chapter_1 intro to takaful

8/11/2019 CHAPTER_1 INTRO TO TAKAFUL

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CHAPTER 1

Introduction to Takaful


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CHAPTER 1 : Introduction to takaful

Objectives

Introduction

Definition Origin and Development of takaful

Origin and Development of insurance

Non-conforming elements according toIslam


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Objectives

- Define and explain the word Takaful

- Looks at the origin and development of Takaful

- Understanding the Islamic perspective on

Insurance - Identifying and understanding the elements that

makes Takaful different to ConventionalInsurance.

- Differentiate three non-conforming elements inTakaful.


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Introduction

There has been movement around the worldsparked by muslim's cries to practise Islam

as a whole through the concept of Islam Ad

Deen (Islamic way of life). Therefore,

alternatives have been introduced to the

world which hold the shariah principles and

practice as their foundation.


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Introduction (cont.)

An alternative to the concept of insurance,is the Islamic doctrine of al-Takaful, as

adopted by the Islamic insurance operators.


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Definition of Takaful

The term 'takaful' is derived from the rootword 'kafala' which means 'guarantee' or

'safeguard'. The word 'takafal' whose chief

characteristics is 'al-syarikah' means

'sharing'. Therefore, the word takaful means

'shared responsibility or shared guarantee,

responsibility, assurance or surety'.


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Definition of Takaful (cont.)

Technically, takaful means 'mutualguarantee provided by a group of people

living in the same society against a defined

risk or catastrophe befalling one's life,

property or any form of valuable things'.

Takaful is also known as a cooperative

insurance.


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Origin and Development

of Takaful

Practices of the doctrine of al-'aqilahamong the ancient Arab tribes as a tribal

custom.

Practices of the Holy Prophet (s.a.w.)

Practices of the Companion

Development in the 14th

20th

century


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Doctrine of al-Aqilah (cont.)

Those close relatives of the killer, called as'Aqilah, were supposed to pay the blood

money on behalf of the killer. The central

idea of 'Aqilah was that the ancient Arab

tribes had to be ready to make financial

contributions on behalf of the killer to

compensate the heir of the victim.


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Doctrine of al-Aqilah (cont.)

Such readiness to make monetarycontribution could be similar to the

premiums in insurance practices, while the

compensation paid under al-'Aqilah could

be similar to the indemnity in today's

insurance practices, as it is a kind of

financial protection for the heir against anunexpected death of the victim.


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Practices of the

Holy Prophet (s.a.w.)

The acceptance of the Aqilah following averdict given in a dispute between two

women from the tribe of Huzail.

Relevant provisions in the first constitutionof Madinah in 622 B.C.


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Practices of the

Holy Prophet (s.a.w.) (cont.)

Through the practice of al-Diyah

Article 3 provided that al-Diyah or bloodmoney was supposed to be paid by the

Aqilahto the heirs of the deceased (victim)

in order to rescue the killer from legal

burden.


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Practices of the


Through the payment of Fidyah (ransom)

Should anyone be made a prisoner of warby the enemy, the al-Aqilah of the prisoner

shall contribute ransom to be paid to the

enemy, in order to enable the captive to be

freed.


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Practices of the


By way of other forms of social insurance

Articles 4-20A provided that the societyshall be responsible to establish a joint

venture with a mutual understanding

towards providing necessary aid and help

for the needy, ill and poor.


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Practices of the Companion

During the reign of the second Caliph,Sayyidina Umar, a Diwan of Mujahidin was

established where whose names was

recorded in the Diwan owed each other

mutual co-operation to contribute blood

money for manslaughter committed by

someone from their own tribe.


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Development in the

14th21stcentury

During the 14thto 17thcentury, a Sufi ordercalled Kazeruniyya will enter an agreement

with merchants where the merchant

promised to pay an agreed amount to the

Order upon safe arrival to destination for

protection against peril during sea voyage.


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Development in the

14th21stcentury (cont.) During the 19th century, Ibn Abidin became the

first person to discuss insurance as a legal

institution and no longer as a customary practice.

In the 20th century, Islamic jurist, MuhammadAbduh issued Fatwas legalising insurance

practices using Mudharabah contract and

legitimizing a transaction similar to endowment

life insurance.


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Development in the

14th21stcentury (cont.) In Malaysia, Takaful Act 1984 was introduced

which is based on Shariahprinciples.

Syarikat Takaful Malaysia Bhd was established on

29th

November 1984 Takaful Nasional Sdn Bhd (formerly known as

MNI Takaful) was established on 15th October1993.

Then two more companies was establishednamely, Mayban Takaful and Takaful Ikhlas Sdn.Bhd.


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of Insurance Idea of insurance began with the Babylonians and

their civilization in 3,000 years B.C.

Code of Hammurabi compiled by King of

Babylon in 2250 B.C. contained 282 clauses

Contract of Bottomry - commercial contractsinvolving money transactions, in which people

lent their money to the merchants for a certainpercentage of interest.


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Contract of Bottomry

Introduced by Babylonian merchants about 40003000 B.C.

