Takaful

Qard from the takaful operator

An interest-free loan from the operator's shareholders' fund to cover a deficit in the participants' risk fund, repaid from future surpluses.

When a participants' risk fund cannot meet its obligations, the takaful operator may lend it money without remuneration, a qard, out of the shareholders' fund or from a third party. The IFSB's solvency standard describes the qard as a temporary financing facility repaid out of future surpluses, and its conduct standard adds that each fund in an operator with several funds must be managed separately in relation to deficit support. Where a deficit results from the operator's negligence or misconduct, the operator must compensate the fund instead of lending to it.

Sources

IFSB-28 Revised Solvency Requirements for Takaful/Retakaful Undertakings, 2022: specificities of takaful, deficit support by qard

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

Participants' risk fundThe pool of donated contributions from which takaful claims are paid, owned collectively by participants and managed by the operator.Shareholders' fund (takaful)The takaful operator's own fund: its capital, fees and expenses, kept apart from the participants' funds.Takaful operatorThe entity that manages a takaful business on behalf of participants, usually for a fee, a profit share or both.QardA loan of money to be repaid in an equivalent amount; any benefit stipulated for the lender is riba.Underwriting surplusWhat remains in the participants' risk fund after claims, expenses and reserves, plus attributed investment returns.