Takaful Models

Takaful Models. There are various models adopted in different Muslim countries, the one model is Mudarabah Model which describes that all policyholders must agree to share profits (or losses) from the undertaking.

Under this model, the operators do not have to pay a commission but will receive a salary which will be paid from a share of profits made by the company. These same conditions apply to the management.

The sharing of profit and loss between the participant and operator is determined in advance and judged on the basis of the company’s developmental stage and earnings. The sharing ratio is approved by the Shariah committee on advance basis. Normally total expenses are charged to a shareholder under Mudarabah.

The second model is the Wakalah Model. This model describes that the surplus of policyholders’ fund's investments – net of the management fee or expenses go to the policyholders. The participant pays the Wakalah fee from contributions that cover the total operating expenses of the business and operator salaries.

The Wakalah fee is determined by the Shariah Advisory Board of the company one-year advance basis. To give incentive to the operator for good governance, the management fee is paid as per the level of performance.

The third model is the Wakalah Waqf Model. According to this model, a Waqf fund is created as a separate legal entity with the contribution of the participant’s amount and the amount deposited to this fund is considered as a “tabarru” donation.

The aim of this fund is to provide relief to participants against defined losses according to the terms and condition of the Waqf Fund. See Wahab (2006) and Wahab et al. (2007) for more details.

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