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TAKAFUL GETTING COMMERCIAL VIABILITY, GREATER TRANSPARENCY IN ALL RELIGIONS.

Byline: KHALIL AHMED

INTERVIEW WITH DR. SYED ARIF HUSSAIN, CEO TAKAFUL PAKISTAN LIMITED

PROFILE:

Dr. Syed Arif Hussain is a young and motivated person, bringing to Takaful Pakistan Limited his expertise in management, resource development, marketing and execution of business strategies. His professional experience is spread over 16 years at progressive senior level positions and has the experience of underwriting, reinsurance, claims management and marketing with the State Life Insurance Corporation of Pakistan. He has been proactively involved in the operations of a family Takaful Company, Dawood Family Takaful Limited since its inception. His expertise include life, health and project related Insurances/Takaful schemes. He has extensive experience in restructuring, insurance operations and automation.

He holds M.B.B.S. and Masters degree in Business Administration. He has also attended a number of Insurance/Takaful and management related workshops and conferences conducted locally and internationally.

Although, working in non-life General Takaful Company will be his first-ever experience in Takaful Pakistan Limited, however, his commitment and passion to perform in a challenging role would surely contribute positively in the progress and prosperity of the Company.

PAGE: TELL ME SOMETHING ABOUT YOUR COMPANY:

DR. SYED ARIF HUSSAIN: Takaful Pakistan Limited was incorporated in June, 2006 with its registered head office in Karachi. With an authorized capital of Rs300 million, all fully paid-up, the Company is sponsored by reputable financial institutions both local and foreign. Managed by a team of qualified and experienced professionals and supervised by a distinguished Shariah Board, Takaful Pakistan Limited has the capacity to underwrite risks in all avenues of General Insurance namely, Property (Fire and Engineering), Marine, Motor, Liabilities, etc. In addition, the Company has the expertise and arrangements with overseas ReTakaful operators enabling it to offer comprehensive coverage for large infra-structure projects, specialized risks and umbrella/blanket covers specifically tailored for Islamic banking operations as well as for large corporate groups. The Company currently operates branches in Lahore and Peshawar besides its head office in Karachi.

Takaful Pakistan Limited aims to lead the contemporary insurance/Takaful market ensuring that its operations are Riba-free and are in line with the cardinal Islamic principles. Takaful Pakistan Limited also offers a unique option of return of surplus to its clients whereby any balance remaining in its Waqf-Fund shall be returned to the participants in proportion to their original contributed amount.

Takaful Pakistan's management manages, as Takaful Operator, the general takaful operations for the participants of its Participants' Takaful Fund (PTF) 40 percent of gross contribution as Wakala fee to meet the general and administrative expenses of the company.

Takaful Pakistan's management also manages the participants' investment as Modarib and charges 25 percent of the general takaful investment income earned by the PTF as Modarib's share.

Rating: Takaful Pakistan Limited has been assigned 'BBB+' rating with STABLE outlook by JCR-VIS. It is currently the only rated Takaful Company in the country and one of the few amongst contemporary insurance companies that have been assigned A ratings.

Takaful Pakistan is sponsored by the following institutions:

1. House Building Finance Corporation - the largest house financing organization in the public sector

2. Al-Buhaira National Insurance Company (UAE) - one of the leading insurance companies of UAE

3. Al Baraka Bank (Pakistan) Limited - a dedicated Islamic bank offering Shariah-approved financial products

4. Sitara Chemical Industries Limited - the market-leader in Chlor-Alkali products in Pakistan; committed to developing Islamic financial products

5. Arif Habib Securities Limited -- the fastest growing financial services provider in Pakistan

6. Mal-Al Khaleej (UAE) - one of the companies of the prestigious Al-Rajhi Group

7. Emirates Investments Group LLC (UAE) -- a leading investment company of the United Arab Emirates

8.Trust Securities and Brokerage Limited (TSBL) -- a leading corporate brokerage and financial advisory house based in Pakistan

Our Company's Shariah board comprises of the following:

1. Mufti Mohammad Mohibul Haq, Chairman

2. Mufti Dr. Khalil Ahmad Aazami, Member

3. Mufti Imtiaz Alam

PAGE: IS RISK PROTECTION (INSURANCE) AGAINST TAWAKKUL (TOTAL DEPENDENCE UPON ALLAH (SWT))?

