161-262-1-PB AL-MAQÓØID AL-SHARÔAH AND ISLAMIC INSURANCEAKHTARZAITE

7/29/2019 161-262-1-PB AL-MAQID AL-SHAR AH AND ISLAMIC INSURANCEAKHTARZAITE

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INTELLECTUAL DISCOURSE, 2010

VOL 18, NO 2, 261-281

Al-DhariandMaqidal-Sharah: A casestudy of Islamic insurance

Akhtarzaite binti Abdulaziz*

*Dr. Akhtarzaite binti Abdulaziz is Assistant Professor in the Department ofFiqh and Usl al-Fiqh, Kulliyyah of Islamic Revealed Knowledge and HumanSciences, International Islamic University Malaysia. E-mail:[email protected]

Abstract: This paper aims at exploring the concept ofal-dhariin its broadmeaning, both at the preventive and proactive levels (sadd and fat al-dhari). The application ofal-dhariat both levels plays a significant roleas a practical mechanism towards the realisation ofmaqid, due to the cause-effect relationship between means and objectives. Thus, the legality or theSharah value of an act could be determined based on its possible results inprocuring benefits and/or preventing harm. Islamic Insurance has beenconsidered a new development infiqh al-mumalt. The current debate is noton the question of legality of insurance as a concept and practice but rather toprovide an Islamic model of insurance that conforms to the criteria of theSharah that helps realise its objectives. Due to the unavailability of directtexts on this issue, some practical aspects of insurance depend largely uponthe predominance of either beneficial or evil ends. This paper will, therefore,look into some controversial issues prevailing in insurance practice and anattempt will be made to review the issues within the framework of realisationofMaqid al-Sharah via the application ofdhariboth at preventive andproactive levels.

Keywords: dhari,Maqid al-Sharah, TakafulModel, Islamic insurance,

insurable interest

Abstrak: Makalah ini bertujuan meneroka konsep al-dhari dalam erti katayang lebih meluas, baik di peringkat pencegahan dan proaktif (sadd dan fatal-dhari). Penggunaan al-dhari di kedua-dua peringkat memainkanperanan penting sebagai mekanisme yang praktikal dalam merealisasikanmaqid, berdasarkan hubungan sebab-akibat antara kaedah dan tujuan.Dengan demikian, kesahan atau nilai sesuatu perbuatan daripada segi


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262 INTELLECTUALDISCOURSE, VOL 18, NO 2, 2010

Sharah boleh ditentukan berdasarkan kemungkinan hasil-hasilnya dapatmemberi manfaat dan/atau menghalang bahaya. Insuran Islam dianggapsebagai perkembangan baru dalam fiqh al-mumalt. Perdebatan masa kini,bagaimanapun, bukan tertumpu kepada persoalan kesahan insuran sebagaikonsep dan amalan, tetapi untuk menyediakan satu model insuran Islam yangmenepati kriteria Sharah bagi membantu merealisasikan objektifnya. Olehkerana kekurangan teks langsung terhadap isu ini, beberapa aspek insuranyang praktikal amat bergantung kepada pengutamaan penghasilan yangmemanfaatkan atau memudaratkan. Makalah ini akan melihat beberapa isukontroversi yang lazimnya wujud dalam amalan insuran, dan usaha akandilakukan untuk meninjau isu-isu dalam rangka merealisisasi Maqid al-Sharah melalui perlaksanaan dhari di peringkat pencegahan danproaktif.

Kata kunci: dhari, Maqid al-Sharah, Model Takaful, insuranberasaskan Islam, faedah yang dijamin

Being a legal system based on Gods final Revelation to mankind,Islamic Law or Sharah encompasses all aspects of human needs

and is suitable for application to all people under all circumstancestill the Day of Judgement. In some important respects, the textualsources of the Sharah (the Qurn and Sunnah) provide only generalrules and universal principles, thus, allowing wide room forintellectual investigation and consideration of the needs andconditions of different locations and times in order to implementthose rules and principles. Accordingly, ijtihdhas been defined asthe effort made by jurists in the quest for knowledge of the Sharahlegal rulings through interpretation. The classical jurists developeda specific methodology consisting of methods, rules and technicaltools of interpretation and inference to deal with the textual sourcesof the Sharah. Known as ul al-fiqh, this methodology serves the

purpose of systematic study and understanding of the texts andproper derivation of legal rulings (akm, sing. ukm) from theirrelevant proof. One of those methods and tools is the theory of MeansorDharah. The jurists, however, disagreed on its reliability as asource of legal rulings.

