Australasian Journal of Islamic Finance and Business

Volume 2 ● Issue 1 ● April 2016 AJ

www.acrd.net.au/ajifb IFB
A SharīʿAh Analysis on MRTT Coverage for Conventional Housing Loans: The Malaysian
Case
Said Adekunle Mikail, Muhammad Ali Jinnah Ahmad, Mohamad Fairooz Abdul Khir and Hafas
Furqani
International Shariah Research Academy for Islamic Finance (ISRA), Malaysia

Abstract
This paper aims to provide a Sharīʿah analysis of MRTT coverage for conventional housing
loans, an issue that has posed unresolved and pressing Sharīʿah issues in the takāful industry for
about a decade. The paper employed textual analysis approach throughout the paper. It analyses
the primary sources of the Sharīʿah, namely the Qur‟ān and the Sunnah, along with secondary
materials such as the resolutions of the SAC of BNM, AAOIFI‟s Sharīʿah Standards, resolutions
of the Fiqh Academy of the Muslim World League, books, journal articles and conference
proceedings. It also includes critical analysis of the diverse views of contemporary scholars,
including Sharīʿah bodies and individuals, on the permissibility and impermissibility of MRTT
coverage for conventional loans. It finds MRTT to be tailor-made for the repayment of the
outstanding debt that results from financing provided by an Islamic or conventional bank. The
paper views that to invoke necessity (ḍārūrah/ḥājahmutaʿayyinah) to cover conventional
housing loans; the necessity should be proved beyond doubt and as prescribed in Sharīʿah. Thus,
a transaction structured on the basis of the rule of necessity should not be held permanent.
Keywords: Mortgage Reducing Term Takāful (MRTT), Mortgage Reducing Term Assurance
(MRTA), Conventional housing loan, takāful industry.

1. Background to Mortgage Reducing Term Takaful (MRTT)

Mortgage insurance and its takāful substitute commonly known as Mortgage Reducing
Term Takāful (MRTT) are plans specifically offered to house buyers. They help provide
indemnification to the participant‟s family for outstanding mortgage financed by a financial
institution (Al-Habshi et. al, 2010: 250). The conventional insurance plan is usually called
Mortgage Reducing Term Assurance (MRTA) whereas Mortgage Reducing Term Takaful

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(MRTT) is offered by takāful companies. The following discussions address the basic concepts
of MRTA and MRTT and their similarities and differences.
Mortgage Reducing Term Takāful (MRTT) is a takāful plan offered to home financing
customers against unexpected or sudden loss of life or total permanent disability on the
outstanding amount financed by the financial institution (Islamic or conventional). In such an
event, MRTT provides indemnification to the participant‟s family for the outstanding mortgage.
In MRTT plan, the participants normally pay their contribution in a lump sum for the
whole tenure of the financing without monthly or yearly contributions required. The contribution
rate depends on the participant‟s age, the financing term, the amount of financing and the
financing profit rate.
MRTT operates based on principle of tabarruʿamong takāful participants while the
takāful operator operates on the principle of wakālah as takāful operator acts as an agent on
behalf of the participants for managing the operations of the takāful funds. A wakālah fee will be
charged (usually up-front) from the contributions paid.
In the event of the prematurely death, disability or critical illness of the borrower, the
takāful operator will cover the repayment of the outstanding financing to the bank. The sum
covered is payable to the financial institution prior to the settlement of the financing, whereupon
the institution will relinquish any claim it has on the house. In addition, the accumulated amount
in the Participant‟s Investment Fund, if any, is also payable. If the house is sold or the financing
is redeemed early, the participant will receive a pro rata refund of his contribution for the
unexpired period of the takāful (Insurance Info, House Owner Takaful, 2013 and Al-Habshi et.
al, 2010: 250).

2. Advantage of MRTT Plan

MRTT aims to indemnify the family of takāful participants for the outstanding mortgage
financed by the financial institution in case of permanent disablement. The advantages of MRTT
plan includes among others the following:
a) Protection of the home financing payment in the event of death or total and permanent
disability.
b) Securing the home and preventing serious financial liability from falling on the family.
With that, it gives them peace of mind after the disability or demise of their beloved

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ones.
c) Offering a one-time contribution to cover the entire home financing tenure, and giving
protection at a reducing balance in accordance with the home financing.
d) Passing the prevailing value of the Participant Investment Fund (PIF) after the maturity
of the plan.

3. MRTT Coverage for Conventional Housing Loans

This section aims to examine juristic debate on offering MRTT to cover conventional
housing loans. MRTT as an alternative plan to conventional mortgage finance by which takāful
industry provide protection for takāful participants who have received home financing albeit the
home finance could be Islamic finance or conventional home financing. There is no Sharīʿah
issue in the case of Islamic home financing obtained and protected by takaful industry. However,
the Sharīʿah issues lie in the case of conventional home financing secured by takaful industry or
Islamic home financing secured by conventional insurance. The following sub-sections detail
juristic views and Sharīʿah principles related to this issue.

Juristic Deliberations on Takaful Coverage for Conventional Home Financing

Since the issue of offering takāful coverage for conventional housing loans is a
contemporary issue that attracts Sharīʿah decisions, the discussions here examine resolutions and
views of contemporary scholars and a few Sharīʿah-standard bodies assigned with the mandate
of Sharīʿah Standards regulating Islamic finance activities to curb or minimize different
interpretations of both primary sources and secondary sources of Sharīʿah (Islamic law). This
includes among others International FiqhAcademy of Organization of Islamic Cooperation (IFA-
OIC); the Fiqh Academy of the Muslim World League (FA-MWL); Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI); Sharīʿah Advisory Council of Bank
Negara Malaysia (SAC-BNM). Since, conventional housing loan is a non-Sharīʿah compliant
contract, offering MRTT to cover such loan falls under the subject deliberated by contemporary
scholars. The contemporary scholars are of two views on this matter.