DR. SYED ARIF HUSSAIN: No human actions change the Will of Allah (SWT) for our destiny. Whether a person has insurance/Takaful or not has no effect on future events. However, we are instructed to take precautions and then fully trust and depend upon Almighty Allah (SWT): In a Hadith narrated by Anas bin Malik, one day Prophet Muhammad (PBUH) noticed a Bedouin leaving his camel without tying it. He (PBUH) asked the Bedouin, "Why don't you tie down your camel"? The Bedouin answered, "I put my trust in Allah (SWT)". The Prophet (PBUH) then said, "Tie your camel first, then put your trust in Allah (SWT)". [As quoted in Sunan At-Tirmidhi, 1981.]

PAGE: IS ALL RISK PROTECTION (INSURANCE) HARAAM (PROHIBITED)?

DR. SYED ARIF HUSSAIN: The Fiqh Council of World Muslim League (1398/1978) resolution and The Fiqh Council of Organization of Islamic Conference (1405/1985) in Jeddah resolved that conventional insurance as presently practiced is Haraam, and that cooperative insurance (Takaful) is permissible and fully consistent with Shariah principles. Hence, conventional insurance is prohibited for Muslims (because it contains the elements of Riba, Al Maisir, and Al Gharar). By contrast, Takaful provides risk protection in accordance with Shariah based on the principles of Ta'awun (mutual assistance), brotherhood, piety and ethical operations.

PAGE: WHAT IS TAKAFUL?

DR. SYED ARIF HUSSAIN: Takaful comes from the Arabic root-word 'kafala' which means to guarantee, to help, to take care of each other's needs. Takaful refers to mutual protection and joint guarantee. Operationally, Takaful refers to participants mutually contributing to the same fund with the purpose of having mutual indemnity in the case of peril or loss.

PAGE: HOW IS UNCERTAINTY (GHARAR) ELIMINATED FROM TAKAFUL CONTRACT ?

DR. SYED ARIF HUSSAIN: Uncertainty can never be eliminated. It remains in the Takaful Contract as well. But, since the Takaful contract comes under Tabarruaat, the uncertainty (gharar) is considered to be within tolerable limits under Shariah. Insurance, being a contract of exchange (muawadat), contains "excessive gharar" and is termed as fasid.

PAGE: YOUR VIEWS ON RISK:

DR. SYED ARIF HUSSAIN: Risk or uncertainty can be divided into: Pure Risk and Speculative Risk. Pure Risk involves the possibility of loss or no loss. For example, damage to property due to fire. Pure Risks are the subject of insurance risk protection and Takaful. On the other hand, Speculative Risk involves the possibility of loss, no loss or gain. For example, venturing into a new business, or gambling on horse race. Speculative Risks that include a potential Gain or Profit cannot be insured.

Takaful schemes use the principle of indemnification to compensate for the loss that occurs to a Takaful Participant. Takaful insures only Pure Risks and the claims are only payable in the event of Loss to cover repairs, damage, replacement of property, or an agreed fixed amount.

PAGE: ALL INSURANCE SEEKS TO MAXIMIZE PROFITS, WHICH TAKE BENEFITS AWAY FROM POLICYHOLDERS. HOW WOULD YOU COMMENT ON IT?

DR. SYED ARIF HUSSAIN: Most conventional insurance companies are stock companies that seek to maximize profits. Since the interests of shareholders conflict with those of the policyholders, these insurers can boost profits for shareholders by raising prices, denying claims, etc. Takaful operators, by contrast, are mutual or cooperative entities. The goal of Takaful is for community well-being and self-sustaining operations, not high profits. Under the Takaful Mudarabah Model, surplus (or profits) is shared fairly and equitably between the shareholders and the policyholders (i.e. the 'Participants') Under the Takaful Wakalah Model, surplus is returned entirely to the Participants.

