Credits go to original writers.

1. 1
Chartered Islamic Finance Professional (CIFP)
Part B
TK2002
Takaful and Actuarial Practices
Conflict and legal Issue Of Takaful in Malaysia and
Whether or not, it is the best practice in dual system of
Takaful/Insurance according to other markets.
Student Name: Abdullahi Aweis Sheikh Maki
Student ID: 1200486
Instructor: Dr. Shaikh Hamzah Abdul Razak
Semester January 2014

2. 2
Conflict and Legal Issue Of Takaful in Malaysia and Whether or not, it is the best practice in
dual system of Takaful/Insurance according to other markets.
Abdullahi Aweis Sh. Maki
Abstract
Takaful in Malaysia is new industry emerged for the last decades and became popular in the
world market today, since its new and passed away different stages and still in progress to
solve some main issues and conflict arisen in the developing stage. Conflict and legal issue is
one of the issues among other related to the Takaful or Islamic Insurance which is not fully
solved but some significant effort paid to eliminate these problems. Malaysia Takaful Act
1984 is the first act governed by Malaysia Takaful industries. This Act is not comprehensive
principles because still relies on other established Acts. Malaysia now seems to be the best
country hopes to succeed the practice of dual system of Takaful/Insurance in terms of others.
Key terms of the research
1. Takaful 2. Legal issue 3. Dual system 4. Common law
Objectives of the research:
This term paper aims to discuss the legal conflict of Judiciary system in Malaysia's Takaful
and the effectiveness of dual system of Takaful whether the practice of Takaful is the best
one or not according to others.

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Table of Content
1 Introduction.........................................................................................................................4
2 Concept of Takaful …………………………………………………………………….....5
3 History and Development of Takaful in Malaysia ……..........……………………………6
4 Legitimacy of Takaful ...........................................……………………………………….9
5 Issue and Challenges of Takaful in Malaysia ...………………………………………….10
5.1 Regulatory Framework.................................................................................................14
5.2 Issue of Shariah in Takaful..........................................................................................15
5.2.1 Issues of nomination and hibah.......................................................................15
6 Conclusion……………………………………………………………………..................19
7 References..........................................................................................................................20

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1. Introduction
The word “Takaful” originates from the Arabic word Kafalah, which means "guaranteeing
each other" or "joint guarantee“. In this modern world, Takaful is commonly referred to as
Islamic insurance even some people claim it as not an insurance contract. Takaful, as
practiced nowadays, is near to investment contract compared to insurance or pooled fund
contract. Technically, Takaful is based on principles of mutuality and co-operation,
encompassing the elements of shared responsibility, joint indemnity, common interest and
solidarity.
Generally, there are two types of Takaful products- General and Family Takaful. General
Takaful covers, among others, motor policy, fire, MRTT and group policy. On the other hand,
Family Takaful is meant to secure the family conditions if anything happen to the head of the
family in the future. In addition, it also designs to create savings and assist future expenses on
strategic fields such as child’s education. Takaful business in Malaysia is governed by
Takaful Act 1984 which provides for the regulations of Takaful business in Malaysia.1
In Malaysia, cases on Islamic banking and Takaful are under the civil courts jurisdiction. This
development is due to the fact that Islamic banking and Takaful are considered as under the
item „finance‟ provided in the First List, 9th. Schedule of the Federal Constitution. In this
respect, the Syariah courts only have jurisdiction to hear any cases that fall within the State
List in the Federal Constitution and this excludes any Islamic financial disputes/cases.
Banking as well as the incorporation and regulation of corporation falls within the Federal
List.2
As in the case of Bank Islam Malaysia Berhad v. Adnan Bin Omar [1994] 3 CLJ 735
(HC); [1994]3 AMR 44 (HC), it was argued by the Defendant that the civil courts had no
jurisdiction to hear Islamic banking cases.
The Financial Mediation Bureau (FMB) was established under the general purview of BNM,
and it is considered an integrated dispute resolution centre specifically meant for small
claims, disputes, and complaints involving financial services providers and their customers.
1
http://ccsenet.org/journal/index.php/ass/article/viewFile/28616/17123 Accessed 6 April 2014
2
http://www.aija.org.au/NAJ%202010/Papers/Hamid%20A.pdf accessed 6 April

