APPLICATION OF INSTITUTION OF WAKF IN PROMOTING ECONOMIC AND SOCIAL UPLIFT OF SOCIETY THROUGH TAKAFUL (ISLAMIC INSURANCE)

1
APPLICATION OF INSTITUTION OF WAKF IN PROMOTING
ECONOMIC AND SOCIAL UPLIFT OF SOCIETY THROUGH
TAKAFUL (ISLAMIC INSURANCE)

• CONCEPT OF INSURANCE
• provides for a system whereby
• a realistic evaluation is made of the
  eventualities and of the risk faced by individual
  members of the Society
• AND
• provides relief to offset the resultant loss,
  through mutual assistance.
• The loss caused is borne by the Community or the
  Group to which the affected member belongs by
  affinity, vocation or profession etc, and at the
  same time, the scheme of Insurance is so managed
  that the Insurance Company also receives benefit
  (profit) after making good the loss of the
  individual member.

2
HISTORICAL PRACTICE OF INSURANCE

• This concept of Insurance in original, appears
  to be not suffering from any deficiency as per
  principles of Shariah, rather it is a commendable
  concept and prevalence of such transactions were
  found operating since before advent of Islam.
• HISTORIAN IBNE KHALDOON
• Traced history of this institution with the
  observation that Arabs used to undertake two
  journeys in a year one in summer and the other in
  winter season. These are the journeys mentioned
  in Sura Al Quresh (30 106).
• SIMPLEST FORM OF INSURANCE
• A tacit agreement between the participants of
  the journey that all of them would share the
  loss, if any, caused or occurring to any of them.
  
• PRACTISE OF THE TRADERS
• As many a time merchandise of the Traders
  conducting sea trade would be lost in the sea
  causing immense loss and rendering the Traders
  pauper. The solution found was to offset the loss
  through mutual contributions. This simple
  arrangement grew into marine insurance.

3
ACCEPTABLE LIMITS UNDER ISLAMIC LAW THE
PRINCIPLE INVOLVED

• REASONING AND PRINCIPLES OF INTERPRETATION OF
  SHARIAH
• If there is neither any contrary provision nor a
  negative and adverse Ruling against any rule or
  custom prevailing and in vogue since prior to
  dawn of Islam, then such a rule or custom will be
  taken as approved and permissible and the same
  may be continued and followed.
• MAJORITY OF SCHOLARS
• The concept of Insurance as originally in vogue
  meets approval of Shariah reasoning, though the
  conventional Insurance and its operations in
  practice are held to be repugnant to and
  violative of Shariah reasoning and principles.
  This is the view of the majority Scholars of
  Islamic Law.

4
HISTORICAL PERSPECTIVE

• Western World - Origin of the modern insurance -
  Practices adopted by Italian merchants from
  fourteenth century onwards, although there is
  little doubt that the concept of insuring was
  known long before then.
• Losing ships and cargoes at sea instigated the
  practice of medieval insurance for many years.
• The habit spread to London merchants in the
  sixteenth century. A group of traders would agree
  to bear each others risks amongst themselves.
  The common law for a long time played no role in
  the regulation of disputes concerning insurance,
  as these disputes were outside normal legal
  system.
• Lord Chief Justice Lord Mansfield
• In mid eighteen century took interest in
  insurance contracts by applying principles
  derived from the law merchant as well as more
  traditional law concepts. The jurisdiction of
  courts over insurance matters thus came to be
  established by the time Lord Mansfield retired in
  1788.

5
LLOYD - THE COFFEE HOUSE OWNER LONDON 17TH
CENTURY

• Developed the practice that the merchant wishing
  insurance would pass round to the people, willing
  to provide it and who were gathered at the
  Coffee-house, a slip of paper on which he had
  written details of the ship, voyage and cargo
  etc. The slip used to be initiated by those
  willing to accept a portion of risk and when the
  total amount of insurance required was
  under-written, the contract was complete. The
  influence of Lloyd on insurance and insurance law
  is significant as the standard Lloyds Marine
  Insurance Policy was adopted as the statutory
  form in Marine Insurance Act 1906. The principles
  of Marine Insurance have by and large been
  applied to other types of insurance subsequently
  developed.

6
APPPLICABLE LAW IN MALAYSIA

• Leong Brothers Industries Sdn. Bhd v Jerneth
  Insurance Crp. Sdn. Bhd
• Wan Adnan J
• HELD that the English Marine Insurance Act 1906
  was applicable in Malaysia by virtue of Section 5
  of the Malaysian Civil Law Act 1956.
• Takaful (Islamic Insurance) and its operations
  stand regulated in Malaysia by statue called
  Takaful Act 1984.