PAGE: WHY SHOULD I OPT FOR INSURANCE/TAKAFUL?

DR. SYED ARIF HUSSAIN: A Takaful scheme gives us an opportunity to practice the virtues of Islam, including self-purification. Surah Al Maa'idah (V.2) says: "Help one another in furthering virtue and Taqwa (God-consciousness), and do not help one another in evil and transgression". In a Hadith narrated by Ahmad and Abu Daud: Whosoever fulfills the intentions (needs) of his brother, Allah will fulfill his intentions. And Allah always helps those who help their brothers in need.

The first Constitution in Medina (622 CE) arranged by Prophet Muhammad (PBUH) contained three aspects directly related to risk protection: social insurance for the Jews, Ansar and Christians; Article 3 concerning 'wergild or 'blood money'; and provision for Fidyah (ransom) and 'aaqila. We should follow His (PBUH) example to meet our needs and social obligations.

PAGE: DO TAKAFUL CONTRIBUTIONS ENTAIL A HIGHER RATE THAN THE CONVENTIONAL INSURANCE PREMIA?

DR. SYED ARIF HUSSAIN: No, Takaful companies are as competitive as their conventional insurance counterparts. Opting for Takaful will not make you pay the Cost Of Being Muslim.

PAGE: CAN TAKAFUL COVER THEFT OF MY CAR?

DR. SYED ARIF HUSSAIN: Yes, Takaful companies offer the same variety of products offered by any insurance company, whether it is Fire, Marine, Motor etc. In addition, we have the expertise and experience to deliver tailor-made specific solutions for the benefit and convenience of our clients. The only exceptions are those risks that are not in conformity with the Shariah, e.g. breweries, casinos etc.

PAGE: HOW WILL I GET A CLAIM FROM A TAKAFUL COMPANY ?

DR. SYED ARIF HUSSAIN: All procedures, including claims, are the same as in conventional insurance companies. The difference lies in the nature of the contract, not in the procedures.

PAGE: HOW IS IT ENSURED THAT ALL ACTIVITIES OF TAKAFUL COMPANIES ARE SHARIAH COMPLIANT?

DR. SYED ARIF HUSSAIN: All Takaful companies are governed by the "Takaful Rules-2005" that require the Takaful operators to constitute a "Shariah Board" comprising of Shariah Scholars of repute. Moreover, all Takaful companies have to undergo a "Shariah audit" as well, in addition to the customary accounting audit, in each accounting period.

PAGE: IS TAKAFUL A MODERN DAY'S INVENTION?

DR. SYED ARIF HUSSAIN: There are several examples in pre-Islamic history whereby families, tribes or related members throughout the Arabian Peninsula pooled their resources as a means to help the needy on a voluntary and gratuitous basis. Their practices were validated by the Prophet Muhammad (PBUH) and incorporated into the institutions of early Islamic state in Arabia around 650 C.E. So, the origin of Takaful dates back to the first Islamic community in Madina. Early precursors were developed in response to perils and risks associated with long-distance trade via caravans or sea voyage and included:

Hilf (confederation)

Daman khatar al tarik (surety)

Al-diyah and Al-aqila (wergild or blood money to rescue an accused involved in accidental killing).

Fidyah (ransom of prisoners of war)

Dawania - Mutual indemnification amongst officers working in the same department during the rule of the second Caliph Umar Ibn Al Khattab.

PAGE: IS TAKAFUL TRANSACTED IN OTHER COUNTRIES?

DR. SYED ARIF HUSSAIN: Takaful is a new phenomenon in Pakistan. The first Takaful company was established in 1979 -- The Islamic Insurance Company of Sudan. Now, there are some 85+ Takaful Companies in over 20 countries. Takaful premium, currently around 0.1 percent (US$3 billion in 2004) of the global insurance premium, is expected to increase to US$12.5 billion by the year 2015. The average growth rate of Takaful has been higher than that of the conventional insurance companies.

