Takaful in the light of Shariah

Concept & Practical Aspects

Shariah Compliance Department

Pak -Qatar Family & General Takaful
 Introduction

Introduction of Participants
 Name
 Department
 Designation
 Qualification
 Experience
 Takaful Course (if attended before)
 Some Misconceptions

1. Intellectual need of Wahi (revelation)

2. Meaning of Shariah Compliant/Jaiz/Islamic
3. Shari Hukum will not be based on the results but
the process
4. Takaful Vs Tawakkul
5. Shari Hukum - based on Illat or Hikmat
6. Shariah principle of Conflict(Ta’aruz) in references
 Definition of Takaful

• The word “Takaful” originates from the Arabic

language.

• Its root word is “kafala” which means “to look after”.

• Through inflection it changed to “takafala” which

means “to help each other”.
 The Concept of Takaful

• It is based on the concept of brotherhood and

mutual solidarity.
• Takaful is a community-pooling system in which
participants contribute their savings into the
common fund to help those who need it most in
times of financial difficulty.
• Examples: The concept of Takaful is manifested in the
system of Bait-ul-Maal, cooperative societies and
joint family set-ups etc…
 ‫‪The Concept of Takaful‬‬

‫تکافل ایک کمیونٹی پولنگ سسٹم ہے‬

‫جو کہ بھائی چارہ اور تعاون کے اصول پر‬
‫مبنی ہے‬
‫اس میں ممبران اپنا پیسہ ایک فنڈ میں‬
‫اکٹھا کرتے ہیں‬
‫جس پیسہ سے ان ممبران کی مدد کی‬
‫جاتی ہے جنھیں مالی مشکلت کا سامنا‬
‫ہو‬
‫ل‬
 Risk Mitigation in Islam

Risk mitigation is not only permissible in Islam but is in fact encouraged

• Islamic history is replete with examples featuring activities involving risk
mitigation:
– Dhaman Khatr al-Tareeq: A person would undertake another person’s risks
without any consideration/fee in return
– Dhaman Al-d’ark: A person would influence a sale by promising to
compensate for the loss if the subject-matter proved faulty
– Aqila: A risk sharing mechanism in which community members pooled their
share of Diyat (blood money)
– Aqd-e-Muwalat etc. A person accepts Islam at the hand of another and
then pact an agreement with him that he will be the inheritor of his wealth
after his death, an all liabilities for his wrongs will upon him
• The theme in all these examples is the concept of brotherhood and mutual
solidarity
 Risk Management and its Process

Generally, there are five ways of dealing with a risk:

1. Risk Avoidance
2. Risk Control
3. Risk Retention
4. Risk Transfer
5. Risk Sharing
 ‫‪Risk Management in Quran & Hadith‬‬

‫• كوكل تلتهللقوا بةأكيهةديلكهم إةكلى التتههلككةة ‪[ ---‬البقرۃ‪[۱۹۵ ،‬‬

‫• كوأكةعددوا لكلههم كما اهستكطكهعتلهم ةمهن قلتتوةة ۔۔۔ ]النفال‪[٦۰ ،‬‬

‫ب ةفيِةه‬ ‫ي‬‫ر‬ ‫ل‬ ‫ع‬ ‫م‬ ‫ج‬‫ه‬‫ل‬ ‫ا‬ ‫م‬‫و‬ ‫ت‬ ‫ي‬ ‫ر‬ ‫ك قلتركآننا كعربةييِا ةلتلتهنةذر ألتم الهلقرىَ ومن حولكها وتلتهن ة‬
‫ذ‬ ‫ة‬ ‫ك‬ ‫ة‬
‫كه ك‬ ‫ك‬ ‫ة‬ ‫ك كك ه ك ه ك ك ك كه ك ك ه‬ ‫ك‬ ‫• كوكككذل ه ك ه ك ه ه ك‬
‫ك‬ ‫يِ‬‫ك‬‫ل‬ ‫إ‬ ‫نا‬ ‫ت‬ ‫حيِ‬‫و‬‫أ‬ ‫ك‬
‫ك‬
‫سةعيِر‪]...‬شوری‪[۷-‬‬ ‫فكةريقق ةفيِ الهكجنتةة كوفكةريقق ةفيِ ال ت‬

‫عذاب قبر‪ ،‬قیامت کی ہولناکی کا بیان‪ ،‬جہنم کے •‬

‫عذاب کی خبرسب ایک خطرہ کا اعلن ہے‪ ،‬جس‬
‫سے تدارک کے لیے اسلم کی دعوت دی جارہی ہے۔‬
 ‫‪Risk Management in Quran & Hadith‬‬

