Takaful has been discussed broadly in a past edition. We observed that Takaful is the form of insurance that is acceptable in Islam because it is based on the system of co-operation and mutuality. We have also discussed that there are different models used in the operation of Takaful. In a past edition, we wrote on the Mudarada model of Takaful. We defined the Mudaraba model of Takaful as a contract in profit sharing between the participants of the Takaful scheme and the Takaful operator. The contract specifies exactly how profits from the Takaful operation will be shared. In this edition, we are going to discuss the Wakala Model of Takaful which is the model that is widely used in most of the Arab world.
Wakala is a concept of a person entrusting another to act in his stead or as his representative; It has been a longstanding custom to appoint an agent to facilitate trade operations. The Wakala agency contract usually includes in its terms a fee for the expertise of the agent. Under a Wakala contract, the Takaful operator acts as an agency on behalf of the participants. In return for the services rendered, he is paid an agreed upon predetermined fee.
In this modern and complex financial world, many skills are required to successfully manage a Takaful operation. By management one would include ensuring that the rights of the participants in the mutual fund are protected. The operator has to promote participation of new members (e.g. via advertising), he has to explain the concept of a Takaful cooperative to the masses, set up a proper administrative system to run the Takaful program, develop new Takaful products to meet the needs of participants, determine the appropriate contribution to be made by each member (such contribution shall be determined actuarially to enable an adoption of an equitable and fair charging to all members) etc.
The question that comes to mind is who will carry out such responsibilities with effectiveness, accuracy' and efficiency? One option is that it could be performed by volunteers who are members of the Takaful program. Alternatively, it can be sourced out to a third party who possesses the skills, qualifications and experience to handle such a complicated job.
Under the first alternative, volunteers may help carry out-the above functions on a charitable basis. As the Takaful fund gets bigger and more people enter into the Takaful program, the administrative activities will become more complicated and cumbersome to the extent that it would become necessary to seek assistance from an outside party to ensure that the Takaful operation is run in the most efficient, productive and professional manner for the benefit of the members. Thus, the appointment of a professional who possesses the necessary expertise in running the Takaful program for a fee agreed in the Wakala contract.
Conditions to be met for a valid Wakala
The person who appoints an agent must be legally competent to do so, thus an insane person or an infant cannot appoint an agent. A person can appoint an agent to conduct all business transactions that he would be able to do personally. Thus, it is lawful to appoint an agent for selling or buying, letting or hiring, giving or taking a pledge for depositing or receiving a thing for safe keeping, making or receiving a gift, making a compromise, bringing an action, paying or receiving a debt etc.
An agent appointed to sell and buy or to pay or receive a debt is a custodian of his principal's property and in the position of an Amir (Trustee).
An agent is entitled to receive remuneration only when so contracted. The rationale behind the concept of Wakala can be seen from the following arguments:
It is difficult for Takaful participants to voluntarily carry out the administrative work as the scheme gets bigger. To set up a Takaful operation system during the initial phase of the program requires heavy expenditure on the part of members. The question that arises is whether all members can afford to contribute towards meeting this high start up cost. During the early phase of implementation, it is possible that claims, re-takaful cost and expenses could exceed collected contributions together with investment income. This would mean a loan to the participants is needed to avoid insolvency of the Takaful program (i.e. inability to pay claims). From an Islamic perspective this is undesirable for it may reflect poor management of the Takaful program. Members may not have all the technical expertise associated with managing the Takaful funds. The skills required are underwriting, marketing, claims management, legal, accounting, actuarial, IT etc.
The Takaful program may not be managed in an organized or structured manner unless a dedicated, professional, highly skilled and financially reputable party is involved.
This article was culled from the publications of Deen Communication Limited