Sunday, November 30, 2014

Islamic Banking Regulation & its Application in the USA / Europe / China? Possibilities..

Islamic banking is neither a mere religious issue nor applicable to Muslim only with limited scope, but is an applied subject with universal character for the benefit of all mankind regardless of one's religion, status, gender, race or nationality. Thus, Islamic banking is applicable with beneficial results to every mankind on earth with no exception in general.

The  issue of Islamic banking regulations & application in the USA, Europe, China or any other non-Muslim state of sovereignty, the following suggestions are made:

1. An analysis / research shall be carried out on the relevant Article (s) of the Constitution, customs, peoples' perceptions, the government's interest, business prospects & the market phenomena of the respective concerned country, aiming at possible discovery of the implementation of Islamic banking.

2. Establishing standard regulatory frameworks (Laws, guidelines, policies, standards & manuals) by complying the Shari'ah principles & standard in harmonizing the concerned country's policy & tradition (through the necessary adaptation of the rules of "Masalih al-Mursalah (public interest)".

3. Continuing with Public awareness programs through media, training, seminars & other forms of human capital development schemes.

4. Continuing with research in products, policies, standard, system, technicalities, mechanisms, market & dynamic corporate culture by referring to the global standard and practices (subject to the Shari'ah compliance).

5. Establishment & Operation of the system for the benefit of all within the Halal / Shari'ah spirit.

6. Enrichment of the continuing communication with & cooperation from the government / policy makers of the concerned jurisdiction.
                                          - ALLAH (swt) KNOWS THE BEST-

Sunday, August 31, 2014

Effects of Nomination Clause in Takaful Practices

Both Modern application and the Divine principles of Shari'ah share the same view that, it is necessary in an insurance (Takaful) policy that the policy-holder should nominate  one or more persons as a nominee.

The question arises as to the legal position or right of a nominee in an insurance policy for example, whether a nominee could be regarded as the owner of the policy or a mere trustee to receive the benefits accordingly from the insurer and distribute them to the right beneficiary. In this section an attempt is made to analyze the legal position and the right of the nominee in an insurance policy under Islamic law.

Under Islamic law there are number of authorities, which justify the nomination of a person as a trustee to hold a trust both for commercial transactions, as well as, for personal properties. The nominee is a trustee and the governing principles of nominee under Islamic law could be derived from the doctrine of al-Amanah. The word al-Amanah means reliability, trustworthiness, good faith, faithfulness, honesty, and fidelity.

The word al-Amin means, the trustee, guardian, agent, authorized representative, and safe keeper . According to Al-Murghinani, the author of al-Hedaya, a nominee a trustee is a person who is empowered by another to undertake the responsibility of his property as a trustee. A trustee will not however, be responsible for the trust unless the negligence of the trustee in breaking the trust is proved.

There are number of Qur'anic verses dealing with the law relating to nomination (trust), which are as follows:

,والذين هم لأماناتهم وعهدهم راعون-
 "And those who faithfully observe their trusts and covenants".

There are situations whereby, if a person is being entrusted or nominated to hold the minor's property as a trustee, it is the nominee's responsibility to hand over the property upon confirming the maturity of the minor. Allah (s.w.t.) says :

,وابتلوا اليتامى حتى إذا بلغوا النكاح فإن آنستم منهم رشدا فادفعوا إليهم أموالهم ولا تأكلوها إسرافا-

"Make trial of orphans until they reach the age of marriage; if then you find sound judgment in them, release their property to them; but consume it not wastefully". 

In another ayat,  Allah (s.w.t.) commanded not to betray the trust. Allah (s.w.t.) says :

,يا أيها الذين آمنوا لا تخونوا الله والرسول وتخونوا أماناتكم وأنتم تعلمون-

"O you who believe betray not the trust of Allah and the Messenger, nor misappropriate knowingly things entrusted to you." 

Again Allah (s.w.t.) commanded the trustee to return the trust to the right beneficiary:

,      إن الله يأمركم أن تؤدوا الأمانات إلى أهلها-
"Verily Allah (s.w.t.) doth command you to render back your trust to those to whom they are due" 

In other places also Allah (s.w.t.) warned against those who breach their trust. Allah (s.w.t.) says:

,ولا تجادل عن الذين يختانون أنفسهم إن الله لا يحب من كان خواناً أثيما-
"Contend not on behalf of such as betray their own souls; for Allah loveth not one given to perfidy and crime".