‫ب‪ َ:‬كيا كرلسوكل اللتةه!ِ أككل نكتتككداكوىَ؟ كقاكل‪ َ:‬نكتكعهم‪ ،‬كيا ةعكباكد اللتةه!ِ‬
‫ت اهلكهعكرا ل‬
‫• كعن ألسامةك بهةن كشةري ة‬
‫ك كقاكل‪ َ:‬كقالك ه‬ ‫ه كك‬
‫ة‬
‫ضكع لكهل ةشكفاءن أكهو كقاكل كدكواءن إةتل كداءن كواحندا‪ ،‬كقاللوا‪ َ:‬كيا كرلسوكل‬ ‫ضهع كداءن إةتل كو ك‬
‫تككداكوهوا؛ فكةإتن اللتهك لكهم يك ك‬
‫اللتةه!ِ كوكما لهكو؟ كقاكل‪ َ:‬الهكهكرلم‪] .‬السسن للترمذی[‬

‫صتلى اللتهل كعلكهيِةه كوكسلتكم يكتلعولدةنيِ كوأككنا كمةري ق‬

‫ض بةكمتككة‪ ،‬فكتلقهل ل‬
‫ت‪َ:‬‬ ‫ة ة‬
‫• كعهن كسهعد كرضكيِ اللتهل كعهنهل كقاكل‪ َ:‬ككاكن النتبةديِ ك‬
‫ث‬‫ث؟ كقاكل‪ َ:‬الثدتل ل‬‫ت‪ َ:‬كفالثدتل ة‬ ‫شهطر؟ كقاكل‪ َ:‬كل‪ ،‬قلتهل ل‬ ‫ت‪ َ:‬كفال ت‬‫صيِ بةكماةليِ لك لةه؟ كقاكل‪ َ:‬كل‪ ،‬قلتهل ل‬ ‫ةليِ ماقل لأو ة‬
‫ك‬
‫س ةفيِ أكيهةديةههم‪...‬‬ ‫ت‬ ‫ك أكهغنةيِاء كخيِتر ة‬ ‫ث ككة‬
‫ك‬ ‫نا‬‫ت‬ ‫ال‬ ‫ن‬
‫ك‬ ‫فو‬ ‫ل‬ ‫ف‬ ‫ك‬
‫ك‬ ‫ت‬
‫ك‬ ‫ت‬
‫ك‬‫ي‬ ‫ة‬
‫ن‬ ‫ل‬
‫ك‬ ‫عا‬
‫ك‬ ‫م‬
‫ه‬ ‫ه‬‫ل‬ ‫ع‬
‫ك‬ ‫د‬‫ك‬ ‫ت‬
‫ك‬ ‫ن‬‫ه‬ ‫ك‬
‫أ‬ ‫ن‬‫ه‬ ‫م‬ ‫ه‬
‫ك ق‬ ‫ك‬ ‫ك‬ ‫ت‬
‫ك‬ ‫ت‬‫ثَ‬
‫ك‬‫ر‬ ‫و‬
‫كك‬ ‫ع‬
‫ك‬ ‫د‬
‫ك‬ ‫ت‬
‫ك‬ ‫ن‬
‫ه‬ ‫ك‬
‫أ‬ ‫ر‪،‬‬‫كوالثدت ل ل ق‬
‫ثيِ‬
‫]الصحيِح للبخاری[‬

‫• كقاكل كرلجقل‪ َ:‬كيا كرلسوكل اللتةه !ِأكهعةق لكها كوأكتكتكوتكلل أكهو ألطهلةلقكها كوأكتكتكوتكلل؟ كقاكل‪ َ:‬اهعةقهلكها كوتكتكوتكهل‪].‬السسن‬
‫للترمذی[‬
 TAKAFUL

CONVENTIONAL INSURANCE

Conventional Insurance vs. Takaful

 History of Insurance

• It is generally agreed that the history of insurance began with marine insurance in the
fourteenth century. It was invented as a solution to the problem of sea piracy and
from the possibility of ship sinking in high waters. Both carried immense financial risk.
Insurance served to counter that financial risk.
• Many believe that conventional insurance first got introduced in Islamic Fiqh in the
twentieth century, but this is not so. Research tells us that the first fatwa issued on the
subject was by a renowned Jurist from Syria by the name of Allama Ibn Abideen Shami
(may Allah be pleased with him) in his famous book titled “Radul Mukhtar” (which is
also known as Fatawa Shamia. This fatwa is regarded as an authentic fatwa).
• In fact, we find that insurance was very much a norm in the days of Allama Shami (may
Allah be pleased with him). Traders were accustomed to paying additional amount
over routine costs for the transportation of their goods overseas. This additional
amount was called “Sokara”. Sokara means insurance and security. The insurers
promised to compensate for any loss to their cargo while at sea against these
premiums. This was marine insurance in action. Allama Shami issued a fatwa against
the practice of this form of insurance with the word of “Sokrah”.
 What is Insurance ?