The First View

The first view, which is based on consideration of the form of the contractual

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arrangement, considers it a lawful contract. This view gives preference to the form over the
substance and suggests that the ruling for the practice should be based on whether the takāful
coverage is obtained in one package or in a package different from the conventional housing
loan. The scholars of this view hold that the underlying contracts which form the true
relationship between the customer and the conventional bank as well as between the customer
and the takāful operator should be considered separately and independently, with each one
taking its own Sharīʿah ruling. The first contract involves ribā while the second is established
based on mutual cooperation ( ُ ُ‫ ) اذ َّت َ ا‬and commitment to donation (ِ ‫) َ ْ ِ ْاذِضَ ُا ةِ اذَّتتَ ُّرش‬.
Therefore, when the issue of whether a takāful operator can only cover Islamic financing
or whether customer with Islamic financing can opt for conventional insurance coverage plan
was presented to the Sharīʿah Advisory Council of Bank Negara Malaysia. The SAC-BNM has
resolved to such questions in resolution no 44, 45, and 46.
In the Resolution No 44, the SAC-BNM ruled thattakāful coverage for customer assets
financed by conventional banks or for conventional loan, the Resolution No 45, the SAC ruled
that it is permissible with certain conditions: “The SAC, in its 54th meeting, dated 27th October
2005, has resolved that a takāful company may offer takāful coverage for a customer‟s asset
even though the asset is financed conventionally, provided that it is offered separately and not as
a package.”
The basis for this resolution is that the takāful coverage contract and the conventional
loan contract are two separate contracts which have been concluded independently. Thus, the
SAC has no objection to takāful coverage for a customer‟s asset financed by a conventional loan.
This is because the takāful industry is not directly involved in the conventional loan contract
between the customer and the conventional bank (SAC-BNMSharīʿah Resolutions, 2010: 70).
In the Resolution No 46, SAC-BNM ruled that offering takāful coverage for conventional
credit card as proposed is not allowed.
The basis for the Resolution is it implies unequivocally cooperation in practice ribā
which is prohibited.
Mohamad bin Abdul Hamid et al. (2010: 151-152) argued in favour of the permissibility
of takāful coverage for asset financing or loans from the conventional banking system based on
the fiqh principle detailed below and some related implications:
First, the Islamic legal maxim which reads:

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َ ‫َ اَ ْ َ ْ ُش د َّت‬
"َ ‫غ‬ َ ‫" ِر‬
“Latitude should be afforded in the case of difficulty”
Based on this maxim, the authors put forward the following reasons for allowing this kind of
risk:
1- to prevent Muslims from being involved in conventional insurance contracts;
2- to minimize non-Muslims‟ business activity;
3- Islamic banking is still in its infancy.
The authors‟ arguments address the issue of takāful coverage for corporate entities whose
asset financing and loans come from conventional banks that require them to get insurance
policies, irrespective of whether they are Islamic or conventional, to cover the assets. The issue
appears to be the same as MRTT coverage for conventional loans to finance house purchases.
The preliminary arguments offered to substantiate the SAC decision are as follows:
First, to provide financial protection for the dependents of takāful policy holders.
Second, to promote Islamic finance; giving equal opportunities to conventional banking
customers to access takāful products is one means of achieving this purpose.
In order to keep takāful away from ribā, the SAC stipulates that the two contracts must be
concluded independently. Thus, the loan contract between the customer and the conventional
bank must be concluded separately. Then the takāful contract between the customer and the
takāful operator must be entered into independently.
This raises the question of whether this arrangement promotes Islamic banking products
or their conventional counterparts (conventional loans).

Discussion of the First View

A number of Sharīʿah principles have been invoked as the basis of the permissibility of
MRTT coverage for conventional housing loans. These are briefly discussed in the following
paragraphs.
1) The Principles of Ḍarūrah/Ḥājah and Maṣlaḥah.
This section seeks to examine the principles of ḍarūrah, ḥajah and maṣlaḥah and their relevance
to the issue at hand. First, the paper considers the principle of ḍarūrah and ḥajah, followed by
maṣlaḥah.
Ḍarūrah and ḥajah are technical terms used by jurists for varying levels of need that may

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cause the Sharīʿah to relax normally stringent rules. The stringent rules of the Sharīʿah are the
obligatory (wājib) and the prohibited (ḥarām). The Sharīʿah promises a reward for performing
obligatory acts and threatens a penalty for leaving them. On the other hand, it threatens a penalty
for performing prohibited acts and promises a reward for leaving them. Wahbah al-Zuḥaylī
(1985/1405) identified fourteen major extenuating circumstances that trigger the relaxation of
the normal stringent Sharīʿah rules: need for food or drink, need for medicine, duress,
forgetfulness, ignorance, difficulty, widespread and unavoidable tribulation, traveling, sickness
and diminished capacity.

Ḍarūrah:
Al-Zarkashī and al-Suyūṭī defined ḍarūrah (necessity) as “a stage in which if unlawful
means are not taken it will lead to destruction or a devastating result” (al-Zarkashī, 1985, 2:319;
al-Suyūṭī, 1403, 1: 85).
Wahbah al-Zuḥaylī defined it more comprehensively, saying: “a state where someone
faces a danger or hardship and fears its negative effects on his life, or part of his body, or his
dignity, intellect, wealth, etc. In such circumstances, it becomes necessary or permissible to
commit what is unlawful or to omit or delay what is obligatory in order to repel such harm, in
accord with the constraints of Sharīʿah, when one is reasonably sure that doing so will have the
intended effect” (Wahbah al-Zuḥaylī, 1985/1405: 68).
Necessity cannot be invoked willy-nilly; it must be in accord with the parameters
(ḍawābit) prescribed by the Sharīʿah. Scholars have deduced a number of ḍawābit from the
sources of Sharīʿah in order for a matter to be categorized under ḍarūrah. Not every claim of
ḍarūrah fulfils these criteria, and thus, not every claim is valid. The following conditions must be
present for a circumstance to qualify as ḍarūrah beyond doubt.
1) The ḍarūrah should be actually existent, not merely anticipated.
2) There should not be other means to allay the damage except by committing what is
unlawful. This is when it is incumbent upon someone to commit unlawful acts to prevent the
actual damage to his life, property, intellect, dignity, etc. Thus, anyone who has a means to get
what he needs without a conventional loan is not allowed in the eyes of Sharīʿah to take a
conventional loan on the ground of ḍarūrah because of the existence of the lawful means
(Wahbah, al-Zuḥaylī, 1985/1405: 69).