5. 5
The jurisdiction of FMB with particular reference to Takaful disputes relates to all family
Takaful claims and general Takaful claims. There is a mandatory ceiling on claims,
complaints, or disputes relating to financial loss. For motor and fire Takaful, the amount
must not exceed RM200,000 (circa USD66,666), while for third party property damage, the
ceiling is put at RM5,000 (circa USD1,666). For any other disputed claim, the amount
should not exceed RM100,000 (circa USD33,333). Time barred claims, complaints or
disputes as a result of the operation of an extant law are excluded from the jurisdiction of
FMB. These are expected to be referred to the court or arbitration for hearing and
determination (Segara, 2009).
The existence of dual system of Takaful/Insurance in Malaysia and its development has
significant in the world Islamic community. It has become a fast growing and developing
industry with great potential and has certainly evolved into a comprehensive system which
eliminates non-Shari’ah compliant features such as interest, uncertainty and gambling that
exist in the conventional insurance.
2. Concept of Takaful
Takaful is based on the concept of social solidarity, cooperation and mutual indemnification.
It is a pact amongst a group that agrees to donate contributions to a fund that is used to jointly
indemnify covered losses incurred by the members. While the concept of Takaful revolves
around mutuality and is founded on non-commercial basis, the operations and the fund are
commonly managed by a Takaful operator on commercial basis.3
Islam is not against the concept of insurance itself but against some of the means and
methods that are currently used in conventional insurance. In fact, the concept of mitigation
of risks by adopting the law of large numbers was widely used in Islam and especially in the
practice of “al-aqilah” described below. However, to be acceptable to Islam, any form of
insurance should avoid the elements of riba (interest), maisir (gambling) and gharar
(uncertainty), though elements of gharar may be forgivable depending on the circumstances.
3
The World Takaful Report 2012. Issued by Ernst & Young. Available online at:
http://uaelaws.files.wordpress.com/2012/04/the-world-Takaful-report-2012.pdf

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The concept of Takaful is very wide and clear. The concept of Takaful is to protect the
human being especially, when they are harm. It is nature, when one person is harm or in
danger, the rest of people will help that person who suffering the loss. Besides, it seems that
every person take care about others. Such a feeling of responsibility is being reinforced by the
Islamic teachings as found in the following injunctions:4
Allah SWT precisely explains in the Qur’an the human being should help each other when
they are in danger or need help. And there are a lot of verse in Qur’an that encourages human
being to help each other, these verse are, Surah Al‐ Maidah (5): 3 ,Surah Al‐ Maidah (5): 3
Essentially Takaful is a cooperative insurance where members are those who face the same
risk or danger of incurring losses and who willingly contribute a certain sum of money which
will be used to compensate those members of the group who incur such losses. As in the case
of ancient Arab tribal custom, every member of the tribe faces the same danger of being
inflicted harm by another tribe which is at war with them.
3. History and Development of Takaful in Malaysia
The development of the Takaful industry in Malaysia in the early 1980s was inspired by the
prevailing needs of the Muslim public for a Shariah-compliant alternative to conventional
insurance, as well as to complement the operation of the Islamic bank that was established in
1983. It was, to a large extent, triggered by the decree issued by the Malaysian National
Fatwa Committee which ruled that life insurance in its present form is a void contract due
to the presence of the elements of Gharar (uncertainty), Riba’ (usury) and Maisir (gambling).5
Riba: The amount received by the policyholder when an insured event occurs or upon
maturity of the policy is typically in excess of the total premium he has paid. Payments are
also deferred so when the compensation given by the insurance company is greater than the
installments paid by the policyholder, the surplus is regarded as riba al-fadl (due to excess)
and riba al-nasiah (due to delay).
Gharar: The subject matter of an insurance contract is unknown. Based on the insurance
company’s guarantee to compensate the policyholder in the event of a catastrophe, he agrees
4
Enguku Rabiah Adawiah Engku Ali, Hassan Soccot p. Odierno, Essential Guide to Takaful( Islamic
Insurance),2008, page 4-5.
5
http://www.bnm.gov.my/files/publication/tkf/en/2004/booklet.en.pdf accessed 22 May 2014

