ESSENTIAL CONTRACTS IN TAKAFUL

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1 ESSENTIAL CONTRACTS IN TAKAFUL PREPARED BY: HAJI MOHAMAD HELMI HAJI AHMAD Restricted 1

2 THEORY OF CONTRACT IN HISTORY OF SHARIAH Contract in Shariah include both bilateral and unilateral A contract is also known as aqad (arabic term) is defined as the interrelation of offer and acceptance on the subject matter (ma aqud alaih) Any contract dealing with transfer of property will need additional underlying contract that meet the purpose of the contract Restricted 2

3 CONTRACT IN SHARIAH O you who have believed, fulfill [all] contracts. Lawful for you are the animals of grazing livestock except for that which is recited to you [in this Qur'an] - hunting not being permitted while you are in the state of ihram. Indeed, Allah ordains what He intends. Restricted 3

4 Contracts According to Shariah CLASSIFICATION OF CONTRACT Contract of agency Contract of safe-keeping Contract of surety Contract of exchange Contract of charity Contract of commission Contract of investment Restricted 4

5 ESSENTIAL CONTRACTS UNDERLYING IN TAKAFUL BUSINESS MODEL The contracts underlying Takaful shall consist of the following: Cooperation among participants to help each other in the event of misfortune happen Engagement with the Takaful Operator as administrator of the participants fund Restricted 5

6 HOW THE CONTRACT AMONG PARTICIPANTS WORKS? Participants Indemnity Contribution Surplus Takaful Fund Restricted 6

7 CONTRACTING PARTIES IN TAKAFUL 1. PARTICIPANTS: The participants as a group will hire the Takaful operator as the administrator to the fund and manage the necessities i.e. issuance of Takaful certificate, invest risk fund and pay claims. 2. FUND ADMINISTRATOR: Takaful operators are appointed as a fund manager to safe guard the participant risk fund interest. In the event of deficit, the shareholder of Takaful operator will inject Qardh Hassan as to pay claim therein. In the other hand, in the event of Surplus arising from the risk fund, it will be shared between the participant and takaful operator based on the understanding of ju alah contract.

8 COMPONENT OF TAKAFUL CONTRATS Contracts can be any of the following depending on the features of the product and needs: Wakalah Mudharabah Ju alah Wadi ah Ujrah Wakalah bil istismar

9 Participants Takaful Operator Risk SUBJECT MATTER OF CONTRACT IN TAKAFUL Subject matter of Takaful is the Risk. There are certain guidelines on Takaful operation in term of Risk taking. Not all of risk are acceptable to be taken under Takaful product or not every participant agree to pay the benefit for risk excluded under a certain Takaful product.

10 SOME REJECTED RISKS RELATED TO TAKAFUL 1. Risk related to element of polytheism (syirik) 2. Risk related to element Usury (Riba) 3. Risk related to gambling & gaming 4. Risk related to liquor e.g. brewing, beverage & bottling 5. Risk related to element of pork industry 6. Risk related to Tobacco, cigarettes and other tobacco products & retailers 7. Risk related to producing impermissible things that could bring harmful effects to the community 8. Risk related to permissible activities like entertainment activities which contradict with the Shariah 9. Bring bad image to Hong Leong MSIG (HLMT) as a Shariah based Takaful Operator Restricted 10

11 WAKALAH CONTRAC AND IT EFFECT For wakalah based Takaful operation, the participants basically become the principals in the agency contract. The principals appoint the Takaful operator to be their agent to manage the risk fund and subsequently investment when it needed. In Shariah, that appointment is further divided into two; a. General role b. Specific role The work done by the agency under wakalah contract can be remunerated with a certain fee.

12 Q & A SESSION Restricted 12