Transcript The Takaful Concept

Takaful
Prepared by:
Dr. Asmadi Mohamed Naim
FWB
Content
• Introduction
• The opinion of Islamic scholar about insurance
concepts
• The development of takaful
• Theoretical and conceptual aspects of takaful
• The defferences between takaful and insurance
• Conclusion
Why is traditional insurance
unacceptable?
• The Council of Islamic Fiqh Scholars
(1975) ruled that traditional insurance is
‘haram’ due to the presence of three main
elements.
- Gharar (uncertainty)
- Maisir (gambling)
- Riba’ (interest or usury)
Existence of Al-Gharar in Insurance
• Gharar may originate from:
- Ignorance and lack of information over nature and
attributes of subject matters
- Doubt over its availability and existence
- Doubt over its quantity
- Lack of information concerning the price and
terms of payment (including currency to be paid)
- Prospect of delivery (including vendors ability to
make delivery according to contract)
Existence of Al-Maisir in Insurance
• In Al-Quran
• “O Believers! Intoxicants and gambling
and divining arrows are an abomination of
Satan’s handiwork. Leave it side in order
that you may prosper.”(Al-Maidah
5:90)
If left unchecked, gambling closely resembles to
‘risk-taking’ in an insurance contract whereby,
• Insurer could receive a huge amount of money,
without equivalent input.
• Paying premium without getting any amount in
return.
• Insurer loses if there are too many claimants.
• When premiums collected exceeds the claims,
insurers could make huge profits.
• Insurer calculates the possibilities of a certain
event occurring and will indicate a certain.
Existence of Al-Riba in
Insurance
• The premium of the insurance fund is
placed in interested-bearing
instruments such as bonds and
treasury bulb, which are not
permissible in Islam.
In Al-Quran
• “O you who believe, devour not usury,
doubling and quadrupling, the sum lent.
Fear allah and observe your duty to Him,
that you may really prosper.”
Basis For Islamic Insurance
• Islamic insurance embraces the concepts of
mutual protection and shared responsibility as
seen in the practice of blood money or diyah
under the Arab tribal custom, and which were
accepted into Islamic practice on the verdict of
the Prophet.
• The system, therefore, evolves a programmed by
a group of people co-operating amount
themselves to establish common resources for
solidarity and mutuality.
The Takaful Concept
• Al-Takaful (social guarantee) refers to the act of a
group of people reciprocally guaranteeing one
another by providing mutual financial assistance
should anyone amongst them be inflicted with a
pre-defined mishap. Participants shall contribute
an agreed sum regularly into a Tabarru’
(donation) fund.
• The Takaful operator (insurance company) agrees
to manage the Tabarru’ fund based on a set of
guidelines and on the Al-Mudharabah (profit
sharing) concept. Participants are the “sahibulmal” (capital providers) while the Takaful
operators is the Mudharib (entrepreneur).
The Development of Takaful
The development of takaful in the Asia-Pacific
region have thus far evolved a three phase cycle
namely,
• the evolutionary phase,
• the nurturing phase and
• the consolidation phase.
The evolutionary phase
• In most of these countries the evolutionary phase
went back to the 60s and 70s which saw a surge of
Islamic fervour and calls for the establishment of the
Islamic Financial System.
• Scholars and Muslim jurists discussed, debated and
put forth the idea of introducing a financial system
which is interest-free, uncertainty-free or in other
words acceptable and in accordance to Syariah.
The nurturing phase
• Then came the second or the nurturing phase
which took place during the 80s in the case of
Malaysia and the 90s in the case of
Indonesia, Brunei and Singapore.
• As in the case of Malaysia, it was during this
phase that some of the fundamental
infrastructure namely, the Islamic Banking Act
of 1983 and Takaful Act of 1984 were laid.
Subsequently then came the first prototype
model of Bank Islam in 1983 and Syarikat
Takaful Malaysia in 1984.
