Microfinance, Takaful (Islamic Insurance) and their use in Live Stock

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Microfinance, Takaful (Islamic Insurance) and
their use in Live Stock Dairy Sector

• Prof. Dr. Mian Muhammad Akram
• Head of Department of Economics, Govt. College of
  Science,
• Wahdat Road, Lahore

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(No Transcript)
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MICROFINANCE
DEFINITION OF 'MICROFINANCE A type of banking
service that is provided to unemployed or
low-income individuals or groups who would
otherwise have no other means of gaining
financial services. Ultimately, the goal of
microfinance is to give LOW INCOME    people an
opportunity to become self-sufficient by
providing a means of saving money, borrowing
money and insurance.
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WHAT IS TAKAFUL?

• All human activities are subject to risk of loss
  from unforeseen events.
• Insurance has existed since at least 215 BC.
•  Practiced in various forms for over 1400 years.

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WHAT IS TAKAFUL?

• It originates from the Arabic word 
• means guaranteeing each other Or
• joint guarantee.

Kafalah,
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ORIGIN OF TAKAFUL?

• Takaful originated within the ancient Arab tribes
  as a pooled liability that obliged those who
  committed offences against members of a different
  tribe to pay compensation to the victims or their
  heirs.

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ORIGIN OF TAKAFUL?

• This principle later extended to many walks of
  life, including sea trade, in which participants
  contributed to a fund to cover anyone in a group
  who suffered mishaps on sea voyages. 

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Risk and Insurance

• Risk and uncertainty are fundamental facts of
  life.
• All human activities are subject to risk, which
  may lead to financial or physical losses to him.
• Insurance is a device to cover the losses arise
  due to occurrence of some undesired event.

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Definition of Insurance

• Insurance is an economic device whereby the
  individual substitutes a small certain cost
  (premium) for a large uncertain financial loss
  (the contingency insured against) that would
  exist if it were not for the insurance.

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CLASSIFICATION OF INSURANCE BUSINESS

• By Type of Products
• i) Life insurance
• ii) General insurance
• iii) Liability insurance

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Advantages of Insurance

• Safeguard against sudden losses and assurance of
  smooth functioning of business activities
• Improvement in the saving habits in the society
  and making funds available for productive
  investments
• Help of individuals in case of unforeseen
  financial Loss

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Major Arguments Against Insurance

• Element of Riba (Interest)
• Element of Qimar (Gambling)
• Element of Gharar (Uncertainty, Doubt, Risk)
• Unlawful appropriation of others property
• Violation of law of inheritance in case of life
  insurance.

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Rulings of Collective Fiqhi Bodies about
Insurance

• Islamic Research Institute of Al-Azhar Uni.
• Council of Grand Ulama of Saudi Arabia
• Majlis Tahqiqat-e-Shari'yah Lucknow, India
• Islamic Fiqh Academy of Rabita
  al-Aa'lam-e-Islami
• Al Majma Al-Fiqhi Al- Islami of OIC
• Council of Islamic Ideology, Pakistan

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Establishments of Islamic Insurance (Takaful)
Companies

• In 1979, the first Islamic Insurance Company was
  established in Sudan the Islamic Insurance
  company of Sudan. After that many Islamic
  Insurance companies started business under the
  title of Takaful.
• There are about 85 companies presently
  undertaking Takaful business in 25 countries of
  the world. A broad estimate of the total Takaful
  industry in 2005 is approximately US3 billions
  for both life and non-life business.

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Definition of Takaful
The word Takaful means joint guarantee. The
objective of Takaful is cooperation and mutual
help among the members of a defined group. In a
practical sense Takaful can be visualized as a
method of joint guarantee among a group of
members or participants against loss or damage
that may inflict upon any of them. The members of
the group agree to guarantee jointly that should
any of them suffer a catastrophe or disaster, he
would receive certain sum of money to meet the
loss or damage. All members of the group pool
together their efforts to support the needy.
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WORKING OF THE TAKAFUL BUSINESS The Malaysian
Case

• Takaful Business is based on the concepts of
  Mudarabah and Tabarru. Involvement of these two
  Islamic forms of business eliminate the elements
  of Riba and Gharar from the insurance contract
• In Family Takaful each Takaful installment is
  divided and credited into two separate Accounts
  namely, the Participants' Account(PA) and the
  Participants Special Account(PSA). A
  substantial proportion of the installments is
  credited into the PA solely for the purpose of
  savings and investment.

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• The balance of the installments is credited into
  the PSA as tabarru' for Sharikah Takaful
  Malaysia to pay the Takaful benefits to the
  heir(s) of any participant who may die before the
  maturity of the contract.
• The amount accumulated in the PA is invested in
  various business according to Islamic financing
  techniques, and the resultant profits are divided
  between the company and the participants
  according to the agreed upon ratio, e.g., 30-70.
• The participant's share is calculated according
  to their individual share in the PA, and credited
  into their respective accounts, the PA and the
  PSA.

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Mudarabah Model
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Wakalah Model
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Takaful and Microfinance

• The Takaful system and entrepreneurship
  development can be two key agents in the process
  of economic development, poverty alleviation and
  development of livestock and dairy development.

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Takaful and Microfinance

• This can be proceeded by investment in this
  sector.
• Provision of microfinance by the Helping Hand,
  Islamic Banks and Takaful companies to the poor
  peasants for purchase of Livestock.
• Risk can be safeguarded by HH through provision
  of funds to the Takaful Companies.

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Takaful and Microfinance

• Besides that Takaful companies can also provide
  the finances to the livestock dairy sector by
  using different modes of investment.
• Islamic microfinance is used by Islamic Bank
  Bangladesh, Muslim Aid and some other Islamic
  Non-government organisations to promote
  entrepreneurship as a tool to combat poverty.

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• THANK YOU