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Objectives • • • • • Definition and basic principle of takaful Concept of Takaful Contract Element of Tabarru’ Practices of Takaful in Malaysia Differences between takaful and conventional insurance contracts and operations
1. Basic Principles of Takaful
1.1 Mutual Assistance The principle of mutual assistance, cooperation or helping one another is always encouraged by Islam. Islam expects its followers to helping each other in matters of good deeds and charity.This principle is executed by the agreement of the participants to give away a portion of their takaful contribution as tabarru’. 1.2 Making Sacrifices to One Another The principle of sacrifices is practiced by Islam through the concept of Jihad. Jihad here means the sacrifices of time, energy, wealth and blood in order to make sure that others would benefit from the sacrifices that they make. 1.3 Guaranteeing Each Other Syeikh Muhammad Al-Ghazali and Syeikh Yusuf Al-Qaradhawi states that the guarantees must fulfill the following conditions:Every member’s contribution must be done with the intention to help the needy.The contributions must be used according to shariah.Contributions given is not for the purpose of profiting from the occurrence of loss but compensated based on mutual agreement.It is unlawful to claim back the takaful contributions. Everything will be settled according to shariah.
2. Concept of Takaful Contract
Takaful must be a valid contract compliant with Shari’ah principles and it consist of three important concepts i.e, Al-Takaful (Joint guarantee), Al-Mudharabah (Profit sharing) and AlTabarru’ (donation).
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(Narrated by Imam al-Bukhari and Imam Muslim). Verse 2) Allah will always help His servant for as long as he helps others. In Takaful contract. These fundamentals are based on the sayings of Prophet Mohammed (S. between each other. The entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ras-ul-mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-mal.1 Al-Takaful (Joint Guarantee) In Arabic means joint guarantee. the Takaful system is based on mutual co-operation.blogspot. Some of the examples are: • Basis of Co-operation: Help one another in al-Birr and in al-Taqwa (virtue. Based on the hadith and Quranic verses mentioned below. • The basic fundamentals underlying the Takaful concept are very similar to co-operative and mutual principles. It is a form of mutual insurance. when one of its parts is afflicted with pain.html 17 | P a g e . • Basis of Mutual Protection: By my life. mutual assistance has been created among the group. responsibility. Islamic scholars had decided that there should be a concerted effort to implement the Takaful concept as the best way to resolve these needs. nobody will enter Paradise if he does not protect his neighbour who is in distress. Al. Basis of Responsibility: The place of relationships and feelings of people with faith. Therefore.com/2008/12/principles-of-takaful. Basic objective of takaful is to pay for a defined loss from a defined fund.W.2. then the rest of the body will be affected. is just like the body. assurance. Each member of the group pools effort to support the needy. to the extent that the co-operative and mutual model is one that is accepted under Islamic Law. righteousness and piety): but do not help one another in sin and transgression. which is in Allah’s power.2 Al-Mudharabah (Profit Sharing) In principal.A.). (Narrated by Imam Ahmad bin Hanbal and Imam Abu Daud).* 2. (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. In principle. (Narrated by Imam Ahmad bin Hanbal).Mudharabah is a commercial profit sharing contract between the provider or providers of fund for a business venture and the entrepreneur. there must exist a group of people jointly guaranteeing each other on a defined risk. protection and assistance between groups of participants. * http://takafulproduct. (Surah Al-Maidah.
The doctrine of tabarru is traditionally considered to make takaful contracts a form of a unilateral contract with the takaful operator i. (risk protection is not equal value to the premium charged) To make it legal. certain proportion of his takaful installments or takaful contributions that he agrees or undertakes to pay thus enabling him to fulfill his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss.e Participant). The donor did not receive any predetermined consideration for this act.cfm 18 | P a g e . the payment of claims. This action is on goodwill (favor on the donor i. Issues of uncertainty. Tabarru should not be used for commercial purpose.† † http://www. as mutually agreed between the contracting parties. 6:4. However. Therefore the provision of insurance cover as a form of business in conformity with Shariah is based on the Islamic principles of al-Takaful and al-Mudharabah. In relation to this a participant shall agree to relinquish as tabarru'. tabarru' would enable the participants to perform their deeds in sincerely assisting fellow participants who might suffer a loss or damage due to a catastrophe or disaster.com/knowledge/articles/the-future-of-takaful-potholes-in-the-streets-of-gold. this analysis does not reflect what is happening in practice and in reality a customer who provides a contribution will do so expecting something in return. In essence.e a donation made without expectation of any return and in turn takaful operator also is deemed to enter into a unilateral contract with the donor to cover its risks. The sharing of profit (surplus) may be in ratio 5:5. for a takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure. takaful contract must be based on tabarru’ (donation) contract.3 Al-Tabarru’ Takaful cannot accept the same concept as Insurance because Islamic law requires the contract of exchange to be free from gharar. appear substantially similar to those provided by their conventional counterparts and take the form of a bilateral contract. is made only after the obligation of assisting the fellow participants has been fulfilled.The contract specifies how the profit or surplus from the operations of takaful managed by the takaful operator is to be shared. 7:3. in accordance with the principle of al-Mudharabah. It is imperative. therefore. fraud or misrepresentation does not relevant because the ‘donor’ has voluntarily gives away his portion of contribution The sharing of profit or surplus that may emerge from the operations of takaful. whereby it shall benefit the recipients alone. Consequently many contracts issued by takaful operators nowadays. etc. namely. 2. mistake. However. Takaful operator cannot use the tabarru’ fund to cover the management operational cost.clydeco.
