OUM BUSINESS SCHOOL

SEMESTER MAY 2021

BMBC 5103

BASIC CONCEPTS OF ISLAMIC FINANCE

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 TABLE OF CONTENT
TITLE PAGE NO.

Question 1 1–2
1. Introduction
1.1 What is Ijtihad?
2. Mujtahid & the Characteristic 2–3

3. Role in Corporate Governance 3–5

4. Ijtihad in Modern Islamic Finance Matters 5–9

5. Conclusion 10

Question 2 11
1. Introduction
2. Tenets of Takaful 11 – 13

3. Ta’awun & Tabarru’ 14 – 17

4. Application of Takaful 18 – 19

5. Conclusion 19

6. References 20

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1. Introduction
Islamic banking started in Malaysia in September 1963 with the establishment of
Perbadanan Wang Simpanan Bakal-Bakal Haji (PWSBH). PWSBH was established as an
institution to finance the Islamic pilgrimage to Mecca. In 1969 PWSBH merged with
Pejbat Urusan Haji to form Lembaga Urusan and Tabung Haji (now known as Lembaga
Tabung Haji). Malaysia's first Islamic bank was established in 1983. In 1993, commercial
banks, commercial banks and financial companies were authorized to provide Islamic
banking products and services under the IBS. However, these institutions are required to
separate the funds of Islamic banks from traditional ones so that the funds do not mix. )
up to 16 banks Other non-banking intermediaries offering Sharia-based products include
co-operatives registered with the Building Construction and Construction Malaysia
(MBSB) and the Co-operative Council of Malaysia (SKM). The Central Bank of
Malaysia (BNM) advises the Central Bank of Malaysia on the legal aspects of the
businesses and products and services of these institutions. In 2006, Bank Negara
Malaysia established the International Center for Islamic Finance Education (INCEIF), a
university dedicated to providing qualified and skilled Islamic finance professionals in
Malaysia. The university was established as part of the Malaysian government's plan to
strengthen Malaysia's position as an international center of Islamic finance. It is the only
university in the world dedicated exclusively to the undergraduate study of Islamic
finance. For this mission I would like to select Bank Islam as the source and carry out my
mission based on Bank Islam Malaysia.

1.1 What is Ijtihad?

Ijtihad is the physical or mental effort for a specific activity, Islamic legal terms
for free thinking or the general effort of a lawyer's mind to find a solution to a
legal problem. Against imitation (imitation, compliance with laws). According to
classical Sunni doctrine, Ijtihad requires mastery of Arabic, theology, explicit
texts and principles of jurisdiction, and orthodox texts (Quran and Hadith) are
considered unambiguous, and if so, they are not used. With consent or with
consent Ijtihad is a religious obligation for those who qualify. The Islamic scholar
who holds the rights of Ijtihad is called Mujtahid.

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2. Mujtahid and the characteristic
A mujtahid is a person ijtihad is entitled to judge Islamic rules. Connect hardworking
women. In general, the Mujtahid must have a thorough knowledge of Arabic, the Qur'an,
the Sunnah and the Law (the principles of law). Because Sunnis and Shiites have
different views of the existence of divine authority, they have different views of the
conditions necessary to reach Ijtihad and Mujtahid. Mujtahid’s main task is to explain
God's law in certain circumstances. Mujtahid’s greatest duty is to proclaim God's will to
individuals and communities. The mujtahid also needs the Qur'an. He must know the
contents of the Qur'an in Mecca and Medina, the reasons for the revelation and the events
of its abolition. To fully understand the proverbs and content of Mujtahid’s poetry, you
need to know the whole tradition, especially when it comes to the Hadith. He must also
be aware of Sunnah's cancellation issues, general and specific, absolute and absolute, and
any reliability or inaccuracy of Hadith's statements. He must be able to confirm the
consent of his comrades, caliphs, imams and musicians in the past and warn against
remarks against such consent. The Quran and Sunnah do not fully define law as described
in the Jurisprudence Guide, so sufficient knowledge of the rules and procedures of
analogy is required, but for some reason general rules and evidence are included. So,
depending on your judgment, mujtahid can rely on canonical etymology to find new
pronunciations.