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3) Under certain extreme circumstances, committing an unlawful act is allowed even

although lawful alternatives are theoretically available. What makes the unlawful permissible in
such circumstances is fear of harm to life or limb; for example, the presence of lawful food
outside one‟s house in a war zone; however, trying to get to it could cost you your life.
4) The person in the state of necessity (ḍarūrah) should exercise it within the fundamental
principles prescribed in Sharīʿah such as preservation of the rights of others, adherence to
justice, commitment to amānah (trust), and prevention of ḍarar (harm).
5) The prohibited act should only be availed of to the minimal extent necessary to repel
the harm. Anything above that is transgression.
6) In the case of ḍarūrahʿāmmah (public necessity), it is up to the ruler to decide if its
presence is sufficient to call for the relaxation of the normal Sharīʿah rules.

Hājah:
Classical Arabic dictionaries used the term ḥājah as a definition of the term ḍarūrah
because they both mean „need‟. Distinguishing between the technical meanings of the two terms
in jurisprudential terminology posed difficulties for some scholars; however, the majority of
scholars differentiate between the two on the basis of the intensity of the need and of the
disruption associated with the failure to realize it. Al-Shāṭibī (1997, 2:21) defined ḥājah as
something that one is in need of in order to realize comfort and eliminate distress; not giving due
consideration to such matters imposes distress and hardship upon people, but less so than the
hardship that arises from the loss of essential public interests.
The legal impact of needs depends largely on their intensity; some reach the essential
level (ḍarūrah) while some are only at the ameliorative level (taḥsīn), and others are at the
intermediate level (ḥājah). Al-ʿIzz ibn ʿAbd al-Salām (2000 2:71) identified food, drink,
clothing, housing, marriage and transportation as basic human needs. The minimum requirement
of all these is essential (ḍarūrah) for every human. What exceeds that may be considered
ordinary need (ḥājahʿādiyyah) or ameliorative need (ḥājahtaḥsīniyyah).
A need that can be classified as ḥājahmutaʿayyinah and be given legal consideration
(rukhṣah) as a special-case exception to a Sharīʿah prohibition or command should fulfill the
following conditions:
1) The intensity of the difficulty associated with failure to fulfil the need should exceed

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normal levels.
2) The application of the exceptional ruling based on ḥājah should be based on the way an
average person would react to that state of need, not to any particular person‟s idiosyncratic
assessment of need. That is because the Sharīʿah‟s rules are based upon predominant conditions;
it does not provide separate legislation for every individual.
3) There should be no other means to realize the need other than the means that violates
the normal Sharīʿah rule (ʿazīmah).
4) The exemption should be limited to the scope of the ḥājah (W. al-Zuḥaylī 1985/1405:
275-276).
The application of darūrah/ḥājah in the context of MRTT coverage for the borrower of
the conventional housing loan is related to the customer. The takāful operator is unlikely to
experience this kind of ḥājah unless it faces real difficulties should it be prevented from
covering the conventional housing loan. It is apparent that such coverage falls within the
category of ameliorative needs for takāful operators. This is because it accrues profit for the
takāful operator and increases dividends for its shareholders. It does not add value to thetabarruʿ
fund; rather, it is a burden upon it. The verification of whether this ḥājah goes beyond the
normal to the legally significant level would involve determining whether the customer who
comes to obtain MRTT to cover his interest-bearing debt is eligible for a legal exemption
(istithnā’ sharʿī), based upon which the takāful operator can come to his aid after his being
trapped by a conventional bank in an interest-bearing transaction due to his dire need.
Therefore, the need for takāful to come to his aid needs thorough study. A customer who
exercises his right under a dual financial system to take a conventional loan, which is strictly
prohibited in Islam, has done what is prohibited. Such a sin should not be spread by getting the
takāful operator involved. In addition, the continuation of such coverage may sooner or later
have negative impacts on Islamic finance products. The harm suffered by takāful operators in
not covering conventional housing loans may well be less than the damage caused to Islamic
financial institutions through the loss of customers for their products.

Maṣlaḥah:
Linguistically, maṣlaḥah means benefit or interest. Sharīʿah scholars have classified it
into three types: muʿtabarah (confirmed by Sharīʿah texts); mulghāh(rejected by Sharīʿah texts)