,إن الله يدافع عن الذين آمنوا إن الله لا يحب كل خوان كفور-

"Verily Allah will defend (from ill) those who believe: verily, Allah loveth not any that is a traitor to faith or shows ingratitude". 

,إما تخافنَّ من قوم خيانة فانبذ إليهم على سواء إن الله لا يحب الخائنين-

"If thou fearest treachery from any group, throw back (their covenant) to them, (so as to be) on equal terms: for Allah (swt) loveth not the treacherous. 

There are differences of opinion among the practitioners as well as Islamic scholars. Some claim that, a nominee in an insurance policy should be regarded as the owner of the policy who must have absolute right to be the beneficiary over the policy.  Some are of the view that, nomination in a policy is necessary and the benefits would be obtained by the nominee in the policy as al-Hibah (gift). 

To rebut the above views relating to the position of a nominee in an insurance policy, it is argued that, if the nominee in a policy is regarded as the owner of a policy, it may contradict with the Divine principles relating to al-Mirath and al-Wasiyah. This is because, the policy is held by the policy-holder upon a contractual agreement in which the policy-holder himself / herself pays regular premiums.

Therefore, the policy-holder is the one who should be regarded as the owner of the policy, while the benefits over the policy should be regarded as the policy-holder's own property over which the beneficiary would be determined not based on nomination, but based on the principle of al-Mirath and al-Wasiyah, in order to make a fair distribution among the legal heirs of the policy-holder of his (the policy-holder is) property.

In the second opinion, it is claimed that, an insurance policy should be regarded as al-Hibah and the nominee in it should enjoy the benefits of the policy absolutely as a gift for him (the nominee from the policy-holder). Each and everybody have the freedom to make a al-Hibah, but the al-Hibah is made in favour of a person who has an absolute and perpetual proprietorship over al-Hibah. In a policy, the person is nominated by the policy-holder as a nominee to receive the benefits from the policy as a gift. In fact, this gift is not regarded as perpetual one, but a conditional one.

This is because the nomination is made by the policy-holder based on an understanding that, if the policy-holder dies before the maturity of the policy, the nominee will be an absolute beneficiary of the gift (policy), but if the policyholder is alive upon the maturity of the policy, the nominee shall not have the right to the benefits of the policy, but only the policy-holder will have the right. In this situation the policy is regarded as a gift, which is not in accordance with the Islamic principles, because:

firstly, the gift is not perpetual in nature, but is a conditional one.

Secondly, if the nominee is given an opportunity to enrich himself under the policy absolutely, this may deprive the legal heirs of the policy-holder and is contrary to the principles of al-Mirath, and thirdly, the policy is always regarded as the property of the policy-holder.

Thus, if the policy-holder wishes to nominate someone to benefit from the policy he may make a will simultaneously of one-third  of the benefits under the policy and not more than that.

Based on the aforementioned Qur'anic injunctions and further illustrations it is submitted that, a nominee is a trustee, and, therefore, a nominee because of nomination shall not have any right to benefit trust, but he should be under an obligation to hold the trust properly and render it back to the right beneficiary accordingly, without demanding any interest over the trust.

Relying on these arguments and authorities from the Holy Qur’an, it is suggested that:

(i) In an insurance policy, a nomination is necessary, regardless of whether the nominee is among the legal heirs of the nominator or from outside, for the purpose of future security of the benefits over the policy and also for the fair distribution of the benefits among the right beneficiary.

(ii) The paid premiums by the policy-holder and also the benefits from the policy should be regarded as a sole property or estate of the policy-holder, while the nominee should be regarded as mere trustee or a mere agent for the future security and fair distribution of the benefits over the policy.

In Hedayatullah vs. Mst. Rahiman  the High Court of Sind decided that, there was nothing wrong in nominating someone in a policy, but the position of the nominee under Islamic law (in compliance with the principles of al-Mirath and al-Wasiyah), is nothing more than as a trustee who has no right over the benefits of the policy but to distribute them (benefits) according to the principles of al-Mirath and al-Wasiyah.

Similarly, in Malaysia, in Re Ismail b. Rentah deceased,  a member of a Malay Public Servants Co-operative Society Ltd. nominated his own daughter to receive his shares in case of his death.

