Chapter 1 - Introduction of Islamic Muamalat - Dpn1023

CHAPTER 1 INTRODUCTION OF ISLAMIC MUAMALAT

OF TAKAFULINTRODUCTION OF ISLAMIC MUAMALAT

Introduction to Shariah

Objective of Shariah

Shariah is the entire body of Islamic law, and the term literally means "the way to the water source." It is a wide-ranging body of law and personal rules, regulating matters not limited to jurisprudence, politics, business, banking, family, and society. The main objectives of the Shariah is to ensure that human life is based on ma’ruf (good) and to cleanse it of munkar (evils). The term ma’ruf denotes all the qualities that have always been accepted as ‘good’ by the human conscience, and conversely, the world munkar denotes all those qualities that have always been condemned by human nature as ‘evil’.

The Concept of Ad –Deen (Shariah)

Broken down to its bare elements, Islam comprises of Aqidah (a set of beliefs), Shariah (a set of laws) and Akhlak (a code of moralitie).

Aqidah means a set of beliefs. From the Islamic point of view, Aqidah means strong belief in Allah s.w.t, His Prophets and the hereafter, also belief in the angels, the holy books and predestination.

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Shariah or Islamic law is also known as Fiqh . Fiqh is Islamic jurisprudence. Fiqh deals with the observance of rituals, morals and social legislation in Islam. Branches of Fiqh includes Ibadat, Muamalat, Munakahat and Jinayat.

• Fiqh IbadatThe rules of ritual purification, prayer, pilgrimage, fasting, zakat, jihad and some other forms of worship are dealt under this heading. Most of these rules deal with the rights owed to Allah s.w.t by the individual alone or by the community as a whole.

• Fiqh MuamalatThis area deals with property, contracts, business organisation, security of debts and insolvency, pre-emption, gifts, bequests and waqfs.

• Fiqh Munakahat/UsrahThis area deals with marriage, divorce, inheritance, guardianship and related matters. This is similar to conventional version known as personal law.

• Fiqh JinayatThis area deals with major offences like illicit sexual (zina), theft (sariqah), robbery, pirate and brigandage (hirabah), and other matters collectively known as hudud laws.Akhlaq is a term referring to the practice of virtue, morality and manners in Islamic theology and falsafah (philosophy). It refers to one’s disposition, nature, temper, ethics, morals or character (of a person). Akhlaq covers all aspects of Muslim behaviour, attitude and work ethics which influence his acts.



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Mandatory Law (Hukm Taklif)

Taklifi law is the law that describes the commands, prohibitions and the option to run or leave an activity / job. According to Islamic terminology, the acts of a Muslim must be guided by these five commandments (al-Ahkam al-Khamsah) classified as follows:

• Wajib (obligatory)The term wajib means an act the performance of which is obligatory for the subject. Example: performing solat and fasting in month of Ramadhan. In its technical sense, it is an act whose commission is demanded by the Lawgiver (Allah s.w.t) in certain and binding terms.

• Mandub (recommended)Mandub is defined as a demand by the Lawgiver (Allah) for the commission of an act without making it binding and without assigning any blame for its omission. The rule for mandub is that for doing so there is reward (thawab) for the doer, while omitting it entails no penalty such as giving charity to the others.

• Haram (prohibited/unlawful)Haram is defined as one which omission is required by the Lawgiver (Allah) in binding and certain terms. An example of prohibited act (Haram) is the misappropriation of another’s wealth.

• Makruh (reprehensible or disapproved)Makruh is defined as one which omission is demanded by the Lawgiver (Allah) in non-binding terms. An example of reprehensible act (Makruh) such as debt which is not documented (unrecorded).

• Mubah (permissible)The Mubah or permissible act is one in which the Lawgiver (Allah) has granted a choice of commission and omission, without blame or praise for omission or commission. According to this principle, all contracts and transactions are permissible, unless there is evidence indicating otherwise.