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and mursalah (undecided). Maṣlaḥahmursalah is a kind of benefit that the Sharīʿah has neither
explicitly approved nor disapproved. Deciding whether a maṣlaḥah of this kind should be
approved or rejected requires ijtihād by well-versed scholars on the basis of the implications of
the Qur‟ān and Sunnah. Ibn Ḥamīd (2005) said about such interests that Sharīʿah considers their
genus. There are categories of interest which have received Sharīʿah consideration by way of
general rules. For a particular interest to be considered and recognized when no particular
Sharīʿah text addresses it one way or another, it must fulfill the following criteria:
a) it should be acceptable to most reasonable persons;
b) its consideration should protect an essential matter or prevent difficulty;
c) it should conform to the objectives of the Sharīʿah, not merely to people‟s inclinations.
Some have claimed that the existence of benefit in a given act is an indication of divine sanction
for it. Shaykh al-Qarḍāwī gave an adequate response to this claim, saying:
‫ أ َ َّت‬. َ‫عقُى ِال‬ ‫ع ْل ُ ا َّت‬
ُ ‫ َود ََش َك ُ ِجْ ذِ َه ِدنَ َو‬،ُ ‫ش ِس‬ َ َ‫ع َخ‬
َ ‫صحِ ُ ٌح اُِ َم‬ َ َ‫صلَ َحجُ اَث َ َّتم ش َْش ُ هللاِ؛ اَ َهز‬ْ َ ‫ْث دُى َجذُ ْامـ‬
ُ ُ‫ " َح‬:‫َ َ اَ ُ ةَ ْ ُ الَّت ِط‬
". ُ‫ص َل َحج‬ ُ ُ‫ َح‬:‫ص َى اُ أ َ ْ دَقُى َو‬
ْ ‫ْث َُى َجذُ ش َْش ُ هللاِ اَث َ َّتم اـ َم‬ ‫عذَ رَ ِا َ اَ ا َّت‬
َ ‫اُِ َم‬
“This claim is valid regarding issues for which Allah has not provided a specific rule and for
which He has left us to our juristic induction (ijtihād) and our intellects. However in everything
else, the correct statement would be, „Wherever there is a rule of Allah that is where the benefit
lies.‟”
2) The Principle of Committing the Lesser of Two Evil Acts
Another principle invoked for the permissibility in this issue is the principle of irtikābakhaff al-
ḍararayn. This legal maxim (qāʿidahfiqhiyyah) is a corollary of the famous legal maxim al-
ḍararyuzāl (harm should be removed). Irtikābakhaff al-ḍararayn means “committing the lesser of
two evil acts”. It is applicable to a situation where at least one evil is certain to occur and one of
them is more harmful than the other.
One basis for this legal maxim is Allah‟s statement:
َ‫عتُِ ِ َّتَّللِ َو ُك ْف ٌش ِة ِ َو ْا َمغ ِْج ِذ ْا َح َش ِا َو ِ ْخ َش ُج أ َ ْه ِل ِ ِ ْل ُ أ َ ْكتَ ُش ِع ْلذ‬
َ ‫ع ْن‬َ ٌّ‫صذ‬ َ ‫ُش ۖ َو‬ ٌ ِ‫ُ ْ ِذ َ ٌو اُِ ِ َكت‬ ۖ ِ ُِ‫ش ْه ِش ْا َح َش ِا ِذ َ ٍو ا‬ َ َ َ‫ََ ْغأَاُىن‬
‫ع ِن ا َّت‬
‫خ َوه َُى‬ ْ ‫ع ْن دَِلِ ِ اََُ ُم‬ َ ‫ط عُى ۚ َو َ ْن ََ ْشد َ ِذ ْد ِ ْل ُ ْم‬ َ َ ‫ع ْن دَِ ِل ُ ْم ِ ِ ْعذ‬ َ ‫َ َُقَ دِلُىنَ ُ ْم َحذ َّت ًٰ ََ ُشدُّرو ُك ْم‬ ‫َّتَّللِ ۚ َو ْا ِفذْلَجُ أ َ ْكتَ ُش ِ نَ ْاقَذْ ِ ۗ َو َ ََضَ اُى‬
َ ‫ص َح اُ الَّت ِس ۖ ُه ْم اُِ َه َخ ِاذُو‬ ْ َ ‫َو ِْخِ َشثِ ۖ َوأُو ٰاَ ِ َ أ‬ َُ‫خ أ َ ْع َم اُ ُه ْم اٍِ اذُّر ْن‬ َ ‫َك ا ٌِش اَأُو ٰاَ ِ َ َح ِت‬
ْ ‫ط‬
They ask you concerning the sacred month, about fighting in it. Say: Fighting in it is a grave
matter, but hindering [people] from Allah's way and denying Him, and [hindering people from]
the Sacred Mosque and turning its people out of it are still graver with Allah; and persecution is

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graver than killing; and they will not cease fighting you until they have turned you back from
your religion if they can; and whoever of you turns back from his religion, then dies as a
disbeliever, these it is whose works shall go for nothing in this world and the hereafter, and they
are the inmates of the fire; therein they shall abide (Qur‟ān, 2:217).
The principle is also illustrated in an incident in which a Bedouin casually began to
urinate in the mosque. The Prophet (peace be upon him) cautioned his companions not to scold
him and not to try to physically prevent him from doing so (al-Bukhārī, 1987, 1:89, ḥadīth no.
217; AbūDāwūd, n.d., 1:145, ḥadīth no. 380; al-Tirmidhī, n.d., 1:275, ḥadīth no. 147; al-Nasā‟ī,
1986, 1:47, ḥadīth no. 56; Ibn Mājah, n.d., 1:176, ḥadīth no. 529).
The reasons for the Prophet‟s response were manifold; among them: the damage to the
mosque was easily remediable with a bucket of water poured on the spot. Physical intervention
would have most probably led to the urine spreading to a larger area of the mosque, and it could
have gotten on the interveners as well as. On the other hand, if the Bedouin had tried to stop
urinating in the middle of the act, it may have harmed his health. Moreover, the Bedouin‟s act
was a clear indication of his ignorance; his readiness to accept instruction would have been
negatively impacted by scolding and assault. As it was, he readily accepted the Prophet‟s advice
after the fact.
The relevance of this legal maxim to MRTT depends on an accurate assessment of the
impact upon the affected parties of a decision not to cover conventional housing loans through
MRTT. The following parties are likely to be affected: customers, Islamic financial institutions
and takāful operators. If a customer who has taken a conventional housing loan is denied access
to the Islamic product, he will undoubtedly take conventional insurance, which will increase his
sin. For the takāful operator, denying coverage to conventional loans will result in diminished
income. On the other hand, granting coverage implicates the operator in support for ribā
transactions. In addition, granting MRTT to cover conventional housing loans is likely to result
in fewer customers, and thus diminished income, for Islamic banks.
Assessing the relative magnitude of the harm to Islamic finance in general that would
result from allowing or disallowing MRTT coverage for conventional housing loans requires
research employing both qualitative and quantitative methods, perhaps by an Islamic financial
association such as AIBIM. Hopefully, such research would provide a firm basis for deciding to
what extent takāfuloperators would be affected by not providing such coverage under MRTT.