The meaning of dharah

The word dharah (pl. dhari) signifies the means or way ofobtaining an end or attaining a goal. There are two positions in


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AL-MAQID AL-SHARAH AND ISLAMIC INSURANCE/AKHTARZAITE 263

defining the technical meaning of dharah as a source of derivationof legal rulings:

1. The position of most classical jurists: They defined dharah ina narrow sense to indicate those ways or means that are lawful

but could lead to prohibited ends or unlawful results. Forexample, Ibn Rushd, the Grandfather, defined dharias beingthings which are apparently permissible but are used as a meansto something prohibited (Ibn Rushd, n.d, vol.2, p.524).According to Imam al-Shib, the rule of dhariis to use a

benefit (malaah) as an expedient to attain a harmful thing

(mafsadah) (Al-Shib, 1999, vol.2, p.556).

Thus, according to his view, the rule of dhari means prohibitinga lawful act owing to the possibility of its leading to an unlawfulresult. It is important to mention here that not all lawful acts must beforbidden on the ground of likelihood of harmfulness ensuing fromthem. In this connection, the jurists divided lawful acts into threecategories:

a. Those that rarely lead to harmful results, like planting grapesthat could rarely lead to wine making.

b. Those that usually lead to harmful results, like the sale ofgrapes to a winery and the sale of weapons to a knowncriminal.

c. Those in which there are equal probabilities of harm andbenefit. For example, marrying a woman with the intention

to divorce her in order to enable her to remarry her formerhusband.

The first type does not fall within the purview of the rule of dhari,and an act that rarely leads to harmful results would not be prohibited.The jurists disagreed regarding the remaining two categories.According to Mliks and anbals, they may be prohibited becausethey could lead to harmful results. However, al-Shfi rejected thisview, saying that what is permissible could not be prohibited on the

ground of the likelihood that it might lead to a harmful result.

2. The second position is to define dhari in a wider andbroader sense, covering all means whether they lead to


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harmful or beneficial results. This means to prevent all meansleading to harmful consequences (and is known as sadd al-

dhari) or to open and encourage all possible means tobeneficial ends (which is known as fat al-dhari). Someclassical jurists and the majority of contemporary scholarstake this position. It should be noted here that the classical

jurists agreed that beneficial acts must be encouraged, yetthey did not lay sufficient emphasis on this aspect in theirdiscussion on this issue. Rather, they mainly focused on saddal-dhari or blocking the means. As the prevention of evilassumed more prominence in their discussions, the other

part of the rule or doctrine ofdhari, or the opening of themeans to beneficence (fat al-dhari) did not receive equaltreatment from the jurists in their writings.

However, jurists like al-Imm al-Qarf viewed dhari in its broadmeaning mentioned earlier. Thus, he defined dhari as being allmeans leading to specific ends. To this definition he added: Itshould be noted that just as dhari must be blocked (when they

lead to unlawful results), they also need to be opened, as they mightbe required (wjib), repugnant (makrh), recommended (mandb),or permissible (mub). Likewise, dharah simply denotes themeans; hence, just the means to what is prohibited must be prohibited,so too the means to what is obligatory must also be obligatory (Al-Qarf, 1993, p.448). This broad and comprehensive definition ofdhari including the two aspects of both sadd al-dhari and

fat al-dhari has been adopted by most contemporary jurists,

such as Muhammad Ab Zahrah, Wahbah al-Zuayl, Abdullah al-Juday, etc. (Ab Zahrah, n.d., p.228).

Dhari and maqid: The cause-effect relationship

The idea or doctrine ofMaqid al-Sharah, or higher objectivesof Islamic Law, has gradually captured the attention of increasingnumbers of contemporary Muslim scholars who see in it aspringboard for solving contemporary issues. This idea provides a

guide and framework for the process of ijtihd in its endeavour toguide and framework for the process of ijtihd in its endeavour tosolve issues creatively while complying with the will of the Lawgiver.Thus, Maqid al-Sharah as an independent discipline can be


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as a philosophy of law or a value system governing the Sharahlegal rules and reflecting the Islamic worldview in all its dimensions.

Ibn shr defined Maqid al-Sharah as the deeper meanings(man) and inner aspects of wisdom (ikam) considered by theLawgiver (Shri) in all or most areas and circumstances of legislation(awl al-tashr) (Ibn shr, 2006, p.67). He also explained theimportance of the knowledge ofMaqid al-Sharah for theMujtahids not only in understanding and interpreting the texts ofthe Sharah but also to find solutions to the new problems facingMuslims on which those texts are silent (Ibn shr, 2006, pp.5-10).

Basically, the main objective of Sharah is to govern humanlife and to protect the interests and benefits (malaah) of people.