7. 7
to pay a certain premium but he does not know how much compensation he will be paid until
the actual catastrophe occurs.
Maysir: The policyholder are said to be betting premiums on the condition that the insurance
company will make payments should a specific event occur. However, the policyholder does
not get much from his premiums if the event does not happen. This is akin to the ‘zero-sum
game’ that is not allowed by Shariah.
The Malaysia Takaful Market has achieved commendable growth since its inception in 1984
when the first Takaful operator, Syarikat Takaful Malaysia was established under the Takaful
1982 to fulfill the needs of the general public to be protected based on Islamic principles.
Malaysia Takaful Fund assets is now about US$3 billion (RM9 billion) in 2007.
Table1.0 (Growth of Takaful in Malaysia)
Table 1.1

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Both Tables shows Clearly that uninterrupted growth in Takaful Industry in Malaysia
emerged for last decades when 12 Takaful Operators; 8 Composite licenses Total Gross
Contribution estimated at RM 5.7B in 2010, the total gross contribution has grown at a
compound rate of 23%over the past 7 years and for the past four years, over 75% of the total
contribution comes from family Takaful.
In Malaysia, the life insurance is considered as main source of revenue whose total premium
has increased by 4% from RM 7234.7million in 2008 to RM7524.4million in 2009. It is noted
that performance of Family Takaful industry is better than life insurance if the revenue
efficiency and cost efficiency (Cummins, Weiss, Xie & Zie, 2010). Furtherlion over the same
period. This indicates that the rate of growth of Takaful industry in terms of contribution or
premium is much faster than the insurance industry.6
One of the long experienced country in
the world uses Takaful is Malaysia.
6
http://www.globalresearch.com.my/journal/business_v03n01/0009_Article_306_Final_PG122_137.pdf

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The Malaysian Takaful industry has experienced rapid growth and transformation since its
inception 20 years ago. It has grown from an industry comprising of a single player with
limited basic products to become a viable industry that has been integrated into the
mainstream financial system. This was achieved through the concerted efforts of Bank
Negara Malaysia and the Takaful operators in developing a dynamic, resilient and efficient
Takaful industry.7
4. Legitimacy of Takaful
Takaful business is regulated under a specific Act, i.e. Takaful Act 1984 to ensure that the
business is run prudently without compromising the interest of the participants and the
industry.
Regulations from the Islamic finance standards setting bodies, AAOIFI & IFSB and the
global accounting reporting standards from IASB & IFRS, need greater convergence. This
standardization will make it easier for market regulators to provide a framework to regulate
the Takaful Operators.8
Some scholars argued that the legality of Takaful is permissible in
Islam when forbidden elements of Islam contracts removed.
Hashim, Suraiya and Shahidan, Asnida and Fadzim, Wan Roshidah (2005) argued that the
idea behind the concept of the Takaful is not objectionable to Islam principles. They further
argued that the Prophet Muhammad S.A.W himself participated in self-help funds, common
in pre-Islamic caravan traders. There is no disagreement between Shari’ah scholars on the
permissibility and legitimacy of the Takaful. The Fiqh Council of Organization of Islamic
Conference (1985) in Jeddah, Kingdom of Saudi Arabia has resolved that Takaful is
permissible and consistent with the Shari’ah principles. Dr. Wahbah Zuhayli said:
“There is no doubt that Islamic Cooperative Insurance (Takaful) is permitted in Islam
because it is part of contracts of donations and is considered cooperation for righteous deeds.
Every subscriber pays his or her subscription willingly to mitigate the impact of risks and
recover damages which policyholders incur."
7
http://www.bnm.gov.my/files/publication/tkf/en/2004/booklet.en.pdf accessed 1 April2014
8
Ernst&Young's_TheWorldTakafulReport2012