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3) The Principle of Substance over Form

The third principle used is the principle of substance over the form. This principle is
embodied in the legal maxim al-ʿibrahfī al-ʿuqūdlī al-maqāṣidwa al-maʿānīlālī al-fāẓwa al-
mabānī(In contracts, consideration is given to intention and meaning rather than words and
forms). This wording of the maxim is according to the Ḥanafī and Mālikī Schools while the
Shāfiʿī and Ḥanbalī Schools express it in the form of a question (Is consideration in contracts
given to intention and meaning or to words and forms?) (Kāmil 2006: 85).
The resolutions of the SAC in both its 57th meeting, commenced on 30th March 2006,
and 71st meeting, on 26th - 27th October 2007, give greater consideration to meaning over
wording in cases where the two conflict. The SAC stated:
Substance and form are equally important and highly taken into consideration by
Sharīʿah. In this regard, the Sharīʿah emphasizes that substance and form must be constant and
shall not contradict one another. In the event of inconsistency between substance and form due
to certain factors, Sharīʿah places greater importance on substance rather than form. (BNM,
Shariah Resolution, 2010: 192-193).
In the context of MRTT both substance and wording express clearly that the borrower
takes MRTT to repay his debt obligation to a conventional bank. Even though the MRTT is
arranged independently, the MRTT plan clearly expresses that it is ready designed to cover a
housing loan, regardless of whether the policyholder is indebted to an Islamic bank or
conventional bank. It is quite easy for a takāful operator to determine the nature of its
policyholder‟s financial obligation. Thetakāful operator should not engage itself in prohibited
matters.
4) The Principle of Cooperation in Piety
The fourth principle is mutual cooperation, which is one of the main principles justifying
the practice of takāful. It is directly derived from Verse 2 of Sūrah al-Mā‟idah, which enjoins
Muslims to cooperate among themselves in virtue and piety and not to cooperate in vice and sin:
" ِ ‫علًَ ْ ِا ْ ِم َو ْا ُذ َْو‬
َ ‫علًَ ْاتِ ِ ّش َو اذ َّت ْق َىي َو د َ َ َونُى‬
َ ‫" َود َ َ َونُى‬
This is the moral attribute that distinguishes takāful from conventional insurance.
With reference to MRTT, both the positive and negative aspects of this principle are applicable.
On the positive side, it is relevant to the takāful operator providing help for Muslims who are in
dire need of its help. On the negative side, the takāful operator and the policyholder should not

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cooperate with each other in committing sins or promoting what is unlawful, such as ribā.

The Second View

The second view is that this coverage is impermissible. This approach emphasizes
examining the contract in totality rather than distinguishing between takāful coverage coupled
with a conventional housing loan and takāful coverage in a separate package. In this regard, it is
suggested that the contractual arrangement between the customer, the conventional bank that
provides the housing loan and the takāful operator must be looked at as a whole. The
relationship must be thoroughly examined to determine which Sharīʿah contract is most relevant
to it, irrespective of whether the conventional housing loan is packaged with the takāfulcoverage
or the coverage is added later. On this premise, ʿAlī al-QarahDāghī (n.d.:11-12); Muḥammad al-
Zuḥaylī (2004: 137) and Ṣāliḥ al-Fawzān (2013: 827) viewed the substance of the contractual
arrangement to be kafālat al-dayn(guarantee of a debt). Hence, all Sharīʿah rulings related to
kafālat al-dayn apply to this arrangement, in particular to the subject of the guaranteed debt (i.e.,
al-makfūlbih), which is what the takāful is covering.

Discussion of the Second View

The proponents of the second view put forward some arguments to justify their stand.
The basis for their arguments is rooted in the prohibition of ribā, prevention of helping others in
vices, maqāṣid(objectives) of the Sharīʿah and consideration of the end results of acts.
The first pillar of the argument consists of the injunctions from the Qurʾān, the Sunnah
and ijmāʿon the prohibition of ribāand related transactions. This is because the wisdom behind
the prohibition of ribāis the injustice in taking interest on the principal (Ramaḍān, 2005: 27), and
takāful coverage for a conventional housing loan is considered helping ribā transactions. The
Lawmaker (Almighty Allah) has appointed the benevolent loan (qarḍḥasan) as a substitute for
the conventional loan. To that end, Allah has prescribed hundredfold reward for giving loansto
help the poor and needy. Imām al-Shawkānī (2004: 548) said, “The Sharīʿah permits
qarḍ(benevolent loan) to be of benefit for needy people who are seeking loans [to cater for their
financial needs] and a source of reward for the rich who provide the loans.” Islamic banks
should be encouraged to provide qarḍ and to serve the public in the best manner.

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Injunctions from the Qur’ān on the Prohibition of Ribā

Allah says:
...ُ ‫ع ْل‬ ّ ِ ‫ُِش َوأ َ ْخ ِز ِه ُم‬
َ ‫اـش َةـ َو َ ْذ نُ ُهى‬ َ ‫ع ْن‬
‫ع ِتُ ِ َّتَّللِ َكث ًر‬ َ ‫ص ِذّ ِه ْم‬ ْ ‫ح أُحِ لَّت‬
َ ‫خ اَ ُه ْم َو ِة‬ َ ‫اَ ِت ُ ْل ٍم ِ نَ اَّتزَِنَ َه دُو َح َّتش ْ َل‬
ٍ ‫علَ ُْ ِه ْم َ ُِّ َت‬
“For the wrongdoing committed by the Jews, We forbade them certain good things that had been
permitted to them before: for having frequently debarred others from God‟s path; for taking usury
when they had been forbidden to do so…” (Qur‟ān, 4:160-161).
This verse conveys to us that the prohibition of ribāis not a new phenomenon; it was
forbidden in the Sharīʿah of previous prophets just as it is prohibited in the Sharīʿah of the
Prophet Muḥammad (peace be upon him). When ribāwas forbidden for the Jews they used tricks
to circumvent the prohibition. In that regard, Ibn Kathīr stated in his Qur‟ānic exegesis, “Allah
forbade ribāfor them, but they insisted on taking it by way of tricks and numerous dubious
contrivances to circumvent ribā.”
The first verse revealed to the Prophet (peace be upon him) about ribāstates:
ْ ‫عفَجًر َو دَّتقُى َّتَّللَ اَ َلَّت ُ ْم د ُ ْف ِل ُحى َ َو دَّتقُى الَّت َس اَّتذٍِ أ ُ ِعذ‬
َ‫َّتح ا ِْل َ ا ِِشَنَ َوأ َ ِ ُ ُى َّتَّلل‬ ّ ِ ‫ََ أََُّر َه اَّتزَِنَ آ َ لُى َ د َأ ْ ُكلُى‬
َ ُ ‫اشةَ أ َ ْ َ اًر‬
َ ‫ض‬
" َ ‫عى َو اَ َ َّتل ُ ْم د ُ ْش َح ُمى‬
ُ ‫اش‬
‫َو َّت‬
“O you, who believe, do not gorge yourselves on usury, doubling and re-doubling it, but
remain conscious of God so that you might attain to a happy state; and beware of the fire which
awaits those who deny the truth! And pay heed unto God and the Apostle sothat you might be
graced with mercy” (Qur‟ān, 3:130-132).
This verse indicates that there is terrible injustice in ribā, especially if the
debtor/borrower encounters difficulty in repaying the loan, which causes the interest to
accumulate, doubling the original debt or multiplying it even more than that. If he is unable to
repay the debt, his property will be sold at a discount to settle the obligation. The debtor incurs
loss in two ways: being obliged to pay the constantly accumulating interest on the debt, and
having his property sold at a low price to repay the inflated amount. The creditor, on the other
hand, is guaranteed profit without labor or risk (AbūZahrah, 1405/1985: 16).
The last set of verses revealed about ribā states:

