International Shari’ah Research Academy
For Islamic Finance (ISRA)
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International Shari’ah Research Academy
For Islamic Finance (ISRA)
• Shariah basis is very important in the
contract of transferring ownership to
ensure that the transfer does not involve
elements prohibited by the Shariah, such as
Riba, Gharar and Baatil.
• The baatil includes gambling, deceiving,
forging etc.
       
Means: O ye who believe! eat not up your
property among yourselves in vanities – (Nisa’:
29).
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• Hence, a Shariah supported reason must be
present to take other people’s money.
Otherwise, it is bared to the prohibition of
Aklu Maal An-Naas bil Baatil.
• Allah swt said:
* The other contracts that can be found in Takaful operations is the contract of mutual
assistant between the participants.
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There are three contracts in takaful:
1. Contract between participant and fund: The money belonging to the participant is
transferred to the fund. In the current practice, it is based on Tabarru’. The participant as
the members of the fund can get benefit by the cover that the fund pprovides, i.e. if
certain risk events occur. Thus, the money belonging to the fund (legal person) is
transferred to the participant (when the risk events occur).
2. Contract between company and participant: The participant in a Takaful Contract is
considered as a muwakkil (principal) and the company as a wakil (agent) to manage the
participant’s money. The duties of the company as a wakil is as an agent of the participant,
i.e. to manage the fund, such as arrangement of contract, all administrative matters etc.
3. Contract between company and fund: Contract to invest the participants’ money. Thus,
the money belonging to the fund is transferred to the company, whether as a wakil (if the
contract is based on wakalah) or amil (if the contract is based on mudhorabah).
* The other contracts that can
be found in Takaful operations
is the contract of mutual
assistant between the
participants.
3
2
1
Participant
Risk Fund
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The 3 contracts transferring ownership in Takaful in Shari’ah
views.
1. Contract between participant and fund.
Takaful Operator
2.Contract between company and participant:
3.Contract between company and fund.
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• Contract to contribute the participant’s money is
based on tabarru’ or donation.
• The tabarru’ in current takaful practices is not pure
tabarru’, but the commitment to tabarru’.
• The difference between pure tabarru’ and
commitment to tabarru’ is on the timing of
transferring the ownership.
• In pure tabbarru’, the ownership of the mutabarri’
(donator) is not transferred by the absolute
contract wording, but transfer occurs by the
qabadh.
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• In the commitment to tabarru’, the ownership automatically
transferred to the mutabarra’ (donated person) by the absolute
contract. So, the Takaful operator as the agent of all participants
can claim the premium from the participants, based on the
contract signed.
• Thus, the Takaful operator can’t make a demand to the participant
to pay premium if the contract is based on pure tabarru’, because
the ownership absolute transfer when the participant deliver his
premium and delivery has not occur when the agreement was
signed.
• On the other hand, the Takaful Company can make a demand to
the participant to pay premium if the contract is based on
commitment to tabarru’, because the ownership has been
transferred when the agreement was signed.
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• There are various of Shariah basis to give benefit to the
participants:
a. Hibah bitthawab: It means donation with benefit. It is allowed
by the Maliki scholars, based on a Hadith by the Prophet saw
b. An-Nahd: It means that the people in a qabilah donate some
food and contribute it again based on Asy’ariyyin practices.
c. Muwalat contract: It means that a person promises to
another that he will cover him, i.e. to pay Diyyat when an
unintentional criminal act occurs – not a strong basis.
d. ‘Aqilah system: It means that a person obliges himself to bear
together the cost of a family’s Diyyat - not a strong basis.
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• The strong Islamic basis for participants to
benefit from the fund is either Hibah
Bitthawab or An-Nahd.
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• The benefit, such as covering for car accident and other
perils is as condition of hibah that is premium
contribution.
• The benefit conditioned by the donation or charity is
allowed in the Shariah.
• The differences between hibah bitthawab and sale and
purchase are Khiyar Aib (Defect Option), Majhul AlBadalain (uncertainaty in the exchanged item) and ruju’
(retraction).
• Somehow, the premium contribution is considered as
donation that is accompanied by the condition of
covering the risk considered as benefit is allowed.
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• Originally, the practice of An-Nahd is the practice of
the people in Qabilah Al-Asy’ariyyin to donate their
food and contribute it again.
• The scholars differ in their definition of An-Nahdu,
i.e. between fixed contribution, variable
distribution and fixed distribution, variable
contribution.
• The reality of An-Nahd in takaful practice is fixed
and variable contribution, based on the opinion
excerpted by Imam Ibnu Hajar in Fathul Bari.
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• The differences in the amount of
compensation may raise the issue of gharar
on compensation, however, the gharar here is
tolerated based on the abovementioned
contracts (An-Nahd and Hibah Bitthawab).
• This is based on Maliki’s Scholars as
mentioned by Imam Al-Hattob Al-Maliki in
Mawahib Al-Jaliil.
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• We can infer that giving donation to get benefit, such as covering the risk
etc is allowed by the Shariah, whether based on Hibah bitthawab or
based on An-Nahd.
• But when the contribution is money and the benefit is also money (either
more or less), and the beneficiary is the same contributor, it is not
allowed because of the element of riba.
