TAKAFUL Question And Aswer

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1)Trace the historical development of Takaful in Malaysia. What was the fatwa that declared conventional insurance to be in breach of Shariah principles? Cite the fatwa. How was “Takaful” defined under the Takaful Act 1984 and how is it now defined under the Islamic Financial Services Act, 2013? a)The prevailing needs of the Muslim community looking for a Shariah compliant alternative to conventional insurance accelerated the development of the Takaful industry in Malaysia. This, in addition to the uprising of the Islamic banking sector, boosted the Takaful industry to its present more refined and matured form. In 1982, the Malaysian government set up a task force to study the feasibility of creating an Islamic insurance company. The move was triggered by the Malaysian National Fatwa Committee’s decree, which ruled the current form of life insurance a void contract due to the presence of the elements of Gharar (uncertainty), Riba’ (usury) and Maisir (gambling).3 This was further strengthened by the introduction of the Takaful Act enacted in 1984 and the incorporation of the first Takaful operator in Malaysia in November of the same year. In Malaysia, a fatwa was made by the Fatwa Committee of the National Council for Islamic Religious Affairs Malaysia, at its meeting on 15 June 1972 which discussed and deliberated on the issue of life insurance. It was resolved that life insurance provided by conventional insurance companies is a business transaction which is not valid because it contradicts the Islamic business principles beacause the contract contains the elements of gharar, maysir and riba. A similar fatwa on the same issues was issued by several states of Malaysia, for example, Selangor (1970), Negeri Sembilan (1972), Perak (1974), Kelantan (1975) and Malacca (1980). Takaful is a form of Shariah compliant insurance. The word originates from Arabic and is defined as ‘joint guarantee’. A Takaful fund is a fund in which participants contribute a sum of money to be used to assist participants against a defined loss or damage. The operator entrusted to manage these funds on behalf of the participants usually earns a fee known as the agency or Wakalah fee. However, depending on the variations of the Takaful fund’s operations, some operators may also earn profit from the investment of its shareholders' funds, or receive a share of the investment profit or any surplus of the Takaful funds based on an agreed contract.3 In all instances, the operator is usually indemnified of any loses that the investment may incur. The Takaful industry is broadly divided into family Takaful business (Islamic "life" insurance) and general Takaful business (Islamic general insurance). In Malaysia, Takaful operators have flexibility in choosing either the Mudharabah (profit-sharing) or Wakalah (agency) operational models in compliance with Shariah principles and prudential requirements. b)How was Takaful defined under the Takaful Act 1984 and how it is now defined under the Islamic Financial Services Act, 2013? In Malaysia, Takaful is governed by the Takaful Act 1984 (Act). Takaful Act 1984 is an act to provide for the regulation of Takaful business in Malaysia and for other purposes relating to or connected with Takaful. It was enacted following the establishment of Bank Islam in 1984; Due to the fact that Islamic bank needs insurance cover for its own assets and interests arising from the financing and credit facilities. Section 2 of the Act defines Takaful as “a scheme based on brotherhood and mutual assistance which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for that purpose”. [1 January 1985]. It gives clear description that the participants of Takaful scheme are joint contributors to receive mutual protection. The Act was specially promulgated and passed by the Malaysian Parliament with a view of ensuring that Takaful as a sector within the...
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