Title: TAKAFUL THE ISLAMIC INSURANCE
1TAKAFUL THE ISLAMIC INSURANCE
2Conventional 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.
3Problems withConventional Insurance
- 1. Gharar ( uncertainty )
- Literally Gharar means Uncertainty cheating
(Jahalah) ambiguity. - There are two types of Gharar
- Jahalah which causes to dispute. E.g. un
specified or un quantified subject matter in
sale. - Uncertainty of one partys profit. E.g. One
partys (such as policy holders) 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
4Problems withConventional 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.
5Problems withConventional 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.
6Problems withConventional 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
7CONTENT
- 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
8Why 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)
9Existence 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)
10Existence of Al-Maisir in Insurance
- In Al-Quran
- O Believers! Intoxicants and gambling and
divining arrows are an abomination of Satans
handiwork. Leave it side in order that you may
prosper. - (Al-Maidah 590)
11- 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.
12Existence 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.
13Basis 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.
14The 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.
15The 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).
16The 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
17The 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.
18The 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.
19- 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.
20- 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.
21The 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)
22The 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.
23List of Licensed Takaful Operators in Malaysia
- 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
24Theoretical 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.
25Theoretical 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 (taawun)
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
26- 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.
27The differences between takaful and conventional
insurance.
- The operations of Takaful must be in line with
the Shariah principles. A Takaful operation may
be held void if any aspects of its operation is
proven to be contrary to the Shariah 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.
28The differences between takaful and conventional
insurance.
- The operation of Takaful practices is generally
supervised by an independent body called the
Shariah 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 Shariah principles. In
other words, the establishment of a Shariah
Supervisory Council for every individual Takaful
operator is a prerequisite prior to the
commencement of the Takaful operation.
29The Solution Islamic Cooperative Insurance(
Takaful)
30Definition 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.
31Basic 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.
32Features
- 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
33Operation 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.
34Operation 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.
35Operation 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.
36Uses 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