• It is nothing but a promise of compensation

for specific potential future losses.
• In exchange of a consideration an insurer, or
insurance carrier, is a company selling the
insurance policy.
• The insured, or policyholder, is the person or
entity buying the insurance policy.
 Shariah’s Stance on Conventional Insurance

concept of
Insurance?
? practice of
Insurance?

Shariah has no objections as to the concept or

objectives of insurance ; it has reservations only
with the way it is being practiced…
 ‫‪References regarding Concept of Insurance‬‬

‫• }كوتكتكعاكولنوا كعكلى الهبةلر كوالتتهقكوىَ كوكل تكتكعاكولنوا كعكلى ا هةلثَهةم كوالهعلهدكواةن{ِ]المائدة‪[2 َ:‬‬
‫• }إةنتكما الهلمهؤةملنوكن إةهخكوقة{ِ ]الحجرات‪[10 َ:‬‬
‫• عن عامر‪ ،‬قال‪ َ:‬سمعته يقول‪ َ:‬سمعت النعمان بن بشيِر‪ ،‬يقول‪ َ:‬قال رسول ال صلى‬
‫ال عليِه وسلم‪» َ:‬ترىَ المؤمنيِن فيِ تراحمهم وتوادهم وتعاطفهم‪ ،‬كمثل الجسد‪ ،‬إذا‬
‫اشتكى عضوا تداعى له سائر جسده بالسهر والحمى«‬
‫• عن أبيِه أبيِ موسى‪ ،‬عن النبيِ صلى ال عليِه وسلم قال‪» َ:‬المؤمن للمؤمن كالبنيِان‪،‬‬
‫يشد بعضه بعضا« ثَم شبك بيِن أصابعه‪...‬‬
‫• عن ابن شهاب أن سالما‪ ،‬أخبره‪ َ:‬أن عبد ال بن عمر رضيِ ال عنهما‪ ،‬أخبره‪ َ:‬أن‬
‫رسول ال صلى ال عليِه وسلم قال‪» َ:‬المسلم أخو المسلم‪ ،‬ل يظلمه ول يسلمه‪،‬‬
‫ومن كان فيِ حاجة أخيِه كان ال فيِ حاجته«)صحيِح البخاري(‬
 Insurer’s Business Model

Premiums

Claim Payment (upon Risk actualization)

Policyholders Insurance Company

--Insured-- --Insurer--

Premium Sum Insured

(Consideration) (Subject-Matter)
Types of Contracts
 Shariah’s perspective/stance on Insurers’ Business
Model
• Insurer: The insurance company is selling “Sum Insured”
• Insured: The policyholder is buying Sum Insured by paying fixed
“Premiums”
• Nature of Contract:
• It is a sales purchase contract, bi-lateral, commutative i.e. Aqd-e-Muawaza
Shariah’s perspective/stance on Insurers’ Business Model
– Subject Matter: “Sum Insured” ; Consideration: “Premium”
• It is a Risk-Transfer Mechanism
– The insured (financially weaker party) is transferring its risk to the
insurer (financially stronger party)
– The insurer is charging a fee called “Premium” for accepting the risk
and promising to pay “Sum Insured” if a covered event takes place
 Riba, Qimar, Gharar

• The sales - purchase contract is Aqd Muawaza and

due to this some ills involves:

RIBA Qimar/Maysir Gharar

Riba, Qimar and Gharar are prohibited in Shariah.

 Definition of Riba

• “Literal meaning of Riba is of “excess/markup” and in the verses of the Quran it

is used for all such markup/gains which are without any service or effort.”
(Abu-Bakar Al-Jassas (RA)
• Riba-Al-Quran
• "‫عليِات ت تتلمستقرض‬ ‫”وهو ا ت تتلقرضات ت تتلمشروط ف ت ت تتيِهت ات تتلجلوزيادة مات تتل‬
• A conditional or understood increase versus a loan is Riba
• Riba-Al-Hadith

• (‫الربا هو الفضل المستحق لحد المتعاقدين فيِ المعاوضة الخاليِ عن عوض شرط فيِه)الهداية‬
• A conditional increase in commutative contract without consideration.

