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participants. The contributions by each participant to the Takaful fund takes the form of
tabarru’. The entire profit from the Shari'ah-compliant investment, as well as any underwriting
surplus, belong to the participants only. In modern times, this model was first implemented in
Sudan in 1979. Later, this model was adopted by Bank al-Jazeera in Saudi Arabia, but it is
believed not be commercially viable even though it fulfils the original objective of Islamic
economics; hence, it is not a popular model in the Takaful industry.
3.2.2. Wakalah (Principal-Agent) Model
The term wakalah in Arabic means ‘agency’. The model adopts the agency contract where the
principal appoints an agent to perform a specific task, which contractually involves an
appropriate consideration in the form of agency fees. Kassim (2005) tried to simplify this model
as ‘one person representing the other as the latter’s agent’. In the wakalah model, the TO serves
as an agent of the participants, collectively. This model is widely used in the Takaful market and
it has been used since 1979 in the Middle East but adopted inMalaysia by Takaful Ikhlas in 2003.
There are two unique wakalah models in the market: that is, the pure wakalah and the modified
wakalah. The structure for both models is quite similar except for the part that involves the
distribution of the underwriting surplus. The structure of the pure wakalah model is shown in
1. A contribution is paid by the Takaful participant as tabarru' to the Takaful fund;
2. Takaful participant appoints and employs the TO as agent or wakil;
3. The agent will deduct the wakalah fee from the contribution (this fee will be an
upfront charge and go to the shareholders and agent, in addition to the fee for
administering the fund);
4. The amount of contribution after deducting the wakalah fees will go to the Takaful
fund;
5. Takaful fund will be invested by the agent in Shari'ah-compliant instruments;
6. The profit from the investment will be added to the Takaful fund. Then the claims,
reserves and Re-Takaful will be subtracted;
7. The whole surplus in this model must be distributed back to the participants.; and
8. In case of underwriting deficit, the TO commits to provide the fund qard hasan
(interest-free benevolent loan) to cover the shortage. Moreover, when the Takaful
fund achieves surplus later, the loan the TO earlier provided to the fund will be fully
redeemed.
This Pure Wakalah model is adopted on a commercial basis, whereby the TO charges a certain
wakalah fee for managing the Takaful fund: claims, investment, underwriting surplus, Re-
Takaful, and other related expenditure. The wakalah fee includes both agency fee and
administration charges.