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    Fin 4030 Takaful

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    Hadi Lukman
    This document provides an overview of Takaful, which is an Islamic alternative to conventional insurance. It defines Takaful as a mutual guarantee and indemnity where participants contribute to a common fund and guarantee to indemnify other participants in the case of losses. The key differences between Takaful and conventional insurance are that Takaful is based on the principles of tabarru' (donation) and ta'awun (mutual assistance) through a unilateral contract, with the operator acting as trustee of the fund rather than owner. Participants are both the insurers and insured through mutual guarantees, and profits are shared between participants and operators based on Shariah principles without elements of riba, gharar and mais

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    Fin 4030 Takaful

    Uploaded by

    Hadi Lukman
    78 views20 pages
    This document provides an overview of Takaful, which is an Islamic alternative to conventional insurance. It defines Takaful as a mutual guarantee and indemnity where participants contribute to a common fund and guarantee to indemnify other participants in the case of losses. The key differences between Takaful and conventional insurance are that Takaful is based on the principles of tabarru' (donation) and ta'awun (mutual assistance) through a unilateral contract, with the operator acting as trustee of the fund rather than owner. Participants are both the insurers and insured through mutual guarantees, and profits are shared between participants and operators based on Shariah principles without elements of riba, gharar and mais

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    This document provides an overview of Takaful, which is an Islamic alternative to conventional insurance. It defines Takaful as a mutual guarantee and indemnity where participants contribute to a common fund and guarantee to indemnify other participants in the case of losses. The key differences between Takaful and conventional insurance are that Takaful is based on the principles of tabarru' (donation) and ta'awun (mutual assistance) through a unilateral contract, with the operator acting as trustee of the fund rather than owner. Participants are both the insurers and insured through mutual guarantees, and profits are shared between participants and operators based on Shariah principles without elements of riba, gharar and mais

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    78 views20 pages

    Fin 4030 Takaful

    Uploaded by

    Hadi Lukman
    This document provides an overview of Takaful, which is an Islamic alternative to conventional insurance. It defines Takaful as a mutual guarantee and indemnity where participants contribute to a common fund and guarantee to indemnify other participants in the case of losses. The key differences between Takaful and conventional insurance are that Takaful is based on the principles of tabarru' (donation) and ta'awun (mutual assistance) through a unilateral contract, with the operator acting as trustee of the fund rather than owner. Participants are both the insurers and insured through mutual guarantees, and profits are shared between participants and operators based on Shariah principles without elements of riba, gharar and mais

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 20

    FIN 4030

    Principles & Practices of Takaful

    TAKAFUL

    Dr. Marhanum Che Mohd Salleh


    Please recall………….
    What is risk?

    How to handle risk?

    What is insurance?

    Why it is prohibited in Islamic


    religion?
    FOCUS

    Definition

    Contrast with
    Conventional Basis & Legality
    Insurance

    Takaful

    Underlying
    Shariah Methodology
    Principles
    Definition of Takaful

    Arabic word ‘Kafala’,


    Takafala, and Takaful

    Kafala- to be responsible, Takafala- join guarante,


    guarantee, indemnify Takaful shared responsibility,
    collective assurance

    Takaful –Mutual guarantee, indemnity, & protection


    -Participants mutually contribute to the same fund and mutually
    guarantee to indemnify fellow participants in the event of
    calamity/harm/peril.
    Legal Definitions –IFSA 2013

    Takaful = an arrangement based on mutual assistance under which takaful participants agree to
    contribute to a common fund providing for mutual financial benefits payable to the takaful
    participants or their beneficiaries on the occurrence of pre-agreed events (p. 24)
    Takaful business = the business relating to the administration, management and operation of a
    takaful fund for its takaful participants which may involve elements of investment and savings and
    includes retakaful business
    Legal Definitions
    -Takaful Act 1984

     “a scheme based on brotherhood, solidarity and mutual assistance

     Which provide for mutual financial aid and assistance to the participants in
    case of need

     Whereby the participants mutually agree to contribute for the purpose


    Legal Definitions-
    -Item 2 of Shariah Standard No. 26, AAOIFI
    2008

    A process of agreement among a group of persons to handle the injuries resulting from specific risks
    to which all of them are vulnerable.

