TAKAFUL FUND MANAGEMENT

1. TAKAFUL FUND MANAGEMENT Prof. Dr. Mohd. Ma’sum Billah www.drmasumbillah.blogspot.com Takaful Fund Management

2. INTRODUCTION AND CENTRAL IDEA Takaful Fund Management

3. INTRODUCTION “Some say prostitution is the oldest profession; history actually suggests that the oldest profession may indeed be that of the moneylender.” Martin Armstrong, Princeton Economic Institute Takaful Fund Management

4. CENTRAL IDEA • Let’s start with a Qur’anic evidence which support the argument; yes indeed riba is the oldest profession: “O ye believe! Devour not usury, doubled and multiplied; but fear God; that ye may (really) prosper.” Al-Imran:130 Takaful Fund Management

5. SYARIKAT TAKAFUL MALAYSIA BERHAD(STMB) Takaful Fund Management

6. BACKGROUND OF THE COMPANY • 29th November1984 • Authorized paid up capital of RM100 billion and a paid up capital of RM10 million. • Shareholders: • BIMB • Syarikat Takaful Malaysia Berhad (STMB) Takaful Fund Management

7. Governed by Section 8 article 3(a) of Takaful Act 1984, in which the act says that: “A religious supervisory council should be made up of Muslim religious scholars in the country and shall advise the company on the operations of Takaful business.” Takaful Fund Management

8. STMB SUBSIDIARY COMPANIES ASSOCIATED COMPANIES ARIL (76%) STI (56%) AMTC (49%) ATL (20%) ATK (99%) ATU (99%) CORPORATE STRUCTURE Takaful Fund Management

9. FAMILY GENERAL FRUITS=TAKAFUL PRODUCTS ROOTS=PRINCIPLES DEVELOPED FERTILIZER=MUSLIM SCHOLARS Takaful Fund Management

10. IDEA OF TAKAFUL FUND MANAGEMENT • To have a good fruit, the fertilizer must be from a very good quality. Only then the root can be developed to produce a branch of good fruits. Takaful Fund Management

11. Fertilizers = Muslim Scholars • Roots are principles developed by knowledgeable Muslim Scholars • Fruits refers to the successful insurance product • The very basic idea we are stressing here is that in order to manage funds in an Islamic way, the rules developed by Muslim must be very clear and there should be no room for doubt Takaful Fund Management

12. If the funds are managed very well (according to Shari’ah principles), then only people (especially the Muslims) will come and buy the product. • Getting the trust from people is much is much more important than promoting the product for long term plan (sustaining customers) Takaful Fund Management

13. FLOW FUND MANAGEMENT TABARRU’ MUDHARABAH Takaful Fund Management

14. STMB FUND MANAGEMENTPractical Scenario Takaful Fund Management

15. FUND MANAGEMENT • Sources of Income To The Company • Idea of Managing The Takaful Fund • STMB Fund Management • Few Models of Takaful Fund Management • Existing Phenomena • Tauni Model • Tijari Model • Wakalah Model • Proposed Model of Family and General Takaful Fund Models II and I • Model I • Model II • Shareholders’ Fund Takaful Fund Management

16. PSA-Retakaful, Claim Reserve, Unearned Takaful contributions and General Reserve • PA-Investment and Profit • Surplus • PA-Investment and Profit • Shareholder’s Fund • Shareholders’ Fund-Expenses • Net Profit for shareholder • Tabaru’ • Hypothesis Analysis:Company’s Performance • Family Takaful Fund • Family Takaful Business • Individual Sector • Group Sector • General Takaful Fund • General Takaful Business • Staff Commission in Takaful Buying Policies By The Policy Buyer Takaful Fund Management

17. FUND MANAGEMENT • I) Sources of income to the company • Profit from the investment of its shareholders’ fund • Its share of profits from the management of both the family takaful business and general takaful business Takaful Fund Management

18. FUND MANAGEMENT II) Idea of Managing the Takaful Fund Current Profit Sharing Ratio General Business Family Business • Profit From: • General • Family Business • Funds and Investment Total Income will be credited into the shareholders’ fund Profit/Loss will be determined Income - Operating Expenditure Takaful Fund Management

19. FUND MANAGEMENT • III) Syarikat Takaful Malaysia Fund Management • Few Models of Takaful Management • 1) Tauni Model • Middle East, Bank Jazira in Arab • Those did not face any risk will get nothing • - All the surplus will go straight away to the • company’s account and also the shareholder's • fund • Existing Phenomena Takaful Fund Management

20. 2) Tijari Model • adopted by Malaysia especially STMB • - underwriting surplus is done based on the • agreed ratio. Therefore, it depends on the • economic conditions • - Example : • recession - 60 : 40 • booming - 80 : 20 • - Those participant who did not claim will get • the mudharabah bonus Takaful Fund Management

21. 3) Wakalah Model • - Also known as agent/broker model • - Adopted by May bank Takaful • - What differentiate this model with the other two is the commission given to the agent straight away from the premium given by the participant. But with two condition; the participants must: • know and agree • percentage of deduction must be known Takaful Fund Management

22. FUND MANAGEMENT • I • (Tabarru') (Mudharabah) • PSA PA SSF Total • Family 8% 90% 2% 100% • General 90% 8% 2% 100% Proposed Model of Family and General Takaful Fund Takaful Fund Management

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28. What differentiate Model 1 from Model 2 • Model 1 • Agent do not get his commission • Do not need to get consent from participants • Model 2 • Agent get his commission • In this case, the company must get a • written consent from participants Takaful Fund Management

29. What are the similarities between Model 1 from Model 2 • All of them have: • 1. Takaful fund which is divided into four divisions: • Retakaful • Claim Reserve • Unearned Takaful Contribution • General Reserve (which is subject to • Technical, IBNR, etc Takaful Fund Management

30. What are the similarities between Model 1 from Model 2 • 2. The investment is generated from • participants (Mudharabah) account. Example • of investment are: • Income from investment account • Income from Islamic Accepted Bill • Malaysian Government - certificates • If we see the, the investment income (net • return) is RM 894,355 as compared to • RM 9,013,989 last year Takaful Fund Management

31. RECOMMENDATION • Say no to RIBA’. Even Julius Caesar in Romania Empire mentioned that riba’ can destroy the institution of a society. What else being a Muslim, we should be very bold in upholding the Qur’anic teachings Takaful Fund Management

32. What we can do? • 1. Train employees • The employees must equip themselves • before promotion • They also must be actively seek all the • available facts and base their decision • upon the research • 2. General Takaful Insurance product should be • treated as one of the competitive advantage • over conventional insurance whereby the • money back guarantee is there Takaful Fund Management

33. What we can do? • 3. Offer more insurance products that has to do • with umrah, hajj or educational package • 4. In terms of investment, STMB should expand • its branch worldwide because: • Malaysia has been a leading platform for • takaful insurance business in the world • see total revenue page 31 • 5. Role of education Takaful Fund Management

34. CONCLUSION 1. DOUBT • Once the room for doubt arises in the insurer and also the assured, either one party will find some difficulties in implementing the roles governance the management of funds 2. COMMISSION • Different models had been presented • Tauni • Tijarah • Wakalah - Only in wakalah the commission is given to the agent Takaful Fund Management

35. THE FUTURE OF ISLAMIC INSURANCE For a body to be healthy, the organs must work well first So, for an organization to work well, the mechanisms used in the system should be checked first whether it fulfills the shariah requirements or not Takaful Fund Management