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  • 1. www.acrretakaful.com Overview of Takaful & Prohibited Elements SHARIAH TRAINING PROGRAMME Muhamad Ilyas / Shariah officer
  • 2. Takaful Guaranteeing each other / Joint Guarantee / Share Responsibility / Mutual Guarantee / Mutual Support It is a system of Islamic insurance, based on the principle of Ta’awun (mutual assistance) and Tabarru’ (Donation) where the risk is shared collectively by all participants voluntarily. 2 Confidential
  • 3. Takaful • A scheme based on brotherhood, solidarity and mutual assistance which provides mutual financial aid and assistance to the participants who mutually agree to contribute for that purpose. • This is a pact among a group of members or participants who agree to jointly guarantee among themselves protection against loss or damage to any of them as defined in the pact. 3 Isla 12/16/2013
  • 4. Basis and Maqasid (Objective) 1. ." Help you one another in Al-Birr and At-Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression. ". (Al-Quran) 2. “fortunate many helping the unfortunate few". (Principle) 3. “Set up a fund box to help members who face hardship due to death of their breadwinner” (Principle) 4 Isla 12/16/2013
  • 5. Comparison Insurance Insurance is a contract between two parties, whereby one party agrees to undertake the risk of another in exchange for consideration known as premium, and promises to pay a fixed sum of money to the other party on happening of an uncertain event or after the expiry of a certain period. The party bearing the risk is known as the insurer. The party whose risk is covered is known as the insured. Takaful Takaful is based on the principle of Ta’awun (Mutual Assistance) and Tabarru’(Gift, Give away, Donation), 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 protection against loss or damage to any of them as defined in the pact 5 Confidential
  • 6. Takaful Comparison on commercial factors Based solely Insurance Based on mutual cooperation Tabarru’ Contract Free from Riba (interest), Gharar (uncertainty), and Maysir (gambling) Includes elements of interest, uncertainty and gambling All or Part of the contribution paid by the Participant is a donation to the Takaful Fund, which helps other Participants by providing protection against potential risks The premium is paid to conventional insurance companies, and it is owned by them in exchange for bearing all expected risks There is a full segregation between the Participants’ Fund account and the Shareholders' Fund accounts Premium paid by the Policyholder is considered as income for the company, and belongs to the shareholders Claims paid from Participants’ fund Claims paid from Company's fund In case of a deficit in the Participants’ Takaful Fund, the Takaful operator (Wakeel) provides interest-free loan (Qard Hasan) to the Participants’ Fund. (From SH Fund) 6 Buying and Selling Contract In case of deficit, the company bears it. Confidential
  • 7. Comparison Takaful Insurance Any surplus in the Takaful Fund is shared among Participants. The investment profits are distributed among Participants and Shareholders on the basis of Mudaraba or Wakala models All surpluses and profits belong to the Company/Shareholders only The Participants’ Fund and Shareholders’ Fund is invested in investment funds and channels that are Shariah compliant. The capital of the premium is invested in funds and investment channels that are not necessarily Shariah compliant. Takaful companies have re-insurance with Re-Takaful companies or with conventional re-insurance companies that adhere to certain conditions of Shariah. Conventional insurance companies do not necessarily have re-insurance with reinsurance companies that are Shariah compliant. Subject to the Governing law as well as a Only subject to the Governing law Islamic Law / Shariah Supervisory Board 7 Confidential
  • 8. Prohibited Elements No Element Meaning and Definition 1. Gharar, Khatar & Mayser Uncertainty , Risk & Gambling, • lack of knowledge about the contract (object, price, time of delivery). • Uncertainty about the existence and delivery of the object, or uncertainty about the outcome. • The inability to complete the sale, fairness in contracts including preventing the unjust devouring of people's wealth. (akl al-mal bi’l-batil) 8 Confidential
  • 9. Prohibited Elements No. Elements Meaning and Definition 4 Riba Interest • In Islamic terminology interest means effortless profit, or that profit which comes without compensation, or that extra earning obtained that is free of exchange • or a loan with the condition that the borrower will return to the lender more than / better than the quantity borrowed 5 9 Confidential Other It is forbidden to deal with something that is haram (forbidden) to eat or use. The Prophet (peace and blessings be upon him) is reported to have said, "If Allah makes consumption of something haram, He also makes dealing in such thing haram (impermissible).
  • 10. Conclusion Takaful The participation in a Takaful fund must be undertaken 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 the fund, to help him/her mitigate the loss or damage 10 Confidential
  • 11. Conclusion Takaful 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. 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 is allowed to charge a Management Fee (Wakala Fee) The Takaful Fund, consisting of the contributions paid as Tabarru, can further be invested by the Company based on Islamic principle of Mudarabah, and surplus will be shared on an agreed-upon ratio. 11 Confidential