7
VERDICT OF ISLAMIC FUQHA

• FIRST FAQIH ALLAMA IBN ABIDIN SHAMI
• Who has examined Insurance with reference to
  Sharia. He in his book has commented upon
  Sookarah which is a specific kind of Insurance.
  
• Sookarah has its origin and is derived from
  French word Sookortah in Arabic Lexicon. This
  term signifies a type of Marine Insurance of the
  time.
• Allama Shami, the Sookarah fails to fulfil
  conditions of Shariah and as such is
  impermissible as herein obligation is undertaken
  which Shariah does not oblige the party to
  undertake.
• This contract makes binding which is not legally
  binding due to the absence of any of the
  pre-requisites of a valid guarantee. The
  reasoning noted was not adopted or repeated by
  the other scholars (Fuqha) who later examined the
  Insurance operations. Majority of scholars
  declared these operations impermissible and
  repugnant to the injunctions of Islam.
• Contd

8

• Mufti of Egypt, Mufti Muhammad Abdu
• Held a specific kind of Insurance as
  permissible, likewise another scholar, Abdul
  Wahab Khallaf also held a similar type of
  Insurance permissible.
• It is clear that they were asked about a specific
  kind of Insurance and the answer, therefore,
  should be restricted to that kind of Insurance
  and considered in the context of the question
  posed.
• GIST OF THE QUESTION
• MUFTI MUHAMMAD ABDU
• A group of persons provide finances to a company
  which may invest the same with the intent to earn
  profit arising there-from and in case of death of
  any of them, the profit may be received by their
  heirs.
• Answer It is a sort of Muzarabat and as per
  Shariah, it is not necessary that Mudharib should
  necessarily be an individual and Mudharib can be
  more then one person, so such a venture is valid
  and permissible.
• Contd

9

• SHEIKH ABDUL WAHAB KHALLAF
• A situation presented to him as a kind of
  Muzarabat and though ordinarily in Mudharabah the
  ratio of profit must be laid down and determined
  but as in case in hand the element of mutual help
  and cooperation is present, the deficiency
  regarding laying down specifically of profit
  sharing ratio can be ignored.
• MUALANA ABUL KALAM AZAD OF INDIA
• When asked about Insurance, observed that such a
  type of arrangement should also be prevalent
  amongst Muslims.
• It is obvious that opinion returned by these
  scholars was premised on the information provided
  and in the context of the features of the
  particular transaction described to them. So the
  answer given has to be seen and understood in the
  context of the question asked. Had the situation
  and the elements of the Insurance Policy and its
  scheme been fully and completely presented, the
  opinion would have been different.
• Contd.

10

• ABDUL WAHAB KHALLAF MUHAMMAD ABDU
• Describing the transaction as amounting to
  Mudharabat, the comments of Wahbah Al Zuhayli
  read as under-
• It is not valid to consider insurance a form of
  silent partnership (mudharaba) with one party
  working and the other financing, for two reasons
• (a) The instalments and payments paid by the
  insured become property of the insurer (insurance
  company). Thus the insurance company may use
  such monies anyway it wishes, and the insured
  loses those monies if no accident befalls him.
• (b) A condition for the validity of a mudharaba
  is that the profits be shared according to fixed
  proportions between the financier and the
  entrepreneur e.g. one quarter or one third to one
  party, and the rest to the other. In insurance,
  however, the insured is often given a fixed
  percentage/interest payment (e.g. 3 or 4), thus
  rendering the mudharaba invalid.

11

• Even if this reason does not apply in a given
  contract, the first reason remains. Moreover, if
  the insured dies, the money instead of going to
  his heirs, may go to the one designated in the
  insurance contract. This is contrary to the case
  of death of a financier in a silent partnership
  (mudharabh).
• Contd..

12

• It is not valid to consider insurance a guarantee
  or surety, due to the absence of the four
  legitimate reasons which exist in a guarantee.
  Also, many insurance contracts do not have an
  element that may be considered the object of
  surety (makful), and even when such an element
  exists (e.g. in the case of auto accidents), it
  is unknown.

13
FACTORS FOR WHICH FUQHA HOLD CONVENTIONAL
INSURANCE AS INVALID

• (I) UNCERTAINITY (GHARAR)
• (II) INTEREST (RIBA)
• (III) GAMBLING (QIMAR)

14
GHARAR CONTRACTS

• Insurance Contracts fall in this category-
• The outcome is probabilistic (depending on the
  existence of the object of contract or
  non-existence thereof).
• Holy Prophet (PBUH) forbade Gharar sales and an
  analogy may be made to cover financial
  commutative contracts. Thus Gharar affects such
  contracts in the same manner as it affects sales.
• Since insurance by necessity deals with future
  events that may or may not occur, Gharar is a
  necessary component of insurance.