PAGE: ARE THERE ANY REFERENCES IN THE HOLY QURAN AND HADITH IN SUPPORT OF THIS TAKAFUL CONCEPT?

DR. SYED ARIF HUSSAIN: Although Takaful has very old origins, the word Takaful is a modern day invention. You can find references regarding risk management and mutuality in Quran and Hadith: Takaful, the way it is transacted today, is based on the secondary source of Islamic Law Ijtihad.

PAGE: WHAT ARE THE SOURCES OF ISLAMIC LAW?

DR. SYED ARIF HUSSAIN: There are two main sources of Islamic Law namely:

1. PRIMARY SOURCES

Quran: The very word of God reveled ad verbatim to the Prophet Muhammad (PBUH) through the angel Gabriel.

Sunnah: The sayings deeds and approval of the Prophet Muhammad (PBUH).

2. SECONDARY SOURCE

Ijtihad: independent judgment;

Ijma: juristic consensus opinion;

Qiyas: reasoning by analogy.

PAGE: IS TAKAFUL AN OUTCOME OF IJTIHAD?

DR. SYED ARIF HUSSAIN: Ijtihad, literally means 'striving' or the exercise of effort to extract the rules of law from its source; "And to those who exert we show our path" (Quran 29: 69)

It is used when there is no clear text or context, by Muslims who are qualified to exercise it. That is why the concept can be questioned and is in fact evolving through debate for refinement as evident by the emergence of different models.

PAGE: WHAT IS THE DIFFERENCE BETWEEN IBAADAAT AND MU'AAMALAAT?

DR. SYED ARIF HUSSAIN: Ibaadaat refers to Man-to-God worship which cannot be changed while Mu'aamalaat refers to Man-to-Man activities, which include political activities, economical activities and social activities.

PAGE: HOW MANY TAKAFUL MODELS ARE THERE?

DR. SYED ARIF HUSSAIN: Alhamdolillah, in Islam there is room for diversity within certain prescribed parameters. Over the centuries, several Takaful Models have evolved which are approved by the Islamic scholars. While they all share the same fundamental goal of cooperative risk sharing, these models differ slightly in legal structure and organizational operations. Takaful Models are usually described by the Islamic contracts used; namely, Hibbah, or 100 percent Tabarru' [Sudan], or Al Mudarabah [Bahrain/Malaysia], or Al Wakalah [Saudi Arabia], or Wakala/Waqf [Pakistan].

PAGE: WHAT TAKAFUL MODEL IS FOLLOWED IN PAKISTAN?

DR. SYED ARIF HUSSAIN: According to the Takaful Rules-2005, in Pakistan a Takaful product shall be based on the principle of Wakala or Mudaraba or both. Therefore, Takaful companies in Pakistan follow a refined hybrid model named "Wakala - Waqf" model. It is a WAKALA model in which the fund is made a separate legal entity by virtue of it being a waqf. The relationship of the participants and the operator is directly with the WAQF fund. The operator is the 'Wakeel' of the fund and the participants pay contribution to the WAQF fund by way of Tabarru (contribution).

PAGE: HOW DOES RIBA EXIST IN CONVENTIONAL INSURANCE?

DR. SYED ARIF HUSSAIN: Riba exists in conventional insurance in following two forms:

DIRECT RIBA - the excess on one side in the exchange between the amount of premium and the insured sum. Insurance is the sale of money for money, of a greater or lesser amount, with a delay in one of the payments.

INDIRECT RIBA - the interest earned on interest-based investments. Riba exists in commercial insurance from the profits earned through investments of the premiums/funds in interest-bearing financial instruments such as stocks, bonds, and savings accounts, an unknown part of which is then used for the payment of claims to policy holders.

PAGE: HOW IS TAKAFUL COMPANIES' INVESTMENT INCOME RIBA-FREE?

DR. SYED ARIF HUSSAIN: Unlike insurance companies, whose investment income may contain Riba, Takaful companies invest funds in Property, Islamic Banks, Shariah compliant Stocks and other Shariah approved securities like Sukuk bonds etc.