3. Role in Corporate Governance

Corporate governance determines how a company operates. Describe the company's
values, standards and ethics. I will explain the direction of the development of the
company project. Corporate governance is a management concept and structure that aims
to provide guidance and basic knowledge for the best possible management of an
enterprise. It represents and defines a creative new vision of an economy that can create a
set of core values, improve governance, address human rights, and improve coordination
between trade and communities. It is a matter of balancing social and economic purposes
with personal and collective purposes. It is also a conscious, intentional and sustainable

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 system that logically balances the interests of the individual with the interests of the
various components of the environment in which it operates. This book explains how
boards of directors manage and manage companies to create and improve shareholder
value by creating the right business strategies for building the organization of the future.
Corporate governance ensures the effectiveness of the board of directors and
management in performing their functions to build and earn shareholder trust. Simply
put, corporate governance refers to the responsibility of the company's board of directors
to its stakeholders. In order to protect and promote the interests of all stakeholders,
corporate governance must incorporate certain systems and processes. The system
includes structural and organizational aspects such as board structure, size, optimal
structure and conditions, roles and skills, and how often board members and leaders
change. Simply put, corporate governance is a way of managing and controlling a
business. The most well-known corporate governance concept in Western countries is the
Organization for Economic Cooperation and Development (OECD).

4. Ijtihad in Modern Islamic Finance Matters.

Home financing is a crucial product of Islamic banks and Financing companies. Home
financing supported Musharakah Mutanaquisah is currently practiced by various banks of
Malaysia. Musharakah Mutanaquisah is defined as a sort of partnership during which one
among the partners promises to gradually buy the equity share of the opposite partner
until the title of the equity is totally transferred to him (AAIOFI, 2010). It's found that the
contract is well accepted by all the Shari’ah scholars across borders.
With reference to the difficulty of incorporating Hibah during a Mudharabah contract the
fatwa issuing body made opinion on this issue namely, SAC of BNM. They held that
Hibah in Mudharabah contract isn't permissible thanks to the very fact that this contract is
predicated on share. If Hibah is included in such contract, the entire nature of it'll be
affected. However, AAOIFI and other fatwa are issuing bodies kept silent on this issue.
Sukuk created through the process of securitization are different from conventional
bonds in the sense that Sukuk represents equity instruments and shares in ownership of
underlying assets whereas bond represents debt instrument. Sukuk based on ijarah,

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musharaka, mudarabah, and hybrid forms. The Shari’ah scholars of both Malaysia and
GCC regions appear to agree on the practice of securitization.

Takaful is also based on mutual cooperation, shared responsibility and mutual

protection. A unanimous agreement of fatwa is found to operate takaful based on
cooperation and the rejection of conventional insurance because of its involvement of
Riba (interest), Gharar (uncertainty), Maysir(gambling), ghish wa ghabn (cheating) and
al - jalada (ignorance) in contract.

Taʿwiḍ is one of the measures imposed by Islamic banks on defaulting customers.

AAOIFI agrees if there is a delay in payment, debtors must donate a certain amount of
money to charitable bodies, known as gharāmah (penalty). Islamic scholars whose
consider fine as riba include Dr. Nazih Hammad, Dr. Muhammad Ali El-Gari and others.
Their reason is Penalty due to late payment is riba. Sadiq Ad-Dharir, and majority of the
Shariah Advisory Board of Islamic financial institutions in Malaysia are of the view that
penalty is charged is to stop people from tampering with Islamic financial institutions and
from delaying their payment intentionally.

The modern day financial derivatives, when used for hedging, become similar in
essence to gambling and games of luck, and therefore they have been ruled by
contemporary scholars as unlawful since gambling itself is stated by Sharī‘ah texts as
unlawful. Jurists held it invalid based on qiyas.