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Primary and Secondary Sources of Shariah

Primary Source

i QuranThe Quran is the very word of Allah s.w.t revealed to the Holy Prophet (pbuh) for the benefit of all mankind. It is a divine revelation and is the first and main source of Islamic Law and to the Muslims, the absolute authority in deciding the legality and every legal obligation. The Quran is a comprehensive and indivisible guide and must be accepted and implemented in its entirety

ii As-SunnahThe Sunnah, means “method”, that includes all that is from the Holy Prophet (pbuh) comprises what the Prophet (pbuh) said (Qaulan), did/action (Fi’lan) and agreed (Taqiran). Whatever originated from the Holy Prophet does come out from his own desire, but it is an inspiration from Allah s.w.t. The word Sunnah should be distinguished from the term Hadith, which is a narration of the saying of the Holy Prophet.

Secondary Source

i. Ijma’Ijma’ is Juristic consensus of opinion of the imams mujtahid among Muslims in a particular time after the death of the Prophet (s.a.w.) regarding the legal position of a matter or problem.

In its application, Ijma’ is an agreement of Muslim jurist in the event the ruling being sought is not found in either of the main sources ie the Quran and the Sunnah. All the mujtahidin must reach a consensus on a juridical opinion at the time an issue arises.

ii Qiyas (Analogy)Qiyas means to equate the legal position of a matter that has no ruling from the Quran and the Sunnah to one that has due to the illat (underlying cause or reason) of the ruling. In other words, the mujtahids refer back to the Quran and the Sunnah and make an analogical reasoning between a new matter that has no ruling with the one that already has a ruling. Literally, it is the extension of a Shariah value from the original case to a new case, because the new case has the same effective cause as the original case. DPN1023: PRINCIPLES AND PRACTICES OF TAKAFUL

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iii MaslahahMaslahah ('public interest') is a concept in traditional Islamic Law, invoked to prohibit or permit something on the basis of whether or not it serves the public's benefit or welfare. The concept is related to that of Istislah. While the meaning of maslahah is 'public interest', the meaning of istislah is 'to seek the best public interest'.

iv ‘Urf‘Urf is a term referring to the custom or 'knowledge' of a given society, leading to change in the fiqh. `Urf is a source of Shariah rulings where there are no explicit primary texts of the Qur'an and Sunnah specifying the ruling. `Urf can also specify something generally established in the Quran and sunnah.

v IstishabIstishab means presumption of existence or non-existence of facts. It can be used in the absence of other proofs (dalil). Istishab relates to the sense that the past accompanies the present without any interruption or change.

vi IstihsanIstihsan means juristic "preference". Muslims scholars may use it to express their preference for particular judgments in Islamic Law over other possibilities. It is one of the principles of legal thought underlying personal interpretation or ijtihad.



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Objectives of Shariah (Maqasid Shariah)

Maqasid is the Arabic word for goals or purposes. In Islamic context, it can refer to the purposes of Islamic faith. In terms of Shariah, there are five Maqasid (foundational goals). The five maqasid are as follows:-

The preservation of:

ReligionShariah requires the preservation and protection of Deen (religion) under all circumstances for example defending the Islamic faith particularly if it attacked by the enemy of Islam.

LifeShariah requires the preservation and protection of life under all circumstances as an example in order to protect life is enacting a severe punishment for those who kill others. The punishment for those who kill innocent human being is the death penalty in Islam.

LineageShariah requires the preservation and protection of descendants and honour under all circumstances like Islam prohibit it followers in committing adultery or other immoral behaviors.

IntellectShariah requires the preservation and protection of intellect and mind under all circumstances. Protection of mind requires safeguarding it from anything that might harm the ability and functions of the brain, this include the consumption of liquor or similar substances that will upset the functions of the brain.

Property/WealthShariah requires the preservation and protection of property under all circumstances. There are several ways of acquiring the property of others illegitimately. Among these are taking riba, cheating in transactions, breaking the trust in matters related to property, stealing the property of others and other similar means. The Shariah prohibits all these means.



