TAKAFUL VIS--VIS TRADITIONAL INSURANCE

PAK-KUWAIT TAKAFUL SEES A BRIGHT FUTURE IN PAKISTAN

MR. IMTIAZ BHATTI, Deputy Managing Director-PKTCL
June 23 - 29, 2008

Pak-Kuwait has pioneered the introduction of the Islamic instrument of Takaful in Pakistan. This is somewhat different from the existing insurance practices and procedures.

By the grace of Almighty, it is the profound privilege of Pak-Kuwait Takaful Company Limited (PKTCL) to launch Takaful in Pakistan. With just over two years of its introduction, we find an exceedingly good response from the public forecasting brighter prospects. The feed-back shows that a great number of people are desirous of Shariah compliant solutions to their business matters; particularly insurance.

Speaking from Shariah point of view, three of the components in the traditional insurance are such which are forbidden in Islam. These are Riba, Gharar and Maiser. Takaful is void of any of these elements.

The word "Takaful" has been derived from Arabic word "Kafila" which means mutual guarantee, combined safety, helping someone or taking care of someone's needs.

Takaful actually offers a Shariah complaint substitute for traditional insurance. The two systems, from a technical prospective can be understood from the fact that traditional insurance is based on the principle of risk transfer where the insurance policy holder transfers the probable risks and resultant damages to the insurance company and the insurer enjoys authority over the funds generated through premia (premiums) for investing in schemes where the highest interest returns are expected. Contrary to it Takaful is based on "Tabarru"? a voluntary donation of which the proceeds go to share holders fund and the funds so generated are invested according to the principles of Shariah. The idea behind "Takaful" can be traced back to the period of our Prophet Muhammad (PBUH) where tribal people, before proceeding for business purpose, used to contribute money in a common fund for the specific purpose of utilizing to compensate the loss of any of the members of the business mission or for payment as ransom in the event of a murder.

Takaful being free of the elements like Riba, Gharar and Maiser forbidden in Islam, that is why Ulemas and Islamic Scholars have unanimously declared only such form of insurance which is based on the principles of Takaful. Takaful not only relieves you from the non-Shariah complaint insurance but also offers to the clients, opportunity of benefits from the Takaful Fund in the event of profit, which in case of traditional insurance rests as the discretionary right of insurance companies. Parallel to the general insurance business, Takaful is gaining ground in Pakistan very rapidly, which is evident from the two years sales figures that the PKTCL has been in existence. In the year 2007, compared to 2006, there has been an increase in business by 100% which is also indicative of the pace of growth and popularity of Takaful in Pakistan. In Pakistan, during the past three years, three new companies have started Takaful operation, which is indicating bright prospects in Pakistan.

PKTCL, at present offers complete Takaful coverage packages in the fields of motor, fire, marine and engineering.

Additionally, PKTCL offers a variety of Takaful products tailored to its customers' needs, the details of which can be had from offices in Karachi, Lahore, Islamabad and Faisalabad.

Popularity of Takaful is not only because of being in conformity to Islamic principles but also because of the demand push. One of the reasons for Takaful's acceptance and popularity is that 97% population of Pakistan consists of Muslims and every Muslim is aware of the fact that interest (Riba) is forbidden in Islam. So far, there being no alternate available, the traditional insurance was resorted to. As the people are getting awareness about Takaful, its demand is increasing. All the products of Takaful being Islamic, masses are attracted by it.

The features of Takaful take care of both, the economic and the Islamic elements. Policy holders get benefits of the surplus money accumulated in Takaful Fund. It's therefore a matter of common sense that when one gets all the benefits of insurance under Takaful, why the un-Islamic products be opted.

In Islamic Banking, no business deal can be completely Shariah complaints unless the elements of risk of the deal are secured through Takaful. This is the main reason that dire necessity of Takaful was felt soon after the introduction of Islamic Banking. After the introduction Takaful, all the Islamic Banks are fulfilling their insurance requirements through Takaful. Islamic Banking is therefore playing an important role in the promotion of Takaful. As the Islamic Banking is finding broader application in Pakistan, Takaful is simultaneously getting the promotion and growth.

