SYARIAH PRINCIPLES IN TAKAFUL MUAMALAT Introduction to Takaful: Takaful: -an Arabic word meaning “guaranteeing each other” or joint guarantee. -a policy of mutual co-operation, solidarity and brotherhood against unpredicted risk or catastrophes, in which the parties involved are expected to contribute genuinely.

Concept of Tabbaru’ The Tabarru' system is the main core of the Takaful system making it free from uncertainty and gambling. Tabarru' means "donation; gift; contribution." The objective of Takaful is to pay a defined loss from a defined fund. Muslim jurists conclude that insurance in Islam should be based on principles of mutuality and cooperation. Encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity.

Concept of tabbaru’ ‘help (ta’awun) ye one another one in righteousness (birr) and piety, but help ye not one another in sin and rancour, fear Allah, for Allah is strict in punishment’ (surah al-maidah; 5:2)

AAOIFI Islamic insurance is a system through which the participants donate part or all of their contributions whichare used to pay claim for damages suffred by some of the participants. The company’s role is restricted to managing the insurance operation and investing the insurance contributions (AAOIFI Accounting Standard no 2)

History of Takaful The History of Takaful Muslim jurists acknowledge that the basis of shared responsibility in the system of "aqilah" as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance. Islamic insurance was established in the early second century of the Islamic era when Muslim Arabs expanding trade into Asia mutually agreed to contribute to a fund to cover anyone in the group that incurred mishaps or robberies along the numerous sea voyages (marine insurance).

‘ Aqilah’ During the Prophet (s.a.w): approved such practice; “narrated by Abu Hurairah (r): he said that once two women from ‘Huzaili’ clashed when one of them hit the other with a stone which killed her and the fetus in the victim’s womb. The heirs of the victim brought an action to the court of The Holy Prophet (s.a.w), who gave a verdict that the compensation for the foetus to be a male or female slave while the compensation for the victim woman is a blood money (diyat) to be paid by the ‘Aqilah’ (the paternal relatives) of the killer.” Sahih al-Bukahri

Concept of Takaful The Concept of Takaful is acceptable in Islam for the following reasons: 1) The policyholders would co-operate among themselves for their common good. 2) Every policyholder would pay his subscription in order to assist those of them who need assistance. 3) It falls under the donation contract which is intended to divide losses and spread liability according to the community pooling system.

Concept of Takaful 4) The element of uncertainty is eliminated insofar as subscription and compensation are concerned. 5) It does not aim at deriving advantage at the cost of other individuals.

Concept of Takaful indemnity KAFALA TAKAFUL TAKAFUL= participants mutually contribute to the same fund with the purpose of having mutual indemnity in the case of harm Mutual indemnity Mutual protection

The Principles 0f Takaful 1) Its operations = Shariah principles. 2) Its operations = based on al-Mudharaba, alternative to Riba. 3) Its operations = supervised by independent body called the Shariah Supervisory Council. 4) Maintain utmost good faith in Takaful operations.

What Is Wrong With Conventional insurance Purpose; to provide protection Very noble and Islamic BUT Modus operandi problematic ribaghararmaysir

Gharar Al-Sarakashi said ‘ gharar is what whose consequences are hidden’ Ibn Hazm said ‘ gharar is where the buyer does not khow what he bought, or seller does not know what he sold’

Riba or usury Riba means axcess, increase or growth Riba means every excess return of which no reward or equivalent counter value is paid Riba al- buyu’= riba or excess which occurs in trading transaction Riba al-duyun= riba or excess which occurs in debt anf loan transaction

Maysir or gambling Gambling is a zero sum game The element maysir is attribute to the act of purchasing the policy with the hope of getting more in term of compesation if any of perils were occur (similar with a lottery ticket-hope- winning the jack pot)

Conclusion Takaful is no buying and selling policy. Takaful is a contribution by way of donation by the participants to the pool of funds for the purpose of mutual in deminity among pacticipants

Case study Ali buys a life insurance for himself. He is paying RM200 monthly as premium. He is supposed to pay for 30 years. The policy says that if Ali dies or suffer from permanent disability, the insurer will pay up to RM