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THE ISLAMIC INSURANCE ... Indonesia followed suit with the establishment of PT Asuransi Takaful Keluarga in 1994 and PT Asuransi Takaful Umum in 1995. – PowerPoint PPT presentation

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Conventional Insurance
  • It means a way to provide security / and
    compensation of what is valuable in the event of
    its loss, damage or destruction based on the
    principle of risk taking and speculation.

Problems withConventional Insurance
  • 1. Gharar ( uncertainty )
  • Literally Gharar means Uncertainty cheating
    (Jahalah) ambiguity.
  • There are two types of Gharar
  • Jahalah which causes to dispute. E.g. un
    specified or un quantified subject matter in
  • Uncertainty of one partys profit. E.g. One
    partys (such as policy holders) profit in
  • 2. Khatar ( Risk)
  • Taleequl milki al alkhatr, wal mal fil janibain
  • To stipulate ownership (of any amount) on a risk,
    where both consideration is money or commodity

Problems withConventional Insurance
  • 2. Mayser ( Qimar or Gambling )
  • Mayser means Qimar in Arabic language.
  • Mayser has two basic elements which cause to
    prohibit Mayser namely
  • 1. Gharar (2) Khatar
  • Having the above two elements speculation,
    gambling and insurance is prohibited.

Problems withConventional Insurance
  • The participant contributes a small amount of
    premium in a hop/risk to gain a large sum is
  • The participant loses the money paid for the
    premium when the insured event does not occur is
  • The company will be in deficit if the claims are
    higher than the amount contributed by the
    participants is Gharar.

Problems withConventional Insurance
  • 3. Riba
  • The element of Riba (Interest) exists in lending
    or borrowing funds/investments at fixed interest,
    and other related practices in the investment
    activities of the conventional insurance

  • Introduction
  • The opinion of Islamic scholar about insurance
  • The development of takaful
  • Theoretical and conceptual aspects of takaful
  • The differences between takaful and insurance
  • Conclusion

Why is traditional insurance unacceptable?
  • The Council of Islamic Fiqh Scholars (1975) ruled
    that traditional insurance is haram due to the
    presence of three main elements.
  • Gharar (uncertainty)
  • Maisir (gambling)
  • Riba (interest or usury)

Existence of Al-Gharar in Insurance
  • Gharar may originate from
  • Ignorance and lack of information over nature and
    attributes of subject matters
  • Doubt over its availability and existence
  • Doubt over its quantity
  • Lack of information concerning the price and
    terms of payment (including currency to be paid)
  • Prospect of delivery (including vendors ability
    to make delivery according to contract)

Existence of Al-Maisir in Insurance
  • In Al-Quran
  • O Believers! Intoxicants and gambling and
    divining arrows are an abomination of Satans
    handiwork. Leave it side in order that you may
  • (Al-Maidah 590)

  • If left unchecked, gambling closely resembles to
    risk-taking in an insurance contract whereby,
  • Insurer could receive a huge amount of money,
    without equivalent input.
  • Paying premium without getting any amount in
  • Insurer loses if there are too many claimants.
  • When premiums collected exceeds the claims,
    insurers could make huge profits.
  • Insurer calculates the possibilities of a certain
    event occurring and will indicate a certain.

Existence of Al-Riba in Insurance
  • The premium of the insurance fund is placed in
    interested-bearing instruments such as bonds and
    treasury, which are not permissible in Islam.

Basis For Islamic Insurance
  • Islamic insurance embraces the concepts of mutual
    protection and shared responsibility as seen in
    the practice of blood money or diyah under the
    Arab tribal custom
  • The system, therefore, evolves a programmed by a
    group of people co-operating amount themselves to
    establish common resources for solidarity and

The Takaful Concept
  • Al-Takaful (social guarantee) refers to the act
    of a group of people reciprocally guaranteeing
    one another by providing mutual financial
    assistance should anyone amongst them be
    inflicted with a pre-defined mishap. Participants
    shall contribute an agreed sum regularly into a
    Tabarru (donation) fund.

The Takaful Concept
  • The Takaful operator (insurance company) agrees
    to manage the Tabarru fund based on a set of
    guidelines and on the Al-Mudharabah (profit
    sharing) concept. Participants are the
    sahibul-mal (capital providers) while the
    Takaful operators is the Mudharib (entrepreneur).

The Development of Takaful
  • The development of takaful in the Asia-Pacific
    region have thus far evolved a three phase cycle
  • the evolutionary phase
  • the nurturing phase
  • the consolidation phase

The evolutionary phase
  • In most of these countries the evolutionary phase
    went back to the 60s and 70s which saw a surge of
    Islamic fervour and calls for the establishment
    of the Islamic Financial System.
  • Scholars and Muslim jurists discussed, debated
    and put forth the idea of introducing a financial
    system which is interest-free, uncertainty-free
    or in other words acceptable and in accordance to

The nurturing phase
  • Then came the second or the nurturing phase which
    took place during the 80s in the case of Malaysia
    and the 90s in the case of Indonesia, Brunei and
  • As in the case of Malaysia, it was during this
    phase that some of the fundamental infrastructure
    namely, the Islamic Banking Act of 1983 and
    Takaful Act of 1984 were laid. Subsequently then
    came the first prototype model of Bank Islam in
    1983 and Syarikat Takaful Malaysia in 1984.

