The recent good news for Muslims in Malawi, to those who follow current affairs, is about the establishment of a company called Takaful Malawi that is set up primarily to provide cover on medical treatment in hospitals (In the same line as MASM, Liberty Health, Momentum Health, etc).
The excitement so far created can be short-lived if the pioneers of this new set up do not carry out intensive civic education to the populace explaining about the concept and its benefits.
Having worked in a conventional insurance establishment for over ten years and having attended several training workshops on takaful as my establishment is now shifting its focus from conventional to shari’a compliance insurance (takaful), I feel that I have an obligation to share with Malawi Muslim website readers on this concept of takaful and make comparisons, where necessary, with conventional insurance practices as a way of complimenting to what has been contributed here by Brother Ramadhan Issah Milanzie.
WHAT IS TAKAFUL?
It will do no harm by repeating here the definition of Takaful. It is an Islamic insurance concept founded on the cooperative principle where policyholders pool resources (donations) to help each other in times of need (mutual assistance).
A critical component of takaful is the separation of funds and operations of shareholders from those of policyholders.
There are two ways in which companies are carrying out takaful business: –
a) Takaful Company: This is a fully fledged takaful company operated through a fully capitalized company and managed as a stand alone operation (e.g. Takaaful Mw).
b) Takaful Window: This is a branch owned by parent conventional company to carry out the takaful business (e.g. Standard Bank in RSA has an Islamic Banking Window).
DEVELOPMENT OF TAKAFUL INDUSTRY
– Muslim World League’s High Council approved the concept of takaful in 1977.
– Sudanese Islamic Finance Company is the world’s first takaful company that was established in 1979 by Faisal Takaful Act.
– The GCC has 59 takaful operators, the majority of which are found in Saudi Arabia.
– There are 22 takaful operators in the Far East and 17 in Iran. However, none exist yet in India.
– Charter Insurance Co. Ltd will soon become the first conventional insurance company to open a takaful window in Malawi.
– It is therefore a very welcome development that Malawians have teamed up to come up with a takaful company to provide health insurance cover.
Conventional insurance is prohibited in Islam because its practices contain elements of gambling (maysir), uncertainty (gharar), interest (ribaa) and forbidden (haraam) investments. While takaful is based on the principal of mutual assistance (ta’awun) that is voluntarily provided (tabarru).
It is similar to conventional cooperative insurance whereby participants pool their funds together to cover losses for one another.
TYPES OF TAKAFUL INSURANCE
There are no major differences in the type of products offered by takaful companies with those of conventional insurances.
Takaful companies offer general insurance e.g. motor, property, marine, aviation etc. They also offer life insurance (for payment of a stated amount of money to the beneficiary on the death of, total or partial disability of the insured) and also health insurance (protection against loss by illness or bodily injury, providing coverage for medical treatment).
However, the difference lies only on how the policyholders funds are managed.
There are two models of managing shari’a compliant contracts, which are Wakalah and Mudharabah.
1. Wakalah Model: This is a fee based model where the takaful company acts as the agent and administrator. The fee is fixed annually and is usually a combination of an administration and investment fee. All surpluses (profits) belong to the policyholders.
2. Mudharabah Model: This model is based on community pooling/profit sharing. The company acts as the entrepreneur and the participants provide the capital. Profits and losses are shared between the takaful company and participants in a pre-agreed ratio.
Before I wind up my presentation, let me point out two important organs of any takaful company: –
a) Policyholders Assembly: This acts as an Annual General Meeting in which all policyholders meet in a particular accounting year. The Assembly meets at least once a year to approve the accounts and determine how to deal with the surplus (profit) realized from the business.
b) Takaful Board: Each takaful company must establish a Shari’a Supervisory Board (SSB) comprising of a minimum of three members in addition to the conventional Board of Directors. The Shari’a board is made up of recognized Islamic scholars, who ensure that the company’s operational model, profit distribution policies, product design and investment guidelines comply with Islamic principals.
Takaful is a fastest growing business with a US$2 billion global takaful industry and growing at a rate of 20% – 30% per annum.
It is a pre-requisite that a takaful company should have a functioning Shari’a Supervisory Board manned by qualified Ulemas of good standing.
With the full support of all Muslims in Malawi, takaful can become a big and vibrant industry which in turn can attract major takaful and Islamic finance operators into the country.
However, the challenge is on the legal regulatory requirements as none exist in Malawi.
The author works as a Claims Manager at Charter Insurance Co. Ltd in Malawi and is writing in his personal capacity.