ّ ِ ُ ْ‫ظ رَ ِا َ ةِأَنَّت ُه ْم َ اُى ِنَّت َم ْاتَ ُْ ُ ِ ث‬

َ‫اشة‬ ّ ِ ‫ط ُ ِ نَ ْا َم‬ َ ُْ ‫ش‬ ُ ‫اشةَ َ ََقُى ُ ى َ ِ َّت َك َم ََقُى ُا اَّتزٌِ ََذ َ َختَّت‬
‫ط ُ ا َّت‬ ّ ِ َ ‫اَّتزَِنَ ََأ ْ ُكلُى‬
َ ِ ‫ع دَ اَأُو َا‬
َ ‫ف َوأ َ ْ ُشهُ ِ َاً َّتَّللِ َو َ ْن‬ َ َ‫عل‬ َ َ ُ َ‫اشةَ اَ َم ْن َج َءهُ َ ْى ِع َجٌ ِ ْن َسةِّ ِ اَ ْنذ َ َهً اَل‬ ّ ِ ‫َوأ َ َح َّت َّتَّللُ ْاتَ ُْ َ َو َح َّتش َا‬
‫ح َو َّتَّللُ َ َُحِ بُّر ُك َّت َك َّتف ٍس أ َ ٍُِم * ِ َّت َّتازَِنَ آ َ لُى‬ِ َ َ ‫صذ‬‫اشةَ َوَ ُْش ِةٍ ا َّت‬ ّ ِ ُ‫ص َح اُ الَّت ِس ُه ْم اُِ َه َخ ِاذُو َ * ََ ْم َحقُ َّتَّلل‬ ْ َ‫أ‬

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ََ * َ ‫علَ ُْ ِه ْم َو َ ُه ْم ََحْ ضَ نُى‬ ٌ ‫اض َك ث َ اَ ُه ْم أَجْ ُش ُه ْم ِع ْلذَ َسةِّ ِه ْم َو َ خ َْى‬

َ ‫ف‬ ‫ح َوأ َ َ ُ ى ا َّت‬
‫ص ََلث َ َوآد َُى َّت‬ ِ ‫ص ِا َح‬‫عمِ لُى ا َّت‬ َ ‫َو‬
ْ
ٍ ‫اشةَ ِ ْ ُك ْلذ ُ ْم ُ ؤْ ِ لُِنَ * اَإ ِ ْ اَ ْم د َ ْف َلُى اَأرَنُى ةِ َح ْش‬
ُ ‫ا ِ نَ َّتَّللِ َو َس‬
ِ ‫عى ِا‬ ّ ِ َ‫ٍِ ِ ن‬ َ ‫أََُّر َه اَّتزَِنَ آ َ لُى دَّتقُى َّتَّللَ َورَ ُسو َ ةَق‬
َ ‫وط أ َ ْ َى ِا ُ ْم َ د َ ْ ِل ُمى َ َو َ د ُ ْ لَ ُمى‬
ُ ‫َو ِ ْ د ُ ْتذ ُ ْم اَلَ ُ ْم ُس ُء‬
Those who gorge themselves on usury behave but as he might behave whom Satan
has confounded with his touch; for they say, „Buying and selling is but a kind of
usury‟―whereas God has made buying and selling lawful and usury unlawful.
Hence, whoever becomes aware of his Sustainer's admonition and thereupon
desists [from usury] may keep his past gains, and it will be for God to judge him;
but as for those who return to it, they are destined for the fire, therein to abide! God
deprives usurious gains of all blessing, whereas He blesses charitable deeds with
manifold increase. And God does not love anyone who is stubbornly ingrate and
persists in sinful ways. Verily, those who have attained to faith and do good works,
and are constant in prayer, and dispense charity, they shall have their reward with
their Sustainer, and no fear need they have, and neither shall they grieve. O you
who have attained to faith! Remain conscious of God and give up all outstanding
gains from usury, if you are [truly] believers; for if you do it not, then know that
you are at war with God and His Apostle. But if you repent, then you shall be
entitled to [the return of] your principal: you will do no wrong, and neither will you
be wronged.
These verses link the prohibition of ribā with two matters: First, the pagans equated ribā
with trade as a means of gaining profit. They argued that it is the same as someone who gains
profit from the spread between the purchase price and selling price in a sale. More particularly,
they argued that if it is allowable to charge a mark-up on a deferred payment sale, there should
be nothing wrong in charging a mark-up if the debtor cannot pay the agreed amount at the
appointed time and requests a delay.
Second, the prohibition of ribāis linked with ṣalāh (five daily prayers) and zakāh, which
indicates that the prohibition is as important as the pillars of Islam, i.e., ṣalāh and zakāh. Thus,
anyone who ignores this prohibition ignores what is essential in Islam. In fact, the prohibition of
ribāis the pillar of Islamic economics.
The Qur‟ānic injunctions confirm two important matters: First, the term ribāhas a
linguistic meaning which reflects customary practices of the Arabs; it means interest attached to

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a loan on the due date. The Qur‟ānic text prohibits this practice and the Prophet (peace be upon
him) interpreted the term ribāin the Qur‟ān as ribāal-jāhiliyyah (the pre-Islamic interest-based
loan). Second, scholars unanimously agree that any loan on which interest is due on the date of
maturity falls under the term ribāused in the Qur‟ān. Therefore, it is undeniable and clear-cut
evidence on the prohibition of such loans (AbūZahrah, 1405/1985: 17-18).