  • Their existence remained unperturbed for many
    years perhaps due to the fact that the government
    of Malaysia wants to ensure that the Islamic
    System rudiments were given a fairly even chance
    to grow and be on a sound footing.
  • In the case of Brunei the nurturing phase came
    only in the 90s with the formation of Takaful
    Taib Sdn Berhad and Takaful IBB Berhad, both in

  • Indonesia followed suit with the establishment of
    PT Asuransi Takaful Keluarga in 1994 and PT
    Asuransi Takaful Umum in 1995. In the same year,
    Singapore also launched Syarikat Takaful
    Singapore Pte. Ltd.

The consolidation phase
  • As far as Malaysia is concerned, the 90s
    witnessed another stage in the development of
    financial institutions.
  • In this so-called consolidation phase say the
    emergence of competitive elements within both the
    banking and insurance sector.
  • Conventional banks were allowed to introduce
    "interest-free" banking facilities and the
    regulatory body (Central Bank in Malaysia) also
    issued the second takaful licence to MNI Takaful
    Sdn Berhad (MNIT)

The consolidation phase
  • The presence of these new players had somewhat
    introduced competitive forces in the respective
    marketing environment which in turn had
    influenced both marketers and customers decision
    and activities. The competition spurred more
    rigorous marketing activities in the form of more
    varied products, more promotions and better

List of Licensed Takaful Operators in Malaysia
  • Takaful Operators in Malaysia
  • Commerce Takaful Berhad
  • HSBC Amanah Takaful (Malaysia) Sdn Bhd
  • Etiqa Insurance and Takaful Bhd - Mayban Takaful
    Berhad -
  • Prudential BSN Takaful Berhad
  • Syarikat Takaful Malaysia Berhad
  • Takaful Ikhlas Sdn. Bhd.
  • Takaful Nasional Sdn. Bhd.
  • Hong Leong Takaful

Theoretical and conceptual aspects of Takaful
  • Islamic jurists resolved that the system of
    insurance, which falls within the confines of
    Islamic framework, should be founded on the
    concept of al-Takaful.
  • An Islamic insurance transacting is a policy of
    mutual co-operation, solidarity and brotherhood
    against unpredicted risk or catastrophes, in
    which the parties involved are expected to
    contribute genuinely.
  • The nature of the principles of Takaful is
    fundamentally different from the principles of
    conventional insurance.

Theoretical and conceptual aspects of Takaful
  • The concept of insurance (Takaful), according to
    the jurists, is acceptable in Islam for the
    following reasons
  • the policyholders would co-operate (taawun)
    among themselves for their common good
  • every policyholder would pay his subscription in
    order to assist those of them who need
  • it falls under the donation contract
    (al-tabarru) which is intended to divide losses
    and spread liability according to the community
    pooling system

  • the element of uncertainty is eliminated insofar
    as subscription and compensation are concerned
  • it does not aim at deriving advantage at the cost
    of other individuals.
  • Under Islamic law, generally, any transaction
    that has the following elements unjustified
    enrichment, uncertainty, risks, riba would
    vitiate a contract.
  • Clearly, the contract of insurance under Islamic
    law would not be valid unless it were free from
    these elements.

The differences between takaful and conventional
  • The operations of Takaful must be in line with
    the Shariah principles. A Takaful operation may
    be held void if any aspects of its operation is
    proven to be contrary to the Shariah principles.
  • The operation of Takaful is generally based on
    the governing principles of al-Mudharaba, profits
    and loss sharing financing technique, which is an
    alternative to the interest (riba), based
    financing technique as adopted by the
    conventional insurance practices.

The differences between takaful and conventional
  • The operation of Takaful practices is generally
    supervised by an independent body called the
    Shariah Supervisory Council. It is the duty of
    the council to advise the Takaful operator(s) in
    any given organization on their operations for
    the purpose of ensuring that no aspect of the
    company(s) operations involves any element which
    is not approved by the Shariah principles. In
    other words, the establishment of a Shariah
    Supervisory Council for every individual Takaful
    operator is a prerequisite prior to the
    commencement of the Takaful operation.

The Solution Islamic Cooperative Insurance(
Definition for Takaful
  • Takaful is an Arabic word that means
    "guaranteeing each other".
  • It is a system of Islamic insurance based on the
    principle of TA-AWUN (mutual assistance) and
    Tabarru (Voluntarily) 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 against loss or damage to any of them
    as defined in the pact.

Basic Principle behind Takaful
  • 1.The principle of fortunate many helping the
    unfortunate few" is a concept recognized by
  • 2.The Quran states in Surah Al-Maidah verse
  • "Help ye one another in righteousness and piety,
    but help ye not one another in sin and rancor".
  • 3. Principles of Muwalat, Maaqil, and Kafalah are
    examples for its permissibility.

  • Firstly, the participation into a Takaful fund
    must be performed 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 a fund, as also defined
    in the pact, to help him meet the loss or damage

Operation of Takaful Fund
  • 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 .
  • The Company involved in takaful business, as the
    operator, will accept payment of the takaful
    installments or takaful contributions (premium)
    from the participants (clients) for the takaful
    plan or takaful scheme they wish to participate.

Operation of Takaful Fund
  • 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 will charge a
    management fee.

Operation of Takaful Fund
  • The Takaful Fund, consisting of the contributions
    paid as Tabarru, will be further invested by the
    Company based on the principle of Al Mudarabah,
    through which the element of interest (riba) will
    be replaced.
  • All premium holders will participate in pofit and
  • Profit will be shared on agreed ratio.

Uses of Takaful
  • Takaful can be used to cover
  • Property like house, factory, mosque, offices
  • Vehicles (car, motorcycle etc..)
  • Goods ( like during import or export )
  • Valuables
  • Health, accidents and Life
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