Malaah in the Islamic context and perspective means what is goodand beneficial in the eye of Sharah. According to al-Ghazl, thehigher objectives of Islamic Law consist of two types:

1. Religious or spiritual (dn) objective pertaining to the Hereafter:This purpose, which revolves around the preservation and

promotion of religious faith (if al-dn), is the utmost andultimate purpose of the Sharah. In its aggressive or positiveaspect, the interest of religion is secured by facilitating ritualworship of God and establishing the pillars of Islam such asfasting, prayers, pilgrimage, and paying zakh. In its defensiveaspect,jihdis stated as a means to defending dn, as it preventsthe established pillars of Islam from being undermined ordestroyed.

2. Worldly objectives (dunyaw) pertaining to mundane affairsof this world: This type includes all worldly interests andencompasses four major objectives. In accordance with theirimportance and order of priority, these objectives consist ofthe preservation and promotion of human life (if nafs),intellect (if al-aql), progeny and offspring (if al-nasl),and property (if al-ml). Upon close examination of the

Sharah rulings, one can safely conclude that theyindividually and collectively point out to the realisation andprotection of all these interests. As an example of theprotect ion of human life, Islam has insti tuted a severe


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punishment for murder by imposing the death penalty. Asfor the protection of progeny, it is realised through the

institution of marriage and healthy family life. Islamencourages its followers to get married and have a family asa means to ensuring a balanced upbringing and a good lifefor the offspring, and preventing human beings fromcommitting such evil acts like adultery, fornication andcohabitation.

Human interests in all spheres of life can be classified into threelevels according to their importance and impact on peoples lives

and existence. Each one having its proper function in human life,these levels are strongly related to one another. The first and basiclevel of human interests consists of the arriyyt or necessities(Al-Shib, 1999, p.324). All the five objectives comprising the

preservation and promotion of the universals of dn, nafs, aql, nasland ml belong to this fundamental level. They constituteindispensable interests on which the life of human beings depends.If these are violated or undermined, the whole of human life would

be subjected to corruption, disorder, injustice and, ultimately,destruction.

The second level of interests, which comes next to the arriyyt,consists of the jiyyt (Al-Shib, 1999, p.326). These interestsinclude what is needed to alleviate hardship and to bring ease andcomfort in human life. Without them, people will suffer distress anddifficulty in their observance of the Sharah rules, though this is farless than the harm resulting from the disorder and corruption affecting

the universals. This level includes all aspects of human affairs and appliesto all spheres of legislation, whether in ritual worship, customary anddaily life practices, contractual dealings or sanctioning and penalties.In other words, the arriyyt serve to support and strengthen thenecessities. Life can still exist without this level of interest but human

beings will face difficulties and hardships in life. The provision tobreak fast during the month of Raman in the case of illness or a longdifficult journey reflects this clearly.

The third level of interests is known as tasniyyt orcomplementarities. This level includes everything that promoteshuman well-being and makes peoples life more comfortable (Al-


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Shib, 1999, p.327). The tasniyyt are not indispensably neededso that without them human life becomes deficient or the rules of

the Sharah inoperative. Their role is rather to improve and facilitatethe quality of life and make the observance of the law easier andmore comfortable. Ignoring this category is not detrimental to thearriyytorjiyyt, although it relates to the same areas of Islamiclegislation. Shib defined this level as adopting what conforms tothe best of customs and, thus, avoiding those manners that arerepulsive (unacceptable) to wiser people.

All these three levels are inter-related to each other. The first

level comprises the core and vital interests or ultimate objectiveswhose realisation and preservation constitutes the main purpose ofthe Sharah. The other two levels are subordinate to the first, andserve the consolidation and advancement thereof.

As can be seen from the foregoing brief exposition, the theoryofmaqidpresents us with a comprehensive picture of the threefoldorder of the objectives of the Sharah and a general philosophygoverning its rules and provisions. It, thus, provides a systematicview of the human social order as envisioned by Islam, the scale ofvalues determining the priorities and preferences of Islamic Lawand the criteria for policy-making in society.

Accordingly, the notion ofdhari in its broad sense as explainedabove is closely related to the theory ofMaqid al-Sharah, byvirtue of the cause-effect relationship between means and objectives.Hence, the Lawgiver legalised certain acts or prohibited others on

the basis of the benefit or harm they could lead to. Any act or typeof conduct that is likely to result in something contrary to theobjectives of Sharah must, therefore, be prevented, even thoughin itself, it is lawful in the first place. Similarly, any means that could

possibly lead to beneficence must be legalised and encouraged inorder to realise the maqidor objectives of the Sharah, no matterhow inexplicitly mentioned in the texts.