• Their existence remained unperturbed for many
years perhaps due to the fact that the government of
Malaysia wants to ensure that the Islamic System
rudiments were given a fairly even chance to grow
and be on a sound footing. In the case of Brunei the
nurturing phase came only in the 90s with the
formation of Takaful Taib Sdn Berhad and Takaful IBB
Berhad, both in 1993. Indonesia followed suit with the
establishment of PT Asuransi Takaful Keluarga in
1994 and PT Asuransi Takaful Umum in 1995. In the
same year, Singapore also launched Syarikat Takaful
Singapore Pte. Ltd.
The consolidation phase
• As far as Malaysia is concerned, the 90s witnessed
another stage in the development of financial institutions.
• In this so-called consolidation phase say the emergence
of competitive elements within both the banking and
insurance sector.
• Conventional banks were allowed to introduce "interestfree" banking facilities and the regulatory body (Central
Bank in Malaysia) also issued the second takaful licence
to MNI Takaful Sdn Berhad (MNIT).
• The presence of these new players had somewhat
introduced competitive forces in the respective marketing
environment which in turn had influenced both marketers
and customers decision and activities. The competition
spurred more rigorous marketing activities in the form of
more varied products, more promotions and better prices.
• As far as Malaysia is concerned, the 90s witnessed
another stage in the development of financial
institutions.
• In this so-called consolidation phase say the
emergence of competitive elements within both the
banking and insurance sector. Conventional banks
were allowed to introduce "interest-free" banking
facilities and the regulatory body (Central Bank in
Malaysia) also issued the second takaful licence to
MNI Takaful Sdn Berhad (MNIT).
• The presence of these new players had somewhat
introduced competitive forces in the respective
marketing environment which in turn had influenced
both marketers and customers decision and
activities. The competition spurred more rigorous
marketing activities in the form of more varied
products, more promotions and better prices.
Theoretical and conceptual aspects of Takaful
• Islamic jurists resolved that the system of
insurance, which falls within the confines of
Islamic framework, should be founded on the
concept of al-Takaful.
• An Islamic insurance transacting is a policy of
mutual co-operation, solidarity and brotherhood
against unpredicted risk or catastrophes, in
which the parties involved are expected to
contribute genuinely.
• The nature of the principles of Takaful is
fundamentally different from the principles of
conventional insurance.
Conceptual Framework of Takaful
The concept of insurance (Takaful), according to •
the jurists, is acceptable in Islam for the following
reasons:
• the policyholders would co-operate (ta’awun)
among themselves for their common good;
• every policyholder would pay his subscription in
order to assist those of them who need
assistance;
• it falls under the donation contract (al-tabarru’)
which is intended to divide losses and spread
liability according to the community pooling
system;
• the element of uncertainty is eliminated
insofar as subscription and compensation are
concerned;
• it does not aim at deriving advantage at the
cost of other individuals.
• Under Islamic law, generally, any transaction
that has the following elements: unjustified
enrichment, uncertainty, risks, riba would
vitiate a contract.
• Clearly, the contract of insurance under
Islamic law would not be valid unless it were
free from these elements.
• Thus in consonance with the above
characteristics the jurists resolved that
the system of insurance which falls within
the confines of Islamic framework should
be founded on the concept of al-Takaful.
• An Islamic insurance transaction is a
policy of mutual co-operation, solidarity
and brotherhood against unpredicted risk
or catastrophes, in which the parties
involved are expected to contribute
genuinely.
Analysis on Principles of Takaful
Some of the points “lacking” in both the principles and practices of
Takaful.
i. An insurance policy is a financial transaction which binds both
the operator and participant based on the general principles of
al-‘Aqad (contract). The minimum age of the contracting
parties in a contract under Islamic law has been set by the
Islamic jurists and they have unanimously agreed that the
minimum age of the contracting parties should be the age of
rushd (puberty or majority). However, there are diversifications
of views amongst Islamic jurists in setting the exact year of the
age of rushd.