The nomination in this case, relying on the principles of al-Mirath and al-Wasiyah was held to be a bequest, whose validity was subject to the consent of the other heirs. In Pakistan, subsequently, in the case of Nur Muhammad vs. Mst. Sardar Khatun,  it was held that, the right to receive is not equivalent to the right to receive beneficially.

This means the nominee in a provident fund is regarded as a mere trustee who may receive the benefits from the fund, which may not necessarily make him (the nominee) beneficiary, but to receive the benefits and distribute them to the right beneficiary according to the Muslim law of inheritance.

 Mr. Justice Wahiduddin Ahmad in Muqaddar Khan vs. Burmashell  held that, under the Muslim law of inheritance, a nominee should not be regarded as the legal heir of the deceased and therefore, he (the nominee) is not entitled to the benefits from the provident fund.

However, in the High Court of Karachi, M.R. Kayani and Illahi Bakhsa Khamisani, J.J. in Karim vs. Hanifa  held, relying on Section 27 of Bombay Co-operative Society Act 1927, that, the nominee in a policy is not merely an administrator nor an executor who may take the benefits on behalf of the heirs of the deceased, rather he (the nominee) himself has an absolute right over the benefits without sharing with anyone.

This decision was seriously criticized as it was contrary to the Muslim personal law of inheritance, and therefore, Dr. Tanzilur Rahman in Majmuah Kawanin-i-Islam  suggested that, section 27 of the Co-operative Society's Act be amended in order to harmonize it with the Muslim personal law of inheritance (al-Wasiyah and al-Hibah).

Later, the High Court of Karachi's decision was correctly overruled by the Supreme Court of Pakistan in Amtul Habi vs. Musarrat Parveen,  in which it was decided that, the nomination in a policy does not constitute a gift nor a bequest, and, therefore, a nomination shall not deprive the legal heir  of the nominator who may be entitled there to benefits under the law of al-Mirath applicable to the nominator.

To the same effect in 1973, the National Council for Muslim Religious Affairs, Malaysia issued a Fatwa on succession and will,  in which it was related that, in a life policy, a nominee is nothing more than a trustee whose obligation is to receive the benefits over the policy and distribute them among the beneficiary of the policy-holder according to the principle of al-Mirath and al-Wasiyah.

Based on the aforementioned judicial decisions, Fatwa, and views expressed by the judges and Islamic scholars, it is summed up here that, in an insurance policy, there is nothing wrong for the policy-holder to nominate someone for the security and fair distribution of the benefits over the policy.

The nomination shall not constitute a gift nor an ownership over the benefits of the policy, but only a mere trust in which the nominee is under an obligation to receive the benefits from the policy and distribute them among the beneficiary of the policy-holder according to the principles of al-Mirath and al-Wasiyah.

If, however, the nominee is among the heirs of the policy-holder, then he (the nominee) is entitled only to the portion of the benefits according to the principles of al-Mirath.

But if the policy-holder makes a will for the nominee, he may get only up to one-third of the benefits, and if the nominee is among the heirs of the policy-holder, and policy-holder makes a will for him (nominee), he may be entitled only up to one-third of the benefits, subject to the consent of the other heirs of the policy-holder.

Wednesday, April 17, 2013

Tuesday, April 9, 2013

Rejection of Usury (Riba') is a Primary Step to Socio-economic Justice

The term of Riba (Usury / Fixed Interest) can be understood in many ways by different sources. All these definitions are based on the concentration of incremental value of the transaction between the two persons (lenders and borrowers, bankers and customers.) Riba is not only cover in one area but it can be in different field in economic. For example, in daily life also incur riba. The meaning of Riba can be defined and understood as the lending of money at illegal high rate of interest. But in Islam Riba is different meaning.

Riba technically prefers to the premium that must be paid by the borrower to the lender along the amount principal (amount as a condition for the loan) with increment amount. This can know as an extra amount in one of two homogeneous equivalents being exchanged without the increase by return for time. It is the lending of money on interest. It is the cause of any risk, independence of any labor or effort. Allah has strictly forbidden Riba. However, the world today, including the Muslim world, is influenced with Riba. The Prophet Muhammad has confirmed this teaching in Hadith reported from Abu Hurairah;

“Their will come a time, he said, when you will not be able to find a single person in the world who will not be consuming Riba. And if any claim that he is not consuming Riba then surely the rapor of Riba will reach him”.