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5. Issue and Challenges of Takaful in Malaysia
At the point of discussing the issue and challenges of Takaful in Malaysia, there are few
challenges and issues that mainly faced Takaful industry especially when they are operating
within a dual banking and insurance regime. Some of the challenges are as follows:-
o Development of human resource
o Lack of awareness
o Regulatory framework
o Solvency and capital requirement
o Cooperate governance
o Shortage of shari’ah-compliant assets
o Distribution channel
o Lack of standardization
o Re- Takaful
Some of these issues and challenges related legal and law of Islamic Insurance or Takaful
will be deeply discusses in this paper and some of the main arguments will be focused and
finally recommendation about it will be suggested.
Legal system of Takaful in Malaysia had arisen an arguments related to courts because
Malaysia civil court mainly hears Takaful cases as compared to Sharia courts, what Sharia
court handles Islamic Personal and Family law such as marriage, divorce, guardianship,
maintenance, adoption, legitimacy, family law, gifts or succession, testate and intestate
(Federal Constitution, 2006). While civil and criminal procedure and the administration of
justice, contracts, arbitration, mercantile laws that obviously included insurance and Takaful
is handled by Civil court.
In Malaysia, Takaful (Islamic insurance) business is governed by the Takaful Act 1984. The
Act provides for the regulation of Takaful business in Malaysia and for other purposes related
to Takaful. Whilst the Governor of the Act is the Central Bank of Malaysia, the Act also
makes a provision by virtue of Section of 8 (5) (b) that all Malaysia Takaful operators must
be supervised by the Shariah Advisory Council (SAC), also known as Shariah Supervisory
Council, to advise the operators on their Takaful business to ensure that they do not involve
in any element which is not approved by Shariah (Bank Negara Malaysia, 2012). In the new
Central Bank of Malaysia Act 2009, the role and functions of the SAC was further reinforced
whereby the SAC was conferred the status of the sole authoritative body on Shariah matters

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pertaining to Takaful, Islamic banking and Islamic finance. While the rulings of the SAC
shall prevail over any conflicting ruling given by a Shariah body or committee constituted in
Malaysia, the court and arbitrator are also required to refer to the SAC rulings for any
proceedings relating to Islamic financial business, and such rulings shall be binding
(precedent).9
Islamic law was only applicable to Muslims and, even then, restricted only to matrimonial
matters, inheritance and in regard to the administration of mosques, waqf and the like.10
Islamic banking cases come under the Federal List since it refers to commercial dealings,
even though it actually falls under the purview of Islamic law. In line with this long argument
by Syariah experts and practitioners in Malaysia, the government has taken proactive effort in
setting up an Islamic bank in Malaysia and consequently, the disputes in these Islamic cases
will be settled by Muamalah Division. The establishment of a Muamalah Division within the
civil courts system by the Practice Direction dated 6 February 2003 issued by the Chief Judge
(the Practice Direction – Arahan Amalan No. 1/2003, Pendaftaran Kes-Kes Muamalat di
Mahkamah (Kod Pengklasan) is of great significance to Islamic banking and Takaful
industries in dealings with their disputes. Mohamed Ismail Bin Mohamed Shariff, the
Counsel for the Bank Islam Malaysia Berhad in the first case involving this kind of dispute in
the case of Bank Islam Malaysia Berhad v. Adnan Bin Omar [1994] 3 CLJ 735 (HC);
[1994]3 AMR 44 (HC) once said that the setting up of the same is long overdue and comes
about 9 years after the first call was made for such a bench to be set up. He once said in 10th
Malaysian Law Conference held from 28th to 30th November 1994 (the 10th MLC Paper),
expressed the following words:
“It is the writer‟s view that an Islamic law bench or Division within the High Court
system ought to be established. Cases that involve Islamic law can then be dealt with by this
Bench or Division. With the establishment of an Islamic law Bench or Division the
development and application of Islamic law can be done in a more systematic and consistent
manner. It will also promote specialisation in that area of law among lawyers and judges.
The great advantage of this would be well-researched legal arguments or submissions
9
Available on line, accessed on 8 April 2014
http://www.globalresearch.com.my/journal/business_v03n01/0009_Article_306_Final_PG122_137.pdf
10
http://www.law.harvard.edu/programs/ilsp/events/Harmonization

