Takaful – Waqf Model

The term waqf referred for this model explains the contract of takaful that underlines the agreement or consent of the participant that the takaful contribution paid in return for participating in the takaful product to be credited by the operator into the takaful fund in accordance with the principle of waqf or endowment. To begin with, a waqf account has to be established by the operator within the takaful fund. To this effect the operator is required to relinquish some kind of “seed” money as waqf to generate the said waqf account. This waqf account of the takaful fund will be invested similar to the three business models hereinbefore. The Waqf fund shall work to achieve the following objectives:

a) To extend financial assistance to its members in the event of losses.

b) To extend benefits to its members strictly in accordance with the Waqf Deed.

All the expenses related to the underwriting and operational cost of takaful shall be charged to the Waqf fund. As manager, the takaful operator will perform all functions necessary for the operations of the Waqf against a Wakala fee to be deducted from the contribution paid by the participants. As Mudarib, the operator will manage the investment of the takaful fund including its Waqf account in Shariah-compliant investment avenues and will share its returns on the investment at an agreed ratio similar to the profit sharing structure under the Mudarabah contract.

It is important to note the different principles of Shariah are used in the takaful contract to express the consent of the participants for their contributions to be credited into the takaful fund for the purpose of undertaking the concept of joint guarantee as encapsulated in the term takaful. In contrast to the Waqf model, the other three models applied the principle of tabarru to the contract.

It is a basic feature of the model below that the Waqf Fund will lay down the rules for distribution of its proceeds to the beneficiaries and will determine how much compensation be paid out to a participant. In addition, the Waqf will be the owner of the contributions and has the right to act as a legal entity and dealing with its surplus. The operator, whilst managing the Waqf Fund, will assume two different functions at the same time – manager and Mudarib or entrepreneur.

Takaful Waqf Model Chart

EXCERPTS FROM: Mohd Fadzli Yusof, Fundamentals of Takaful (Kuala Lumpur: IBFIM, 2011), pp 29 to 44