Thus, allowing a clear measure of flexibility in Islamic Law, the

rule or theory ofdharialso conforms to the spirit of the Sharah andserves the purpose of realising its objectives. While the maqid orobjectives are eternal and unchangeable, the rule ofdhariis flexibleand its implementation might take different forms from one situation to


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another, as it is based on the judgement of the possible results of actionsleading to either evil or good.Likewise, sadd al- dhariplays its role

as a defensive or preventive tool in order to safeguard the maqidbyactively blocking whatever means that could hinder the realisation oflegal purposes. On the other hand, fat al-dhariis also important to

proactively enhance the achievement of the lawful goals ofSharahby positively legislating all possible lawful means in accordance withthe prevailing circumstances.

The next section of this article will examine the application ofthe theory of dhari in certain aspects of Islamic insurance. It is

important, therefore, to give a general description ofMaqid al-Sharah pertaining to wealth acquisition and property management.This is because the application of dhari in this field will totallydepend on the consideration of the higher objectives of the law inthis regard. A set of goals and objectives must be clearly defined

before it is possible to explore the means or ways to achieve thosegoals.

Maqid al-Sharah in wealth acquisition and management

Wealth is part of Allahs bounty to His servants. Islam lays greatemphasis on the importance of wealth management and protectionto ensure that property is acquired and spent properly as allowed bythe Sharah. Among many others, the following Qurnic verse

provides proof of the positive attitude of Islam towards wealth: Donot hand over to those of weak understanding your properties whichAllah has made a mean of support for you (4:5). This verse shows

how Islam acknowledges material wealth as a vital need of humanlife. While commenting on this verse, Imm al-Rz stated: (Thisverse means) your life will not be established without such

properties (Al-Rz, 1990, p.151).

As can be seen above, from their comprehensive analysis of theSharah legal rules based on induction (istiqr), the jurists inferredand established five fundamental and vital needs of human life whose

protection is given utmost priority by the Sharah through its

different rules and forms of legislation. As already pointed out, thoseneeds revolve around religion, life, intellect, lineage and property(al-Ghazl, 1997, vol.1, p.217). Thus, the protection of wealth or

property is part of the ultimate goals of the Sharah.


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In his book on Maqid al-Sharah, Ibn shr (2006, pp.279-293) explained in some detail the Sharah objectives regarding

wealth and property. He identified five criteria that the Sharahobserves in this respect. These criteria constitute the goals of theSharah that have to be realised in wealth acquisition andmanagement. They consist of rawj (wide circulation of properties),wuu (transparency), if (protection), thabt (certainty) and adl(justice). Since the third goal (protection) may not be considered to

be something specific as it actually reproduces the general purposepertaining to the five fundamental universals (al-kulliyyt al-arriyyah), only the other four goals, as explained by Ibn shr,will be discussed in the next section. However, it is important to addanother aspect to the protection and management of wealth and

property, namely, the purpose of takassub and istithmr (acquisitionand investment).

Rawjor wide circulation of wealth

This goal means that wealth and property should be circulated amongthe general public and actively transferred from one hand to another inthe form of expenditures and investments (Al-lim, 1991, p.497). Forthis, the Sharah approves many forms of financial and economictransactions such as contracts of sale, lease, partnerships and manymore in order to facilitate the proper circulation of wealth and transferof property ownership among the public. Thus, it is not allowed in the

sharah to purposely keep wealth in all its forms idle. Allah says: Andfor those hoarding gold and silver and do not spend them in the way ofAllah, announce unto them a most grievous penalty (9:34). After

explaining the parties eligible to be given shares offayandghanmah,the Qurn states in another verse that the reason for the distribution isto prevent limited circulation of wealth among the rich without allowingthe whole public to benefit from it.1

Wu or transparency

Wu or transparency means that all financial transactions must beconducted in such a manner that all parties are clear about all important

facts of the transactions, thus, avoiding all causes of disputes, clashesor damages to any party (Al-lim, 1991, p.497). It is for this reasonthat the Qurn recommends Muslims to keep all future transactions inrecord. Thus, Allah says: O you who believe, when you deal with


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each other in transactions involving future obligations in a fixed periodof time, reduce them into writing (2:282). The purpose of writing down

a debt transaction is to make all information regarding the transactionclear and transparent in terms of subject matter, obligations and rightsof all parties, so that this will serve as a reference in cases of dispute.This is particularly relevant to contemporary financial transactions thatare always in the form of formal contracts duly signed by the partiesconcerned.