And after reviewing the presentations made by the participating scholars during the Session on the subject of ` Insurance reinsurance`. is a contract. but it is permitted as there were no other alternatives. the Takaful Act 1984 was enacted. which is commonly used by commercial insurance companies. based on the Insurance Act 1963. Syarikat Takaful Malaysia Sdn Bhd was established in 1984 as the first Takaful Operator. the Islamic Consultation Body established a special consultation body for the purpose of creating an Islamic insurance company in Malaysia. with a fixed periodical premium.The decision was brought to the attention of the National Fatwa Council and studies were done with cooperation from the middle east countries. (9):. A few resolutions was achieved : Insurance containing riba’ is unacceptable Although the present system is not Islamic. The National Fatwa Committee has taken the initiative to discuss the matter and found that the present insurance system is unacceptable. following the enacted act The Islamic Fiqh Academy. meeting in its Second Session in Jeddah. Kingdom of Saudi Arabia. Therefore. Takaful Practices in Malaysia A paper on Islamic economic system was presented and debated in the Malaysian Islamic Conference in 1969 which was mainly on insurance.The special body proposed that an act called the Takaful Act be enacted to control the takaful business. and modified in order to ensure that the shariah is observed in the running of the business. 1406 H (corresponding to 22-28 December 1985) has made a resolution concerning Insurance and Re-Insurance as Resolution No. The government was asked to study the implementation of an Islamic insurance provider. In 1982. therefore. emanating from the Organization of Islamic Conference. from 10 to 16 Rabiul Thani (Rabiul Akhir). And after closely examining all types and forms of insurances and deeply examining the basic principles upon which they are founded and their goal and objectives. which contains major element of risk. RESOLVES The Commercial Insurance Contract. And after discussing the same. is prohibited (Haram) according to the Sharia The alternative contract. which conforms. which voids the contract and. And having looked into what has been issued by the Fiqh Academics and other institutions in this regard. to the principles of Islamic dealings is the contract of co-operative insurance. which is founded on the basis of 19 | P a g e .3.
insurance based on the principles of co-operative insurance. 20 | P a g e . after a joint-venture with Koperasi Angkatan Tentera (M) Bhd. Participants given up their ownership on some amount of donation from their contribution (tabarru’) Premium paid by insureds as a price for risk. Similarly is the case of re. Berhad CIMB Aviva Takaful Berhad Prudential BSN Takaful Berhad HSBC Amanah Takaful Berhad Hong Leong Tokio Marine Berhad MAA Takaful Berhad Year Incorporated 1984 1993 2003 2005 2006 2006 2006 2006 On 10 December 2010. Berhad Takaful Ikhlas Sdn. Berhad Takaful Nasional Sdn. Obligation to pay benefit lies with Takaful Fund.charity and co-operation. Participants agree to join a scheme of mutuality of contribution and protection. a foreign-based takaful operator Great Eastern Takaful Sdn Bhd was launched in Kuala Lumpur. Difference of Insurance Company and Takaful Operators Operations Insurance Company Takaful Operators (TO) Insurer provides indemnity in return for a premium paid by insured/policyholder TO is not an indemnity provider. 4.transfer to insurer. The following are the local takaful operators in Malaysia: List of Takaful Operators in Malaysia Syarikat Takaful Malaysia Sdn.
All premiums received are for the sole benefit of insurance company.Loss /Claims: Insured benefit. All cost of claims will be paid by insurer Not enough fund to pay claims: TO responsible to provide interest-free loan (qard hassan) to ensure solvency of Takaful Fund 21 | P a g e . Contributions divided into Participant Account and Participant’s Special Account Commercial gain : from underwriting surplus and investment yields on the funds provided by premiums Commercial gain : Wakalah Fee and/or Mudharabah (profit sharing) from the investment yield and underwriting surplus. Participant and TO will share the profit by Mudharabah. Participant will benefit from the donation fund (Participant’s account) No Loss/claims: Insurer earn a profit.
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