• Prohibition of Riba is similar to the prohibition of pork(‫)خنزیر کگ گ گ گگا گگ گ گ گگوشت‬, liquor ‫گب‬
( ‫ )شگ گراگ‬,
gambling (‫ ج وا‬، ‫)قگ گگمار‬, adultery (‫ )زنا‬etc., for which no specific definition was given.
• Arabs and all the previous societies had no confusion about its exact sense.
 ‫‪Riba in Quran‬‬

‫ضةعلفوكن {ِ‬ ‫س فككل يكتهرلبو ةعهنكد اللتةه كوكما آتكتهيِتلهم ةمهن كزككاةة تلةريلدوكن كوهجهك اللتةه فكلأولكئة ك‬
‫ك لهلم الهلم ه‬ ‫}كوكما آتكتهيِتلهم ةمهن ةرنبا ةليِكتهربلتكو ةفيِ أكهمكواةل التنا ة‬ ‫•‬
‫]الروم‪[39 َ:‬‬

‫صلدةههم كعهن كسةبيِةل اللتةه ككثةيِنرا )‪ (160‬كوأكهخةذةهلم اللركبا كوقكهد نلتلهوا‬ ‫ت ألةحلت ه‬
‫ت لكلههم كوبة ك‬
‫• }فكبةظلهلةم ةمن التةذين كهالدوا حترمكنا كعلكهيِةهم طكيِلبا ة‬
‫ه ك‬ ‫ك ه‬ ‫ك‬ ‫ك‬
‫ة‬ ‫ة‬ ‫ة‬ ‫ة‬ ‫ة‬
‫س ةبالهكباطةل كوأكهعتكهدكنا لهلككافةريكن م هنتلههم كعكذانبا أكليِنما {ِ ]النساء‪[161 ،160 َ:‬‬ ‫كعهنهل كوأكهكلةةههم أكهمكواكل التنا ة‬
‫ضاكعكفةن كواتتلقوا اللتهك لككعلتلكهم تلتهفلةلحوكن{ِ ]آل عمران‪[130 َ:‬‬ ‫• }كيا أكيدتكها التةذيكن آكملنوا كل تكأهلكللوا اللركبا أك ه‬
‫ضكعانفا لم ك‬

‫ة‬ ‫شهيِكطالن ةمكن الهكم ل‬

‫س كذلة ك‬ ‫}التةذيكن يكأهلكللوكن اللركبا كل يكتلقولموكن إةتل كككما يكتلقولم التةذي يكتتككخبتطلهل ال ت‬
‫ك بةأكنتتلههم كقاللوا إةنتكما اهلبكتهيِلع مثهلل اللركبا كوأككحتل اللتهل‬ ‫•‬
‫ب التناةر لههم ةفيِكها كخالةلدوكن‬ ‫صكحا ل‬ ‫ك أك ه‬ ‫اهلبكتهيِكع كوكحتركم اللركبا فككمهن كجاءكهل كمهوةعظكةق ةمهن كربلةه كفانهتتكتكهى فكتلكهل كما كسلك ك‬
‫ف كوأكهملرهل إةكلى اللتةه كوكمهن كعاكد فكلأولكئة ك‬
‫صالةحا ة‬ ‫ة‬ ‫ة‬ ‫ة‬ ‫ت كواللتهل كل يلةح د‬ ‫ص كدكقا ة‬
‫ت كوأككقالموا‬ ‫ب لكتل ككتفاةر أكثَيِةم )‪ (276‬إةتن التذيكن آكملنوا كوكعمللوا ال ت ك‬ ‫)‪ (275‬يكهمكحلق اللتهل اللركبا كويلتهرةبيِ ال ت‬
‫ف كعلكهيِةههم كوكل لههم يكهحكزلنوكن )‪ (277‬كيا أكيدتكها التةذيكن آكملنوا اتتلقوا اللتهك كوكذلروا كما بكةقكيِ‬ ‫صكلكة كوآتكتلوا التزككاكة لكلههم أكهجلرلههم ةعهنكد كربلةههم كوكل كخهو ق‬ ‫ال ت‬
‫س أكهمكوالةلكهم كل تكظهلةلموكن كوكل‬ ‫ةة ة‬ ‫ة ة ة تة‬ ‫ة‬ ‫ةة‬ ‫ة‬ ‫ة‬
‫مكن اللركبا إهن لكهنتلهم لمهؤمنيِكن )‪ (278‬فكإهن لكهم تكتهفكعللوا فكأهكذلنوا بكحهرب مكن الله كوكرلسوله كوإهن تلتهبتلهم فكتلكلكهم لرلءو ل‬
‫خيِتقر لكلكهم إةهن لكهنتلهم تكتهعلكلموكن{ِ ]البقرة‪[280 - 275 َ:‬‬ ‫تلظهلكموكن )‪ (279‬وإةهن ككاكن لذو علسرةة فكتنكةظرةق إةكلى ميِ ة‬
‫صتدلقوا ك ه‬ ‫سكرة كوأكهن تك ك‬ ‫كه ك‬ ‫ك‬ ‫هك‬ ‫ك‬ ‫ل‬
‫س أكهمكوالةلكهم كل تكظهلةلموكن كوكل تلظهلكلموكن )‪(279‬‬ ‫ةة ة‬ ‫ة ة ة تة‬ ‫ة‬
‫فكإهن لكهم تكتهفكعللوا فكأهكذلنوا بكحهرب مكن الله كوكرلسوله كوإهن تلتهبتلهم فكتلكلكهم لرلءو ل‬ ‫•‬
 ‫‪Riba in Hadith‬‬