Thabt or certainty

This purpose means that the rights of a party or parties to theownership of property must be certain and there should be no doubtto those rights, unless there is certain public interest which could

prevent individual privilege (Al-Hasan, 1995, p.117). This impliesthree elements: i) the right of individuals to ownership, ii) freedomof disposal of property within the boundaries of the Sharahrequirements, and iii) guarantee of the privilege of ownership and

prevention of encroachment on a persons rights without the ownersconsent (Ibn shr, 2006, pp.291-292).

The Qurn has explicitly guaranteed the right of ownership inwhich respect Allah says: O you who believe, do not take the

properties among you by illegal means unless by way of trade andmutual consent (4:29). This provides clear evidence that it is anobjective of the Sharah to guarantee the freedom of ownershipand there is no way that the right can be transferred to others unless

by contract of exchange or charity by the consent of the owner.

Adlor justice

Justice is both a general principle of the Sharah and one of itshigher objectives. Allah says: Allah commands justice and gooddeeds and liberality to the relatives and He forbids all shamefuldeeds, injustice and rebellion (16:90). Being one of the Sharahgoals in financial transactions and dealings, justice means to putwealth and property in its proper places, as commanded by the

Creator. This includes the right to acquire wealth, to discharge allthe duties related to wealth and to find the wisest way to spend or toinvest it (Al-lim, 1991, p.527).


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Takassub and istithmror acquisition and investment

Takassub means to exert oneself to gain what would help to satisfy

ones needs, whether by physical labour or mutual consent withothers (Ibn shur, 2006, p.276), whereas istithmrmeans the effortsmade to increase the value of the properties through lawful meanssanctioned by the Sharah (Sano, 2000, p.20). Thus, takassub meansto earn wealth and property, while isthtismr means to add value tothe existing wealth and property. These two aspects are stronglyrelated to the purpose of wealth and property management. Toachieve them, the Sharah has approved numerous types of contracts

and transactions. It is stated in the Qurn: And when the prayerhas been performed, then you may disperse through the land andseek for the bounty of Allah (62:10). This underlines the obligationon all Muslims to earn a living. In a adth, the Prophet (SAW)

pointed out peoples duty to make efforts in order to enhance andincrease the value of wealth and property; Whoever possesses a

piece of land must cultivate it or give it to another Muslim; if herefuses, the land may be seized from him (Al-Bukhr, 2000, vol.

5, p.209).The five things explained above constitute the main objectives

that should govern all financial transactions and economic dealingsin Islam. It should be emphasised here that the application of theconcept of dhari in its broad meaning (both as sadd al-dhariand fat al-dhari) aims at preventing all means which run againstthese five objectives and other established rules of the Sharah,like rib(usury or interest) andgharar(risk or uncertainty). Similarly,

it aims at encouraging and opening all means that could enhancethe realisation of these five objectives as far as they are lawful.

The next section deals with Islamic insurance or takful and anattempt will be made towards applying the concept of dhari in its

broad sense to some practical aspects of insurance.

Insurance in Islam: The Takfulmodel

Insurance is one of the contemporary and recent developments infinancial and economic activities. Therefore, the classical jurists didnot discuss it. However, the philosophy behind the insurance industryis not totally absent from the basic Islamic teachings. Generally,


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insurance policy is a contract of mutual financing in which one partyis expected to be protected materially against an unexpected loss by

the other party, in consideration of the payment of a particular amountof premium (Masum, 2003, p.25). Insurance is, therefore, a contractof exchange between two parties whereby the insured buys protectionfrom the insurer at a price (premium) against a prescribed risk.

Contemporary Muslim jurists have discussed the above modelof insurance in a series of discussions held since 1976. Most ofthem are of the opinion that conventional insurance is not allowedin Islam mainly because of the elements of riband gharar. Below

are some conferences held to discuss this issue and the resolutionsthey reached.

a. The First Conference on Islamic Economy, Mecca, 1976:Conventional insurance as practiced today does not complywith the spirit ofSharah and does not fulfill the requirementswhich might render it permissible.

b. 10 th Conference of Prominent Muslim Scholars, Saudi

Arabia, 1977: Confirmed by consensus of opinion thatconventional insurance in all its types is not permissible,whether it is life insurance or general insurance (on property).

c. The Islamic Fiqh Academy, Jeddah, 1985: Confirmed thatconventional insurance is prohibited due to the uncertainties(gharar). The committee suggested as an alternative aninsurance system based on cooperation and hibah (takful)(Mahmood, 1991; Masum, 2003).

Thus, the alternative for conventional insurance is a model of mutualinsurance or known as takful.2 Unlike in the case of conventionalinsurance, takful or mutual insurance policy is not a contract ofexchange. Rather, it is a contract of mutual hibah or gratuity. InIslamic Law, the elements of rib and gharar are prohibited inexchange contracts (uqd muwaah) and not operative in acontract of gratuity or hibah. In takful, the policyholders are both

the insurer and the insured as they collectively and mutuallyguarantee each other against the stipulated risks.


