TOPIC1 -ins284.pdf

INTRODUCTION TO TAKAFUL TOPIC 1 INSURANCE IN THE LIGHT OF ISLAM “It’s a community pooling, to alleviate the burden of the individual against a future mishap, loss or emergency, the incident which cannot be foreseen” OBJECTION OF MODERN CONTRACT OF INSURAN...

INTRODUCTION TO TAKAFUL TOPIC 1 INSURANCE IN THE LIGHT OF ISLAM “It’s a community pooling, to alleviate the burden of the individual against a future mishap, loss or emergency, the incident which cannot be foreseen” OBJECTION OF MODERN CONTRACT OF INSURANCE Wagering contract Gambling Interest (Riba)  OBJECTION OF MODERN CONTRACT OF INSURANCE Uncertainty (Maisir) In Life insurance, premium is indeterminate (not knowing for how long to pay the premium) Insurance companies invest the premium in interest bearing securities  THE CONCEPT OF TAKAFUL The concept of Takaful is rooted Takaful operates on the in Islamic principles and is principle of mutual cooperation The word "Takaful" is derived designed to provide insurance and shared responsibility similar from the Arabic root "kafala," and risk management solutions to the practice of ‘aqilah in the which means to guarantee, in a manner that is consistent payment of blood money or help, or mutually assure. with Islamic ethics and Shariah diyyah under the Arab tribal law., custom  AL-AQILAH The Paternal relatives who pay the blood money. The doctrine of al-‘Aqilah had been practiced among the ancient Arab tribes, in which it was an implied mutual agreement among the tribes that, if anyone is killed unintentionally by a person of different tribes, the slainer’s paternal relatives used to take responsibility to make a mutual contribution to pay the blood money on behalf of the slainer, to the victims; relatives. This doctrine later got recognition by the Porphet (saw) in one of his judgments against a woman from the tribe of Huzail. This is a foundation doctrine based on which today’s Islamic insurance practices have been developed.  THE CONCEPT OF MUAMALAH All transactions are justice is Muamalat is also the concerned with the affairs procedure or rules of of the world, about the human relationships among activities of one's life, such people to meet their needs as buying and selling, barter and based on the laws of system, borrowing and Allah S.W.T involving lending, and so on. economic and social Islam.  DEFINITION OF TAKAFUL Takaful, an Arabic word meaning “guaranteeing each other”, represents the concept of insurance based on mutual cooperation and solidarity of people participating in a takaful scheme, whereby a group of participants agrees to jointly guarantee among themselves against a defined loss.  FEATURES OF TAKAFUL Risk Sharing (Mudarabah): Takaful operates on the Ownership and No Riba (Interest) or principle of Governance Gharar (Uncertainty) cooperation and shared risk Underwriting and Risk Risk and Profit Sharing Assessment  THE OPERATION OF TAKAFUL Participants in a Takaful arrangement collectively This fund is used to cover In the event of a covered pool their resources by potential losses or claims loss, participants share the contributing premiums or that may arise from financial burden contributions to a covered risks. collectively. common fund.  THE OPERATION OF TAKAFUL Takaful funds are invested in Shariah-compliant assets, Takaful operators are expected meaning they avoid investments to maintain transparency in their in sectors or businesses that are operations and financial considered non-compliant with reporting. They are accountable Islamic law, such as alcohol, to participants and must adhere gambling, or pork-related to Shariah principles. activities.  OPERATION OF TAKAFUL COMPANY Takaful Operator: A Takaful Participant Contribution: operator, also known as the Individuals and businesses Mudarib or manager, administers Risk Sharing and Pooling: seeking insurance coverage the Takaful scheme. The Participants collectively pool become participants in a Takaful operator is responsible for their contributions into the scheme. They are required to managing the fund, investing the Takaful fund. contribute premiums or contributions, and handling contributions to a common fund. claims and administrative tasks. OPERATION OF TAKAFUL COMPANY Risk Assessment and Surplus Sharing: Any surplus Shariah Compliance: The Underwriting: Risk assessment is funds generated from the Takaful operator is responsible conducted according to Takaful fund, often through for ensuring that all aspects of Shariah principles, and profitable investments, are the operation are Shariah- participants are charged shared among the compliant. contributions based on their participants and the Takaful risk profiles. operator by pre-agreed ratios. OPERATION OF TAKAFUL COMPANY Claims Settlement: Claims Ownership and are evaluated and paid Governance: Participants from the Takaful fund, in a Takaful scheme are ensuring that the financial considered co-owners of burden of the loss is shared the Takaful fund. among all participants. THE HISTORICAL DEVELOPMENT OF TAKAFUL Modern Revival Marine Takaful in the Early 17th Islamic Century Practices Early Islamic Practices The first constitutions in the It was meant for the people In the time of the Prophet Muslim world, which was of Madinah i.e. the Muhammad (peace be prepared by the Holy Muhajirin, the Ansar, the upon him), a form of mutual Prophet Muhammad (saw) Jews, and the Christians. It assistance called "Aaqilah" soon after his migration to included and introduced a existed. Madinah in 622 CE kind of social insurance. Early Islamic Practices Through the payment of fidyah (ransom): The Holy Prophet Muhammad (saw) also enacted a provision in the first constitution Through the practice of al-Diya: Such al- that was concerned with rescuing the lives Diya or blood money was supposed to be of prisoners and stated that should any paid by the ‘Allah’ (i.e. close relative of the person be made a prisoner of war by the killer) to the heirs of the deceased (victim) enemy, the al-‘aqilah’ of the prisoner shall to rescue the killer from the legal burden. contribute ransom to be paid to the enemy to enable the captive to be freed. Such a contribution could be considered as another form of social insurance. Marine Takaful in the 17th Century In this system, merchants The historical development and traders from the Islamic of Takaful as a structured world would pool their If a loss occurred, the insurance system is often resources to collectively participants would share the attributed to the practice of insure their goods and financial burden. "Marine Takaful" in the 17th vessels against risks during century. maritime trade. Modern Revival Takaful companies and cooperatives were established in The development of the Islamic different Muslim-majority countries The modern concept of Takaful financial industry and the increasing to offer Islamic insurance solutions. began to take shape in the mid- awareness of the need for Shariah- One of the earliest Takaful 20th century. compliant insurance options led to companies, "Islamic Insurance a revival of Takaful practices. Company of Sudan," was founded in Sudan in 1979. END