‫صتلى الل كعلكهيِةه كوكسلتكم آكةكل اللركبا‪ ،‬كولمهؤكةلكهل‬ ‫ة‬ ‫ة‬ ‫ة‬ ‫ة ة‬
‫كعهبد اللته بهةن كمهسلعود‪ ،‬كعهن أكةبيِه‪ ،‬كقاكل‪ َ:‬لككعكن كرلسولل اللته ك‬ ‫•‬
‫كوكشاةهكدهل كوككاتةكبه‪.‬‬
‫كعهن أنس بن كماةلك كقاكل‪ َ:‬خطبنا رسول ال صلى ال عليِه وسلم فذكر الظركبا وعظظم شأنه فكتكقال‬ ‫•‬
‫ت كوثَلثَيِن كزهنيِة يزنيِها الرلجل‪ ،‬وإتن‬ ‫ك‪َ:‬إظن الرجل يصيِب ةمن الربا أعظم كعهنكد ال فيِ الخطيِئةة ةمن س ة‬
‫ه‬ ‫ل‬ ‫ل ه ظك‬ ‫لك‬
‫ض الرلجةل المسلم‪.‬‬ ‫أربى الظركبا عر ل‬
‫طلحة عن البراء بن عازب عن النبيِ صلى ال عليِه وسلم كقاكل‪ َ:‬الظركبا اثَنان وسبعون بابا‪ ،‬أدناها‬ ‫•‬
‫مثل إتيِان الرلجل أمه وأربا الظركبا استطالة الرلجل فيِ عرض أخيِه‪.‬‬
‫لم‪ ،‬كعهن رسول ال صلى ال عليِه وسلم كقاكل‪ َ:‬الظدرهلم ليصيِبهل الرلجل من الظركبا‬ ‫كعهن عبدال بن كس ك‬ ‫•‬
‫ل من ثَلثَة وثَلثَيِن كزهنيِة يزنيِها فيِ السلم‪ .‬وعن رسول ال صلى ال عليِه وسلم‬ ‫أعظم ةعهنكد ا ة‬
‫ل‬
‫ب الظركبا اثَنان وسبعون حوبنا‪ ،‬أدناه كالذي يأتيِ أمه فيِ السلم‬ ‫كقاكل‪َ:‬إظن أبوا ك‬
 ‫‪Riba in Hadith‬‬

‫صتلى الل كعلكهيِةه كوكسلتكم آكةكل اللركبا‪ ،‬كولمهؤكةلكهل‬ ‫ة‬ ‫ة‬ ‫ة‬ ‫ة ة‬
‫كعهبد اللته بهةن كمهسلعود‪ ،‬كعهن أكةبيِه‪ ،‬كقاكل‪ َ:‬لككعكن كرلسولل اللته ك‬ ‫•‬
‫كوكشاةهكدهل كوككاتةكبه‪.‬‬
‫كعهن أنس بن كماةلك كقاكل‪ َ:‬خطبنا رسول ال صلى ال عليِه وسلم فذكر الظركبا وعظظم شأنه فكتكقال‬ ‫•‬
‫ت كوثَلثَيِن كزهنيِة يزنيِها الرلجل‪ ،‬وإتن‬ ‫ك‪َ:‬إظن الرجل يصيِب ةمن الربا أعظم كعهنكد ال فيِ الخطيِئةة ةمن س ة‬
‫ه‬ ‫ل‬ ‫ل ه ظك‬ ‫لك‬
‫ض الرلجةل المسلم‪.‬‬ ‫أربى الظركبا عر ل‬
‫طلحة عن البراء بن عازب عن النبيِ صلى ال عليِه وسلم كقاكل‪ َ:‬الظركبا اثَنان وسبعون بابا‪ ،‬أدناها‬ ‫•‬
‫مثل إتيِان الرلجل أمه وأربا الظركبا استطالة الرلجل فيِ عرض أخيِه‪.‬‬
‫لم‪ ،‬كعهن رسول ال صلى ال عليِه وسلم كقاكل‪ َ:‬الظدرهلم ليصيِبهل الرلجل من الظركبا‬ ‫كعهن عبدال بن كس ك‬ ‫•‬
‫ل من ثَلثَة وثَلثَيِن كزهنيِة يزنيِها فيِ السلم‪ .‬وعن رسول ال صلى ال عليِه وسلم‬ ‫أعظم ةعهنكد ا ة‬
‫ل‬
‫ب الظركبا اثَنان وسبعون حوبنا‪ ،‬أدناه كالذي يأتيِ أمه فيِ السلم‬ ‫كقاكل‪َ:‬إظن أبوا ك‬
 Qimar/Maysir