Earnest money (Arbun) sale: It is a sale in which a person buys an item and pays a
certain amount of money in advance to the seller on condition that if the transaction is
completed the advance will be adjusted and if the bargain is cancelled the seller will not
return the advance. All prominent Muslim jurists except Imam Ahmed hold that earnest
money sale is invalid.

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Indexation: a group of scholars’ (mawlana Muhammad tasin, gul Muhammad and
others) favors indexation and does not see in it anything contrary to the injunctions of the
shariah. Some scholars (mawlana taqi usmani, Muhammad umar chappra and others)
and Islamic ideology of Pakistan, federal shariat court do not allow indexation as it is
back door of riba.
Contract with coercion: Hanafi’s maintain that contract concluded under coercion is
valid but voidable. Party has right to either to ratify or annual it. Maliki jurists endorse
Hanafi. Shafie and Hanbalis regard act under coercion non-existent as essential condition
i.e. will is vitiated.

Option of stipulation in contract: jurists disagree as regards any period over three days.
Imam Abu Yusuf and hanbalis are of the opinion that it is permitted to lay down a period
of more than three days without any restriction of the maximum period. Imam Abu
Hanafi and Shafi do not allow it for more than three days. Maliki’s says period of option
various from case to case.

Option of defect: the contract with option of defect is revocable. The purchaser of an
object with defect has the choice to confirm the sale or to cancel it. This the majority
opinion.

Option of examination: Shafi are of the view that the contract in which the subject
matter has not been examined is not valid. They reject option of examination. Hanafi’s
differs the other schools and maintain that if buyer has not seen goods in a contract will
be valid and enforceable but is non-binding. Buyer has option to revoke upon
examination.

Contingent contract: it is a contract which is contingent upon happening of an uncertain

event. Ibn Al-Qayyim and Ibn Taymiyyah approved contingent contracts and regard
them valid.

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Currency: Fiqh academy of Makkah in its meeting held in October, 1986 maintained
that paper money has all characteristics of gold and silver. It is subject to all the rules of
the sharia pertaining to riba, zakat, salaam, other contract which are applicable to gold
and silver. Islamic development bank in Jeddah in April, 1987 on indexation also
concluded that paper money assumes the functions of gold and silver money from point
of applicability of the rules of riba and zakat, salaam, mudarabah, and musharakah.
Salam: as per Ibn Al-Mundhir, all the scholars from whom we learnt unanimously
agreed that forward contracts/salaam are permissible and acknowledged people need for
this contract.

Istisna: Islamic fiqh academy during 7th session held in May, 1992 had approved Istisna
to be used as a financial instrument in modern transactions. The accounting and auditing
organization for Islamic financial institutions (AAIOIFI) had published a shariah
standards on istisna and parallel istisna in 2004-05 to govern the practical application of
istisna as a financing mode.

Mushrakah: Ibn Qudamah in his book al-Mughni mentioned that there is consensus
among the Muslims as to the legality of shariah.

Mudarabah: AAOIFI standard allows the fixation of the period for the mudarabah.
Academy fiqh Jeddah in one of its resolutions supports this opinion. AAOIFI standards
allows the capital of mudarabah in cash form and tangible asset in which case the value
of the assets conducted by experts is the contribution to mudarabah capital. AAIOFI
standards define restricted mudarabah as a contract in which the capital provider restricts
the action of the mudarib to a particular location or type of investment as he considers
appropriate but not in a manner that would unduly constraint the mudarib in his
operations.

Wadiah: all Muslim jurists unanimously agree on the permissibility of wadiah since
people need this kind of transaction. The need to deposit one asset with another person is

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 always relevant in society as this constitutes part of wealth management requirements at
individual as well as at institutional levels.