12. 12
presented by counsel appearing in these courts and consequently fully reasoned judgments
written by the Judges”.
According to the Practice Direction No. 1/2003, paragraph 2, all cases under the Code 22A
filed in the High Court of Malaya will be registered and heard in the High Court Commercial
Division. This Special High Court will only hear Islamic banking cases and not conventional
cases. This directive is also applicable to all High Courts, 11 Sessions Courts and
Magistrates‟ Courts in Malaysia with effect from 6 February 2003 which means that Islamic
banking cases will be registered using new code as follows:
Court High Court Sessions Court Magistrate’s
Court
Code 22A 52A 72A
However, in those courts other than the Muamalah Bench in High Court of Kuala Lumpur,
Islamic banking cases will be dealt with by the same judge or magistrate who is dealing with
conventional banking and commercial cases which are registered using Code 22 (High
Court), Code 52 (Sessions Court) and 72 (Magistrate‟s Court) and any other cases registered
in those courts.11
Main Factors which is making the issue worse is that some fundamental acts are silent an
hence need apply other written:
1) Insurable Interest
Similar to conventional insurance, the issues of ‘insurable interest’ and uberrimae fidei
(utmost good faith) are equally valid in Takaful contract. The nature of family Takaful is such
that the issue of insurable interest is automatically taken care of since the participant himself
is both the covered person and the certificate holder. However, in case of general Takaful
(such as fire, accident and motor certificates), even though the Takaful Act 1984 is silent on
insurable interest, yet the general provisions of the Contract Act 1950 against wagering
contracts is applicable to these contracts requiring the participant to show sufficient interest
in the subject matter, both at the inception and the time of loss. The principle of uberrimae
fidei is emphasized equally under the Islamic law of contract and its rules regarding honesty,
11
http://www.aija.org.au/NAJ%202010/Papers/Hamid%20A.pdf online available resource

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full disclosure, truthfulness and utmost good faith. Non-compliance of these makes the
contract, including Takaful contract, void.
2) Assignment of the contract
Since the Takaful Act 1984 does not allocate any specific provision on this, the existing
Common Law is applicable. For example, motor Takaful certificate does allow the participant
to validly reassign or transfer the ownership of the certificate to new participant, provided the
Takaful operator has consented. This is basically replicating the same rules in insurance, on
which is based on the English Common Law. A sample English case law on the assignment is
Peters v General Accident Fire & Life Assurance Corporation Ltd (1938).
3) Valued Policy
A valued policy is the policy which specifies the agreed value of the subject matter insured.
In the case law of Teng Gia Hwa & 1 or v Syarikat Takaful Malaysia Bhd (2010), the judge
issued the verdict based on the English law of Marine Insurance Act 1906 since there is no
provision in the Takaful Act 1984. Syarikat Takaful Malaysia at the point of Takaful
application had accepted the valued policy of the participant’s vessel at RM 500,000,
however disputed to pay the sum after the vessel was missing. The judge opined that it is
allowed by the Common Law to presume the actual loss of the vessel.
The above lists are not exhaustive and it might require an in-depth study to ascertain the
whole gap of Takaful Act 1984 in relation to Common Law. The main point to be highlighted
here is that the Common Law is still applicable in Takaful cases despite of the existence of
Takaful Act 1984 and the Shariah Advisory Council.12
Takaful business in Malaysia is governed by Takaful Act 1984 which provides for the
regulations of Takaful business in Malaysia. However, the Act itself is not comprehensive
and still relies on many other established Acts that mostly based on the principles of English
Common Law.
12
http://ccsenet.org/journal/index.php/ass/article/viewFile/28616/17123 accessed by 6 April