• The word ‘maisir’ literally means ‘getting something too

easily’ or ‘getting a profit without working for it’
• It means that both parties stake their money in such a way
that one party draws total profit and the other party incurs a
total loss
• Four elements in Qimar;
1. Commutative Contract between two.
2. Everyone puts his money at risk.
3. Uncertainty in conclusion of event.
4. One draws total profit and the other 100% total loss.
 ‫‪Qimar/Maysir in Quran‬‬

‫س ةمهن كعكمةل ال ت‬
‫شهيِكطاةن‬ ‫ق‬ ‫ج‬
‫ه‬ ‫ة‬
‫ر‬ ‫م‬
‫ل‬ ‫ل‬‫ك‬‫ز‬
‫ه‬ ‫ك‬
‫ل‬ ‫ه‬ ‫وا‬
‫ك‬ ‫ب‬
‫ل‬ ‫صا‬
‫ك‬ ‫ن‬
‫ه‬ ‫ك‬
‫ل‬ ‫ه‬ ‫وا‬ ‫ر‬‫س‬‫يا أكيدتها التةذين آملنوا إةنتما الهكخمر والهميِ ة‬
‫ه ل ك كه ل ك‬ ‫ك ك ك‬ ‫ك ك‬
‫كفاهجتكنةلبوهل لككعلتلكهم تلتهفلةلحوكن ]المائدة‪[90 َ:‬‬

‫اے ایمان والو! شراب ‪ ،‬جوا ‪،‬بتوں کے تھان اور جوے‬

‫کے تیر ‪ ،‬یہ سب ناپاک شیطانی کام ہیں ‪ ،‬لہذا ان سے‬
‫بچو‪ ،‬تا کہ تمہیں فلح حاصل ہو۔‬
Qimar/Maysir in Conventional Insurance
 Gharar (Uncertainty)

• Literal meaning of Gharar is: To Cheat, Deceive, Lure, Entice,

Risk, Danger, Hazard. ‫ اور خطرہ‬،‫ی غلط امید دلنا‬ ، ‫دھوک ہ د ہ‬
• In the Fiqh, Gharar is the element of uncertainty in the basic
parts of commutative contract. I.e. Subject Metter, Price,
period, Delivery etc.

• Basic conditions of effectiveness of Gharar;

1. Should be found in Commutative contract.
2. Should be major.
3. Shouldn't found in contracts which are exempt.
4. Should be found as in the basic contract. (isalatan)
 ‫‪Prohibition of Gharar in Hadith‬‬

‫صاةة‪،‬‬ ‫ح‬‫ه‬
‫ل‬ ‫ا‬ ‫ع‬
‫ة‬ ‫يِ‬‫ت‬ ‫ب‬ ‫ن‬ ‫ع‬ ‫م‬‫ت‬‫ل‬
‫ل ك ه ك ك ك ك ه كه ك ك‬‫س‬‫و‬ ‫ة‬
‫ه‬ ‫يِ‬‫ل‬
‫ك‬ ‫ع‬ ‫ل‬ ‫ا‬ ‫ت‬
‫لى‬ ‫ص‬ ‫ة‬
‫• كعهن أكةبيِ لهكريهتكركة‪ ،‬كقاكل‪» َ:‬نكتكهى كرلسولل ا ك‬
‫ل‬
‫كوكعهن بكتهيِةع الهغككرةر«)صحيِح مسلم(‬

‫آنحضرت ﷺ نے کنکر کی بیع اور غرر کی بیع سے منع فرمایا ہ۔‬

Gharar in Conventional Insurance
 Fatwas Against Conventional Insurance

• The majority of scholars is of the opinion that the conventional insurance practiced
today is not Shariah compliant
• A fatwa issued by a committee comprising of leading scholars for the Saudi Arabia
Government
– “Our observation that the modern form of insurance companies and their current
practices are objectionable Islamically does not mean that Islam is against the
concept of Insurance itself ; not in the least – it only opposes the means and
methods. If other insurance practices are employed which do not conflict with
Islamic forms of business transaction ; Islam would welcome them” “The Lawful
& the Prohibited in Islam” (pg. 276)
• The National Fatwa Committee Malaysia deliberated on the question of life insurance
(15th. June 1972) and below is a translation of an extract from the minutes recorded
– “Life insurance as presently practiced by insurance companies is a fasid
transaction as it is contrary to the Shariah principles of contract because it
contains the following elements : Riba, Gharar, Maisir. As such from the Shariah
point of view, insurance is haram”.
Definition of Takaful
Three Operational Models
 Definition of Waqf

• Transferring the corpus (Ain) of a physical thing to Allah.