Injunctions from the Sunnah on the Prohibition of Ribā

The Prophet (peace be upon him) said, “Keep away from seven destructive sins.” One of
the seven mentioned in the ḥadīth is dealing in ribā(al-Bukhārī, 1987: 3:1017, ḥadīthno. 2766;
Muslim, n.d., 1:64, ḥadīthno. 272).
It is also related that the Messenger of Allah (peace be upon him) cursed the usurer, the
one who pays usury, the scribe who records it, and the witnesses of the transaction, and the
Prophet (peace be upon him) said, “They are all the same [in sin].” (Muslim, n.d., 5:50, ḥadīth
no.4177).

Ijmāʿ (Consensus) on the Prohibition of Ribā

The entire Ummah agrees that ribā is prohibited. The consensus has been maintained
from the Prophetic era up to the present and was reported by a number of classical scholars,
including Ibn ʿAbd al-Barr (n.d., 16:12-22), Ibn Ḥazm (n.d.: 1480), Ibn Qudāmah (1405, 4:133),
al-Subkī, Ismāʿīl al-Ṣanʿānī and others (M. Sayyidī, n.d.: 21).
In view of the above verses and ḥadīthson the prohibition of ribā, AAOIFI stated, in clause 5/8
of its Sharīʿah Standard No. 26 on takāful, that a takāful operator should carry out its activities
and investments in accordance with the rules of the Sharīʿah and should not engage in any
prohibited activities. In particular, it should not cover what is prohibited or support prohibited
objectives:
‫ أ َ ْو‬،ِ‫علًَ ْامـ ُ َح َّتش َح‬ ِ ِ ْ ‫عذَ ُا اذَّتأ‬
َ ‫ُن‬ ‫ َوةِ َخ َّت‬، ‫طذِ َه َو ْعذِثْ َم َس دِ َه‬
َ ‫ص ٍج‬ َ ‫ش ِشَ َ ِج ْ ِا ْعَلَ ِ َُّت ِج اٍ ِ ُك ِّ أ َ ْن ِش‬ ‫ ِْاذِضَ ُا ا َّت‬8/5"
ِ ‫ش ْش َك ِج ةِأَحْ َ ِا َو َ تَ د‬
‫ِئ ا َّت‬
."‫ا ُ َح َّتش َ ٍج ش َْشع ًر‬ ٍ ‫ع َلً أ َ ْ َش‬
َ

Moreover, the Fiqh Academy of the Muslim World League (FA-MWL) in Makkah stated
in its Resolution No (51), dated 04-04-1397, that the activities of a takāful operator should be
free from any ribā transactions whatsoever and that the funds in the tabarruʿ fund should not be

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used by the operator in any ribā- related activities.

َ‫َ جُمِ َ ِ ن‬ َ ‫و َ ََغْذغِلُّرى‬، َ ‫عقُىدُ ْا ُم‬
َ ‫غ هِمِ ُنَ ِسةَ ِىََّتجًر‬ ْ ‫غ‬
ُ ‫خ‬ ْ َ‫ِ؛سة َ ْاف‬
َ ُْ َ‫اَل‬،ِ‫ض ِ َو ِسة َ الَّت ْغأ‬ ِ ُْ ‫ع‬ ِ ِ ْ ‫ ُخلُ ُّرى اذَّتأ‬:ٍِ‫" اث َّت ن‬
ّ ِ َ‫ُن اذ َّت َ ُونُِمِ ن‬
َ ‫اشة َ ةِل َْى‬
ٍ َ‫ْ َ ْغ َ ِ اٍ ِ ُ َ َ َل‬
".‫ح ِس َة ِىََّت ٍج‬
(FA-MWL, 1997-2004: 39)
In addition, a number of studies conducted by contemporary Sharīʿah scholars confirm
the impermissibility of takāful operators dealing in ribā; for example, al-QarahDāghī (2013: 14)
stated that a conventional loan that attracts interest is a voidable contract and unanimously
prohibited; therefore, the takāfu lplan should not cover such a debt. To do so is cooperation in
committing and promoting ribā. Babākir (2010: 21) has supported this view, saying that illegal
money such as ribā has no value in Sharīʿah; thus it should not be covered by a takāfuloperator.
The takāfuloperator should not cover any prohibited items such as liquor, pigs and ribā. Al-
Ghanānīm (2010: 23) also stated that one of the fundamental principles of takāfulis to avoid any
contractual form that is prohibited and any contract that involves prohibited items, and he cited
ribāas an example.
It is a fundamental requirement that makfūlbih (the subject of kafālah) should be
originally established in the liability of the borrower irrespective of whether it is dayn (debt) or
ʿayn(real asset) or nafs (person) (Wahbah al-Zuḥaylī 1989, 5:143). This is because:
ِ َ ْ ًَ‫عل‬
"... ِ ُ‫ص‬ َ ِ‫ض ُمى ُ ْ ِاَفَ ء‬ َ ‫ َو ِنَّت َم ََ ْلذ َِض ُا ْا َفُِ ُ ْا ُم‬..."
ْ َ ‫ط اَتَجَ ةِ َم ه َُى‬
The guarantor shall only assume liability for a demand that the principal party is required
to fulfil (al-Sarkhasī, 1993, 20; 102).
The kafīlis only obliged to guarantee what is in the liability of the debtor; nothing else,
and the debt must be valid from a Sharīʿah point of view. Ibn ʿĀbidīn stressed this condition,
saying:
"...‫صحِ ُح ًر‬ ِ ‫ َوأ َ َّت كَف َاَجُ ْام َ ِو اَذ‬..."
َ ‫َص ُّرح َواَ ْى َ ـجْ ُهى ًر ةِ ِ ِرَ ك َ َ دََْل ًر‬
“A guarantee of wealth is valid even if the amount is unknown, as long as the debt is
valid (ṣaḥīḥ)” (Ibn ʿĀbidīn 2003, 8: 580).
Wahbah al-Zuḥaylī mentions an additional condition (1989, 6:15):
َ ‫أ َ ْنَُ ُىنَ اذَّت َْلَُلَ ِص ًر‬..."
"...‫صحِ ُح ًر‬
“…that the debt is binding (lāzim) and valid (ṣaḥīḥ).”
The question that poses itself now is “Is principal plus interest considered a valid debt
due on the debtor?”

