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TAKAFUL COMPANIES

TAKAFUL COMPANIES. Conventional Insurance. It means a way to provide security and or compensation of what is valuable in the event of its loss, damage or destruction based on the principle of risk taking and speculation. . Problems with Conventional Insurance. Gharar (uncertainty)

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TAKAFUL COMPANIES

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  1. TAKAFUL COMPANIES

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

  3. Problems withConventional Insurance • Gharar (uncertainty) • Khatar (Risk) • Maysir (gambling) • Riba

  4. Gharar • The participant loses the money paid for the premium when the insured event does not occur. • The company will be in deficit if the claims are higher than the amount contributed by the participants. • Uncertainty of one party’s profit. E.g. One party’s (such as policy holder’s) profit in Insurance

  5. Khatar • To specify ownership (of any amount) on a risk, where both consideration is money or commodity. • The participant contributes a small amount of premium in a hop/risk to gain a large sum

  6. Maysir • Maysir has two basic elements which cause to prohibit Maysir namely gharar and khatar.

  7. 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 companies. • Most conventional insurers invest premiums in bonds/loans (corporate and municipal) as well as other interest generating investments (involving Riba from Islamic perspective)

  8. 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 (agreement) 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.

  9. Benefits of Takaful Ta'awuni • Fulfills the social obligations towards community and family. • Avoidance of Al-Riba, Al Maysar and Al Ghirar and similar prohibited elements. • Promotes moral values, ethical dealing and full disclosure. • Through "Tabarru" donations allows participants to achieve self-purification and peace of mind. • Promotes Long term Saving • Financial assistance in the event of Allah's Will.

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

  11. Features • Firstly, the participation into a Takaful fund must be performed with utmost/highest 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 agreement, to help him meet the loss or damage

  12. 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.

  13. 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 surrender 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.

  14. 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 profit and loss. • Profit will be shared on agreed ratio.

  15. 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

  16. Islamic Scholars Perspectives • The Majority viewpoint by contemporary Islamic scholars is that Takaful (cooperative insurance) is fully consistent with Shariah principles. This perspective is upheld by numerous meetings and resolutions :    • Council of Saudi Ulama (1397 Ah/1977 CE) resolution • Fiqh Council of Muslim World League (1398/1978) resolution • Fiqh council of Organization of Islamic Conference (1405/1985) • Islamic Fiqh Week Conference, Damascus 1961 • Second Conference of Muslim Scholars, Cairo 1965 • Symposium on Islamic Jurisprudence, Libya 1972 • First International Conference on Islamic Economics, Meccah February 1976 • The Islamic Conference,Mekkah,October 1976

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