    Involve payment of contributions as donations and leads to the


    establishment of an insurance fund that enjoys the status of legal
    entity and has independent financial stability

    This fund is used to indemnify any participant who encounters injury, subject to a specific set of
    rules and a given process of documentation

    The fund is manage by either a selected group of policy holders, or a


    joint stock of company that manage the insurance operations and
    invest the assets of the fund, against a specific fee
    Basic Description of Takaful

    Takaful Operator

    Takaful Participants
    Manage fund for a fee or share in profits on
    investment

    Contribute via
    unilateral Takaful
    contract Fund
    (tabarru’at)

    • Concept  Tabarru’ (donation)


    • Type of contract  Unilateral contract (gharar is tolerable)
    TAKAFUL ELEMENTS

    Elements Description
    Mutual Liability/loss is spread among the participants
    Guarantee In effect, the participants are both the insurer
    and the insured.
    Ownership Policyholders are owners of the fund
    of the fund
    Eliminate of Unilateral contract via Tabarru’ concept
    uncertainty whereby all participants voluntarily to
    mutually help in the case of anyone of them
    incur loss without any pre-determined
    monetary benefit.
    Management The fund is managed by the operator who
    of the Takaful depending on the adopted model (eg.
    fund Mudharaba or Wakala)
    Investment All investments must be Shariah compliant
    conditions

    Source: The World Takaful Report 2010


    Underlying Concepts

    TABARRU’ TA’AWUN
    -an Arabic word, means donation -an Arabic word means mutual assistance
    -Takaful involves a unilateral contract or a contract -Takaful products basically involve mutual aid
    of donation agreement between the participants who agreed
    -every participant in the Takaful scheme would to mutually guarantee and protect each other in
    contribute their money into the Takaful fund as a certain defined circumstances
    donation without having any consideration to make -It basically brings to the spirit of social
    profit out of the contributed funds. responsibility and a strong sense of
    -eliminate the uncertainty element. brotherhood which is taught by the Islamic
    -two pillars: no counter value & intention religion

    Takaful
    SHARIAH
    METHODOLOGY

    Islamic
    Al-Qur’an Hadith Legal
    Maxim
    Al-Qur’an
     Surah Al-Maidah: 2
    “…………………………And cooperate in righteousness and piety, but do not cooperate in sin and
    aggression. And fear Allah ; indeed, Allah is severe in penalty”

    Hadith

    One day our Prophet Muhammad S.A.W noticed a bedouin left his camel without tying it. Prophet
    Muhammad asked the bedouin, "Why don't you tie your camel?“ The bedouin answered, "I put my trust
    in Allah“ Then Prophet Muhammad said, "Tie your camel first and then put your trust in Allah“
    (Riwayat At-Tirmizi)

    “Believers are to other believers like parts of a structure that tighten and reinforce each other." (Al-
    Bukhari and Muslim)
    Islamic Legal Maxim
    Damage/Harm must be remove

    If damage has occurred, efforts should be made to remove it

    Do not inflict/create or reciprocate/respond to harm

    Takaful is a form of efforts to remove harm/damage


    Takaful should not be a tool which is harmful to participants or others
    What is the difference between
    conventional insurance and
    Takaful?
    TAKAFUL CONVENTIONAL
    Shariah-compliance Non-Shariah compliance
    Unilateral contract based on Tabarru’ & Ta’awun Bilateral contract-exchange or buy and sale contract
    principle (muawadah)

    Takaful operator as trustee that manage the fund, not Insurance company as the owner of the fund and become
    give guarantee to the participants the guarantor to the policyholder
    Participants are the owners of the fund. They become Seller – insurance company
    insurer and insured Buyer - policyholder

    Participants mutually guaranteed each other through the Company guarantee the participants base on the
    spirit of cooperation and Tabarru’ economic factors

    Free from riba, gharar dan maisir Having element of riba, gharar dan maisir

    Existence of Shariah Committee Council No Shariah Committee Council

    Profit is shared between Takaful operator and Profit is distributed base on company decision
    participants base on Mudharabah or investment
    performance fee
    THANK YOU,
    WASSALAM

    marhanum@iium.edu.my

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