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Islamic insurance companies allowed investment in properties

KARACHI: Takaful (Islamic) insurance companies, to be established under the proposed Takaful Insurance Rules-2005, will be permitted to invest in properties and mutual funds TFC.

Prior to nationalisation and forced merger into State Life Insurance Corporation, the private life insurance companies were allowed to invest in properties and all major buildings and properties of SLIC are those of nationalised life insurance companies.

Takaful companies will be allowed to invest in immovable properties subject to condition that the use and intended use of the property should be in compliance with Islamic principles. Furthermore, return on rented property may be in form of fixed rent but in case of delayed payments the penalty will be charged and the charged penalty will be given to charity.

According to the draft Takaful Insurance Rules-2005 issued by SECP this week, there will be three types of insurance business to be conducted by the takaful companies, Family Takaful, General Takaful and Modaraba-based Contract, that is a takaful contract based on principles of modaraba.

The rules also provide for Window Takaful, where a life insurance company registered under the Insurance Ordinance carries out the business of family takaful under window operations within its corporate structure and follows the rules applicable to other family takaful operators.

To ensure that the takaful emerges as a truly Islamic mode of mitigating risk, SECP will be establishing its Central Sharia Board which will be responsible to grant licences to new Takaful Insurance Companies.

Moreover, each takaful company will have to constitute its own Sharia Board to check and monitor that both takaful products and investments carried out by the takaful insurance companies are Sharia-compliant.

The profit or dividend paid to shareholders of takaful companies will be determined and computed according to “the distributable surpluses on the basis of the combined results of all classes of business or calculated separately for each class,” the rules said.

The draft rules also allow takaful companies to distribute their profit on quarterly and half-yearly basis as against other life insurance companies that distribute their profit or bonus on yearly basis.

SECP has made it mandatory that the product design must be based on Wakala and Modaraba, certified by the appointed actuary.

SECP has allowed the takaful companies to invest in Sharia-compliant government instruments such as proposed Islamic bonds and securities, with a restriction of up to 80 percent of the fund of the company.

Investments in fixed assets will be made within the following limits.

1. Any asset must not exceed 5 per cent of the statutory fund of a life insurer.

2. Loans secured against immovable property must not exceed 50 per cent for both life and non-life insurer.

3. Any one unit of immovable property must not exceed 50 percent in the case of non-life insurer and just five per cent in case of life insurer.

4. Total investment in property must not exceed 60 percent for non-life insurer and 20 percent for life insurer.

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