C. Takaful Operating Models
• The Mudaraba Model
The mudaraba is a kind of partnership in which one party that affords supplies funds while the other offers its expertise and management. It is based on classic profit sharing principles, for example a partnership in which two parties involved, one is fund provider which is called the participant, while the other person or party is called the operator who provides expertise and management of the fund. Both share the profits of the joint venture with a pre-defined ratio stated by Akhtar, 2010; Bhatty, 2007; Hussain, 2010; Nadeem, 2010 and Wahab (2006a).
Figure 1 displays this model. A separate fund is created with the name of General Takaful Fund for the purpose of investment. Similar to the…show more content… If there are no legal issues, the waqf entity is required to be registered. The purpose of the waqf fund is to provide relief to participants against losses (Wahab, 2006). In the wakala contract, the tabarru or hibah is not complete as it is conditional on being used to pay claims and there is an element of surplus which may return to the participants. From a Shariah perspective proportionate ownership of the funds not utilized for claim settlement remains to the participants (Billah, 1997). The shareholders initially make a donation to establish the Waqf fund. The donation can be any reasonable amount which is specified by the shariah scholars. After creation of the Waqf fund, the shareholders lose their ownership rights on the Waqf fund. However, they have the right to administer and develop rules and regulations of the fund. The original donation of the Waqf fund is invested in a very safe shariah compliant investment and its return is used for the benefit of the participants. Furthermore, different line of Takaful services, more than one Waqf fund can be formed with the shareholders money (Mughal 2008).The operational cost of business is met through the fund which is collected from participant. The fund is used for claims settlement and as well as for investment purpose. The profit earned on investment is again deposited to the investment fund. The company utilizes the fund on the basis of Waqf fund. The amount of donations for creation of fund is determined on the basis of risk. This model is a mixture of mudaraba and wakala model and the surplus is distributed among the participants and operators on some predefined basis. The operator gains dual benefit on one hand charges fixed fee on wakala base and on the other hand also gets the share of profit on mudaraba base. So the operator has more privilege and benefits as compared to the other Takaful model.