Riba is considered as a grave sin in Islam. The Hadith above implied that no one could escape from Riba. The true believers must wage the greatest possible struggle to keep himself and his family free from Riba, to guard himself from Riba. If he does not fight himself from Riba and does not respond to oppression in the world where caused by Riba then his faith is empty.

Riba is forbidden irrespective of business nature, it prohibits in all form whether in the form of consumption or production. Any payment relates for a loan and it’s compensating of time for a high rate of return value is considered as Riba.

Riba in Arabic comes from the roof word “raba” mean to cut or to prosper and  in the Qur’an had mentioned the meaning of riba. There are certain views of jurists about riba. Some of them are unanimous with the loan transaction such as Malaki held the view that the lenders or borrower can pay or receipt profit of the loan which is contradict by Allah but Shari'ah and Hambali schools are not agree in this transaction.   What the amount of interest value can consider as Riba? The amount receive from the riba is prohibited event it is as small rate or high rate (from 1%-25%) It does not mean   that the amount of interest as 50-100% wills the case of Riba. Riba never defines as undue profit.

“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”. (al-Qur'an).

Formation of Riba: Islamic law prohibits Riba as a predetermine payment on borrowed funds irrespective of the purpose for which the funds are used. According to the purpose of used, Muslim jusrists classify Riba into two forms: Riba al nasiah and Riba al- fald.

Riba al-Nasi’ah: (Usury of credit):

This term in Arabic known as to “postpone” Muslim identifies this Riba in loan as giving to the lender a fixed increment after interval of time over the fixed period and increase of credit over the principal. On the other hand riba al nasi’ah prefer to the repayment in the period which instrumental in earning for the lenders a fixed increment rather than delays in repayment. This was common practice in the pre- Islamic and in the early Islamic era. This form of riba established in all credit transaction where loan was advanced to person on the payment of monthly interest over the principal. In case the debtor unable to repay the principal and accumulate surplus, he will receive an extension of time to pay the loan but at the same time the sum of payment has increased double. In this sense of practice, the Qur’an has prohibited it in surah al-Baqarah verse 276-278.

This forbidden was not limit the transaction even this is in the consumption or product loans transaction. In legal terminology of the Shari'ah, Riba is defined as surplus, profit or increase in loan and sale and it spreads in all economic sectors, in trades commerce and credit for no equivalent return. Therefore, the practice of riba is unlawful for Islamic because the greater benefit is given to the rich who becomes richer whilst the poor and weak suffers. And from this is will creates different socio- economic classes in society. Ulama' have come to a outcome regarding the Riba in banks. In one of the legal compendiums, they declared:

"An interest transaction in banks is classified as Riba al-Nasi'ah. This can occur in two ways, when someone deposits their valuable or when someone borrows money (al-Qard) for a period of time and incurs interest either way. Therefore its unlawfulness is the same as the prohibition of Riba and this sin is the same as the sin of involving in Riba."

Riba al-fadl:

It describes as excess over and above the quantity of the commodity advance by the lender to borrower.  This is known as exchange of something with different amount of quantity. And this also considers as riba which has been prohibited in Qur’an and Sunnah.

Riba and investments in Shares:

Regarding shares and stock market investments, Ulama' have classified this under the category of Awraq al-Naqdiyyah. Basically this is something, which is allowed, with certain conditions and it is also subjected to Zakah payment, provided that it fulfils the Nisab and Hawl and its Nisbah is 2.5% of its value.

"Shares is defined as, one of the equal parts into which the capital of a company is divided, entitling the holder of the share to a proportion of the profits. Dealing in shares is permissible in the Shari'ah."

Shaikh Syed Mutawalli ad-Darsh mentioned that:

"Money in Islam has a role to play. It should not be kept away, hoarded in a vault or safe but should circulate to allow people to make use of its benefits. That is why the books of Fiqh say that the guardian of an orphan must invest that inheritance in a good manner so that Zakah would not deplete the wealth of the child”.

One may buy shares in any company, which is offering good services to the community, and companies, which do not pursue unlawful trade. For example, we are not allowed to buy into the banking sector because it is ridden with interest. We are not allowed to buy shares into breweries because they are producing something, which is Haram. We are not permitted to buy shares in chemical companies, which produce products, which damage people and the environment. But companies, which are good, pose no problem.

