Islamic Finance

136 Islamic Finance in Practice

shareholders fund is donated to create the waqffund. In all other respects,

thewaqfmodel works in the sameway as the hybrid model.

Figure 3.Wakala-waqfmodel

Thewaqffund works to achievethe following objectives:

• To extend financial assistanceto its members in the event of losses;


• To extend benefits to its members strictly in accordance with thewaqf
  “trust” deed; and


• To donate to charities approved by the Shari’a Supervisory Board.

As per the hybrid model, the shareholders fund isremunerated through

thewakalaandmudarabafees, and aqard al-hasanis payable in cases

where thewaqffund is in deficit, which is unlikely to happen given the

initial donation paid bythe shareholders fund.

Thewaqfmodel is only used in Pakistan and South Africa.

Practical considerations

Incentives for shareholders

Thetakafulstructuresdescribedabovearetheoreticalstructures.Inpractice,

there are often variations to these models to incentivize the shareholders of

the company to generate increased surpluses for policyholders. For example,

shareholders can often be paid “incentivization fees,” which can take the

form of:

• bonus pre-agreed shares of any surplus generated, if the surplus is greater
  than a certain proportion of the policyholders fund; or