Pak-Qatar Takaful

Structure of takaful companies

The income statement separates the interests of the shareholders (the company owners) from the policyholders (the participants/customers).

This structure is based on the Waqf-Wakala Model, which operates under two separate legal entities and financial statements:

1. The Policyholders' Fund (The "Waqf" or Participants' Fund)

This fund is the heart of the Takaful operation. It functions as a charitable trust (Waqf) or pool of money owned collectively by the policyholders.

Purpose and Operation:

• Ownership: The fund belongs to the participants (policyholders), not the company's shareholders.

• Source of Income (Inflows):

  • Contributions: The premiums (called Takaful Contributions) paid by the participants, which are essentially donations (Tabarru') to the pool.

  • Investment Income: All returns generated from investing the assets of this fund.

• Outflows (Expenses/Liabilities):

  • Takaful Benefits (Claims): Payments made to participants to cover their losses (the main purpose of the fund).

  • Re-Takaful (Reinsurance) Costs: The cost of transferring risk to other Takaful operators.

  • Wakala Fee: A pre-agreed fee paid to the Takaful operator (the company) for managing the fund.

• The Bottom Line (Surplus/Deficit):

  • The primary goal is to cover claims and operating expenses.

  • If the inflows exceed the outflows, a Surplus is generated. This surplus is returned to the participants, often proportionally to their original contribution. It can never be taken by the shareholders.

  • If the outflows exceed the inflows (a Deficit), the shareholders' fund provides an interest-free loan (Qard Hasan) to cover the shortfall.

2. The Shareholders' Fund (The "Wakala" or Operator's Fund)

This fund represents the conventional business entity (the company itself). Its purpose is to earn profit for the owners (shareholders) by acting as the administrator of the Policyholders' Fund.

Purpose and Operation:

• Ownership: The fund belongs entirely to the shareholders (owners of the company).

• Source of Income (Revenue):

  • Wakala Fee: This is the primary revenue stream. It is the management fee charged to the Policyholders' Fund for services rendered (underwriting, administration, and marketing). This fee is projected as the top-line revenue in your financial model.

  • Investment Income: Returns generated from investing the shareholders' own capital (not the participants' money).

  • Profit Sharing (Mudarabah/Mudharabah): In some Takaful models (though less common in Pakistan's Family Takaful), the operator might share in the investment profit of the Policyholders' Fund.

• Outflows (Expenses):

  • Operating Expenses: Salaries, rent, marketing, administration costs, and commissions.

  • Tax: Corporate tax is paid only on the profit of this fund.

• The Bottom Line (Net Income):

  • The profit after tax is distributed to the shareholders as dividends or retained for growth, just like any conventional company.

  • Crucial Role: This fund also acts as a safety net, providing the interest-free loan (Qard Hasan) to the Policyholders' Fund if a deficit occurs.

3. Income Statement format

Net income=