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5.1 Regulatory Framework
One of the serious challenges that Takaful face mostly is regulatory framework, to establish a
suitable framework is usually takes long process and sometimes it happed that the scholars
will not agree each other. So in order to place Takaful in good place, it is appropriate that all
the scholars should take the responsibility to regulate and supervise all the framework of
Takaful.
In some countries there is dual financial system, so that statutorily required of the
conventional financial system such as good governance, compliance of regulations and other
provisions should also be applicable to the Islamic financial system. In some reason of
Takaful, the legislative may require a minimum solvency margin in order to impose on
conventional insurers should also be applied to Takaful. Such requirement can only be
effected by law. With a proper legislative framework, it would also enable the authority to
regulate whole gamut.
Besides that, Takaful industry is growing, and of course there are a lot of challenges that
could possibility face and put obstacle the progress of Takaful industry. Therefore, there is
wide disagreement between the scholars in terms of regulatory framework and many other
issues. These disagreements are based on different issues, for example, the issue of different
regions.
This regional dispute is mainly passed on the practice of Takaful, for example, Malaysia
wants to be more liberal and also combine modern conventional concept with Takaful
framework, while in middle east countries are more conservative, and they are not want to
deal with modern conventional insurance with Takaful framework. According to this debate,
it seems that every region practice its own system of believe that regarding the concept of
Takaful framework. And sometimes, it’s hard to be transferred one concept of Takaful that
one region practice to the other region. In addition, there is also debate that about the model
of Takaful is being practiced by specific region. There are various models that adopted in
different regions in Takaful industry. These various are mainly caused by different
interpretation of scholars. 13
13
Islamic Financial Services Board, International Association of Insurance Supervisors, Issues in Regulation
and Supervision Of Takaful (Islamic Insurance), August 2006.

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5.2 Issue of Shariah in Takaful
Takaful means ‘guaranteeing each other’ and is based on the principles of ‘Ta’awun’ (mutual
co-operation) and ‘Tabarru’ (donation), where a group of Takaful participants
(policyholders) agree between themselves to share the risk of a potential loss to any of them,
by making a donation of all or part of their Takaful Contribution (premium) to compensate
for a loss. Compared to conventional insurance’s risk transfer, Takaful implies risk sharing
framework where all the Takaful participants share the risks together.
The word “Takaful” originates from the Arabic word Kafalah, which means "guaranteeing
each other" or "joint guarantee“. In this modern world, Takaful is commonly referred to as
Islamic insurance even some people claim it as not an insurance contract. Takaful, as
practiced nowadays, is near to investment contract compared to insurance or pooled fund
contract. Technically, Takaful is based on principles of mutuality and co-operation,
encompassing the elements of shared responsibility, joint indemnity, common interest and
solidarity.
There are four underlying principles of Takaful which are;
1. Ta’awun ( Taawun is mutual help of a group of people.
2. nomination Tabarru’ (Tabarru’at is willingly relinquishing individual rights over the
contributions paid, for collective benefits).
3. Losses are divided and liabilities spread according to the community pooling system.
4. It does not seek to derive advantage at the cost of others.
5.2.1 Issues of nomination and hibah
Nomination is the process of appointing a person or persons to receive the Takaful benefits as
conferred on the Takaful participant by the certificate in the event of the death of the
participant (Azman, 2009). Hibah and in Takaful are also issues in Shariah. There are some
parts of these two areas which raise questions from the Shariah perspective. Hibah is an
Islamic contract based on the voluntary transfer of a property from a donor to a receiver without any
form of compensation in return from the receiver. The conditions for the application of hibah are that
the donor and receiver should be living individuals and the property must exist in the time of the
contract. The word hibah is commonly translated in English in “gift”. The major issue regarding
nomination is the status of the nominee – whether he is the sole beneficiary or simply an executor.