15
GENERAL INSURANCE AND GHARAR

• Uncertainty is present as the premium which is
  paid is known but the interest payment that the
  Company may have to pay is not known.
• The quantum of damage or loss is not known.
• How much loss would be compensated is not known.

16
LIFE INSURANCE AND GHARAR

• Policy holder pays the premium and the Company
  maturity pays the insured sum of money with
  profit on the basis of a formula.
• The amount of the premium paid monthly or
  annually is pre-determined and known.
• What amount will be paid on maturity to the
  insured is not known.
• The time for which the insured will live is not
  known.
• It is also not known whether the insured will
  live till period for which policy has been taken.
• All the above factors contribute to uncertainty.

17
RIBA (INSURANCE OPERATIONS INFESTED WITH AN
ELEMENT OF RIBA)

• When a claim in General Insurance is paid, it is
  in cash.
• If the amount of the claim to be paid is more
  than the amount of premium, then the additional
  amount is Riba/interest.
• If the premium paid is more than the claim, the
  amount retained by the Company is Riba/interest.
• Market Position
• Ordinarily the position is that the Company hands
  out less sum of money in claims than the amount
  of the premium received.
• Such retention is usurpation and illegitimate.

18
ANOTHER INFESTATION OF RIBA

• Investments made by the Insurance Companies in
  such businesses which are not approved by
  Shariah.
• (I) Advancing loans on interest.
• (II) Making investments in Riba infested and
  Haram businesses.
• Example-
• The investment in shares of Companies producing
  liquor.

19
QIMAR (GAMBLING) INSURANCE?

• Some scholars are of the view that gambling is
  not involved. Others hold otherwise.
• REASON FOR DIVERSION OF OPINIONS IS THE
  DEFINITION OF QIMAR

20
DIFINITION OF QIMAR

• Maysir and Qimar are used as identically in
  Arabic.
• HOLY QURAN
• Maysir is the word used for prohibition of
  gambling and wagering (2219 590, 91)
• HADITH LITERATURE
• Discusses this act generally in the name of
  Qimar.

21
VIEW OF JURISTS

• Difference between Maysir and Qimar is that
  Qimar is an important kind of Maysir.
• Maysir derived from Yusr wishing something
  valuable with ease and without paying an
  equivalent compensation (iwadh) for it or without
  working for it, or without undertaking any
  liability against it., by way of game of chance.

22

• Qimar also means receipt of money, benefit
  or usufruct at the cost of others, having
  entitlement to that money or benefit, by
  resorting to chance.
• A person puts his money at stake wherein the
  amount being risked, might bring huge sums of
  money or might be lost or damaged.

23
MAULANA MUFTI TAQI USMANI

• His view on the basis of Quran, Sunnah and
  books of Fiqh reveals that four elements must
  exist to certify presence of Qimar.
• (i) The transaction under consideration amounts
  to Aqd-Muawadh between both the parties.
• (ii) Every party to the transaction places his
  part of Asset on risk.

24

• (iii) The transaction is such that accrual of
  additional value is dependant on an event,
  which may or may not occur.
• (iv) The transaction is such that property/
  Asset of one party may pass on to the other
  party without any corresponding consideration or
  one party takes over the property/Asset of the
  other without consideration.
• Convention Insurance due to presence of the
  above factors, as per Shariah scholars, is
  violative of the principles of Shariah.

25
MALAYSIA, PAKISTAN AND SUDAN

• Scholars started search for alternate modes and
  modals making mutual insurance as basis of study.
  
• To provide security in the face of distress,
  calamity and loss, three distinctive modals were
  adopted by the scholars in the three countries.

26
MALAYSIA MUDHARABAH

• Takaful pattern of Mudharabah.
• Though some sort of donation (Tobarru) is also
  involved but as this type of transaction
  resembles Mudharabah concept, hence the name.

27
OBJECTIONS BY SOME SENIOR SCHOLARS

• According to them
• Mudharabah does not receive anything from the
  surplus pool but in Mudharabah modal the Company
  receives a share from the surplus.
• Providing guarantee is objectionable.

28
SUDAN WAKALA MODAL

• Operator creates a pool of contributions
• received from participants and manages
• it for their benefit.
• OBJECTIONS BY SCHOLARS
• Contributors constitute a Board and the
  ownership of the amount contributed vests in the
  Board, as the understanding is that the amount of
  premium contributed is a donation to the Board
  which in case of loss accruing to any
  participant, will make donation to the said
  participant.

