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HISTORICAL PRACTICE OF
INSURANCE
This concept of Insurance in original, appears to be not suffering from
any deficiency as per principles of Shariah, rather it is a commendable
concept and prevalence of such transactions were found operating since
before advent of Islam.
HISTORIAN: IBNE KHALDOON
Traced history of this institution with the observation that Arabs used to
undertake two journeys in a year one in summer and the other in winter
season. These are the journeys mentioned in Sura Al Quresh (30 :
106).
SIMPLEST FORM OF INSURANCE
A tacit agreement between the participants of the journey that all of
them would share the loss, if any, caused or occurring to any of them.
PRACTISE OF THE TRADERS
As many a time merchandise of the Traders conducting sea trade would
be lost in the sea causing immense loss and rendering the Traders
pauper. The solution found was to offset the loss through mutual
contributions. This simple arrangement grew into marine insurance.
HISTORICAL
PERSPECTIVE
Western World - Origin of the modern insurance: - Practices adopted by
Italian merchants from fourteenth century onwards, although there is
little doubt that the concept of insuring was known long before then.
Losing ships and cargoes at sea instigated the practice of medieval
insurance for many years.
The habit spread to London merchants in the sixteenth century. A group
of traders would agree to bear each others risks amongst themselves.
The common law for a long time played no role in the regulation of
disputes concerning insurance, as these disputes were outside normal
legal system.
Lord Chief Justice Lord Mansfield
In mid eighteen century took interest in insurance contracts by applying
principles derived from the law merchant as well as more traditional law
concepts. The jurisdiction of courts over insurance matters thus came to
be established by the time Lord Mansfield retired in 1788.
Contd
GHARAR CONTRACTS
Insurance Contracts fall in this category:(a) The outcome is probabilistic (depending
on the existence of the object of contract
or non-existence thereof).
(b)Holy Prophet (PBUH) forbade Gharar sales
and an analogy may be made to cover
financial commutative contracts. Thus
Gharar affects such contracts in the same
manner as it affects sales.
(c) Since insurance by necessity deals with
future events that may or may not occur,
Gharar is a necessary component of
insurance.
RIBA
(INSURANCE OPERATIONS INFESTED WITH
AN ELEMENT OF RIBA)
is in cash.
(b) If the amount of the claim to be paid is more
than the amount of premium, then the
additional amount is Riba/interest.
(c) If the premium paid is more than the claim,
the amount retained by the Company is
Riba/interest.
Market Position
(i) Ordinarily the position is that the Company
hands out less sum of money in claims than
the amount of the premium received.
(ii) Such retention is usurpation and illegitimate.
QIMAR (GAMBLING)
INSURANCE?
DIFINITION OF QIMAR
Maysir and Qimar are used as
identically in Arabic.
HOLY QURAN
Maysir is the word used for
prohibition of gambling and wagering
(2:219 & 5:90, 91)
HADITH LITERATURE
Discusses this act generally in the
name of Qimar.
VIEW OF JURISTS
Difference between Maysir and Qimar is
that Qimar is an important kind of Maysir.
Maysir derived from Yusr wishing
something valuable with ease and
without
paying
an
equivalent
compensation (iwadh) for it or without
working for it, or without undertaking any
liability against it., by way of game of
chance.
MALAYSIA MUDHARABAH
Takaful pattern of Mudharabah.
Though some sort of donation
(Tobarru) is also involved but as this
type
of
transaction
resembles
Mudharabah concept, hence the
name.
OBJECTIONS (Contd)
Same position as in conventional insurance,
there is also a Board, which is considered
owner of the pool and which makes payment
of claims.
When a participant pays the premium, he
would stand divested of this amount and in
such a case, ownership vests in whom?
Some operators do not establish a Board and
themselves carry out the activities of the
Board.
The Board should have a separate legal entity
to qualify and meet the standards of Shariah.
WAKF DEED
For the administration of the
property, two things are
important:1. Wakf Deed; and
2. Wakf Rules
Wakf
most
ENTITLEMENT OF THE
COMPANY
The Company being Wakif is
entitled
to
execute
a
document wherein all the
principles and rules pertaining
to the Wakf are to be provided,
complying
all
essential
requirements of institution of
Wakf as laid down by Shariah.
utilization of the
capital
of the Company to create
reserves so as to invest this amount
which will remain with the Company in
order to
provide Qardh Hasan to the
Waqf as
and when required.
(v) Participants are then invited to
make donations to the Waqf by
determining the amount of contribution
to be made by them so as to give
them membership.
(iv)
Immediate
sufficient
to make good the loss
suffered and the insurable risk covered
of the person so obtaining membership.
(vii)Insurable risk being covered of all the
participants should be of the same kind or
category.
(viii)Insurable risk coverage normally is on
the
same lines as is in vogue in
conventional
insurance.
(ix)Contributions made by participants
belong to
Wakf Fund, invested by the
Company and
the losses of the insured
is paid out of the profit earned and the
contribution of the
participants.