‫کیراہ میں دینا‬of‫اللہ‬
• That is for the usufruct (Manfa’at) ‫ز کا اپنی ملکیت سے نکال کر‬
people.
‫اے ے ے ےے ے ے ےب ےندے ے ےےو ےں ک ے ے ے ے ے ےےے ے‬ ‫وقف ے ے ےے ے ے ےمن ےاے ے ےےف ے ےع ےکے ے ے ے ے‬
‫کے ے ے ے ے‬
• Waqf item (asset) can’t be‫ےں‬sold ‫ہوسکتا ہ ےی ے ے‬
‫نہیںے ےے ےہ ےےوت ے ے ے ے ےے‬
‫ف کی خریدو فروخت اور ھبہ ےلئے ے‬
• Waqf item (asset) can’t be distributed in inheritance
(meerath) ‫فہ شے میراث میں بھی تقسیم نہیں ہوسکتی‬
• By using that thing, it should not be diminished/
consumed.‫ کنواں کا وقف ہوسکتا ہے‬،‫ لہہذا پانی کا وقف جائز نہیں‬،‫قا ضروری ہے‬

(Like; well, water cooler, school, Masjid, hospital etc.)

 How does it Function? Waqf Pool

Surplus
Participant

Wakalah Fee, Claims, Re-Takaful

Participant

Waqf Pool
Takaful Wakalah
Wakalah Risk sharing
Operator
Between
Participants
(MUDHARABAH)

Participant

Investment Participant
 How does it Function? Family Takaful

Participant 1
Contributions
Participant’s
Investment 4
Profits from Investment
Account (PIA) Wakalee Fee(s) for
Investment

5 Management

Contributions for
Takaful Benefit

3 2
Payment of Claims

6
Surplus Distribution Waqf Fund Wakala Fee for Operator / Wakeel
7 (if any) Operating Waqf
Fund
 Key Points on Takaful Process

• Contributions are paid on the basis of

Taburru. In Shariah such a contract is
called Aqd Taburru
• Contributions are credited to the Waqf
Fund; Operator acts as Wakeel
WAQF
• The Waqf Fund pays the claims
• Contributions are invested only in
Shari’ah Compliant investment avenues
• An independent Shariah Board supervises
business activities for Shariah compliance
 Takaful from Customer’s Perspective

• Takaful resonates with the beliefs and value system of

people from different cultures:

Shariah and
Shariah Transparent Surplus
Socially
Compliant Ethical and Full
Disclosure
Responsible Sharing
Investments
 Participant Takaful Fund (PTF) - Income

The income of PTF consists of the following:

• Contributions received from participants (other than the
portion transferred to PIA under Family Takaful Policies)
• Claims, surplus and commissions from Re-Takaful operators

• Investment profit attributable to participants in the PTF

• Salvage/Recoveries

• Qard-e-Hasana by the shareholder fund in case of a deficit

• Any donation made by shareholders, etc.

 Participant Takaful Fund (PTF) - Outgo

The outgo of PTF consists of the following:

• Settlement of losses and expenses occurred therein
• Contribution of Re-Takaful

• Takaful Operator’s fee – Wakala fee

• Share of investment profits of PTF as Mudarib

• Surplus distributed to participants

• Return of Qard-e-Hasana to the shareholder’s fund

 Differences between Conventional Insurance and
Takaful

• Point # 1: The fundamental difference between conventional insurance and

Takaful is the “Change of nature of contract” from Aqd-e-Muawaza to Aqd-
e-Taburru
– This has eliminated Riba; and
– Rendered Gharar and Qimar/Maysir Ineffective
• Point # 2: Contributions go into the Waqf Fund & Waqf Fund belongs to
Allah (SWT)
• Point # 3: The Waqf Fund pays the claims
• Point # 4: Contributions are invested only in Shari’ah Compliant business
avenues
• Point # 5: An independent Shariah Board supervises business activity for
Shariah compliance
Shariah Guidelines
 Names of Shariah Guidelines

 Halal & Haram Business Venues

 Screening Criteria for Investment
 Co-Takaful Guidelines
 Surplus Distribution Guidelines
 Charity Guidelines
 Re-Takaful Guidelines
 Advertisement Guidelines
Shariah Guidelines Regarding Halal & Haram Business
Venues

• Section 1: Impermissible Businesses according Shariah

–Conventional Banks
–Conventional Insurance companies
–Conventional Mutual Funds
–Conventional Asset Management companies
–Cinema Houses
–Alcohol Manufacturers
–Any other company whose main line of business is non-Shariah
compliant, for example companies who deal in impermissible pictures
and photographs, if this would be their only source of income.
 Shariah Guidelines Regarding Halal & Haram Business
Venues

Section 2: Group Takaful Coverage for companies of

impermissible business nature

• The Shariah Board doesn’t allow providing any kind of group

coverage to employees of companies mentioned in section
one other than a simple death coverage for the employees as
the real beneficiary is the family of the deceased.
• Personal Accident Takaful Policy
Shariah Guidelines Regarding Halal & Haram Business
Venues