29
OBJECTIONS (Contd)

• Same position as in conventional insurance,
  there is also a Board, which is considered owner
  of the pool and which makes payment of claims.
• When a participant pays the premium, he would
  stand divested of this amount and in such a case,
  ownership vests in whom?
• Some operators do not establish a Board and
  themselves carry out the activities of the Board.
• The Board should have a separate legal entity to
  qualify and meet the standards of Shariah.

30
ANSWERS TO SOME OF THE OBJECTIONS

• Participants/policy holders pay the premium with
  the understanding of making donation to the
  Board, so this amount goes out of their ownership
  and vests in the Board.
• ISSUE IN PRACTICE
• In case the participants stand divested of the
  ownership, then on what basis these participants
  can lay claim to receive a share from the
  Surplus Pool and if they still are the owners,
  then they are liable to pay Zakat on their amount
  and in case of this, it will form part of
  contributable property. However, in practice such
  is not the case.

31
WAKF MODAL PAKISTAN

• DISTINCTION BETWEEN WAKALA
• WAKF MODAL
• Wakf has a sole legal entity.
• Contributions made to Wakf Pool come under its
  ownership.
• Under Wakala Modal, the pool does not have its
  separate legal entity and to provide for this
  deficiency, a Board is constituted, the legal
  capacity of which is not recognized fully.

32

• Shariah recognizes Wakf to have its own entity.
• It is capable of owning property and managing
  its assets for achieving the objectives of the
  Trust.
• Any activity not within the goals and objectives
  of the Trust Deed, cannot be carried out without
  amending it, subject to the rider that no
  activity, business or trade prohibited by Shariah
  cannot form part of its business.

33
MOST IMPORTANT FEATURE OF WAKF MODAL

• Property, money or asset donated to Wakf goes
  out of the ownership of the person making the
  donation and vests in the Wakf which has a sole
  legal entity.

34
ISLAMIC INSURANCE TAKAFUL AS A WAKF

• Company after incorporation will constitute a
  Wakf by contributing a specified part of its
  capital to it.
• Wakf has to fulfill conditions of a valid Wakf
  pertaining to the legal character of Wakf, the
  asset of the property bequeathed and the
  beneficiaries.
• Wakf so constituted as the Company being itself
  a legal entity, is competent to create a Wakf and
  the amount related to the Wakf is owned by it.
  Law does not prohibit it from creating a Wakf.

35

• The asset being bequeathed is currency which is
  specified and known and has intrinsic value and
  having lasting characteristic.
• A thing, which is consumable, cannot be
  bequeathed but the currency, which is contributed
  to Wakf, will be invested and reinvested in low
  risk avenues. This amount is not to be utilized
  for paying the claims or for meeting other
  expenses.
• Contd

36

• Argument-
• The currency (amount) bequeathed stands consumed
  when it is invested and reinvested, so it does
  not possess lasting characteristic, considered
  essential for the property to be bequeathed.
• Jurists Explanation-
• One of the principles is that in case of
  currencies, Dinars and Derhams, specification of
  some currency towards a
• Contd..

37

• certain deal or merchandize does not amount to
  such a specification that the seller of goods
  gets a right to get those very currency notes,
  which were shown at the time of deal or
  conclusion of contract, as neither principle of
  Shariah ordains to deliver those very currency
  notes as other notes of same value can be given
  nor any court can be approached for such a
  relief.
• It follows that capital which the Company has
  bequeathed that is not the particular currency
  notes but it is the amount or value, which
  constitutes Wakf.

38

• The third component is the beneficiaries who are
  also known, as Wakf Deed will not only specify
  the persons but also the circumstances on account
  of which they will receive the benefit.

39
WAKF DEED

• For the administration of the Wakf property, two
  things are most important-
• 1. Wakf Deed and
• 2. Wakf Rules

40

• The said Deed is an irrevocable document. Every
  Wakif (person creating a Wakf) under Shariah, is
  entitled-
• (i) to prescribed conditions for the Trust
• (ii) to specify the beneficiaries
• (iii) to specify the circumstances in which they
  will receive benefit
• (iv) to specify in whom will vest the authority
  to administer the Wakf property and assets and
• (v) to lay down the rules and bylaws of
  administering the Wakf.

41
ENTITLEMENT OF THE COMPANY

• The Company being Wakif is entitled to execute a
  document wherein all the principles and rules
  pertaining to the Wakf are to be provided,
  complying all essential requirements of
  institution of Wakf as laid down by Shariah.