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APPLICATION OF SHARIAH CONTRACT COMMONLY USED IN TAKAFUL BUSINESS (MUAMALAT)

Contracts in Islamic law both bilateral as well as unilateral contracts. A contract can be define as the connection of offer and acceptance that result in legal effort on the subject matter of the contract. Any dealing in property needs a relevant underlying contract that is compatible with the purpose of dealing.

A takaful scheme essentially involves two main parties, that is takaful operator and a group of participant which is commonly known as policyholders in conventional insurans. Briefly, the actual contract underlying relationship between takaful operator and participants can be any of the following contracts, that are Kafalah, Tabarru’ Wakalah, Ujrah, Ju’alah, Mudharabah and Musharakah depending on the need or prefence of the parties, the detail of those contract are as follows:

Underlying Contract

Supported Takaful Contract

i. KafalahA contract of guarantee whereby a person adds to himself a responsibility or liability on behalf of another person. In Takaful business, the participant contributes to the Takaful fund by a mutual agreement that the takaful operator is entrusted to undertake in managing the takaful fund prudently and to pay the takaful benefits to the participants in the event a misfortune. The Kafalah contract is prevailing in the takaful operational system in Malaysia and worldwide.

ii. Tabarru’Means gift or donation which is given by one in favor of someone without seeking any consideration. In Takaful business, the participants mutually agree to contribute a sum of money to the Takaful fund based on the contract of Tabarru’. Tabarru’ contract is the core element in takaful business and is not only practiced in Malaysia but also the Tabarru’ contract is practiced worldwide.

iii. WakalahA contract of agency, in which a person delegates his business to another and substitutes the other in his place. The person delegated is called Wakil. Thus, both the principal and the DPN1023: PRINCIPLES AND PRACTICES OF TAKAFUL

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OF TAKAFULwakil are equally bound by each other under contract of Wakalah. In Takaful business, the participants appoint the takaful operator as their wakil and to manage their takaful coverage and the takaful fund. The wakalah contract is practiced by all takaful operators in Malaysia most of the takaful operators worldwide operational under the wakalah model

iv. UjrahA contract of hiring whereby one person hires someone for definite services, in which the hirer is under the duty to provide a reward for the services rendered to him. In Takaful business, the participant contributes to the Takaful fund by a mutual agreement that the takaful operator is entrusted to manage the takaful fund prudently in terms of investment and pay out takaful benefits to the eligible participants in the event of a misfortune. The takaful operator is entitle to a fee for the service rendered. The Ujrah contract is practiced by all takaful operators in Malaysia most of the takaful operators worldwide operational under the wakalah model.

v. Ju'alah A contract of hiring for services, in which one party undertakes to pay a specified amount of money for rendering a defined service in accordance with the terms negotiated between them.

In Takaful business, the participants contribute a sum of money to the takaful fund. The takaful operator is entrusted to manage the takaful fund prudently in terms of investment and pay out takaful benefits to the eligible participants in the event of a misfortune. The takaful operator is entitle to a fee for the service rendered. The Ju’alah contract practiced by all takaful operator in Malaysia and most of the takaful operators worldwide operational under the wakalah model.

vi. MudharabahThe nature of Mudarabah (profit sharing) practices is that, it is a financial contract whereby one party called Rabbu al-Mal provides fund to the other party called Mudharib who undertakes to manage the fund through investment or trade and generates profits, in which both the Rabbu al-Mal and also the Mudharib shre in the profit in a pre-agreed proportion. In Takaful business, the participants contribute a sum of money to the Takaful fund in which the participants are like Rabbu al-mal, while the Takaful operator is like Mudharib who agrees to manage the fund in view of making profit in which both, the participants and also the operator share the profit proportionately. Mudharabah contract as practiced by Syarikat Takaful Malaysia when it first started operation. However, for some takaful operators in Malaysia Mudharabah is still practiced only on certain products.