Kafalah: Muslims jurists are also unanimous on the validity of a contract of guarantee
due to its essentiality in commercial dealings as it gives protection to the creditor and
assurance and confidence on the payment of debt by the debtor. As per AAOFI, it is
permissible to fix the duration of a personal guarantee. It is also permissible to set a
ceiling on the amount to be guaranteed and it is permissible that personal guarantee be
restricted by or be contingent upon future event and in this case the guarantor may validly
withdraw the guarantee by notifying the creditor before the prospective obligation to be
guaranteed arises.

Hawalah: The permissibility of the contract of Hawalah is also established by consensus

opinion of Muslim jurists. In his regard, Muslim jurists have permitted transfer of debt
from the debtor to another person who is willing to take the responsibility of paying the
debt to the creditor.

Ijara: it has been unanimously approved by prominent jurists of recognized schools of

Islamic law. They held the view that the need to utilize the usufruct of different good and
service is like the need to utilize the article themselves. When contract of sale of such
goods and services is permitted the leasing of its usufruct shall also be permitted on the
ground of public interest/maslaha.

Wakala: there is unanimity among the Muslim jurists that wakalah is a lawful contract
and has been practiced since the early days of Islam. The principal on which wakalah is
based is the offering of help to others and that is an example of cooperation which is the
highest ideal of Islamic law.

5. Conclusion

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 The management and activities of Islamic financial institutions are based on the
application of classical Islamic trade agreements of the 6th century. These classic
contracts have returned to the modern banking environment to offer paid trading options.
Modern sharia scholars play an important role in this process. He changed the classic
Islamic treaty by applying it to the modern financial system. However, these projections
do not appear to be sufficient to support the growing demand in the sector. In some cases,
the use of traditional contracts has been criticized for not disclosing the principles and
nature of the contract, which raises questions about compliance with Islamic law.
Therefore, this article argues that religious counselors should go beyond the traditional
approach of discussing religious issues in Islamic financial institutions. For example, the
acceptance of new financial instruments is not necessarily limited to the classic Islamic
treaties found in legal documents. New products may be developed in accordance with
the Company principles of transparency, fairness, mutual recognition and humanitarian
purposes.

Question 2
1. Introduction
The Financial Services Act (Act 758) and IFSC 2013 were published in the Official
Gazette of 22 March 2013. The new rules came into effect on July 1, 2013. The new
legislation provides for the consolidation and rationalization of institutional banking
laws. Finance (Standard) 1989. 372) and Insurance Act 1989. 1996 (Law 553), Payment
Systems Act 2003 (Law 627), Monetary Control Act 1953 (Law 17), Islamic Banking
Act 1983 (Law 276), and Takaful 1984 Act (Act 312 (“TA 1984”)) The new IFSA 2013

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 repealed the Islamic Banking Act of 1983 (Act 276) and TA1984. IFSC 2013 includes
banks, operators of Takaful, international Islamic banks, operators of payment systems
that use Islamic payment methods, and financial products. It is also a comprehensive law
for the regulation and supervision of major Islamic financial institutions such as payment
transaction issuers, Islamic payment transactions, Takaful brokers and Islamic advisors. It
also provides regulation and monitoring of payment systems and monitoring of Islamic
money markets and Islamic money markets. Industry insiders generally support the
implementation of IFSC 2013. This is because IFSC 2013 contributes to greater
transparency, governance and accountability.
2. Tenets of Takaful
Solidarity between ancient Arab tribes emerged as a shared responsibility for compelling
members of other tribes to compensate the victims of crimes or their heirs. This principle
was then extended to many aspects of life, including maritime trade, where participants
helped cover all group members who had experienced adverse cruises. In today's
traditional insurance, insurance sellers (insurers) sell insurance products and invest their
profits to generate profits for shareholders who are not necessarily insured. Therefore,
there is a clear separation between insurers and shareholders. Payments to policyholders
depend on their financial performance, but contracts always guarantee a positive
minimum return, and Takaful is commonly referred to as Islamic insurance. This is due to
the apparent similarity between guarantees and insurance contracts, but is based on
Takaful's principle of cooperation, separation of shares and operations, and consequently
Takaful's transfer of ownership. Functions of the Fund (insurance) and the Insured.
Islamic jurists have come to the conclusion that the guarantees of Islam should be based
on the principles of reciprocity and cooperation with elements of shared responsibility,
mutual balance, common interest and solidarity. agents), speculators, i.e. trustees or
commercial agents of the insured. Insurance companies participate in the profit and loss
of the investment structure. This law does not guarantee a positive return on insurance
policies. Fixed income guarantees are like making a profit and abusing usury, and
traditional insurance has long been viewed as inconsistent. Islamic law creates double
uncertainty in trading. In takaful, the policy holders are joint investors with the insurance
vendor (the takaful operator), who acts as a mudarib which means a manager or an