42
WAKF DEED OF TAKAFUL COMPANY

• It inter alia includes the following matters-
• (i) Original Wakf capital shall be preserved by
  making investment and reinvestment in low risk
  ventures and transactions
• (ii) Description of Assets which include
  original Wakf Asset and Profit
• (iii) Rights and obligations of the Operator
• (iv) Sources of income of Wakf Pool and items
  on which expenses may be incurred
• Contd

43

• (v) The extent to which the claims of those who
  make donations to the Wakf, are to be
  compensated
• (vi) Deed also explains the manner in which
  from the surplus pool, if any, the persons other
  than donors to the Wakf are to be provided
  relief as was being extended to the Donors of
  the Wakf Fund
• (vii) In case of winding up of Company, what
  treatment is to be given to the Wakf Fund

44

• (viii) Wakf specifies the person in whom shall
  vest management and administration of the Wakf
  and
• (ix) Wakf Deed also lays down that Company has
  the power and the right to modify and amend the
  Rules and bylaws of the Wakf and also make
  additions therein.

45

• The Wakf Rules and Bylaws contain the mode and
  manner of achieving the objectives set forth in
  the Trust Deed.
• These are essentially explanatory of the
  provisions contemplated therein and has to
  conform to scheme and the principles of Wakf
  enunciated by Islamic Law.

46
FORMATION COMMENCEMENT OF TAKAFUL OPERATIONS

• (i) A body corporate is constituted and
  established under law as a legal entity.
• (ii) It obtains a license after complying with
  the legal formalities and execution of proper
  documents to enable it to commence the Takaful
  operations.
• (iii)This legal entity creates a Wakf but
  donating a reasonable amount from its capital.

47

• (iv) Immediate utilization of the capital of
  the Company to create reserves so as to
  invest this amount which will remain with the
  Company in order to provide Qardh Hasan to the
  Waqf as and when required.
• (v) Participants are then invited to make
  donations to the Waqf by determining the amount
  of contribution to be made by them so as to
  give them membership.

48

• (vi) Amount of contribution should be
  sufficient to make good the loss suffered and
  the insurable risk covered of the person so
  obtaining membership.
• (vii)Insurable risk being covered of all the
  participants should be of the same kind or
  category.
• (viii)Insurable risk coverage normally is on the
  same lines as is in vogue in conventional
  insurance.
• (ix)Contributions made by participants belong to
  Wakf Fund, invested by the Company and the
  losses of the insured is paid out of the profit
  earned and the contribution of the participants.

49
MALAYSIAN TAKAFUL ACT, 1984

• SECTION 13-
• Statutory Requirement-
• At the time registration, a Takaful Operation
  has to deposit RM 3,00,000 for each class of
  Re-Takaful business, which is to be placed with
  the Accountant General of Malaysia.
• SECTION 14-
• Alternatively, a Bank Guarantee (Waad Bank) can
  be furnished by the Re-Takaful Operator and as
  prescribed in the format of the Bank Negara,
  Malaysia.

50
ASSET/CAPITAL VALUE OF A WAKF

• It is what the Company establishing the Wakf
  contributes out of its capital. No limit of this
  contribution toward Wakf has been prescribed by
  Islamic Jurists.
• Any appropriate amount may be contributed by
  Company to constitute Wakf.
• In Pakistan One Takaful Company contributed
  Rs.500,000/-, the other contributed
  Rs.10,00,000/- another constituted Wakf with the
  declaration that it shall keep on contributing
  necessary amount as and when needed.

51
MANNER OF USE OF THE BEQUEATHED AMOUNT IN
TAKAFUL-

• (i) It may be given on loan to the needy and
  receive the amount once the need stands served
  or met.
• (ii) It may be invested and reinvested in low
  risk ventures and the profit accruing from these
  operations may be utilized. This very use has
  been adopted in Takaful Operations.
• The originally contributed amount (seed capital)
  is preserved either by investing in low risk
  ventures or at the time of account taking of a
  transaction/venture, the seed amount of Wakf is
  taken out and separated and, thereafter, it is
  determined whether any profit or loss has
  occurred. In this manner, it is seen whether the
  Fund has got any surplus or has suffered deficit.
  

52
OBJECTIVES OF WAKF IN A TAKAFUL (COMPANY)

• (i) To receive contributions, charity or gift
  from participants and other persons
• (ii) To invest all the pooled resources in
  Shariah approved permissible business
• (iii) To provide relief out of accrued profit to
  the participants as per rules and principles of
  Wakf.
• (iv) The Company in consultation with Shariah
  Board will give charity to needy including the
  participants whenever there is a surplus so that
  welfare of the needy, a special trait of the
  institution of Wakf, is taken care of and
  fulfilled. The welfare aspect of the Wakf is
  being highlighted to satisfy those who opine
  that if scope of Wakfs funds are applied to the
  participants only, the overall welfare
  objectives of the institution of Wakf will
  remain unrealized.