16. 16
There are two major views regarding the status of nominee. One view holds that the Takaful benefits
are the wealth of the deceased and hence a part of his estate to be distributed according to Fara’id and
thus only his legal heirs can be nominated. The other view holds that the participant can gift the
Takaful benefits to anybody as a Hibah and hence can nominate anybody (Noor, et al, 2008).
Another issues is about the legitimacy of the application of the concept of hibah (as it is
intended in the Islamic Law) in Takaful nomination and if the nominee is considered as sole
beneficiary of the Takaful benefits or as an executor. The other one issue is whether the
nominee can receive the Takaful benefits gifted to him through the hibah concept or he
should only act as an executor and distribute the benefits among the legitimate heirs as part of
the deceased estate. And, lastly, the issue is whether the hibah of the Takaful funds can be
revoked from the Takaful participant without the consent of the nominee or the trustee.
Ismail (2009) mentions also that some Takaful companies do not distribute Takaful proceeds as
hibah leaving participants without this option. He explains that most likely their Shariah committees
arenot of this view, most probably their argument is that the proceeds did not existed at the time of
hibah formulation by the participant, therefore as a contract the hibah cannot be executed and hence
the contract is void. Most probably in their opinion such contracts contains gharar and therefore they
are haram. However, this position is not unanimous because according to the majority of jurists the
presence of gharar does not affect hibah contracts but only sales contracts. Not only, some properties
that are not classifiable to be sold because they contain elements of gharar (e.g. the unborn cattle, the
fish still in the sea, etc.) they can instead be gifted. Therefore, inthe some jurists’ opinion, the Takaful
proceeds whether they contain elements of gharar or not, they can be gifted.
Unlike the practice of conventional insurance to pay the insurance benefits of a life insurance
plan to the nominee, in Islam there are differences of opinion regarding the legitimacy of the
nominee to access these benefits. In Malaysia the Takaful operator is not forced by the law to
pay the Takaful benefits to the nominee whether he is entitled or not. However, the
Malaysian Court sentenced differently in front of similar cases: in one case the Court decided
that the nominee is only an executor and in others the nominee was considered the sole
beneficiary.
The second issue hibah is used in the Family Takaful products offered by some Takaful
operators. In Malaysia the first Takaful operator to offer it is Takaful Ikhlas in its Family
Takaful product. The Company gives the participant the possibility to give away the Takaful
benefits in the event of his death in a form of hibah . However it restricts the choice to the
legal spouse, parent, sibling and/or children.

17. 17
However, Noor and Abdallah evidenced also that this type of Takaful contracts are unilateral
contracts (tabarru’at ) and create an obligation upon the Takaful company to pay a financial
assistance to the nominee appointed by the policyholder in case of his death, on behalf of the
other participants from the tabarru’ fund, who are the legitimate owner of the fund, not of the
Takaful operator and not the participant either. Therefore, the choice to select whom to be
paid is freely left to the deceased. This results in accordance with the objectives of the
Takaful and the reason why a participant can appoint a beneficiary. Hence, it legitimates the
opinion of those who believe that hibah should be given to the nominee if the deceased has
not specified the role of the nominee as an executor.
However, it is also argued that, although this Takaful contract falls into the category of
unilateral contracts, it is still the participant that creates the purpose that generates the
Takaful benefits. Therefore, effort legitimates ownership. Hence, the Takaful benefits should
be subjected to tarikah and the nominee role is to execute that.14
In practice, the application of Hibah in Takaful products leads to an issue. The issue arises
between the legal heirs and the donee regarding the Takaful benefit. The reason may be due
to lack of knowledge on the application of the concept of Hibah. There are different opinions
regarding the application of Hibah in nomination.
14
Noor and Abdallah (2008).

18. 18
The below table shows Some Takaful Operators in Malaysia treats nomination of Muslim and
Non - Muslim participants with summary report.
Nomination in Practice.