Money or goods were advanced to the merchants

for the purpose of trade, either as pure loan inconsideration of interest in which the lenders had

the right to claim a fixed rate of interest from the

merchant over and above the loan or both as a loan

for interest and as capital for a share of profits

from from the trade.


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of Insurance (cont.) Adopted by the Phoenicians around 1600-1000

B.C.

Practiced by the Greeks in 4thcentury B.C.

Practiced by the Hindus in India in 600 B.C. Was later developed by Rome with modifications,

which limited the cases of loss for the lenders, butprovided protection for the borrowers against any

liability. It was practiced mainly in regards to land.


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of insurance (cont.)

Later was developed in Italy with marineinsurance in the 14thand 15thcentury.

In 16th

century, Sir Thomas Greeshamestablished the first Royal Exchange as a

foreign money market.

Resulted in London being the centre forinternational insurance.


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of insurance (cont.) Lloyds of London originated in a coffee house in

London in 1688. Incorporated by Parliament in theLloyds Act 1871.

In Federation of Malaya, insurance law was drawnfrom the legislation enacted in UK in 1909.

Due to the comprehensive recommendations fromMr. Caffin (Insurance Commissioner of Australia)

in 1960, Insurance Act 1963 was enacted by theMalaysian Parliament on 21stJanuary 1963.

Then Insurance Act 1996 came into force on 1stJanuary 1997.


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Non-conforming Elements

According to the ulama, the concentionalinsurance is called muamalah fasid asthere are three elements found which do not

conform to the rules and requirements ofIslamic syariah.

Al-gharar

Al-maisir Al-riba


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Al-Gharar

Defined as a contract where the results arenot known or hidden, or one of the two

possibilities where the frequent occurrence

is the one that is more feared.

Also means there are unknown or uncertainfactors in operation of a contract in both life

and general insurance policies.


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Al-Gharar (cont.)

Gharar is the sale of probable items whose existence orcharacteristics are not certain, due to risky nature which

makes the trade similar gambling.

Ahmad and Ibn Majah narated on the authority of Abu-SaidAlKhudriy(mAbpwh):

Nabi Muhammad (saw) has forbidden the purchase of the

unborn animal in its mothers womb, the sale of the milk

in the udder without measurement, the purchase of spoils

of war prior to their distr ibution, the purchase of charities

prior to their receipt, and the purchase of the catch of a

diver.


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Al-Gharar (cont.)

There are four types of gharar :

Gharar in the outcome

Gharar in the existenceGharar in the result of exchange

Gharar in the contract period


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Al-Gharar (cont.)

Gharar in the outcome.

When the contract is made, neither the

insurer nor the insured knows the outcome

of the contract. The insured does not clearly

know whether he will get compensation or

not as an exchange to the premium that he

has paid. Similarly, the insurer does notknow the outcome.


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Al-Gharar (cont.)

Gharar in the existence

In the insurance contract, the insured does

not know the existence of the compensation

since it depends on the outcome that may or

may not occur.


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Al-Gharar (cont.)

Gharar in the result of exchange

When the contract is made, neither the insurer northe insured knows the outcome of the exchange.

The insured does not know whether he or she willget the compensation as exchange to the premiumthat he pays. Similarly, the insurer does not knowhow much premium he gets. Sometimes he willreceive the premium only once or a few times, buthe has to indemnify an amount that does notcommensurate with the premium.


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Al-Gharar (cont.)

Gharar in the contract period

According to some scholars, when a contract is

deferred, the period must be made known. If not,

the contract is considered void. The same situationarises in the insurance contract whereby

compensation is based on a time frame that is not

known and cannot be known especially in life

insurance.


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Al-Maisir

Maisir is akin to gambling.

The insurance contract is equated with gamblingwhere if the peril happened the insurer will lose.

On the other hand if th peril does not not occur,the insured will lose.

Some scholars argued that the source of the moneythat is being paid as compensation is not

determined. Arises as the consequences of the presence of Al-

gharar, particularly in life insurance.


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Al-Riba

Means usury and is forbidden in Islamic economicjurispridence.

Refers to excessive or exploitative charging of

interest and also refers to the concept of interestitself.

In the contract of exchange between the insurerand the insured, there is difference both in

quantity and amount (Insurance companies giveout loans and charge interest)


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Al-Riba

According to scholars, as insurance contract is acontract of exchange, therefore exists riba al-fadhl

and riba al-nasiah simultaneously.

Riba al-fadhl exists when the compensationawarded does not equate the premium paid.

Whilst, Riba al-nasiah coexist with riba al-fadhl

when premium payment and compensation does

not occur at the same time.


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Al-Riba

Riba in insurance was argued could be partiallysolved if the claims amount were restricted to the

sum of the premiums paid,

but limiting it to this amount would makeinsurance of limited or questionable use to the

buyers.

Another riba transaction in insurance is relating toinvestment (interest on fixed deposits) and liability

side(interest on policy loans).

chapter_1 intro to takaful

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