• Comment: The diversifications of view in this matter is not the
lacking point in Takaful concept but it proved that some rules
in Islamic law was under the influenced of the custom of
ummah in certain area. Hence, it is our responsibility to
choose and to decide a suitable age of our people who reach
the age of rusyd.
ii. Al-Tabarru’ (donation or charity). In practice, the Takaful operator and
participant in the general Takaful, mutually agree that in
consideration of the paid contributions, the Takaful operator would
undertake the responsibility of providing a pecuniary coverage for
the participant should the risk over run the subject matter within the
policy period.
• According to Islamic principles of al-Tabarru’, which has a
synonymous idea to and similar legal consequences with alSadaqah (charity), al-Hiba (gift), and al-Khairat (donation), wherein
anything once given away as donation in favour of something or
someone, the donated property cannot generally be retracted. The
donor automatically loses title over the donated property soon after
it is made as al-Tabarru’ or al-Sadaqah or al-Hiba or al-Khairat.
• The comment here, relying on the aforementioned analysis, is that, if
the paid contributions in the general Takaful are regarded as alTabarru’, according to Islamic law the contributions cannot be
reclaimed as it has been given away as Tabarru’.
• In practice, however the participant continues to hold a right
of claim in consideration of the paid contribution against the
risk on the subject matters. Therefore, it is not clearly
understood what provision can justify paid contributions
being regarded as al-Tabarru’ in a general Takaful.
• Possible Suggestions: It is therefore suggested here that the
paid contribution in the general Takaful may be regarded as
al-Musahamah (contribution) instead of al-Tabarru’ (donation).
• This is because if the paid contribution in the general Takaful
is regarded as al-Musahamah (contribution) the participant
has no restriction in Islamic law to make a claim against the
risk on the subject matter of the policy.
• It is again strongly believed that there is no provision in the
Shari’ah which may prohibit the contributor from making a
claim or seeking for a benefit over his own contributed fund.
The establishment of such a contributed fund can also be
justified by the Qur’anic sanction of mutual co-operation:
Comment:
• i. There is no contract in Islamic Law named Musahamah contract.
Musahamah in this sense, bring the same meaning as tabarru’.
• ii. The concept of Takaful is a new contract which is govern under the maxim
of Islamic law which stated: The basis of contracts is permissible except those
who declared by syara’ as prohibited (haram).
• iii. It is allowed in Islamic law to consider general takaful as a fee-based
limited society, or as a limited mutual co-operation among specific group by
giving certain amount of money in order to help each other to face unpredicted
risks.
• iv. General Takaful contract can be considered as mudarabah plus tabarru’
contract between operator and participants. Participants agreed to invest their
capital , then donate their capital and profit to whosoever among the
participant faces the insurable interest. This is why, this contract called
tabarru’ contract.
• In some cases, the operator will return the balance of the capital and profit if
exceeded the expenses and claims, or the balance will be brought forward to
the next consecutive year .
The difference between the principles of
Takaful and conventional insurance.
• First of all, the operations of Takaful must be in line with the
Shari’ah principles. A Takaful operation may be held void if any
aspects of its operation is proven to be contrary to the Shari’ah
principles.
• The operation of Takaful is generally based on the governing
principles of al-Mudharaba, profits and loss sharing financing
technique, which is an alternative to the interest (riba), based
financing technique as adopted by the conventional insurance
practices.
• The operation of Takaful practices is generally supervised by an
independent body called the Shari’ah Supervisory Council. It is the
duty of the council to advise the Takaful operator(s) in any given
organization on their operations for the purpose of ensuring that no
aspect of the company(s) operations involves any element which is
not approved by the Shari’ah principles. In other words, the
establishment of a Shari’ah Supervisory Council for every individual
Takaful operator is a prerequisite prior to the commencement of the
Takaful operation.
Conclusion:
• Takaful contract is strongly Islamic, but the operators have to
make sure that the investment of the investors money is doing
accordingly to the principles of shari’ah.
• Despite the progress made in this area, there is room for
development both in principles and practices of Takaful
operations, which may act as an alternative in the true sense to
the insurance practices offered under the banner of conventional
systems.
• Simultaneously, such a comprehensive operation of Takaful may
meet the expectations of the global Muslim Ummah of this
century and the centuries ahead.