DEVELOPMENT OF GLOBAL TAKAFUL MARKET

MELECIO C. MALLILLINLet's Listen to the Insurance Regulators and

ExpertsSeptember 7, 2012

TAKAFUL is an Islamic insurance concept which is grounded in Islamic MUAMALAT (Islamic Banking), observing the rules and regulations of Islamic law, some of which are based on the following fundamentals:

1. Basis of Cooperation: Help one another in 'al-Birr' and in 'al-Taqwa' (virtue, righteousness and piety), but do not help another in sin and transgression;

2. God will always help his servant for as long as he helps others;

3. One true Muslim and another true Muslim are like buildings, whereby every part in it strengthens the other parts.

4. Basis of Mutual Protection: By my life (which is in God's power), nobody will enter Paradise if he does not protect his neighbor who is in distress. The fundamentals underlying Takaful are very similar to cooperative and mutual principles, to the extent that the cooperative and mutual model is one that is accepted under Islamic law.

5. Some Muslims believe that Insurance is not necessary, as society should help its victims. Others believe that Muslims should not ignore the fact that they live, trade and communicate with open global systems, and the need for banking and insurance. They believe in creating Muslim-friendly banking systems and a workable insurance framework by which Muslims can compete with non-Muslims in business and have coverage in daily life.

TAKAFUL PRINCIPLES are as follows:

1. Policy holders cooperate among themselves for their common good;

2. Every policy holder pays his subscription to help those who need assistance;

3. Losses are divided and liabilities spread according to the community pooling system;

4. Uncertainty is eliminated concerning subscription and compensation;

5. It does not derive advantage at the cost of others.

Takaful Cooperative Proprietary

Insurance

Contracts Utilized

Donation and mutual contract. Mutual contract. Exchange

contract.

Company Responsibility

Pay claims with underwriting fund and

interest free loan in case of shortfall.

Pay claims with Underwriting.

Pay claims from underwriting fund and shareholders’

equity.

Participant’s Responsibility Pay contributions. Pay contributions. Pay premiums.

Capital Utilized Participant’s funds Participating

capital. Share capital.

Investment Considerations Shari’a compliant No restrictions

except prudential. No restrictions

except prudential.

HOW DOES TAKAFUL DIFFER FROM COOPERATIVE INSURANCE AND PROPRIETARY INSURANCE?Takaful can be considered a Shari’a compliant form of conventional cooperative insurance….

Note: Critics of the Mudaraba model argue that in the cooperative framework, underwriting surplus is not considered a profit and the Takaful operator does not therefore have any right to it. Furthermore, the Mudaraba contract entitles the Takaful operator to a share in the underwriting surplus, but not to a share in any deficit.

The Takaful industry is slowly expanding beyond its home markets.

A list of multinationals with Takaful or Retakaful operations.