policy Perspectives Although inclusion of Waqf solves almost all the issues involved in other two models, yet some Shari’ah scholars have raised issues on this model from different aspects. Some major objections are as under; As permanence of Waqf is a necessary condition for its validity therefore, Isalamic Jurists have only allowed Waqf of fixed assets like land or Building etc. and Waqf of cash or other consumables is not allowed. Takāful companies create cash Waqf which is not correct. Waqf is created with the intention to fulfill some religious or philanthropic need of the Muslims in order to get pleasure of Allah (SWT). But Takāful companies create Waqf for a business purpose with the intention to earn profit which is against the spirit of Waqf. An individual can become member of Waqf (and eligible for receiving benefits from Waqf pool) only by donating a specific amount to Waqf pool. It is similar to a commercial deal and not a donation based scheme (Aqd-e-Tabarru) as claimed by Takāful companies. A participant donates money in Waqf pool and receives benefits from the same pool. This comes under the definition of conditional gift (Hiba bis-Sawab), which is not permissible. Waqf is a kind of charity and it is illogical that someone uses charity for his own advantage. These objections have been discussed by the proponents of Waqf model. A brief response to these objections is as under; It is true that most of the Hanafi Jurists do not allow waqf of cash or moveable property, but other jurists, including some prominent Hanafi fuqaha, allow it with the condition that the original amount should remain intact and only the resultant profits should be used for the purpose of creating Wqaf, thus the condition of perpetuity will be satisfied. The objective of creation of Waqf, as per the Waqf deed, is to provide financial support to those members of Waqf, who are facing financial loss due to some unhappy event which is a legitimate religious cause. Takāful company earns income against its services as wakeel or mudarib and it has no right in surplus of Takāful pool. A participant gives some amount to Waqf pool as an unconditional and one-sided donation with the intention to help those members of Waqf pool, who suffer some loss. In case he himself faces the specific loss, he will receive the compensation from the Waqf pool as per rules of the Waqf. 58  Islamic Insurance: Evolution, Models and Issues Waqif can benefit from the Waqf asset or property if he qualifies according to the rules set at the time of creation of Waqf. If a person donates a piece of land for the construction of Masjid he can also pray there. If someone arranges a hospital for the benefit of a specific locality, he can also get treatment in case of illness as member of that locality. The example of Usman (RA) is also very clear in this regard that when he purchased a well and made it Waqf for Muslims of Madinah, some companion asked the Prophet (SAW) about his status. He (SAW) replied that status of his bucket is same as bucket of other Muslims.16 Conclusion This study shows that the concept and practice of Islamic insurance (Takāful) have passed through a process of evolution before reaching to present status. The concept, which started with a very simple product of coverage against the risk of life combined with the concept of Mudarabah in 1979, soon converted into a comprehensive system of providing Islamic insurance, which coverage against all risks concerning the life and assets of was modestly started any individual or corporations. with two companies in Different Takāful models were 1979, one in Sudan and developed one after the other which reflects an evolution in thinking other in Saudi Arabia, process. On the other side Islamic has reached to a US$ insurance which was modestly started with two companies in 25 billion worth industry 1979, one in Sudan and other in in 2015. Saudi Arabia, has reached to a US$ 25 billion worth industry in 2015. Presently around 175 Takāful companies are operating in more than 40 countries in different regions and offering most of the products which any conventional insurance company provides to its clients. More than ten re-Takāful companies are also available now to cater the re-insurance requirements of Takāful companies in Shari’ah compliant manner. Takāful business is maintaining a respectable growth rate ranges between 15 to 20% in different regions and scholars expect this to continue in near future as great potential still exists in Muslim countries. Takāful until now, is only 1% of the global insurance market 16 Sahih Bukhari, Kitab ul Wasaya, Hadith No. 2778. (Narrated by Abu Abdur Rahman al-Aslami) 59  Policy Perspectives but considering the current trends of growth and size of un-tapped market, we can expect this percentage to increase in years ahead. After reviewing all the models from Shari’ah perspective, it may be concluded that Waqf-Wakālah model, which is the youngest and limited to Pakistan only, is better and less problematic from Shari’ah point of view. This model has emerged as a result of criticism on Mudarabah and Wakalah models, through an evolutionary process and free from weaknesses of previous models. But a considerable number of scholars are still not satisfied with the concept and practice of this model. It is hoped that this dissatisfaction will generate discussion and research in order to bring further improvement in this model to make it further closer to the teachings and spirit of Shari’ah. 60  Islamic Insurance: Evolution, Models and Issues Bibliography Aa’zmi, Khalil Ahmad. Islam Ka Nizam-e-Awqah (Urdu). Karachi: Idara- e-Islamiat, 2010. Ali, Hafiz Zulfiqar. Dor-e-Hadhir ke Mali Mua’mlat Ka Sharai Hukm (Urdu). Lahore: Abu Huraira Academy, 2008. Bank Negara Malaysia. “Shariʻah Resolutions in Islamic Finance Published.” Billah, Mohammad Ma’sum. Principles & Practice of Takāful and Insurance Compared. Malaysia: International Islamic University, 2001. BIMB Institute of Research and Training. Takāful: Concept and Operational System. Berhad: BIRT, Bank Islam Malaysia, 1996. Hassan, Syed Hamid. “Insurance from Islamic Perspective: A Case Study of Sudan.” Paper presented at international seminar on “Business & Economic Challenges and Islamic Institutions.” Organized by Institute of Policy Studies, Islamabad in 1996. Institute of Islamic Banking and Finance. Encyclopedia of Islamic Banking and Finance. (1995). Sunan al-Nissai’. Kitab ul Ahbas, Bab Waqf al Masajid. Sunan al-Tirmizi. Kitab ul Fadaillil Jihad. The Council of Islamic Ideology. “Report on Islamic Insurance System.” (1992). Usmani, Mohammad Taqi. Islam aur Jadeed Maeshat-o-Tijarat (Urdu). Karachi: Idarah al-Ma’arif, 1999. 61 Institute of Policy Studies (IPS) is an independent think tank dedicated to promoting policy-oriented research on critical issues. Pakistan Affairs, International Relations and Faith and Society are some of the major research areas at IPS. During past 37 years of its existence, IPS has been addressing national and international issues, offering its floor to scholars, policy analysts, intelligentsia and general public as well as disseminating the findings in different forms. IPS has produced over 250 publications, organized hundreds of seminars and produced some 1500 plus reports. Besides Policy Perspectives IPS also publishes Maghrib aur Islam (Urdu) and Nuqta-e-Nazar (Urdu biannual). The digital edition of Policy Perspectives is published by Pluto Journals and made available on JSTOR. www.jstor.org