Section 3: Providing coverage to assets of companies of

impermissible business nature
• Assets that are owned by a company, as mentioned in
section one, may they be fixed or not, cannot be covered
by the Takaful Company under any circumstances.
• The collateral of any conventional bank can be covered
through Takaful as it is not the property of that bank.
• Takaful coverage can be issued to assets which are
mortgaged with conventional banks against its loan, if the
borrower (mortgagor) considered as a participant of PTF
in our policy, though the contribution paid by the bank.
Shariah Guidelines Regarding Halal & Haram Business
Venues

Section 3:
• Assets of any Non-Shariah Compliant business such as cars
etc. That is a part of any employee’s salary package can be
covered under a Takaful plan as long as they are owned by
the employee and not directly used for the company’s
operation
• Takaful coverage can be issued to the leased assets of any
conventional bank or conventional leasing companies.
• The assets financed be conventional banks or companies
can be covered under a Takaful plan
 Screening Criteria for Investment and Shares

• This activity is supervised by the Shariah Advisory

Board for Shariah compliance.
• The nature of the investee company’s business and
its existence
• Debt to total Asset ratio should not exceed 33%
• Illiquid assets should be at least 20% of the total
assets
• Investment in non-Shariah compliant activities and
income from non Shariah- Compliant investments
 Areas of Investment

• Shari’ah compliant Government Securities

• Immoveable property
• Joint Stock Companies
• Redeemable Capital
– Mutual Funds
– Musharika Certificates
– Term Finance Certificates
– Participation Term Certificates
• Placement of excess funds with
Islamic Banks and Islamic financial institutions
 Shariah Guideline regarding Co-Takaful

• It is permissible for the Takaful company to be a leader as well as

follower in a Co-Takaful setup;
• Allocation of the coverage share must be by the prospect, not
from any Insurance company
• Explicit wordings of ‘offer’ and ‘acceptance’ should be
incorporated into the policy document
• The contribution cheque received from the participant for the
coverage share should be issued in the name of the Takaful
company, whether the Takaful company is the leader or the
follower
• All minor claims of one third (1/3) of sum-covered amount may
be recovered from follower co-insurance companies.
 Surplus Distribution in Takaful

• To create various sub funds under the main Waqf Fund is permissible
• The loan shall be repaid from the future surpluses generated in the
PTF without any excess on the actual amount given to the PTF.
• The actual distribution of surplus may be made only to those
Participants leaving the pool during the year by way of withdrawal,
death or maturity of the membership.
• No surplus shall be distributed if any claim(s) has been lodged by the
participant during the period of Takaful coverage and the Operator
has entertained that claim.
• The Takaful Operator may distribute surplus either in cash or adjust
against future Contributions
• At least 1% of Surplus would be made for the charitable purpose
 Charity Guidelines

• The source of Charity Fund would be as follows;

 Impure income generated by the non
Shariah Compliance transactions
 A portion of the Surplus from PFT (if any)
 General donations
• Disbursement shall be the same which is defined by the
Shari’ah for “Zakat
• it is also permitted to disburse/dispose the charity
amount in socio-economic welfare activities,
• Disbursement within one year of its transfer.
 Charity Guidelines

• Cannot be used for sponsorships or any such

activities result in direct / indirect promotion or
marketing or advertising of the Company
• Should avoid from cash payment to avoid from miss
utilization of funds
• Contributions credited to the Charity Fund shall be
recorded as Liability in the company’s book of
accounts.
• Separate accounts will be maintained for the Fund.
 Re-Takaful Guidelines

• Re-Takaful Operator should have a separate

Takaful Pool
• Should own dedicated Shariah board/ or under
the governance of another once
• Wakala Fee/Mudarib share should be clearly
agreed upon
• The surplus , As well as commissions received
from Re-Takaful operator should be considered as
a part of PTF
 Advertisement Guidelines

• All text, voice recordings, scripts, storyboards etc., meant to

communicate a message through any medium in any language
will have to be submitted to the Shariah Advisory Board for
approval.
• Music cannot be employed in any advertisement through any
medium.
• Advertisements in electronic media cannot have women
appearing on screen.
• Advertisements in print media can neither have pictures of
living beings nor depictions violating limits set by the Shariah.
 Recommended Readings and Websites

• An Introduction to Takaful by Dr. Mufti Ismatullah Sahib

(in English and Urdu Booklets)
• An Introduction to Islamic finance by Mufti Taqi Usmani
Sahib
• Takaful – A way of Islamic Insurance by Mufti Dr. Ijaz
Ahmad Samdani

• http://www.pakqatar.com.pk
Jazaak Allah
Khairan
Questions?