53

• Some of the critics observe that a small amount
  out of the surplus separated for charity will
  hardly enable the Wakf to carry out any
  meaningful welfare activity, as for ameliorating
  social conditions of the needy huge resources are
  required.
• Takaful operations are not primarily meant to
  promote charity of needy in the society though
  Takaful carries an element of social welfare of
  its participant but even without that the role of
  a Wakf, in providing relief to the distressed
  participant, is well recognized and appreciated.

54
ASSETS OF WAQF COMPRISE OF-

• (i) Seed amount i.e. the Asset or the amount
  bequeathed originally at the creation of Waqf.
• (ii) Contributions made by the participants.
• (iii) Profit accruing from investment.
• (iv) Contributions and donations made by members
  of public and philanthropists to the Takful
  Company to support its welfare activities of
  providing relief to distressed segments of
  society.
• (v) Creation of special fund by the Takaful
  Company from its own resources in two ways-
• (a) If a separate Wakf of the Asset/amount is
  sought to be established, a separate Sub Deed
  will be executed.
• (b) If the Takaful Company makes donations to
  the Waqf like participants, the amount so
  donated will belong to and vest in the Waqf.

55
INCOME EXPENDITURE OF THE FUND

• Income will constitute of the following-
• (i) Contributions of the participants
• (ii) Claim amount received from Retakaful
  Company
• (iii) Amount received as share from surplus from
  Retakaful Company
• (iv) Profit earned on investment of Seed amount
  of and donation to the Waqf/Takaful Company
• (v) Amount provided by shareholders of Takaful
  Company as donation (Tabarru) or Qardh-Hasan
• (vi) Donations given by Company from time to
  time
• (vii) Commission received from Retakaful
  Company.

56
TREATMENT OF EXPENSES

• OPERATORS UTILIZES THE FUND IN THE CAPACITY
  OF MUDHARIB OR WAKIL ISTISHMAR (AGENT)
• Explanation Required - Which type of expense
  will be borne by the Operator and the kind of
  expense to be incurred!
• Takaful Company incurs expense towards
  incorporation, setting up of administration and
  on commencement of operations e.g. legal fees and
  marketing its products.
• Some expenses, incurred for the benefit of the
  Company
• others for the benefit of the Wakf Fund
• while some are for the benefit of the both the
  Company and the Fund.
• Larger the volume of the pool, the more will be
  profit and more will be volume of the Fees.
• Expenses incurred for establishing the Company,
  the legal fees and other expenses paid for
  commencing the operations and marketing are to be
  borne by the Company.

57

• Such expenses which are incurred for marketing
  the products and from which Wakf Fund is
  recipient of some benefit, can be charged to the
  Fund, if the Wakf is in a position to bear this
  charge. The Operator is basically working for
  Wakf and, the Company is indirectly receiving
  benefit through the Wakf. It is, however,
  advisable that all the expenses should be paid
  out of the Fee being received by the Operator as
  the extent of the benefit received by the Wakf or
  the Company cannot be precisely and exactly
  determined.
• Moreover, when the Company is to incur
  expenditure from its Fee, proper care will be
  taken to economise the expenditure and to keep
  the expense within appropriate limits.

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• The amount received from all above sources will
  be invested in low risk ventures and all the
  following expenses will be defrayed from these
  resources, except that Seed amount/Asset will not
  be expended on any count towards expenses-
• (i) Claims.
• (ii) Contribution payable to Retakaful company.
• (iii) Fee payable to Operator.
• (iv) Payment of share of Operator from profit
  earned.
• (v) Division of surplus to participants as per
  prescribed principles.
• (vi) Operator may in consultation with Shariah
  Board grant money out of Charity to the needy.
• (vii) Return of the loan advanced by
  shareholders.
• (viii) To pay other expenses and charges payable
  out of Waqf Fund.

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LIABILITIES OBLIGATIONS OF TAKAFUL COMPANY

• (i) Rendering of Takaful Services i.e. management
  of the Takaful Fund in the light of the Wakf
  Deed, Sub Deed if any, Waqf Rules and
  principles.
• (ii) Invite people to obtain Takaful Policy and
  to receive contribution from Policy holders.
• (iii) To invest the amount of the Fund in
  suitable and permissible (Halal) business and to
  give relief to offset the loss incurred by
  participants.
• (iv) To frame rules for utilization of Waqf Fund
  in accordance with the guidelines of the Waqf
  Deed in consultation with Shariah Board.
• (v) To invest the Waqf Fund being mudharib or
  Wakil.
• (vi) To make good the loss occurring to Waqf Fund
  on account of misfeasance, negligence, want of
  due care and caution of the management of the
  Company.