PAGE: IS TAKAFUL JUST A CHANGE OF LABEL?

DR. SYED ARIF HUSSAIN: Although the end result is the same since both insurance and Takaful aim to provide compensation against possible losses, yet the crucial difference lies in the way that each does this. The notion "ends justify means" does not hold when it comes to Islam where both the ends as well as the means have to be in order. Chicken can either be slaughtered or given an electric shock; both achieve the same end, a dead chicken. However, the former way makes the meat Halaal for eating whereas the later renders it Haraam.

PAGE: ON THE FACE TAKAFUL IS ISLAMIC BUT AT THE BACK IS IT NOT THE SAME CONVENTIONAL REINSURANCE SUPPORT?

DR. SYED ARIF HUSSAIN: Takaful companies in Pakistan will only arrange Reinsurance support from dedicated ReTakaful operators conducting business in accordance with Shariah guidelines. Takaful Re, B.E.S.T Re, Asean Re are prominent among such ReTakaful companies. Even a ReTakaful syndicate has been recently formed at Lloyd's in London that is expected to start underwriting by the end of 2007.

PAGE: HAS TAKAFUL SUDDENLY COME OUT OF THE BLUES IN PAKISTAN?

DR. SYED ARIF HUSSAIN: The work to evolve an Islamic alternative system to the conventional insurance began some 22 years back in 1982 but the development has been very slow. The Council of Islamic Ideology started reviewing the Islamic Insurance System from 1983. In 1992 the Council submitted its report on the proposed Islamic Insurance System to the then government but then nothing further was done for almost eight years. The Insurance Ordinance - 2000, enforced in August 2000,defines the term "Takaful" in Section 2 and provides for establishment of Takaful companies in the country. Finally in 2005, the regulatory framework for Takaful was developed in the shape of "Takaful Rules - 2005".

PAGE: WHAT ADVANTAGES DOES TAKAFUL OFFER?

DR. SYED ARIF HUSSAIN: Wide product range; Competitive rates; Excellent client service; and The unique option of "Surplus Sharing". Above all, a way to help other Muslim brothers in need a deed whose reward has been promised by ALLAH.

PAGE: WHAT IS MEANT BY SURPLUS SHARING?

DR. SYED ARIF HUSSAIN: The Takaful Operator acts only as the Wakeel of the Waqf Fund. If, at the end of the year, there is surplus in the Fund (i.e. after adding all its income and deducting all the outgo), such surplus will be distributed amongst the participants proportionately after taking into account any claim benefits already availed.

PAGE: IS THERE A SINGLE PARTICIPANT TAKAFUL FUND OR SEPARATE PTFS FOR EACH CLASS OF BUSINESS?

DR. SYED ARIF HUSSAIN: A General Takaful operator may create a single PTF or separate PTFs for different classes of business." (Section 8 (5) of the Takaful Rules-2005). The surplus is thus calculated in accordance with the practice adopted.

PAGE: WHEN WILL I GET SURPLUS FOR MY POLICY?

DR. SYED ARIF HUSSAIN: The surplus will be computed on a monthly basis. The surplus rate in the preceding month will be applicable for the refund purpose for the policies lapsing during the current month.

PAGE: WILL I BE ASKED TO PAY MORE PREMIUM IN CASE THERE IS A DEFICIT IN THE PTF?

DR. SYED ARIF HUSSAIN: No. In case there is a deficit in the PTF, the same will be made good by way of interest-free loan "Qard-e-Hasna" from the Shareholders' Fund (SHF). The Qard-e-Hasna will be paid back from the future surpluses of the PTF.

PAGE: IS TAKAFUL FOR MUSLIMS ONLY?

DR. SYED ARIF HUSSAIN: No, takaful is for all religious as Islam is a universal religion open to all. Likewise Takaful is open to all whether Muslims or non-Muslims. In Malaysia and Sri Lanka, even non-Muslims are opting for Takaful due to its commercial viability, greater transparency and ethical operations.
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Publication:Pakistan & Gulf Economist
Geographic Code:9PAKI
Date:Jun 15, 2014
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