It may be helpful to analyse the background of Takaful as we embark upon a discussion of the system itself.
The Takaful insurance system is based on the principles of Islam. Hence, the followers are required to explicitly believe in the Holy Qur’an and Sunnah.
The Holy Qur’an was revealed by God to Prophet Muhammed (PBUH) in stages for a period of 23 years. Chapter 26 – Verse 26 of the Holy Qur’an sets out the position that the Holy Qur’an contains proofs, evidences, lessons, signs, revelation, information containing what is lawful and unlawful things and sets out the boundaries of the Islamic religion that make things clear showing the right and straight path. In the opening chapter of the Holy Qur’an in verse 6 it reveals that the guidance is in two folds – namely; Taufiq, those that are totally from God Himself opening once heart to receive the same and Irshad through the teachings by the messenger of the God Prophet Muhammed (PBUH).
According to Chapter 2 – verse 2 this guidance leads to the attainment of the status of a Muttaqun.The efforts made to achieve the stage of Muttaqun would assist to avoid bad or evil deeds and to progress towards performing good deeds. The Holy Qur’an whilst defining what are “good deeds” points out In Chapter 18- verses 103 and 104, to the deeds which are performed according to the teaching embodied in the Holy Qur’an and the Sunnah. Therefore, in summary, a Muslim essentially is required to follow the principles laid down in the Holy Qur’an and the teachings of the Holy Prophet in connection with his personal day to day life or his interaction with his fellow human beings regardless of the faiths they are committed to follow in regard to business or commercial transactions entered into or, for that matter in any transaction related to his life. It is a fundamental and obligatory duty on the part of a Muslim to lead a life without infringing the rules of piety.
The teachings and life style of the Holy Prophet referred to as “Sunnah”. The way of life of a Muslim is based on the Shariah law; the two primary sources of shariah law are the Holy Qur’an and Sunnah.
Ancient Arab civilisation reveals that they were under the tribal system. The elders of the tribes maintained discipline among their own tribes. In Roman civilisation this system was called pater familia. The Tribal heads in order to maintain peace and harmony ensured that the inter relationship among Tribals would prevail. The tribal members for their living engaged in trade and hunting. There were occasions in which a member of one tribal unintentionally killed the other tribal. Therefore, in order to maintain uninterrupted peace and harmony among tribes, the parental relative, based on the principles “Law of Equality Punishment” mentioned in the Holy Qur’an, reached a mutual understanding. This is the origin of the doctrine of “Aqilah” payment of blood money. The Prophet in his judgement with regard to a complaint against a member of the Huzail Tribe reaffirmed the foundation of this doctrine. From this doctrine evolved Takaful Insurance.
The concept of Takaful derived from the Arabic word “Kafala” meaning guarantee, bail, warrant or an act of securing one’s need. Therefore, Takaful means joint guarantee, whereby a group of participants agree to mutually guarantee each other against a defined loss. Hence, the doctrine of Takaful embraces the element of mutual protection and shared responsibility. The Takaful system is basically a system of mutual protection and shared responsibility which contemplated a situation where a group of people agreed to cooperate among themselves to establish a common fund for the purpose of mutual indemnity. In this system, the participants mutually contribute to a common fund with the intention of providing mutual indemnity in a situation where peril or harm occurs to anyone of the participants. Hence, the system of Takaful is to mutually indemnify, provide solidarity and mutual assistance among participants who have agreed to share the losses to be paid out from a common fund which is called as Takaful fund. Thus, the Takaful system following the principles laid down in the Holy Qur’an in Chapter 5- Verse 2, to help one another who is in need of help; designed to help the participants who may be in need or in hardship owing the peril befallen on them. The teaching of the Prophet explains that if one removes a worldly hardship of the other, God will remove from him hardship.
In this back drop, in a “Takaful system” there is no reference to a ‘policy holder’ and instead the beneficiary is called as participant. The entity which collects the common fund (Takaful fund) and issues the policy is referred to as “Takaful operator”. The intention of this scheme is to share responsibility and indemnify the losses and not to solely make profits. In regard of the profits made by the Takaful Operator, the principles of the Islamic Shariah are to consider it as a surplus fund and to distribute the same in the proportionate manner among the participants.
According to Islam whether in prayers, payment of charity (Zakat), performing pilgrimage (Haj) in performance of good deeds or in any aspect of matter the intention of person plays a crucial role. Similarly, in the system of Takaful, it is important to have the intention (Ne’aa), the utmost sincerity and to possess the knowledge in regard to cooperative risk sharing and mutual assistance.
In terms of the principles of Islamic Takaful system, Shariah imposes strict prohibition in respect of the transactions that are influenced by “Gharar” (uncertainty), Riba (Usury) and Maysir(Gambling).
The jurists unanimously have expressed their opinion in regard to the reasons for prohibition of Gharar. They take the view that the existence of gharar may deny the bargaining power for the contracting parties. Their view is based on the fact that the contracting parties should be placed in the same position to agree on a contractual obligations and therefore they should be in a position to make informed decisions and hence he ought to adequately understand the consequences of the contract that they are entering into. The Holy Qur’an in chapter 4 – verse 29 expressly states amongst the trading parties mutual understanding should prevail and further states ‘eat not up your property amongst yourself in vanities’. The jurists whilst further elaborating have stated that gharar is such that the nature and consequences are hidden. Takaful explicitly recognises the principles that the parties to the agreement need to be in a level playing field.
Mysir (Gambling) in verse 90 – chapter 5 of the Holy Qur’an is strictly prohibited. As several religious and social groups are on a daily basis articulating objections to the evilness of gambling, it seems that further elaboration seems to be unnecessary.
In an Islamic Insurance or Takaful, the concept of donation (Tabaru) is very much in existence. The contracting parties agree to set aside a part of their contribution as a donation for fulfilling obligation of mutual help, used to pay claims submitted by the claimants.
Takaful system is very much based on moral values and ethics. The dealings are required to be conducted in an open, transparent manner, with honest intention (in good faith), truthfully and with fairness. The Holy Qur’anic verses strictly emphasis the importance of individual responsibility to safeguard the principles of social maintenance.
In a Takaful Islamic system also it is necessary to make sure the legal capacities of parties, to determine the insurable interest and the principles of Indemnity, payment of premium, mutual consent which included voluntary purification and specific time period of policy and underlying agreement. The difference is non- payment of premium as per the agreement will not invalidate the policy as the whole purpose of scheme is mutual assistance and whereby by give solace to member participant when he is in genuine difficulty will bestow blessing on the Takaful operator for kindness and understanding .
The other important feature is constituting a Shariah advisory council or committee to assist the Takaful operator to conduct operation as per the Shariah requirements.
In summary, piety , commitment to the scheme of mutual assistance, charity , mutual guarantee, cooperative risk-sharing and profit sharing is required to prevail during the primary level and as well as re-Takaful arrangement. The Holy Prophet underscored the importance of the mutual help and cooperation among human beings. He further highlighted the importance of the duty cast upon in the individuals to help and assist the fellow human beings who stand in need of such help.
The noteworthy factor in a Takaful system is that the primary insurer (Takaful Operator) in order to cover its losses is expected to make arrangements with a retakaful provider which conducts business in accordance with the Islamic Shariah. Accordingly, under the Islamic Shariah, an arrangement made with a company which issues reinsurance cover not adhering to Islamic Shariah is explicitly prohibited.
(The Sunday Times / 09 March 2014)
