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needs. Takaful is a system of Islamic Insurance based on the principle of taawun (mutual cooperation) and tabarru (donation).
from a defined fund. Each member of the group pools effort to support the needy. It means mutual help among the group. The operation of takaful are within the tijari (commercial) sector and is based on the Islamic commercial profitsharing principle of al-mudharabah.
financial loss and has positive contribution to the society. However, there are three elements in insurance that are not conforming to islamic law:
Gharar Maisir
Riba
with the rule and requirements of the Syariah as it embodies the following three elements:
Al Gharar means uncertainty
Payment of compensation Paying the premiums Nature of the contract insurance is an aleatory contract which based on the monetary values exchanged between the contracting parties may not be equal.
from many to help the unfortunate few. Insurance is allowable in Islam in risk sharing mechanism, as long as any elements that contravene Islamic principles are avoided. Sharing the risk with the purpose of helping each other is recommendable as Allah mentioned in the alQuran . Help you one another in virtue, righteousness and piety, but do not help one another in sin and transgression . (Al-Maidah:2)
was largely triggered by the decree issued by the National Fatwa Committee. A special task force was set up by the government in 1982 to study the viability of establishing an Islamic insurance company, they conclude under the islamic insurance system, a portion of the contribution from every participant must be made with the intention of tabarru , and not for buying and selling, the existence of tabarru makes the transaction permissible and valid according to the Shariah.
to the insurance against hazards, to bring it closer to the Islamic principle by means of a contract of donation with a condition of compensation. For insurance to be accepted by Islamic tenets, it must be founded on the principles of tabarru (donation), taawun (mutual cooperation)
Al-Tabaru Concept
Tabaru menas to donate. The participants of takaful plan make an aqad
(agreement) to deposit as donation a certain portion of takaful contributions or installments into a risk fund. This fund will be used to assist participants who might suffer unexpected financial losses due to some contingencies.
Mutual Cooperation
Besides Tabarru, takaful is the principle of mutual
cooperation and risk sharing. Mutual cooperation or taawun is achieved through contributions from takaful participants to the tabarru fund which allows participants to provide financial assistance to fellow participant suffering a loss. Takaful system can be described as a co-operation among participants who mutually protect and guarantee the interest of one another, by jointly sharing responsibility to pay for potential losses that may occur, through donations into a common fund.
Mutual Cooperation
Takaful is built on the principle of mutual cooperation
where each participant participates in each others loss, while takaful operator facilitates this cooperation using its exercise, under the operation of the takaful business. Essentially, a cooperative risk-sharing plan, takaful system aims to provide insurance protection against risks such as premature death, illness, disability and property damages. It embraces the elements of mutual help, mutual protection and shared responsibility among participants, supported by tabarru principles.
Mutual Cooperation
Dr Yusuf Qardawi asserts that a cooperative system
established to assist its members who suffer from misfortune must meet the following conditions:
Every member makes his share of payments into a
common fund as a donation, in the spirit of brotherhood. Financial assistance is provided to members who suffer a loss from this common fund. Any investment of the money from the common fund must be done in halal business activity which is free from usury or interest. A member shall not seek a pre-determined amount of compensation in the event of a loss rather than indemnified for his total or partial loss.
Al-Mudharabah Concept
Mudharabah (Trustee Profit-Sharing) is a contractual
agreement between provider of a capital and entrepreneur for the purpose of business venture whereby both parties agree on a profit sharing arrangement. Takaful company acting as the entrepreneur and the participants entrust funds to the takaful company by means of takaful contributions. Takaful contact specifies the proportion of profit (surplus) to be shared between the participants and the takaful company.
OPERATION OF TAKAFUL
Licensed and regulated by the Takaful Act 1984
Supervisory authority vested under the Takaful Act is the
Bank Negara Malaysia. Underlying the importance of complying with the religion of Islam, all businesses of the company will be transacted in accordance with Islamic principles, rules and practices
members would be made up of Muslim religious scholars in the country, shall be established to advise the company on the operations of its takaful business in order to ensure that they do not involve any element which is not approved by the Religion of Islam
applicant unless he is satisfied (b)that there is in the Articles of Association of the takaful operator concerned provision for the establishment of a Syariah Supervisory Council to advise an operator on the operations of its takaful business in order to ensure it does not involve in any element which is not approved by the Syariah
Stakeholders Fund
Participants contributions
Takaful Fund
Al-Mudharabah Al-Waqalah
Taawuni Model
Practices the concept of pure mudharabah in its
transaction. It is a profit-sharing model. Takaful Operator (TO) and participant share the direct investment income. In addition, the participant is entitled to 100% of surplus with no deduction made prior to the distribution. Pure mudharabah model encourages solidarity, unity, brotherhood and mutual cooperation. Taawuni Model is divided into 2 basic models
Al-Mudharabah Al-Wakalah
model in which the participant and TO share the surplus. Al-Wakalah is a fee-based model in which the TO earns fee for the service of running the operation.
Waqf Model
donation among the participants. TO initiates the waqf fund by contributing the intial sum into the fund, and participants make donation to help the less fortunate members of the community. Generally undertaken by a social or governmental enterprises. A waqf deed is drawn to assist in the distribution of funds should a loss occur to any participants. Surplus and profits resulting form investment activities are not distributed to the participants. It will retain by the operator to support the community.
BNM
Council High Court Takaful Operators Retakaful Operators Takaful Intermediaries Malaysian Takaful Association
syariah principles Decides on all muamalat cases Fund manager & u/writing U/writing manager on ceded TO Intermediaries
Agents Brokers Bancatakaful Adjusters