 In this module, we shall continue our conversation on insurance and Takaful. In particular, we shall be looking at Mudaraba-based Takaful model in this module. We have already looked at Wakala-based Takaful model in the previous module and the focus here would be on the Mudaraba-based Takaful model which was actually developed even before the Wakala-based Takaful model. The primary reason for the emergence of Wakala-based Takaful model was some criticism which Mudaraba-based Takaful model received. Hence, it was replaced with a Wakala-based Takaful model in many cases. In some cases, the Takaful operators continued with the Mudaraba-based Takaful model with some modifications. This is going to be explained in this module anyway. Now, what are the problems with the Mudaraba model? We will go into details in a bit. But before that, just a generic model of Mudaraba-based Takaful model is presented. You will see that this figure, this diagram, is not different from the Wakala-based Takaful model except that here we are saying that the management would be based on Mudaraba. In case of Wakala, we say Mudaraba management of the risk fund and investment fund is on the basis of Wakala. So, someone may say that all other things remain unchanged. So, it's only the difference of changing Wakala with Mudaraba. No, there are actually quite a number of differences in detail. Now, the basic criticism of Mudaraba-based model was with reference to the payment of a fixed fee to the Takaful operator. Remember, we said the Takaful operator receives a fixed fee for the management of risk fund and the investment fund and it may receive a performance-based bonus as well. In case of Mudaraba, this is not permissible. As by now, you must have memorized the definition of Mudaraba by heart. Mudaraba is a profit-sharing arrangement. There is no fixed fee. So, when Takaful operator was receiving a fixed fee in addition to a profit share in the investment fund or even in some cases in the risk fund as well, that was deemed as sharia repugnant, i.e., not in compliance with sharia requirement. So, that was the first criticism of the Mudaraba-based Takaful model. Another thing which we mentioned towards the end of the last module was this liquidity facility. In certain circumstances, when there are not enough funds in the risk fund in such a way that the amount of claims is greater than the amount of money in the risk fund, the Takaful operator may offer a liquidity facility, i.e., an interest-free loan to the Takaful fund. In case of Mudaraba, this is actually not permissible. So, these two elements, they were crucial in terms of criticism on Mudaraba, which ended up replacement of Mudaraba with Wakala. A solution, however, was devised by way of allowing the Takaful operator to receive fixed amounts of money from the Takaful fund, what may be deemed as an account, as on account. So, for a certain time period, it was allowed for the Mudaraba-based Takaful operations to continue and in some cases they still continue with these modifications. So, there is an allowance in case of Mudaraba. Of course, profit distribution would take place at the end of the Mudaraba, or at least on an annual basis. In case of Takaful operations, the Takaful operator would like to have the fee on an ongoing basis. This is permissible to do so even in case of Mudaraba if the amount drawn by the manager is considered as on account. On account means that when your share will be made, you will first take some money. So that towards the end, when your profit distribution is determined, you will get your profit share minus the amounts you have already received on account. So, this was a compromise which was suggested as a kind of replacement for the existing practices of the Mudaraba-based Takaful model. Now, this was not ideal. However, this was just a compromise solution in the short run. Similarly, for the liquidity management, it was proposed to keep the surplus money in the risk fund and into an excess fund. So, whenever there was excess amount available in the risk fund, in the Wakala-based model, we said that that part of this excess money would go into investment fund and part would be taken by the Takaful operator. So, in this case it was decided in case of Mudaraba that that excess money would not go into the investment fund rather it would stay there in a sub-account in the risk fund which will be called excess fund. If the size of the excess fund was big enough, the Takaful operator was allowed to draw down fixed amounts or certain percentage of the amount in the excess fund as its on-account fee. So, this was another modification in Mudaraba model. So, the Mudaraba model, if this is being practiced anywhere in the world, this is being practiced with these modifications. I.e., the Takaful operator receives a fixed fee but not as its entitlement but rather on-account so that at the end of the year, whenever profit is determined, whatever is the profit share of the Takaful operator that is received minus the fixed amounts it has already received during the year. Similarly, if the excess fund as defined here by myself, if this is big enough then ideally the Takaful operator should have that on-account amount from that excess fund rather than from the participants' contribution. These are the major limitations of Mudaraba-based model because of that many Takaful operators prefer not to use it anymore rather Wakala and some other models are being used in the Takaful industry.