Takaful is essentially insurance which is compliant with the Shariah laws. The premium paid by the policyholders into a Takaful fund, which is wholly owned by the policyholders and not by the Takaful operator. The Takaful operator manages the Takaful fund on behalf of the policyholders and is responsible for the underwriting, administration, claims handling and investments aspects.

The Takaful concept is based upon the idea of the policyholders mutually owning the Takaful fund. This requires clear segregation between the shareholders fund and the Takaful fund. The Takaful operator issues policies on behalf of the Takaful fund and, if there is a claim, it is paid out from the Takaful fund.

What is the operational difference between the Wakala and the Mudarabah model? Which model does the Takaful operator typically prefer?