ASSET/CAPITAL VALUE OF A
WAKF
OBJECTIVES OF WAKF IN A
TAKAFUL (COMPANY)
(i) To receive contributions, charity or gift from
participants and other persons;
(ii)
To invest all the pooled resources in Shariah
approved
permissible business;
(iii) To provide relief out of accrued profit to the
participants
as per rules and principles of Wakf.
(iv) The Company in consultation with Shariah Board will
give charity to needy including the participants
whenever there is a surplus so that welfare of the
needy, a special trait of the institution of Wakf, is taken
care of and fulfilled. The welfare aspect
of the
Wakf is being highlighted to satisfy those who opine
that if
scope of Wakfs funds are applied to the
participants
only, the overall welfare objectives of
the institution of
Wakf will remain unrealized.
TREATMENT OF EXPENSES
OPERATORS UTILIZES THE FUND IN THE CAPACITY OF MUDHARIB OR
WAKIL ISTISHMAR (AGENT)
Explanation Required: - Which type of expense will be borne by the Operator
and the kind of expense to be incurred!
Takaful Company incurs expense towards incorporation, setting up of
administration and on commencement of operations e.g. legal fees and
marketing its products.
Some expenses, incurred for the benefit of the Company
others for the benefit of the Wakf Fund
while some are for the benefit of the both the Company and the Fund.
Larger the volume of the pool, the more will be profit and more will be volume
of the Fees.
(vii)
QUESTION ABOUT
SEED AMOUNT OR ASSET
Whether it can be deposited with the Central bank as
Reserve is still under consideration of the Jurists of Islamic
Jurisprudence
The (Fuqha) in favour of Reserve deposit purpose to argue
that such a deposit can be made under following conditions:-
loan to
Government.
(b) The Reserve deposit is not used for purposes prohibited
by Shariah and is to be invested in Shariah approved
ventures.
(c) The Reserve Deposit is to be utilized in the mode or
for the
objects, which conform to the use of seed
money of Waqf and
in low risk ventures.
(d) Even the technical reserves, which the Takaful
Company maintains with itself, will be from the Waqf Fund.
Fiqh literature
It does not specify the person who is to take up these matters.
Two parties: (1) The Waqf &
(2) The Operator.
Operator is the party, which has caused the loss, so it will not
lodge proceedings (complaint) against itself. It is obvious that
need to lodge legal proceeding will not arise if the Operator is
ready to initiate action or to make good the loss.
ISLAMIC JURISTS
Operator should make donation of sizeable amount
to the Wakf Fund, to meet the deficit, which amount
will not be returnable being a donation. In the
alternative the Operator may advance reasonable
amount to the Fund as Qardh-Hasan, which will be
returned when the situation of the Fund permits.
SECURING A DISTINCT AND DISSIMILAR THE
POSITION
TO
THAT
OBTAINING
IN
CONVENTIONAL INSURANCE
Operator has to maintain its position of either being
a (1) Wakif (2) Mutwalli (3) Mudharib or Wakil
Istishmar and in either capacity, the Takaful
Company should at the time of creating Wakf, make
provision in the Wakf regarding making of loan to
the Wakf as and when needed, despite the
knowledge that Wakf as an institution has limited
obligations and possibility of non realization of loan
also exists.
In this way, distinction from
conventional insurance will be visible and practical.
(1)
RIGHTS OF AN
OPERATOR
to charge appropriate fee for managing the affairs of the
WINDING UP Treatment of
Seed Capital and Assets.
What happens to
Capital
of Wakf in
winding up of a
Wakf
is it preserved?
Original
case of
and how
(2)
liabilities of the Waqf Fund shall be discharged
first.
The amount of Qardh Hasan will be paid
from the surplus, if any, and the Assets/amount, if
any, will be distributed among participants and
the
remaining amount, if any, will go to
Charity as
directed by Sharia Board.
(3)
If there is any Sub Fund established for any
specific
purpose and in case there exists a
deficit in the Sub Fund, then the amount
available in the
surplus will first be paid to
clear the deficit in the
Sub Fund before
making any payment towards
Qardh Hasan of
the Company.
the
Wakf, under liquidation, may be given to
the other
Waqf for utilization and investment
and the profit
accruing may be utilized for
defraying expenses or
for advancing loan to the
staff and to be retrieved
once the need of the
staff is fulfilled. So the amount
contributed will
remain secure and the objective of
the Wakif
(person creating the Wakf) will also be complied
with.
ALTERNATIVE TO TRANSFERRING
(1) Efforts to continue the Wakf;
(2) Hiring capable individual;
(3) Utilizing the capital at optimum level &
(4) Retrieving the invested money and
Assets with profit of the Wakf.
If a suitable person can not be procured to
administer Wakf on voluntary basis, even
service may be hired for appointment as
Mutwalli who may fulfil the needs of
deserving persons on the basis of profit.
THAN
K YOU