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• (vii) The Reserves which the Takaful Company
  has to keep with the Central Bank, the amount of
  these deposits will be paid out of the
  Shareholders Capital and not from the Waqf Fund
  as these Reserves serve interest of the
  Operator.
• (viii) Operator can also make donation to the
  Fund with the permission of share holders.
• (ix) Annual valuation of the Assets of the Wakf
  is to be conducted to find out whether the Fund
  is in surplus or deficit. In case of Surplus,
  Operator is to determine policies according to
  Rules of the Waqf and then to take steps to
  implement these policies.
• (x) To take measure to offset risk as per Rules
  and principles of Takaful.
• (xi) To arrange Retakaful as per Rules
  principles of Takaful with concurrence of
  Shariah Board.
• (xii) To appoint Shariah Board for conducting
  Takaful business under its supervision.

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QUESTION ABOUT SEED AMOUNT OR ASSET

• Whether it can be deposited with the Central
  bank as Reserve is still under consideration of
  the Jurists of Islamic Jurisprudence
• The (Fuqha) in favour of Reserve deposit
  purpose to argue that such a deposit can be made
  under following conditions-
• (a) The amount of Reserve is not being given
  merely as a loan to Government.
• (b) The Reserve deposit is not used for purposes
  prohibited by Shariah and is to be invested in
  Shariah approved ventures.
• (c) The Reserve Deposit is to be utilized in
  the mode or for the objects, which conform to
  the use of seed money of Waqf and in low risk
  ventures.
• (d) Even the technical reserves, which the
  Takaful Company maintains with itself, will be
  from the Waqf Fund.

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RECOVERY OF LOSS CAUSED

• Whether loss has been caused and if so how much
• Whether loss occurred due to Operators
  negligence, misfeasance or lack of due care and
  caution,
• How the questions are to be resolved
• Who will be complainant in the action against the
  Operator for recovery of the loss so caused?

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• Fiqh literature
• It does not specify the person who is to take up
  these matters.
• Two parties -
• (1) The Waqf
• (2) The Operator.
• Operator is the party, which has caused the
  loss, so it will not lodge proceedings
  (complaint) against itself. It is obvious that
  need to lodge legal proceeding will not arise if
  the Operator is ready to initiate action or to
  make good the loss.
• The Company is liable to make good the loss, in
  case of loss caused due to negligence, lack of
  prudent care etc., otherwise the Company is not
  liable. This principle has been deduced keeping
  in view the legal position that Operator holds
  vis-à-vis the Fund.
• The Operator of Takaful Company legally speaking
  is a -
• (1) Mudharib or
• (2) a Mutwalli or
• (3) a Wakif, or
• (4) a Wakil Istishmar.

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• OPERATOR WHEN NOT LIABLE, if negligence or acting
  beyond the limits laid down is not the cause of
  the loss.
• WHY SHOULD THE POLICIES OFFERED BY TAKAFUL
  COMPANY BE ACCEPTABLE IN THE MARKET?
• IF COMPANY IS MADE LIABLE TO MAKE GOOD THE LOSS
  INCURRED IN ALL SITUATIONS, THEN IT WILL BE JUST
  LIKE CONVENTIONAL INSURANCE.

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• ISLAMIC JURISTS
• Operator should make donation of sizeable amount
  to the Wakf Fund, to meet the deficit, which
  amount will not be returnable being a donation.
  In the alternative the Operator may advance
  reasonable amount to the Fund as Qardh-Hasan,
  which will be returned when the situation of the
  Fund permits.
• SECURING A DISTINCT AND DISSIMILAR THE POSITION
  TO THAT OBTAINING IN CONVENTIONAL INSURANCE
• Operator has to maintain its position of either
  being a (1) Wakif (2) Mutwalli (3) Mudharib or
  Wakil Istishmar and in either capacity, the
  Takaful Company should at the time of creating
  Wakf, make provision in the Wakf regarding making
  of loan to the Wakf as and when needed, despite
  the knowledge that Wakf as an institution has
  limited obligations and possibility of non
  realization of loan also exists. In this way,
  distinction from conventional insurance will be
  visible and practical.

