The participants' fund pools the contributions paid as tabarru' and is used to pay claims; kept apart from the operator's own capital, it is divided under IFSB-14 into a risk fund, the PRF, and, for family savings, an investment fund, the PIF.
A common pot that does not belong to the insurer
In the IFSB definition, participants pool their exposure to uncertain events in order to help one another. The resulting fund belongs to them collectively; the operator merely manages it, in return for a wakala fee or a share of profit.
The PRF, the risk-pooling reservoir
The Participants' Risk Fund pools underwriting risk: each contribution enters it as a donation, and claims are paid out of it. The surplus calculation, any deficits and the contributions paid to retakaful are all measured at the level of this fund.
The PIF, the savings compartment
The Participants' Investment Fund exists only in family takaful products with a savings element. Participants themselves bear the investment risk there, which clearly sets it apart from the PRF, whose sole purpose is to pool claims.
Separation from the shareholders' fund
Shareholders' capital sits in a distinct compartment that finances the operator and can lend to the PRF. In South Africa, the takaful policy from Safire Insurance and Genoa Underwriting Managers pays contributions into a separate sharia-compliant bank account for exactly this reason.
Each fund keeps its own results
Bank Negara Malaysia's draft operating framework of 18 May 2018 requires surpluses and deficits to remain attached to each takaful fund, with no cross-subsidies. Participants in one product therefore never end up financing the losses of another product.
Where PRF assets are invested
The fund invests only in compliant instruments such as real estate, Islamic banks, screened equities and sukuk, according to State Life. Businesses linked to alcohol, tobacco, pornography or arms are excluded, as described in the takaful investment policy.
Surplus belongs to participants
When contributions exceed claims and expenses, the excess can be returned to participants, used to lower future contributions or granted as renewal discounts. In Malaysia, the operator may take no more than 50% of it for itself.
What happens when the PRF runs short
In a deficit, the operator advances the PRF an interest-free loan repayable from future surpluses, a mechanism explained on the page the qard hasan loan to the fund. Participants with claims are thus still compensated despite a poor year.
Reinsurance at fund level
For large risks, the fund contributes to a retakaful pool; IFSB-18 of April 2016 describes this sharing between operators, without a pure transfer of risk. FAS 43 addresses retakaful held by the participants' fund, covered further in Islamic reinsurance.
Tabarru' revisions and consent
The Malaysian framework provides that any change to the tabarru' rate affecting the fund requires participants' consent. This rule is a reminder that the fund is not simply a reserve of the insurer but a common pot whose members set the rules.
Accounting and transparency
Since 1 January 2025, AAOIFI's FAS 43 has governed the recognition and measurement of takaful, using the contribution allocation approach. FAS 42 covers presentation and disclosures, which help participants judge how healthy their fund really is.
A sizeable global market
According to Atlas Magazine, global takaful contributions reached around USD 30 billion in 2022, and Iran then held USD 39 billion in takaful assets. The IFSB reports growth of 16.9% in Islamic insurance assets during 2024.
Reading the position of a participants' fund
- Check that the operator is licensed and publishes accounts separating the shareholders' fund from the participants' fund.
- Find out whether your contract sits only in the PRF or combines the PRF and PIF for a savings element.
- Review the PRF results over several years: surpluses distributed, deficits and any outstanding qard.
- Ask for the fund's investment policy and the sector exclusions approved by the sharia board.
- Identify the portion of your contribution allocated to tabarru' and the portion taken by the operator.
- Check the written rules on revising the tabarru' rate and on distributing surplus.
Money flowing in and out of the participants' fund
| Flow | Direction | What makes it vary |
|---|---|---|
| Tabarru' contributions | Into the PRF | Cover, risk profile, rate revised with consent |
| Wakala fee | Out to the operator | Contractual rate |
| Claim payments | Out to participants with claims | Frequency and cost of claims |
| Retakaful contribution | Out to the retakaful pool | Exposure to major risks |
| Investment returns | In, less the manager's share | Compliant markets, mudaraba ratio |
| Surplus or qard | Distribution or interest-free loan | Result for the year, 50% cap in Malaysia |
Useful documents for tracking your fund
- Membership certificate stating which fund you belong to
- Policy terms describing the PRF and PIF
- Annual statement of your PIF savings account value
- The operator's separate financial statements
- Annual report of the sharia board
- Surplus distribution notice
Frequent confusion about the participants' fund
- Mixing up the PRF, which pools claims, with the PIF, where each participant bears the risk of their own investments.
- Believing the fund belongs to the operator, which is only its manager and cannot draw on it beyond the written rules.
- Assuming a fund in surplus automatically covers another product range's deficit, which Malaysia's central bank prohibits.
- Choosing a takaful window without checking that contributions are truly ring-fenced from the insurer's conventional accounts.
- Ignoring an outstanding qard in the fund's accounts, which will delay any return of surplus to participants for several years.
Questions about the participants' fund
Can I get back the contribution I paid into the PRF?
No, a PRF contribution is a tabarru' donation intended for mutual help. You may, however, receive a share of the surplus at the end of the financial year. Money placed in the PIF, by contrast, is your savings and comes back to you under the contract.
Can the participants' fund go bankrupt?
A PRF can fall into deficit. IFSB-14 then provides for an interest-free qard from shareholders, repayable from future surpluses, and regulators impose solvency requirements. The investment risk in the PIF, though, remains with participants.
Who decides how the fund is invested?
The operator, acting as manager, within a policy approved by the sharia board. Assets must be compliant, for example sukuk, screened equities, real estate and Islamic bank deposits, with prohibited sectors excluded.
Does the fund also exist in general takaful?
Yes, the PRF exists in both general and family takaful, since it carries the underwriting risk. The PIF, on the other hand, is specific to family products with savings, such as certain Islamic life insurance plans.