Under the present laws of the State Bank of Pakistan, it is necessary for all the Islamic Banks to have Takaful coverage for all of their products. To cite an example, if any factory established with the financial collaboration of an Islamic Bank is, because of any accident, completely destroyed, the economic losses' thereof can be made good if Takaful coverage was provided, otherwise compensation for such losses will be the responsibility of the bank concerned.

Insurance companies have to their back Reinsurance companies. Similar to this phenomenon, Takaful companies are backed up by Re-Takaful. By the grace of Allah, there are in operation worldwide, a number of Re-Takaful companies with strong economic background. Some of them are: (1) Munich Re-Takaful, (2) Hanover Re-Takaful, (3) Best Re-Takaful, (4) Tokyo Marine Re-Takaful, and (5) Takafulre.

A new product launched by PKTCL under the guidance of Shariah Board is a unique and special Travel Takaful Policy for Hajj and Ziarat (Iran) which provides all the time during travel, accident risk cover including resultant death, injury, and disability to the insured and his family. Family package under this scheme covers risks of five members of a family including three children of below 18 years. This policy provides various facilities during Hajj, Umrah and Ziarat (Iran) including transit risk, compensation for loss of valuable belongings and in the event of death, bears expenses for return of the dead body back home.

PAK- KUWAIT TAKAFUL AT A GLANCE

The first ever company to introduce Takaful i.e. Islamic insurance in Pakistan is Pak-Kuwait Takaful Company Limited (PKTCL); the founding share holder of it being Pak-Kuwait Investment Company which is also the first company to introduce Islamic Financial System in Pakistan. Pak-Kuwait Investment Company also holds the distinction of establishing in Pakistan, first Islamic Bank i.e. Meezan Bank and the first Islamic mutual fund i.e. Al-Meezan Investment Company. This group initiated the challenging task of introducing for the Pakistani people a new system of insurance, which is Riba free and based on principles of Islam. For this purpose, Pak-Kuwait Takaful Company Ltd. was founded with the collaboration of the then TN Overseas Investment (Pvt) Ltd. Malaysia (now Etiqa Overseas Investment (Pvt) Ltd. Malaysia), which is a subsidiary of world's largest Takaful group. PKTCL, after the approval by the Government of Pakistan, started operation according to Islamic Principles in December 2005. The initial paid up capital of PKTCL is Rs. 250 million and the authorized capital is Rs.500 million. The shareholders of PKTCL include Pakistan's largest development financial institution Pak-Kuwait Investment Company, world's largest Takaful group's subsidiary Etiqa Overseas Investment (Pvt) Ltd. Malaysia, Takaful Holdings Ltd. Dubai, Noor Financial Investment Company, Saudi-Pak Industrial & Agricultural Investment Co. (Pvt) Ltd and Meezan Bank Ltd. For running the affairs of PKTCL according to the Islamic ideology and maintaining its sanctity, a board consisting of country's best Ulemas having sound religious knowledge, philosophy and good image has been constituted, which is headed by Justice (R) Mufti Muhammad Taqi Usmani with Dr. Muhammad Imran Ashraf Usmani and Moulvi Muhammad Hassan Kaleem as members.

Compared to other Muslims countries, Takaful is relatively a new concept but PKTCL is proud that the company, its dedicated team and the professionally competent human resource with state of the art facilities have introduced and popularized the Takaful concept in the country in a very short time. This is rapidly bringing about positive business attitude change. The pro-active and energetic staff of PKTCL is always busy in providing the best possible facilities and insurance solutions to its clients and customers in respect of their business problems. PKTCL, in a short span of time, has presented to the public, almost all the products relating to insurance in an Islamic and Shariah complaint way. It includes insurance of properties, motor vehicles, marine, engineering, industrial, accidental death, Hajj, Umrah and Ziarat insurance etc.

Recently PKTCL, in keeping with the public needs and expectations for better risk management, has launched free tracker service with Motor Takaful, which is gaining popularity very rapidly.