Models of Takaful

The Mudaraba model

The Mudaraba model is essentially a basis for sharing profit and loss between the takaful operator and the policyholders. The takaful operator manages the operation in return for a share of the surplus on underwriting and a share of profit from investment.

Under the Al-Mudharabah principle, the profit as universally defined by conventional insurance companies, which in the case of general business is taken to mean returns on investment plus underwriting surplus, is then shared according to a mutually agreed ratio between the participants and the operators. Management expenses of the operator including agency remuneration, if any, shall be borne by the shareholders' fund and not from the takaful funds. Hence, there is a distinct separation between Takaful funds and shareholders' fund.

The Walaka model

The Walaka model is a contract of agency, which replaces surplus sharing with a performance fee. The takaful operator in this case acts as an agent (Wakeel) for participants and manages the takaful/retakaful fund in return for a defined fee.

Whereas, under the Al-Wakalah principle, the paid-up capital is contributed as donation by the shareholders. Therefore, under this principle the shareholders do not expect and probably do not mind for not receiving any returns on the capital donated. However, it is understood this standpoint has changed in view of opinion expressed by certain scholars that the shareholders (operators) in their capacity as managers should also be entitled to share the profit arising from the takaful business.

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