CHAPTER_1 INTRO TO TAKAFUL
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Transcript of 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
Holy Prophet (s.a.w.) (cont.)
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
Holy Prophet (s.a.w.) (cont.)
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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Origin and Development
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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Origin and Development
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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Origin and Development
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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Origin and Development
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).