2. The Meaning of Takaful
Joint Guarantee or Guaranteeing Each Other.
Stems from the word kafal or to take care of one’s
needs.
Takaful is a system of Islamic Insurance based on the
principle of ta’awun (mutual cooperation) and
tabarru’ (donation).
3. The Meaning of Takaful
The basic objective of takaful is to pay for a defined loss
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 profit-
sharing principle of al-mudharabah.
4. Elements in Insurance not
Conforming to Islamic Law
The purpose of insurance is to address some form of
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
5. PRINCIPLE OF TAKAFUL OPERATION
Conventional insurance operations did not comply
with the rule and requirements of the Syariah as it
embodies the following three elements:
Al Gharar means uncertainty
Al Maisir means gambling
Al Riba means interest
6. Elements in Insurance not
Conforming to Islamic Law
Gharar
Uncertainty affecting the occurrence of a contract or the
obligations under the contract.
Naturally involved results that are unknown to all parties
involved.
In conventional insurance, gharar is argued to stem from the
fact that what is being bought with the premiums is not well
defined.
Existence of ambiguities and uncertainty under the contract.
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.
7. Elements in Insurance not
Conforming to Islamic Law
Maysir or Gambling
Refers to a situation in which unnecessary risk is
created by entering into a transaction with a hope of
gain and a fear of loss
8. Elements in Insurance not
Conforming to Islamic Law
Usury or Riba
Usury is defined as practice of lending money at
exorbitant interest, especially at higher interest than is
legal.
Usury or riba also refers to lending at interest or
addition to the principal of a loan.
“…. Allah has permitted trade and prohibited in
involving usury”
(surah Al-Baqarah, 2:275)
9. The Essence of Takaful
The heart of insurance system is pooling of resources
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 al-
Quran
…. Help you one another in virtue, righteousness and
piety, but do not help one another in sin and
transgression …. (Al-Maidah:2)
10. The Essence of Takaful
In Malaysia, the development of the takaful industry
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.
11. The Essence of Takaful
Sheikh Dr Yusuf al-Qardawi, suggested a
modification 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), ta’awun (mutual cooperation)
12. 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.
13. Mutual Cooperation
Besides Tabarru’, takaful is the principle of mutual
cooperation and risk – sharing.
Mutual cooperation or ta’awun 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.
14. Mutual Cooperation
Takaful is built on the principle of mutual
cooperation where each participant participates in
each other’s 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.
15. 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.
16. 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.
17. 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
18. Section 8, Takaful Act 1984
…3(a) A Religious Supervisory Council, whose
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…
19. Section 8, Takaful Act 1984
…(5) the Director General shall also refuse the register an
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…
20. Basic Takaful Model
Investment Returns on Capital
Initial Equity Stakeholders’ Management
Expenses &
Capital Fund Commission
Interest-free loan Share of investment
(Qardul Hasan) returns a& surplus
Participants Claims (takaful
contributions Takaful Fund
benefits)
21. Takaful Operating Models
Takaful operating models:
Primary Operating Models:
Ta’awuni Model
Waqf Model
Takaful Models Used In Malaysia
Al-Mudharabah
Al-Waqalah
22. Ta’awuni 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.
Ta’awuni Model is divided into 2 basic models
Al-Mudharabah
Al-Wakalah
23. 2 basic Ta’awuni Model
Al-Mudharabah model is a profit-and-loss sharing
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.
24. Waqf Model
Works on a nonprofit concept, emphasizing the idea
of 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.
25. Takaful Models Used in M’sia
Family Takaful
Al-Mudharabah Model
Al-Wakalah Model
General Takaful Plans
Al-Mudharabah Model
Al-Wakalah Model
26. Takaful Models Used in M’sia –
Family Takaful Model
Al-Mudharabah Model
TO acts as Mudharib (Entrepreneur) while Participants
act as Rabbul Mal (Capital Provider) by paying
contributions.
Al-Mudharabah contract is partnership in nature.
Participants contribute capital, while
27. Legal Aspects of Takaful
Regulatory Framework of Takaful Business
Remarkable growth rate of between 18-20 % per year
Malaysian Takaful Regulation High Court
Malaysian Takaful
Association
BNM Takaful &
Tajafyk
Retakaful
Shariah Advisory
Council
28. Legal Aspects of Takaful
TAKAFUL ACT 1984
REGISTRATION OF TAKAFUL OPERATORS
SHARIAH FRAMEWORK
MALAYSIAN TAKAFUL ASSOCIATION
STATUTORY DEPOSITS
TAKAFUL FUND
STATUTORY ASSET REQUIREMENT
INVESTMENT OF FUND
SUPERVISION AND EXAMINATION ON TAKAFUL
OPERATORS
TAKAFUL GUARANTEE SCHEME FUND
29. Legal Aspects of Takaful
BNM Formulate Policies &
supervision
Shariah Advisory Determines ruling on issues of
Council syariah principles
High Court Decides on all muamalat cases
Fund manager & u/writing
Takaful Operators
U/writing manager on ceded
Retakaful Operators TO
Takaful Intermediaries Intermediaries
Agents
Malaysian Takaful Brokers
Association Bancatakaful
Adjusters
Self-regulatory body promoting