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RIGHTS OF AN OPERATOR

• (1) to charge appropriate fee for managing the
  affairs of the Takaful Company. While fixing a
  reasonable fee, Shariah Board as well as Actuary
  Experts are consulted.
• (2) There should not be much difference in the
  amount of contribution payable by the
  participants of the same category as regards
  risk covered as discrimination amongst
  participants of the same category is not
  approved. However, operator may allow discount
  to the extent of its fee to a specified
  participant. Moreover, Waqf Fund should continue
  to receive its share from the donations made by
  participants.
• (3) Operator as Mudharib in case of profit will
  receive its pre prescribed share from the net
  profit. If the Operator is making investment as
  Wakil Istishmar, then it will receive the
  prescribed fee as agreed already. The share in
  profit as Mudharib and amount of fee as Wakil is
  to be determined at the commencement of business
  in consultation with Actuary Experts and
  permission of Sharia Board.
• (4) The policies to be followed and the rules of
  business and market practices should be got
  approved from Sharia Board.
• (5) Operator has the first right to adjust Qardh
  Hasan from the surplus as and when it is
  available.

67
ROLE OF THE SHARIAH BOARD

• a monitor and akin to a Mutwalli
• but as the Takaful Companys role is that of a
  Mutawalli, the position of Takaful Company
  vis-à-vis Shariah Board and of the Shariah Board
  is as under-
• Takaful Company utilizes services of many and
  pays their remuneration out of its own fee. The
  Shariah Board is though rendering service to the
  Company, its remuneration may also be adjusted
  from the said Fee.
• Shariah Board legally speaking is not Mutwalli
  though is a monitor on the operations of the
  Company and these two positions must be kept
  separate and independent of each other as per
  requirements of Shariah, hence the remuneration
  payable to Shariah Board can be charged as
  expense from Waqf Fund.

68
WINDING UP Treatment of Seed Capital and
Assets.

• What happens to Original Capital of Wakf in
  case of winding up of a Wakf and how is it
  preserved?
• How the assets, if any, are to be treated?

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• WAKF DEED WINDING OF WAKF
• (1) Conducting valuation of assets as then
  existing.
• (2) liabilities of the Waqf Fund shall be
  discharged first. The amount of Qardh Hasan will
  be paid from the surplus, if any, and the
  Assets/amount, if any, will be distributed among
  participants and the remaining amount, if any,
  will go to Charity as directed by Sharia Board.
• (3) If there is any Sub Fund established for
  any specific purpose and in case there exists a
  deficit in the Sub Fund, then the amount
  available in the surplus will first be paid to
  clear the deficit in the Sub Fund before
  making any payment towards Qardh Hasan of the
  Company.

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• (4) If on valuation of the Assets, it transpires
  that Fund is unable to meet its liabilities and
  obligations and the Fund cannot continue to
  exist, then in such a situation, it should not
  be obligatory for the Company to make available
  required funds.
• However, the deposits which were kept with the
  Central Bank should be withdrawn to meet the
  obligations at the time of winding up of the
  Company.
• (5) The real or the seed amount of Wakf if
  available will be transferred to a Wakf the
  same kind and objectives. It is well settled
  that the shareholders of the Company who
  created the Wakf are not to receive any share
  out of the Assets/seed amount of the Wakf
  available at winding up.

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• If the Operator of the Wakf is being absolved of
  his obligation to operate the Wakf and there is
  change of Operator only, i.e. one is being
  substituted for the other, this amounts to change
  of guards, in other words Mutwalli is changed and
  substituted, so the Wakf continues and does not
  come to an end as Wakfs administration falls
  into the hands of new Operator (Mutwalli).
• In case the Company itself is being liquidated
  and has to become extinct, then the substratum
  (original capital) of the Wakf is to be passed on
  and merged into another Wakf having the same or
  similar objectives as these assets will continue
  to be used and employed for the avowed objectives
  of the Wakf.

72

• In case a Wakf of the same and similar objectives
  is not available for merger, then any of the
  following options may be adopted-
• a) An asset of permanent nature will be purchased
  from the property, Asset or valuable right of
  the Wakf and the same will be bequeathed to
  another Wakf and included in the assets of the
  said Wakf.
• b) The amount realised from the Assets/property
  of the Wakf, under liquidation, may be given to
  the other Waqf for utilization and investment
  and the profit accruing may be utilized for
  defraying expenses or for advancing loan to the
  staff and to be retrieved once the need of the
  staff is fulfilled. So the amount contributed
  will remain secure and the objective of the
  Wakif (person creating the Wakf) will also be
  complied with.

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• ALTERNATIVE TO TRANSFERRING
• (1) Efforts to continue the Wakf
• (2) Hiring capable individual
• (3) Utilizing the capital at optimum level
• (4) Retrieving the invested money and Assets
  with profit of the Wakf.
• If a suitable person can not be procured to
  administer Wakf on voluntary basis, even service
  may be hired for appointment as Mutwalli who may
  fulfil the needs of deserving persons on the
  basis of profit.

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• THANK YOU