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entrepreneurial agent for the policyholders. The policy holders share in the investment
pool's profits as well as its losses. A positive return on policies is not legally guaranteed,
as any fixed profit guarantee would be akin to receiving interest and offend the
prohibition against riba.
For some time conventional insurance was considered to be incompatible with the
Shari’ah that prohibit excessive uncertainty in dealings and investment in interest-bearing
assets; both are inherent factors in conventional insurance business. 
However, takaful complies with the Shari’ah (which outlines the principles of
compensation and shared responsibilities among the community) and has been approved
by Muslim scholars. There is now general, health and family (life) takaful plans available
for the Muslim communities.
 Gharar: An insurance contract contains gharar because, when a claim is not
made, one party (insurance company) may acquire all the profits (premium)
gained whereas the other party (participant) may not obtain any profit whatsoever.
Ibn Taimiyah, a leading Muslim scholar, further reasoned "Gharar found in the
contract exists because one party acquired profit while the other party did not".
The prohibition on gharar would require all investment gains and losses to
eventually be apportioned in order to avoid excessive uncertainty with respect to a
return on the policyholder's investment.
 Maysir: Islamic scholars have stated that maysir (gambling) and gharar are inter-
related. Where there are elements of gharar, elements of maysir is usually present.
Maysir exists in an insurance contract when; the policy holder contributes a small
amount of premium in the hope to gain a larger sum; the policy holder loses the
money paid for the premium when the event that has been insured for does not
occur; the company will be in deficit if the claims are higher than the amount
contributed by the policy holders. 
 Riba: Conventional endowment insurance policies promising a contractually-
guaranteed payment, hence offends the riba prohibition. The element of riba also
exists in the profit of investments used for the payment of policyholders’ claims
by the conventional insurance companies. This is because most of the insurance

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 funds are invested by them in financial instruments such as bonds and stacks
which may contain elements of Riba.
 Gambling and insurance are two distinct and different operations. Gambling is
speculative in its risk assessment whereas insurance is a pure risk and is non-
speculative. In gambling, one may win or lose by creating that risk. In insurance,
the risk is already there and one is trying to minimize the financial effects of that
risk. Insurance shifts the impact of that risk to someone else and relieves the
person of risk. The risk nevertheless still remains.
While gambling promotes dissension, ruin and hatred, insurance based on cooperative
principles, enables the insured to lessen the financial impact without which it could drive
the individual and his dependents to poverty, thereby weakening their place in the
society. There is nothing in Islam that prevents individuals from making a provision for
their dependents. Seen collectively for large groups of insured population, insurance
strengthens the financial base of the society.