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In the case of MRTT, where the policy covers an outstanding financing loan that accrues interest
due on the conventional home loan borrower, only the principal should be paid. This is because
the Sharīʿah does not recognize interest; thus the creditor is only entitled to the principal. In that
regard, Allah says:
َ‫اشةَ ِ ْ ُك ْلذ ُ ْم ُ ؤْ ِ لُِن‬ َ ‫ََ أََُّر َه اَّتزَِنَ آ َ لُى دَّتقُى َّتَّللَ َورَ ُسو َ ةَق‬
ّ ِ َ‫ٍِ ِ ن‬
“O you who believe, fear Allah, and give up what remains of your demand for usury, if
you are indeed believers” (al-Qur‟an, 2:278).
Scholars said this verse was revealed about persons from the town of Ṭā‟if who had lent
money to persons from Makkah before having accepted Islam. When the creditors approached
their debtors to repay them the principal plus interest (ribā), the debtors agreed to pay the
principal but refused to pay the interest. The case was brought before the local governor, who
sent a message to the Prophet (peace and blessings upon him) seeking his judgment on the
matter. Thereupon Allah revealed this verse, commanding the believers (Muslims) to stay away
from ribā after the warning sent in the previous verse, which linked giving up ribā to belief in
Allah and His Messenger (Mubārakpūrī, 2000: 198).
Moreover, it can be argued that, if one considers the industry‟s market position and the
future of the Islamic banking sector, it is better not to cover a conventional housing loan unless
the MRTT customer takes Islamic financing (Abd Hamid, n.d.: 24).
Although the impermissibility in the above discussion is not directly related to MRTT coverage
for conventional housing loans, the main element in a conventional housing loan is ribā, which
makes the discussion relevant. In this current situation, the precautionary principle in Sharīʿah
can be applied. Jurists said that when a mukallaf (a person who is legally responsible for his acts)
is confronted with an ambiguous situation, in which an act may or may not be prohibited, the
wiser policy is to avoid the ambiguous act (Ibn Ḥamīd 2005: 23-25). When the evil in ribā
transactions is certain while the benefit of cooperation is uncertain, the ruling is to be based on
giving primary consideration to avoiding the evil, which is certain, and to disregard the interest,
which is uncertain. This is in accordance with the famous Islamic legal maxim:
‫َ ْاَُ ِقُنُ َ ََ ُضو ُو ِة ا َّت‬
ِّ ‫ش‬
“Certainty cannot be overruled by doubt.”
There are two exceptional cases where it is permissible to guarantee the ribā-bearing loan:
1) In a situation where dealing with ribā is considered necessity (ḍarūrah)

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2) In a situation where the customer is in critical need for a takāful coverage to settle only
the principal of his conventional loan (Muḥammad. al-Zuḥaylī 2006: 20).
The bottom line is that the necessity has to be proved beyond doubt and effort must be made to
remove or at least minimize the circumstances that impose the difficulty. The response to the
necessity should be proportional to its magnitude; it is not permissible to act free from all
restrictions on the basis of exceptional circumstances

4. Conclusion and Recommendation

MRTT is a Sharʿīah compliant policy to substitute MRTA albeit it is mainly designed to
cover housing loans is case of premature death or permanent disability of the borrower. To
maintain Sharʿīah compliant requirements, MRTT should be free from ribārelated activities.
Contemporary Sharīʿah scholars are of two views regarding offering MRTT for the borrower of
conventional housing loans. As some stick to ibāḥahaṣliyyah (the original ruling for worldly acts
is lawfulness) and consider the form over the substance say it is permissible as long as the two
contracts are independent and are not related to each other. They also support their arguments
withḥājah,as important needs (ḥājātmutaʿayyinah)have legal exemption under the Sharīʿah. On
the contrary, other scholars view the impermissibility of such coverage. The basis of their
arguments is the prohibition of ribā transactions. And takāful operator should not engage or
encourage any deal relating to ribā whatsoever. MRTT policy is used to cover debt obligation
which involves in the case of conventional loan ribā. Thus, it is recommend that:
1) Refinancing outstanding conventional debts using Islamic finance would be a better
option if possible. This is to preserve the mandate of the takāfulindustry, which
includes the elimination of ribā-related activities.
2) It is argued that, if MRTT were to be given to cover a conventional housing loan under
the principle of ḍarūrah (necessity) or ḥājahmutaʿayyinah (actual need), it should cover
only the principal amount, and the takāful benefit should be paid to the family of the
participant.
3) If MRTT is offered to cover conventional housing loans, the practice should be limited
to a specific timeframe in order to avoid long-term negative effects on Islamic finance
products.
4) Better still; an individual family takāful package can be given to conventional

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customers who have taken housing loans if the customers wish to take a tactful policy,
as long as the policy is not linked to any outstanding loan.
5) The regulator should determine the extent of ḍarūrah (necessity) that exists, taking into
account both the needs of the takāful industry and the Islamic banking sector as well as
the customers. If it decides to continue permitting MRTT coverage for conventional
housing loans, it should set a time-frame for how long this permission should last.

References
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ʿAbdulRaḥmān, RamaḍānḤāfiẓ. (2005). Mawqif al-Sharīʿahmin al-Bunūk, al- Muʿāmalāt al-
Maṣrafiyyahwa al-TaÒmīn. Egypt: Dār al-Salām.
Abū Dāwūd, Sulaymān ibn al-Ashʿath al-Sijistānī. (n.d.).SunanAbūDāwūd. Beirut: Dār al-Kitāb
al-ʿArabī.
Abd Hamid, MohdShahrulnizam. (2013). Shariah Issues in Takaful: A Brief Assessment
through Literature Review and the Opinions of Industry Experts, p. 24.
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