Why takaful

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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Personal Finance Insurance. This understanding is necessary to facilitate not only their compliance with the Shari' ah, but also helps Islamic financial institutions to use the new products in the light of Islamic principles. If an Islamic financial institution is not in compliance with Shari'ah precepts, there is nothing but its name to distinguish it from a conventional institution.

One of the goals in publishing this work is to enhance the appreciation of practioners for the importance of Shari'ah compliance and its significance for consumers.

The bedrock of Islamic banking is the Shari'ah law enshrined in the Qur'an and the Sunnah of the Prophet Muhammad pbuh.

Unfortunately there is an impression in certain quarters, especially in the West, that there is no agreement among the Shari'ah scholars on what actually constitutes Islamic banking. He said,. There are a number of issues that we need to address. One is that, as I understand it, there is no single definition of what constitutes Islamic banking. Different institutions interpret the acceptability of Islamic banking products in their own way. Individual boards of Shari'ah advisers apparently have equal authority, so that in some jurisdictions there is no definitive answer as to the status of a particular Islamic banking product.

Rather, it will be seen by the involvement of Shari'ah scholars that they are quite definitive, and in agreement, on what constitutes Islamic banking. The minor differences of opinion, if and when they exist, relate to matters of procedure or detail, but not to substance.

Such differences are common among judges in courts of law throughout the world. These are:. Modern banking developed in an era that witnessed the political decline of the Muslim Ummab throughout the world. Therefore, modern banking institutions, which gradually became essential to the commercial activity of the entire world, were totally antithetical to the guidance revealed to humankind through the Qur'an and the Sunnah of the Prophet, upon him be peace and blessings.

Since the acquisition of political freedom by many Muslim countries during the past thirty years, it has been the cherished dream of the Muslim Ummah to develop a new banking system based on Islamic principles. Unfortunately, the political authorities of the Muslim countries paid precious little if any attention to bringing their socio-economic activities into harmony with the principles of the Shari'ah. Hence, certain groups of Muslims individuals were forced to establish Islamic banking institutions on their own, and without any meaningful support from their governments.

Several Islamic banks were established in the decade of the Seventies and through them the cherished dream of Islamic banking was translated into reality, at least at the private level. From the very beginning, Islamic banking institutions have been constantly guided by Religious scholars on their respective Shari'ah Supervisory Boards who are responsible for designing their transactions in accordance with the principles of the Shari'ah and subsequently keeping a watchful eye over their operations.

These boards have devised new modes of financing to replace interest-based transactions. The management of an Islamic banking institution brings its day to day problems before its Board which, after examining the relevant details, will decide whether or not the proposed transactions are in line with Shari'ah principles.

Such decisions by the Boards are called fatwas. The function of a Shari'ah Supervisory Board is of a very delicate nature. On the one hand, they are meant to abide strictly by Islamic principles, and on the other they have to fulfill the requirements of the constantly emerging needs of the contemporary marketplace. The task entrusted to the Shari'ah boards is indeed a difficult one; because when we claim that Islam provides solutions to the problems of every time and place, it does not mean that Islam has given a specific rule for each and every minute detail of every transaction.

In fact, the sacred sources of the Shari' ah, the Qur'an and the Sunnah, have provided Muslims with a set of eternal principles, but their application to the practical situations of each age requires the exercise of ijtihad.

This means consultations in which the individual deliberations of many scholars play a vital role in reaching many firm conclusions.

This exercise sometimes brings different answers from different Shari'ah Supervisory Boards with regard to the same question. The Shari' ah Supervisory Boards, being comprised of a number of Islamic scholars, decide the matter placed before them after mutual deliberations, which is tantamount to collective ijtihad.

The Islamic Fiqh Academy, constituted under the auspices of the Organization of the Islamic Conference OIC represented by all its member countries, in its Second Session held at Jeddah during December , adopted a resolution which, inter alia, provided:.

Any excess or profit on a loan for a deferred payment when the borrower is unable to repay it after the fixed period and similarly any excess or profit on a loan at the time of contract are both forbidden as riba in the Shari' ah. Alternative banks should be established according to the injunctions of Islam to provide economic facilities. The Academy resolves to request all Islamic countries to establish banks on Shari'ah principles to fulfill all the requirements of a Muslim according to his beliefs so that he may not face any repugnance.

Extract from Translator's Introduction - Volume I If the numbers indicate anything about Islamic banking, it is that an exciting chapter in the religious, cultural, and intellectual life of Muslims is opening. The relatively new field of Islamic economics and banking is particularly challenging for the reason that it brings together scholarship from jurists and economists.

Realistically speaking, however, there is much about this novel interdisciplinary field that is not well understood, even at the conceptual level; and a great deal of groundwork still needs to be done.

The problem at the present time, if we seek to reduce the matter to its lowest common denominator, is that scholars from both fields bring their own intellectual and disciplinary predilections to their understanding of the new phenomenon, and these are often at ideological and even paradigmatic loggerheads with one another. For example, many Muslim jurists are reluctant to exercise any sort of independent thinking on economic issues, preferring instead to rely on the scholarship of past ages.