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The relationship between the parties can be described as follows:

The relationship among the policyholders

All the policyholders are bound by the contract of partnership andhibah. They jointly own the funds in accordance with theircontributions and undertake to mutually protect each other on the

basis of hibah.

The takful operator and the policyholders

The relationship can be viewed from two sides. Firstly, in its role as

manager of the hibah funds and insurance claims, the companyacts as an agent on behalf of the participants. Second, in its role asmanager of the investment of the total funds accumulated, the takfuloperator may play the role ofmurib or entrepreneur in a murabahcontract or an agent with a fee. Thus, two models of takful comeinto being: murabah-based takfulas practiced by Syarikat Takaful

Malaysia Berhadin Malaysia and takfulbased on waklah or agencyas in Takful Tawunah,practiced by Bank al-Jazeerah in SaudiArabia.

Syarikat Takaful Malaysia Berhad: A mudharabah model

Syarikat Takaful Malaysia Berhad (STMB) is the first takfuloperatorin Malaysia to be incorporated on 20 November 1984. Being theoperator, STMB accepts payment oftakfulcontributions (premiums)known as the ras al-mlor the capital from the participants who areas the rabb al-mlor the capital provider in a muarabah contract.The ratio of profit-sharing among the parties shall be determinedupfront in the contract (BIRT, 1996, p.9).

STMB offers two types of takful schemes: The first is FamilyTakful or Islamic Life Insurance. The second is general Takful orthe Insurance on properties in relation to material loss or damageinflicted upon the property consequent upon a catastrophe or adisaster (BIRT, 1996, p.69). Under the Family Takful, the instalmentsof takful contributions paid by the participants are be divided and

credited by the company into two separate accounts:


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1. The Participants Account constituting most of the contributions.

2. The Participants Special Account constituting the tabarru

proportion. It is from this account that the company shall pay thetakful benefits to the heirs of the participants who die before thematurity of the scheme (Ahmad, 1991, p.193).

Application ofdharito some selected practical aspectsoftakful

This section attempts to apply the principle of dhariand to showits role in the realization ofMaqid al-Sharah in some practicalaspects of takful as discussed above. The discussion will include

both sadd al-dhari and fat al-dhari.

Takful as a means to preventing rib in insurance practices

The structure of takful based on mutual help and solidarity willeliminate the ribelement in insurance. As is clear from the above,takful is actually a hybrid of contracts of partnership and hibah.The amount granted to a participant who encounters the risk insuredis a donation agreed upon upfront by all participants collectively.

Thus, it is not a consideration for the premium paid. Consequently,there is no requirement of hand-to-hand and equal value exchangeas required for money for money exchange. Conventional insuranceis rib-based, as it is a contract of exchange of money in the futuresubject to the occurrence of the risks and at different value.

Takful as a means to prevent gharar-transaction in insurance

Gharar or risk and uncertainty is prohibited in Islamic financial

transactions. The existence of gharar may render a transactioninvalid for lack of information. Al-Qarf stated that there are sevenaspects ofgharar that can possibly affect transactions. They are

gharar in the existence of the subject matter of a contract, gharar inthe acquisition of the subject matter, gharar in genus, gharar intype,ghararin amount andghararin the identification of the subjectmatter (Al-Qarf, 2001, vol. 3, p.1051).

Gharar in the conventional insurance practice may occur in atleast three of the seven categories listed by al-Qarf. First is ghararin existence, where the existence of the obligation of the insurancecompany to pay for the claim is not certain as it depends on theoccurrence of the risk specified Second is gharar in acquisition,


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where the policyholder is not certain at the time of the contractwhether he will acquire the consideration for which he is paying the

premium as the consideration again depends upon the occurrenceof the insured risks. Third, gharar in amount is where both theinsurance company and the policyholders are not certain about theamount of the premium that must be paid by the policyholders.

Takfulor mutual insurance can eliminate the element ofghararin insurance for two reasons: First, it is a gratuity contract ( aqdtabarru) and not an exchange (sale) contract in the opinion of theMlik jurists (Al-Qarf, 2001, vol. 3, p.284). However, according to

Shfi jurists, there is no difference between the two types of contractin the sense that both of them can be invalidated due to gharar.Second, even according to Shfi jurists, ghararcan also exist in acontract of tabarru. In the case of takful, the element ofghararcan be eliminated. Gharar in existence, acquisition and amount arenot present in takful, as the participants are certain that they willacquire the takful benefits in proportion to their contribution plusthe surplus from hibah fund, if any.