3. Ta’awun & Tabarru’

Takaful is a mutual guarantee or joint guarantee. Islamic insurance system based on the
principle of cooperation and donation. One of Takaful's main goals is to compensate for
some damage from a special fund. In Islam, insurance is permitted under risk-sharing
agreements. We recommend risk classification to help each other as long as we avoid
elements that contradict Islamic principles such as the Quran. Islamic teachings must be
based on taboos and principles of cooperation in order to be accepted with certainty.
Cooperation, or literally mutual aid, underlies many Islamic, social and economic
practices, including Takaful. This principle allows participants to share risks and commit
to helping each other in the Takaful group. In other words, according to this principle,
each group of participants receives a certain amount and compensation, and compensates
for the damage caused by it. The salaries of system participants are paid in a lump sum.
Help each other with dedication and devotion. Do not help each other with sin and
aggression, but do your duty to God. This is not a contract in which one party offers and
sells securities and the other party accepts and buys the offer. A sequence in which a

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group of participants pays a certain amount and the system participants are rewarded at
once.

3.1 THE ELEMENT ATTACHED TO THE CONCEPT OF TA’AWUN IN THE

WORLD OF TAKAFUL CAN BE DIVIDED INTO THREE QURANIC
PRINCIPLE

MUTUAL PROTECTION
MUTUAL COORPERATION
MUTUAL RESPONSIBILITY

MUTUAL RESPONSIBILITY
The feeling of responsibility towards one another among the Muslim is the foundation of
Islamic solidarity of Islamic community, which makes the unfortunate and the needy feel
secured by being sheltered by the rich and the sick feel not much hurt because they know
the healthy will provide. Takaful is based on the agreement among the group of person
share responsibility of loss or damage that may inflict them.
THE PRINCIPLE OF MUTUAL RESPONSIBILITY WAS ESTABLISHED IN A
SEVERAL HADITH, WHICH STATED AS FOLLOWS.

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- “Each one of you has a responsibility and each one of you is responsible towards
those under your responsibility.” (Mutafaq ‘alaihi). •
- “One is not judged as righteous until he cares for his brother as much as he cares for
himself." (Bukhari). • "
- The relationship between one believer and another (in a community) is like that of a
building where one part of the building strengthens the other parts." (Mutafaq 'alaihi).
MUTUAL COOPERATION
- Oxford Advanced Learner’s Dictionary defined cooperation as:
“The fact of doing something together towards a shared aim.”
- Cooperation- One of the objective of Takaful which mean also as mutual help among
the members of the defined group. This has been stated in Sunnah and Hadith.
- By practice, mutual cooperation based on the perspective of takaful is members of a
takaful company join in contributing as certain sum of money at their subscriptions to
common tool or saving; losses are divided and liabilities spread.
SOME OF THE QURANIC INJUNCTION AND HADITH STATING THE
PRINCIPLE ARE AS FOLLOWING.
"Help one another in furthering virtue and God- consciousness (taqwa), and do not
help one another in furthering evil and enmity" (Quran 5:2).” 
A Muslim is the brother of a fellow Muslim. He should neither commit oppression upon
him nor ruin him; and he who meets the needs of a brother. God will meet his needs and
he who relieves his brother from hardship Allah will relieve him from the hardness to
which he could be put on the day of judgement (Muslim).

MUTUAL PROTECTION
 It is a nature for a human being requires protection in order to be able to live in a macro-
society level. The principle hereby was intended to provide this necessity of protection.

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 In takaful, this underlying principle of Ta’awun means that to provide mutual financial
and other forms of aid to members (of the group) in case of specific need, whereby
members mutually agree to contribute monies to support his common goal. These
principles are well stipulated by both in the Holy Qur’an and Hadith of the Prophet
Muhammad (PBUH) say “(He) who has fed them against hunger and made them safe
from fear.” (Quraish:4). 
The Prophet (s) said, “Indeed a believer is one who can give security and protection to
the life and property of mankind.” (Ibne Mazah) The Prophet also said, “A person is not
believer if he believer if he sleeps comfortably on a full stomach while his neighbor
suffers from hunger.”
CONCEPTS AND GOALS

- Takaful has the same goal with conventional insurance which provides services to the
policyholders or participants. 
- Operators using the concept of cooperation permitted by Islamic law of contract
based tabarru’ and ta'awun. 
- This concept is independent of any elements that are contrary to the laws of Islam,
such as gharar, gaming, and other elements. 
- Takaful fund formed from the contributions of the participants (policyholders) based
on tabarru’ contract and it will be used to save each participant’s takaful of accident
or calamity.
- Any surplus remaining after the payment of compensation, expenses, and deductions
for reserves will be returned to the participants according to their contribution rates.
- Contract of tabarru’ supported by the fact that the takaful company does not have any
absolute installments contributed by participants. 
- If there have an excess of the fund is returned to them, or collected for charity.