vii. MusharakahThe contract of Shirkah (partnership). Musharakah is an agreement between two or more parties to operate a particular business in which all parties contribute to the capital in view of profit. In al-Musharakah dealing, the parties involved herein share the liability, profit, and DPN1023: PRINCIPLES AND PRACTICES OF TAKAFUL

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OF TAKAFULalso loss according to their agreement. In Takaful business, the respective shareholders mutually agree to contribute a sum of money to initiate the takaful business. This mutual agreement among the shareholders is called musharakah. Musharakah contract is practiced among all the Shareholders of all takaful operators in Malaysia and most of the takaful operator worldwide.

PROHIBITED ELEMENTS IN INSURANCE PRACTICES OR MUAMALAT

Gharar

Gharar means deficient clarity with regard to the subject-matter being contracted or as “uncertainty” where the results are hidden or not known In business terms it means to undertake anything blindly without sufficient knowledge; or to risk oneself in a venture not knowing exactly what will be the outcomeProhibition Justification“It is not permissible to sell an article without making everything (about it) clear, nor it is permissible for anyone who knows (about its defects) to refrain from mentioning them.” Al Hakim and Al Bayhaqi.

Gharar in insurance contract occurs when one party takes what is due to him but the other does not receive his entitlement. - Ibn Taymiyyah

Types of Gharar

1. Al Gharar al Kathir.Excessive gharar, this would render the contract invalid.

2. Al Gharar al Yasir.Trifling gharar, this is tolerable and permissible.

3. Al Gharar al Mutawassit.Average gharar which falls between the two.

Gharar in insurance practices:

Both parties to the insurance contract do not know exactly what their obligations and responsibilities are to each other, neither the insurer nor the insured knows the outcome of the contract



OF TAKAFUL The insured does not know the amount of compensation he is likely to get in case of

an accident or a peril as the insured does not know if there will be compensation as the outcome of the contract is not known

The insurer does not know when the peril will occur. There is no equity in insurance in that the insured has got to pay the premium but if

the peril insured against does not happen, the insured is not paid anything at all. Insurance is a promise to pay compensation which is sometimes fulfilled and

sometimes not. Uncertainty in the results of the exchange as at the point the contract is made, the result of the exchange is still uncertain.

Riba

The word ‘riba’ literally means ‘increase in’ or ‘addition to’ anything. Islam has prohibited lending of money for profit because it is often ruinous to the borrower and at the same time makes the lender obnoxious and sullen.Prohibition Justification“O you who believe, devour not usury, doubling and quadrupling, the sum lent. Fear Allah and observe your duty to Him, that you may really prosper.” – Al-Imran 3:130

Types of Riba

Riba – Duyun. Riba Qardh. - Where interest is agreed upon at time of contract. Riba Jahilliyah. - The increase levied on the borrower for late or failure to repay

the loan.Riba – Buyu. Riba Fadhl. - The difference in weight, volume and quantity. Riba Nasiah. - The difference in time.

Riba in insurance practices; Insurance company invest the premium in interest bearing investment. Insurance company pay interest on their product. Insurance company consider future interest when calculating the premium. Insurance contracts contain usury, promise to pay more than the premium paid. Interest charged on late payment of premium. Interest charged on policy loan.



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Maisir

The word Maisir means getting something too easily or getting a profit without working for it. Islam forbids all forms of business in which the monetary gain comes from mere chance or speculation and not from work. Unlike gharar which is tolerated to a certain degree, maisir is not accepted at all.

Prohibition Justification

“O Believers! Intoxicants and gambling - and divining arrows are an abomination of satan’s handywork. Leave it aside in order that you may prosper.” - Al Maidah 5:90

Maisir in Insurance Contract:

Insured could receive huge amount of money, without equivalent input. Paying premium without getting any amount in return. Insurer loses if there are too many claimants. Premium collected exceeds the claims, Insurers could make huge profits.


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Chapter 1 - Introduction of Islamic Muamalat - Dpn1023