Under the Family Takfulscheme, it is agreed by the parties thatthe takfulbenefits shall be paid to the participants or their heirs, inthe following manner:

1. If the participant dies before the maturity of the plan, theheirs will be granted:

a. The total amount of takful instalments paid by thedeceased from the date of his first instalment up tohis death.

b. His share of the profits from the investment of hispaid contributions credited to his ParticipantsAccount (PA) according to the murabah ratio.

c. The outstanding takful amount which would havebeen paid by the deceased had he survived,calculated from his death up to the maturity date.

This amount shall be recovered from the ParticipantsSpecial Account fund or the Tabarru fund (PSA)(Ahmad, 1991, p.194).


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2. If the participant survives the maturity date, he will be given:

a. The total amount oftakful instalment paid by the

participant during the tenure of his plan.

b. The share of the profits from the investment creditedinto his PA.

c. The net surplus allocated to the participant.

Takful as a means to realise the five objectives pertaining to

wealth and property

As forfat al-dhari, takful or insurance based on cooperationand mutual help can undeniably provide an effective means towardsrealisation ofMaqid al-Sharah in financial transactions andwealth and property management. With a well-defined structure and

plan, all the five objectives of rawj (wide circulation of property),wu (transparency), thabt (certainty), adl (justice) and takassuband istithmr (acquisition and investment) can be achieved.

As shown earlier, the threefold structure of the Family Takfulcan be considered an effective means to realise the objectives ofrawj and takassub/istithmr,by saving regularly (via payingspecified instalments), investing these savings with a view to earning

profit in Sharah-compliant economic activities, and availing the coverof the payment of takfulbenefits to the heirs and dependants in thecase of death before the maturity (Ahmad, 1991, p.192).

In the event a participant wants to surrender the policy or

discontinue the plan, he shall be entitled to the surrender benefit.This benefit consists of the proportion of his takfulinstalments paidand credited to his PA plus the profit from such installments. Thereis no forfeiture in the Family Takful plan, as in conventionalinsurance. However, he shall not be entitled to be refunded from thePSA fund.

After the aqd or the contract has been made by the proposer(intended participant) and the takful company, all the importantclauses of the contract are recorded in the takful certificate (BIRT,1996, p.53). Before the issuance of the certificate, the takfuloperatorwill issue a cover note, especially in the case of General Takful. Acover note is a temporary document for the participant to be used as


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proof to make a fair claim against the risk if it occurs before thepermanent takful certificate is issued (Masum, 2003, p.249). All

the above arrangements and stipulations are means to realise thepurpose of transparency, certainty and justice.

Takful and the concept of uberrimae fideior utmost good faith

The concept of uberrimae fidei or agreement of utmost good faithin insurance means that the parties to the policy or takfulplan mustdisclose the truth of the facts or the matters affecting the policy(Masum, 2003, p.200). Under the law, it is assumed that insurance

contracts are entered into by all parties in good faith, meaning thatthey have disclosed all relevant facts and intend to carry out theirobligations. Where lack of good faith can be proved, such asfraudulent application to obtain insurance, the contract may benullified (Rubin, 2000, p.533). Under section 28 of the 1984 Takaful

Act, it is the participants duty to disclose in the proposal form fullyand faithfully all the facts which they know or ought to know,otherwise the Takful Certificate issued may be void (BIRT, 1996,

p.74). As indemnity provided in takful contract is based on themutual responsibility of all participants, it is inherently a duty ofeach of them to disclose all material facts affecting the contract inorder to achieve the objectives of transparency and justice. Failureto disclose might render the possibility of benefiting from the tabarrufunds fraudulently at the expense of other participants.

Takful underwriting

Insurance underwriting is the process by which takful operatorsconsider and decide whether to accept participation of cover made by aproposer and the terms to be imposed. It is the process of examining,accepting or rejecting insurance risk and classifying those selected inorder to charge the proper premium for each. Generally, the purpose ofunderwriting is to distribute the risk among a pool of insureds in amanner that is equitable for the insureds and profitable for the insurer(Rubin, 2000, p.536). The concept of underwriting is no less importantin takful, due to the solidarity and mutual assistance spirit inherent in

takfulitself. Thus, the purpose of underwriting for Family Takfulis tomaintain equity among the participants. In this case, each participantcontributes to a common fund (tabarrufund) from which takfulbenefitswill be paid to any participant suffering from the risks defined. Therefore,


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each participant should contribute according to the expected lossprobabilities that he might transfer to the fund. The takfulcompany

should estimate the expected loss exposure presented to it by theparticipant and charge a rate or percentage to be attributed to the tabarru

fund which is commensurate with that exposure (Ahmad, 1991, p.193).

