TAKAFUL
THE ISLAMIC INSURANCE
Conventional Insurance
• It means a way to provide security / and
compensation of what is valuable in the
event of its loss, damage or destruction
based on the principle of risk taking and
speculation.
Problems with
Conventional Insurance
1. Gharar ( uncertainty )
Literally Gharar means: Uncertainty; cheating; (Jahalah) ambiguity.
There are two types of Gharar:
1.
Jahalah which causes to dispute. E.g. un specified or
un quantified subject matter in sale.
2. Uncertainty of one party’s profit. E.g. One party’s
(such as policy holder’s) profit in Insurance.
2. Khatar: ( Risk)
Taleequl milki al alkhatr, wal mal fil janibain:
To stipulate ownership (of any amount) on a risk, where both
consideration is money or commodity
Problems with
Conventional Insurance
2. Mayser ( Qimar or Gambling )
Mayser means Qimar in Arabic language.
Mayser has two basic elements which cause to
prohibit Mayser namely:
1. Gharar (2) Khatar
Having the above two elements speculation,
gambling and insurance is prohibited.
Problems with
Conventional Insurance
The participant contributes a small amount of
premium in a hop/risk to gain a large sum is
Khatar.
• The participant loses the money paid for the
premium when the insured event does not
occur is Gharar.
• The company will be in deficit if the claims
are higher than the amount contributed by
the participants is Gharar.
Problems with
Conventional Insurance
3. Riba
• The element of Riba (Interest) exists in lending or
borrowing funds/investments at fixed interest, and
other related practices in the investment activities
of the conventional insurance companies
CONTENT
• Introduction
• The opinion of Islamic scholar about
insurance concepts
• The development of takaful
• Theoretical and conceptual aspects of
takaful
• The differences 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, which are not permissible in Islam.
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
• 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 Concept
• 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
“sahibul-mal” (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:
– the evolutionary phase
– the nurturing phase
– 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
"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 consolidation phase
• 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.
List of Licensed Takaful Operators in
Malaysia
1.
2.
3.
4.
5.
6.
7.
8.
9.
Takaful Operators in Malaysia
Commerce Takaful Berhad
HSBC Amanah Takaful (Malaysia) Sdn Bhd
Etiqa Insurance and Takaful Bhd - Mayban Takaful
Berhad Prudential BSN Takaful Berhad
Syarikat Takaful Malaysia Berhad
Takaful Ikhlas Sdn. Bhd.
Takaful Nasional Sdn. Bhd.
Hong Leong Takaful
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.
Theoretical and conceptual aspects 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.
The differences between takaful and
conventional insurance.
• 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 differences between takaful and
conventional insurance.
• 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.
The Solution
Islamic Cooperative Insurance
( Takaful)
Definition for Takaful
• Takaful is an Arabic word that means
"guaranteeing each other".
• It is a system of Islamic insurance based on the
principle of TA-AWUN (mutual assistance)
and Tabarru (Voluntarily) where the risk is
shared collectively by the group Voluntarily.
• This is a pact among a group of members or
participants who agree to jointly guarantee
among themselves against loss or damage to
any of them as defined in the pact.
Basic Principle behind Takaful
1.The principle of “fortunate many helping the
unfortunate few" is a concept recognized by
Islam.
2.The Quran states in Surah Al-Maidah verse # 2:
"Help ye one another in righteousness and
piety, but help ye not one another in sin and
rancor".
3. Principles of Muwalat, Maaqil, and Kafalah
are examples for its permissibility.
Features
• Firstly, the participation into a Takaful fund must
be performed with utmost sincerity in order to
help those faced with difficulties.
• Every policy holder would pay his subscription in
order to assist those who need assistance
• Any member or participant suffering a catastrophe
or disaster would receive a certain sum of money
or financial benefit from a fund, as also defined in
the pact, to help him meet the loss or damage
Operation of Takaful Fund
• The transactional aspect of the commercial
activity of Takaful must be subject to the Islamic
contractual laws in order to ensure its compliance
with the Shariah .
• The Company involved in takaful business, as the
operator, will accept payment of the takaful
installments or takaful contributions (premium)
from the participants (clients) for the takaful plan
or takaful scheme they wish to participate.
Operation of Takaful Fund
• In order to eliminate the element of “uncertainty”
in the Takaful contract, the concept of tabarru (to
donate, to contribute, to give away) is
incorporated in it. In relation to this a participant
shall agree to relinquish as “gift” certain portion of
his Takaful installments .
• For the service rendered as manager of the Takaful
Operations the company will charge a
management fee.
Operation of Takaful Fund
• The Takaful Fund, consisting of the contributions
paid as Tabarru, will be further invested by the
Company based on the principle of Al –Mudarabah,
through which the element of interest (riba) will be
replaced.
• All premium holders will participate in pofit and loss.
• Profit will be shared on agreed ratio.
Uses of Takaful
Takaful can be used to cover
• Property like house, factory, mosque,
offices
• Vehicles (car, motorcycle etc..)
• Goods ( like during import or export )
• Valuables
• Health, accidents and Life