4. Application of Takaful
In principle, Takaful system is based on mutual co-operation, responsibility, assurance,
protection and assistance between groups of participants. In other words, it is the
provision of shared contributions to help those who are in need. These fundamentals are

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based on the Holy Quran and the sayings of Prophet Muhammad S.A.W. Some of the
examples are: -
- Basis of Cooperation
Allah said, “Help Ye one another in righteousness and piety but help ye not
one another in sin and rancor...” (Al Maidah: 2).
Allah will always help His servant for as long as he helps others. (Narrated
by Imam Ahmad and Imam Abu Daud).
- Basis of Responsibility
The place of relationships and feelings of people with faith, between each
other, is just like the body; when one of its parts is afflicted with pain, then the
rest of the body will be affected. (Narrated by Imam Al-Bukhari and Imam
Muslim).
One true Muslim (Mu’min) and another true Muslim (Mu’min) is just like a
building whereby every part in it strengthens the other part. (Narrated by
Imam Al-Bukhari and Imam Muslim).
- Basis of Mutual Protection
By my life, which is in Allah’s power, nobody will enter Paradise if he does
not protect his neighbor who is in distress. (Narrated by Imam Ahmad)
Based on the above basis, Islamic scholars had decided that there should be
concerted effort to implement the Takaful concept as the best way to resolve
these needs.
- Understanding the Takaful Contract
Although the concept of insurance is permissible under Shariah Law, certain
practices in conventional insurance breach Shariah Law. The current Takaful
practice uses a combination of two types of main ‘Aqad (contracts).; These
are the contract of Tabarru’ (Donation) and contract of Wakalah (Agency)
which are free from the elements of (Riba) usury, wager or Maisir (gambling)
and Gharar (Uncertainty). The Takaful system stresses the spirit of co-
operation and joint responsibility among participants.

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5. Conclusion
Takaful is a distant from commercial or capitalist form of insurance. It is purely
organized along the notion of solidarity, co-operation and mutual assistance which would
results in the consideration of the participants in both the insured and the insurer to the
schemes. Participants in both insuring bodies are based upon the principle of “bear ye one
another’s burden” which lead to the basic principle of Islamic insurance, helping to ease
each other or other person burden. Through the spirit of cooperation and joint-
responsibilities among participant, the act of charity and benevolence allows participants
the opportunity to obtain two forms of benefit. First the monetary benefits through the
Takaful plan itself. Secondly the “benefits” in the spiritual sense, through the act of
Tabarru’ (donation), participants will receive God’s grace and blessings in life Hereafter.
The Takaful system does not differentiate color or creed; it is meant to benefit all
participants, irrespective of their religious beliefs.

6. References
- Fasa, Muhammad & Suharto, Suharto. (2018). Sharea Issues in the

Application of Takaful: Review on Islamic Law Perspective. HUNAFA: Jurnal

Studia Islamika. 14. 347-376. 10.24239/jsi. v14i2.478.347-376.

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- Saeed, Maryam. (2019). IJTIHAD IN ISLAMIC FINANCE as per article titled

Critical Review of the Tools of Ijtihād Used in Islamic Finance by.

- Fariha, Fatima & Pakeeza, Shahzadi. (2016). Ijtihad as a Legislative

Function: Role of Ijtihad, Ifta and Taqleed in Legislative Process. Journal of

Islamic and Religious Studies. 1. 33-45. 10.12816/0032208.

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