In the case of STMB in its Family Takful scheme, the tabarruproportion is worked out by the actuaries taking mortality by ageinto account using the method and techniques of determination asin the conventional insurance. The tabarru proportion varies from

two percent to nine percent of the instalments to be credited intoPSA (Ahmad, 1991, p.194). Though it originates from conventionalinsurance practice to ensure the insurance companys adequacy tocompensate for the loss occurred, the process of underwriting canalso be applied in takfulpractice. Takful, being a mutual insuranceand mutual help in protection against loss, requires a reliable step indetermining the funds adequacy and capability in providing

protection against loss for all members. This in return is an effectivemeans towards the goals of transparency and justice, as theunderwriting process provides transparency in determining thetabarru portion and ensures that any participant will not take fromthe fund more than what he deserves at the expense of other

participants.

Takful and the insurable interest

Insurable interest means the financial interest a person has in thesubject matter of the cover. For its validity, insurance requires thatthe insured shall be so related to the subject matter of the insurancethat he will benefit from its survival or will suffer from loss or damageto it or may incur liability in respect of it (BIRT, 1996, p.64). The

participant must stand in a relationship with the subject matter ofthe takful whereby he benefits from its safety and well-being orfreedom from liability and would be prejudiced by its damage orthe existence of liability (BIRT, 1996, p.64). A policy without aninsurable interest is like a gambling contract that is clearly prohibited

in Islam, by which a participant hopes for a chance to gain insteadof providing a mutual cooperation for security against a risk(Masum, 2003, p.156).


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However, under the 1984 Takaful Act, there was no expressedcondition for insurable interest for a takful plan. In the case of

Family Takful, whereby the insurable interest is the life itself, thequestion of requirement for insurable interest might not arise, as theparticipant in this case seeks to protect his and his familys interest.In takful, the insured are themselves the insurers, and thus theelement of gambling or the intentional self-inflicted harm will not

be operative for lack of insurable interest (Mahmood, 1991, p.293).Above all, the insurance benefit in a takfulpolicy shall be distributedon the basis of the Islamic law of inheritance, as it is considered as

part of the participants legacy.3 The nominees in the policy areconsidered as mere trustees to administer the distribution of the takful

benefit after the participants death.

The stipulation to administer the insurance benefit in accordancewith the Islamic law of inheritance and will is no doubt on par withthe goal of thabt or certainty of the deserving parties rights to theinheritance as prescribed by the Qurn and Sunnah after ones death.

Conclusion

The concept ofdharishould be understood in a broad meaning. Inthe classical literature dealing with the concept of dhari, the juristsemphasis was more on blocking the means to evil things than on openingthe means to beneficence. Apart from that, opening the means to goodcan also operate through the general principle of al-ibah al-aliyyahestablished in Islamic Law, meaning that all material things and dealingsare originally permissible. However, the application offat al-dhari

provides a more flexible and effective means to achieve the Maqidal-Sharah by looking into the end result or consequences of an act orrule.

Insurance as a new development in Islamic financial system andwealth management is an example of issues that require the applicationof the concept of dhari in a broad sense with the ultimate view ofachieving the five objectives of the Sharah in wealth and propertymanagement as discussed above. The foregoing discussion has tried to

show the relevance of the application of both sadd al-dhariandfatal-dhariin some practical aspects of insurance based on the takfulmodel as practiced by STMB.


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Endnotes

1. It reads as follows: In order that it may not (merely) make a circuit among

the wealthy among you (al-ashr:7).2. Takaful Act, 1984, Section 2 defined Takaful as: A scheme based onbrotherhood, solidarity and mutual assistance which provides for mutualfinancial aids and assistance to the participants in case of need, whereby theparticipants mutually agree to contribute for that purpose.

3. For afatwon this issue seeMalaysian Law Journal(1974), 1.

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Ibn shr, M. (2006). Treatise on Maqid al-Sharah, trans. M.T. El-Mesawi.London-Kuala Lumpur: The International Institute of Islamic Thought,al-Maqid Research Centre and Islamic Book Trust.


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Ibn Rushd, A.W. (n.d.).Al-muqaddimt al-mumahhidt. Beirut: Dr dir. vol.2.

Mahmood, N.R. (1991). Takaful: The Islamic system of mutual insurance The Malaysian Experience.Arab Law Quarterly, 6, 281-286.

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Documents

161-262-1-PB AL-MAQÓØID AL-SHARÔAH AND ISLAMIC INSURANCEAKHTARZAITE