Takaful Operator
Nomination
Muslim Participants Non-Muslim Participants
Syarikat Takaful Malaysia
Berhad
No clarification on the
distribution of the Takaful
Benefits

Takaful Ikhlas Sdn. Bhd.
Hong Leong Tokio Marine
Takaful
The nominee is responsible
to distribute the Takaful
benefits to the legal heirs in
accordance with the Islamic
law of inheritance (faraid).
Subject to Section 65 of the
Takaful Act 1984 and any
order from the Shariah
courts.
The Takaful benefits shall be
distributed to the nominees
upon certain percentage of
shares provided in the
nomination form
CIMB Aviva Takaful No clarification on the
distribution of the Takaful
benefits. The notes on trust
provided in general terms.

Etiqa Takaful Berhad
Prudential BSN Takaful
Berhad
MAA Takaful Berhad
The nominee is responsible
to distribute the Takaful
benefits to the legal heirs in
accordance with the Islamic
law of inheritance (far aid).
Subject to Section 65 of the
Takaful Act 1984 and any
order from the Shariah
courts.
The nominees shall receive
the Takaful benefits
according to the percentage
of shares provided in the
proposal form which is
subject to the Distribution
Act 1958
HSBC Amanah Takaful
(Malaysia) Berhad
The nominee is responsible
to distribute the Takaful
benefits to the legal heirs in
accordance with the Islamic
law of inheritance (far aid).
Subject to Section 65 of the
Takaful Act 1984 and any
order from the Shariah courts
Appointment of the trustee
on behalf of the beneficiaries
upon the trust created. The
trustee shall carry out the
responsibility to distribute
the Takaful benefits to the
beneficiaries named

19. 19
6. Conclusion
Takaful Business Act in Malaysia was set for the first time in 1984 mostly derived from
common law which is applicable to Shariah, in generally common law is the essential law in
Malaysia which hears civil and criminal cases and the administration of justice, contracts,
arbitration, mercantile laws that obviously included insurance and Takaful is handled by Civil
court. While Islamic Law restricted only to matrimonial things, inheritance, and in regard to
the administration of mosque, waqf and etc.
For father effort and the development made by Malaysia government leads Takaful industry
in Malaysia to have its own step forward to solve the dispute of Islamic cases either Islamic
banking and Takaful industries with in Muamalah Division within the civil court system.
Under Muamalah division, Many of legal issue can be solved according to shariah principles.
As well as, Financial mediation (FMB) is another one established under the general purview
of BNM and solves claims, disputes, and complaints involving financial services providers
and their customers.
In my view, dual system of Takaful/Insurance in Malaysia has significant in locally and
widely in the industry and the economic at all. It has become a fast growing and developing
industry with great potential and has won to service either Muslim and Non Muslim clients
with their option to choose conventional and Islamic Insurance.
World leading country of Takaful is Malaysia, when emerged and handled number of Takaful
operators that have taken an active role of the market.

20. 20
7. References
http://ccsenet.org/journal/index.php/ass/article/viewFile/28616/17123 Accessed 6 April 2014
http://www.aija.org.au/NAJ%202010/Papers/Hamid%20A.pdf accessed 6 April
The World Takaful Report 2012. Issued by Ernst & Young. Available online at:
http://uaelaws.files.wordpress.com/2012/04/the-world-Takaful-report-2012.pdf
Enguku Rabiah Adawiah Engku Ali, Hassan Soccot p. Odierno, Essential Guide to Takaful(
Islamic Insurance),2008, page 4-5.
http://www.bnm.gov.my/files/publication/tkf/en/2004/booklet.en.pdf accessed 22 May 2014
http://www.globalresearch.com.my/journal/business_v03n01/0009_Article_306_Final_PG12
2_137.pdf
http://www.globalresearch.com.my/journal/business_v03n01/0009_Article_306_Final_PG12
2_137.pdf
http://www.law.harvard.edu/programs/ilsp/events/Harmonization
http://www.aija.org.au/NAJ%202010/Papers/Hamid%20A.pdf online available resource
http://ccsenet.org/journal/index.php/ass/article/viewFile/28616/17123 accessed by 6 April
Islamic Financial Services Board, International Association of Insurance Supervisors, Issues
in Regulation and Supervision Of Takaful (Islamic Insurance), August 2006.
Noor and Abdallah (2008).