• All Islamic scholars in all mazhab agreed that Hibah Bitthawab and AnNahd is not allowed in gold (Dirham) and silver (Dinar).
• Thus, any contract that the contributor is promised to get a fixed amount
must be reviewed because the application of that kind of promise is
considered as a ribawi contract.
• In takaful practices the money/benefit is to cover financial losses and not
to get the money itself. In accidents for example, getting RM15,000 is for
covering the cost of repairing the car and not to get the money itself.
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• The participant in a Takaful Contract considered as a
muwakkil (principal) and the company as the wakil (agent)
to manage the participant’s fund.
• The duties of the company as a wakil is as an agent of the
participants to manage the fund, involving matters such as
arrangement of contract, all administrative matters etc.
• Thus, the company can get wakalah fees.
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• The contract is a contract for the company to invest the
participant’s money.
• Thus, the money belonging to the fund is transferred to
the company, whether as a wakil (if the contract is based
on wakalah) or amil (if the contract is based on
mudhorabah).
Modified
Mudhorabah.
* Takaful Structures of different company may vary in detail from that shown here.
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• Pure
Mudharabah.
• Modified
Wakalah.
* Takaful Structures of different company may vary in detail from that shown here.
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• Pure
Wakalah
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In my opinion, the following are the Shari’ah issues that can be found:
• Surplus and nomination Issues: The surplus issue arises because of
ownership issues. The Shariah issues here cannot be solved unless we solve
the upfront contract is rectified. It is quite impossible to try solving the
surplus and nomination issues without changing the contract. The Arabic
proverb goes, “How we can expect the shadow to be straight when the stick
itself is crooked?”
• Upfront fees and surplus sharing: When the takaful operator take fees
upfront and also take a percentage of the surplus, the Shariah issue here is
the merge between ujrah and jua’alah. If the ujrah and jua’alah is merged on
the same thing, then it is not allowed, as mentioned by Imam Ibn Rusyd. But
it is allowed if the contract of Ijarah (eg: wakalah fees) is separated from
jualah, e.g. fees that is based on ijarah is on the management of the risk and
the surplus that is based on jualah is on performance of the investment.
* Thus, I hope for further deliberation of the matter by Shari’ah advisor.
• It can be based on any Shariah contract, with the
condition that it does not involve elements prohibited by
the Shariah, such as riba, gharar and baatil.
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• The model for Takaful contract need not necessarily be
based on Mudhorabah or Wakalah only.
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There are many options to formulate takaful contracts, such as:
1. Wadiah yad amanah. (trust deposit or safekeeping)
2. Wadiah yad dhomanah. (guaranteed deposit or safekeeping)
3. Ju’alah. (performance-based)
4. etc.
The suggestion with regard to the above model is that the tabarru’
must be come after the risk occurs, and not before. It can solve
the issues of surplus, nomination and all Shariah issues pertaining
to the ownership issue.
Takaful Operator
6
5
Investment
Fund of Wadiah
4
Others Participant
or Fund Members
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1. Participant promises to the all members to bear the
risk together, i.e. based on Taawuni. So, the agreement
is a promise to tabarru’. So, tabarru’ has not occured.
2. Participant appoints the Takaful Operator as the agent
to manage the fund and any claim from the participant.
Thus, the takaful operator can charge fees for the
2
responsibility of managing the fund and the
participant’s agreements.
3. Participants deposit their money in the wadiah fund
and promise to tabarru’ when the risk events occur.
3
4. The members of the fund can claim from the wadiah
fund when the risk events occurs.
Participant
5. The takaful operator can invest the wadiah fund, based
on wadiah yad dhomanah.
1
6. The takaful operator can invest the money from the
wadiah fund and is allowed to keep 100% of the profit
from investment.
* The underwriting surplus in the wadiah fund still
belongs to the participant and no ownership issue
arises.
1. No surplus and nomination issues arise because the fund is based
on wadiah (participants’ saving), not based on tabarru’.
2. The company can get the profit based on wadiah fees and 100% of
the profit from investment.
3. The company can give hibah to the fund/participant when high
profit from investment is recorded, without making a promise in
the contract.
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In this model, we find that:
 For example, when we want to promise to refund the participant’s
previous contribution with deduction to the operational cost, fees etc,
the suitable contract is one that is based on wadiah, and not wakalah
(tabarru’).
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 Thus, some products may be suitable to be based on wakalah but it
may not be suitable to be based on another contract. In other
situations, some products may be suitable to be bases on wadiah but
may not be suitable to be based on wakalah.
 For example, when Islam forbids riba as a means to get profit, Islam
allows other profit generating methods, such as buyu’, musyarakah,
mudhorabah etc.
 Islam is revealed to simplify the lives of humans and not to create
inconveniences.
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 The purpose of the exploring other models is to assert that we need
not necessarily be purely in line with the wakalah or mudhorabah
model. We must be innovative and proactive to explore other models
to meet human needs, because Islam provides more than one option
when Islam enforce one prohibition.
َ‫ُيرِيدُ ا َّلل ُه بِكُمِ الْيُسِرَ وَالً ُيرِي ُد ِبكُمِ اْلعُسِر‬
Means: Allah intends every facility for you; He does not want to
put you to difficulties. - (Al-Baqarah : 185).
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 Allah SWT said:
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