At a very fundamental level, they would endow homo Islamicus with the same traits as the neoclassical homo economicus whose primary motivation is utility and precious little else. In modern times the appearance of serious thought, from an Islamic perspective, on the subject of economics coincided closely with the emergence of Muslim nation states following the colonial experience, at a time when Muslims sought not only to repair their ailing economies, but to reestablish their cultural and religious identities.

The success of the first handful of Islamic banks, particularly in the decade of the seventies, led to the growth in the next decade of Islamic banks and banking all over the Muslim world. Today western economists are busy studying the potential impact of Islamic banking on economic relationships, as well as some of those aspects of Islamic banking which have met with success and show promise as profitable alternatives to established norms.

In the coming stages the work of economic historians will become increasingly important as their studies begin to inform the thinking of both Muslim economists and jurists, further increasing the complexity of the interdisciplinary mix, and further emphasizing the inadequacy of present classifications to encompass this fascinating new field. No doubt, the economic history of Muslims is fraught with lacunae; and there is much in our past that may be of relevance to the economic activity of our future.

In particular, the ways in which Muslim scholars, especially the jurists among them, wrestled with problems of credit, trade, and production in the centuries prior to the depredations of the colonial powers may have much to tell us about how these issues may be dealt with today.

Until recently, this has been a subject that failed to gain the attention of modern Muslim jurists, owing perhaps to their preoccupation with the classical period and its texts, so that many legal scholars remain in the dark with regard to the practices and strategies developed in the recent legal past. Indeed, the point has been made, and it seems a valid one, that we are dealing with an interrupted process.

The areas of chief concern in the operations of Islamic Banks at present have been identified as trade financing and participatory or investment financing; the fatawa relevant to the three particularly Islamic modes of finance which represent the basis for, and majority of, operations within Islamic Banks are murabaha, mudarabah, and musharakah, each of which is used for investing.

Murabaha, a form of trade financing, represents the most widely used of the three, yet the most suspect from an Islamic legal perspective. The other two operations are in no wise controversial, and musharakah may be understood to correspond to private investment funds, and mudarabah to public joint investment funds. Extract from Translator's Introduction - Volume II Leasing operations continue to be one of the mainstays of all Islamic banking and finance.

Moreover, ijarah, like its three uniquely Islamic counterparts, murabaha, mudarabah, and musharakah, is essentially a contract developed in the classical period i. With the passage of time, however, and the changing of circumstances, these contracts have taken on refinements as Muslim scholars and investors have found ways to expand the utility of the contracts.

It can never be emphasized enough that Islamic law or fiqh is a process and not a code. Differences within and between legal schools of thought are often the blocks upon which lasting edifices may be built. In the short run, however, such differences may appear to represent serious obstacles to progress. The encouraging thing about contemporary Islamic banking and finance is that the will exists to overcome all such obstacles.

Thus, today religious scholars, bankers, economists, lawyers, and financial experts are working together to develop products and services that both satisfy the needs of their clients and institutions, and at the same time comply with the moral and legal teachings of the Islamic faith. Perhaps even more encouraging is the interest and cooperation of experts who may not necessarily profess the Muslim faith, but whose efforts and diligence for the success of the new Islamic financial enterprise are equalled only by the most zealous of Muslims.

Several of the fatwas are quite innovative in their treatment of questions and to deal with the problem at hand in light of the changed circumstances, this is a situation that was not imagined in the experience of the classical jurists.

This and several other such fatwas are indicative of an acceptance on the part of Shari'ah Supervisory Boards of new realities in the marketplace and of their willingness to understand and work with these to the extent that Islamic religious and legal principles will allow. Narratted by Imam Ahmad. Based on the above basis, Islamic scholars had decided that there should be concerted effort to implement the Takaful concept as the best way to resolve these needs.

Understanding the Takaful Contract Although the concept of insurance is permissible under Shariah Law, certain practices in conventional insurance breach Shariah Law. The Takaful system stresses the spirit of co-operation and joint responsibility among participants. At this point, your Takaful protection options are limited and you may not get the coverage that you really need. Worst off, if the accident or sickness render you permanently disabled, you will lose your job.

Participating in Takaful protection before injury or illnesses strike can prevent all these from happening. It can be your income replacement should something untoward happens to you or if you are inflicted with permanent disabilities.

Not only will being young and healthy help keep your Takaful contributions lower, but it allows you to participate in a lot more protection plan with better coverage for the future. You may be single and childless in your 20s but that does not mean you will stay that way.

You may decide to settle down in your 30s or later and at that point, the appeal of Takaful protection may become clearer. But since you waited, you may be facing higher contributions. For example, later in life you may need a RM, sum covered when you have dependents, but you could not afford it at the time due to multiple financial commitments. While it may not seem as important to have high sum covered as a single person in your early 20s, that could all change just a few years down the road.

Start with a basic plan and coverage when you are young and find a protection plan that offers flexibility of adding on riders or upgrading your plan, so you are protected more comprehensively as the years go by along with your life stages when you have more disposable income. Nobody likes to think about death and illnesses, especially when you are young and healthy. But when it comes to participating in Takaful protection, the earlier you participate, the more you will save.

It can be a lot less expensive to get protected today, than it may be in the future when you have a family to care for. Great Eastern Takaful offers a comprehensive Takaful protection plan with the flexibility to attach riders as your needs evolve along with the development of your life. Get in touch with our Takaful Advisor here or find out variety of Takaful protection plans that suit your needs here.