- Participants contribute a sum of money into a common fund, which will be used to mutually assist the members against a defined loss or damage.
- A takaful operator is entrusted to manage the fund, who runs the operation commercially as a business venture for profit. Sources of income for the operator are from:-
- profit from the investment of its shareholders’ Fund
- agency/wakallah fee;
- share of investment profit of takaful funds;
- surplus of the takaful funds.
Tabarru'
- Tabarru’ means donation, gift or contribution. Participant in a takaful scheme agrees to relinquish, as a donation, a certain proportion of the contribution into a takaful fund to assist other participants faced with difficulties.
- It embraces the elements of shared responsibility, joint indemnity and mutual protection .
- It is the core of the takaful system that makes the uncertainty element allowable under the takaful contract .
OPERATIONAL MODELS
Mudharabah (Profit-sharing) Model
In a mudharabah model, the contracting parties have the right to share the profit, while liability for losses is borne by the participants.
There are several variations in terms of treatment of management expenses, product design and the distribution channels used. The takaful operator act as a mudharib (entrepreneur) and the participants as rabbul mal (capital providers). The contract specifies how the surplus from the takaful operation is to be shared between the takaful operator and the participants. Under this type of contract, losses are borne by the participants as the capital provider. However, to protect the interest of the participants, the takaful operator is required to observe prudential rules including provision of interest-free loan by the operator to the takaful risk fund in the event of a deficiency.
Wakalah (Agency) Model
In a wakalah model, the takaful operator earns a fee for services rendered while the liability for losses is borne by the participants. The fee may be varied based on the performance of the takaful operator.
The wakalah concept is essentially an agent-principal relationship, where the takaful operator acts as an agent of the participants in return for a fee. The fee can be a fixed amount or it can be based on an agreed ratio of investment profit / surplus of the takaful fund