Riba in the Qur’an:

Riba has been mentioned in 12 verses in four surah in the qur’anic: these entire sources represent Riba as a opposite of positive activities of trade daily activities. These Qur’anic verses were the 1st to prohibit Riba among Muslim believers such as Surah al-Nisa verses 160-161.

“For the iniquity of the Jews We made unlawful for them certain (foods) good and wholesome which had been lawful for them; in that they hindered many from Allah’s Way” And “That they took usury, though they were forbidden; and that they devoured men’s substance wrongfully; we have prepared for those among them who reject faith a grievous punishment.” 

These verses remind Mankind about Riba, which regarded to the practice of Jewish and it was prohibited between Jews. Riba has been the first mentioned in the Qur’an. It has prohibited for the Muslim Ummah. In the verse 130 of Surah al-Imran, Qur’an has been mentioned any person involve in any transaction that double or multiplied the value are in the case of Riba.

“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”.

The nature of Riba is under the entire tribes sign the indebtedness to the lender. This practice was common in the pre-Islamic usurers, the repayments amount was double of the original loan .It was prohibited compound usury.

Surah al-Baqurah 2:275-281 says to the effect: that whose involve in Riba will accompanies by a treat of the hereafter. “Those who devour usury will not stand except as stand one whom……but who repeat the ( offence) are companions of the five, they a hide there in (for ever)" (2:275-281).

The meaning of Riba and interpretation of the verse (30:39) was confirmed the subject in which Allah, the most high commended among the acts of the Jews in taking Riba and it had been prohibited for them. Riba in the Qur’an has mentioned as a system of economic injustice and it will lead to evil. Riba comes from exploitation and oppression that is sometime canceled in ultimate disguised .It is essentially the lending of money on interest and the influence of Riba was directed toward the realization and preservation of social justice and unity of society. Riba is the most powerful and most dangerous attaches upon mankind.

In the early era, Riba has been described as ‘ increase in capital at the expense of wealth of other’ it can be understood as Riba is the loss of one the power become poor and the gain of other (the rich become richer) .It is not fair for the Muslim ummah . Allah (swt) does not allow us to do this. This business transaction does not the good attribute of the business, rather than it is the opposite of business of religious. Allah, Almighty allows only the permissible transaction (Halal) and Riba is forbidden (haram). In Islam, all aspect of business transaction should be done in mutual consent and each of the parties should gain the satisfaction among themselves in the business transaction. This was stated in Surah al Nisa 4.29:

“O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill (or destroy) yourselves: for verily Allah hath been to you Most Merciful.”

The first teaching of Islam spreaded to mankind in the Qur’an regarding the matter of Riba. It was specifically related to the case of lending and borrowing. Lending should be use only for the purpose of helping those are in need and it is humanitarian institution, the lenders and borrowers have bond close relationship of spiritualized. And this relationship ought to be a human, fraternal. When the lenders do not involve in any Riba (give higher rate (interest) to the user) lender will become predator. On the other hand, lenders’ wealth will become witnessed in destroying at fraternity and destabilizing the social order. Riba will be the case of destroying the concept of society as family where formerly the community was the insurance, which insured individuals against losses; now individuals have to find for themselves such as in the insurance case. This type of transaction is closely inter-linked with Riba. There is evil life for those were engaged in Riba for the purpose of seeking the wealth of mankind. The Qur’an has stated that

“Those who engaged in Riba and never give up his action then he will take note of war from Allah (swt) and His messenger" 

Riba, which has been existed in the Prophet Muhammad  (saw)lifetime and it practice until modern day.

Case of Riba:

If RM.100 000 were lent at a compound rate of 10% per annum for two years, the borrower would be called upon to repay RM 121 000 at the end of the contract. The lender can achieve the same goal by offering RM.100 000 at the simple rate of 21%. What would be the grounds for distinguishing between the two arrangements? Likewise, the term "exorbitant rate of interest" is also arbitrary. A 10% rate of interest may be exorbitant for one person while 21% may be normal for another depending on their respective financial positions and prospective uses of funds.

Riba in Hadith:

There are several hadiths suggest the divine prohibition of riba. The Prophet (saw) had explained the various injunctions against riba to his companion. There are two hadith relevant to the concern of riba, which has been the most influential in shaping the fiqh conception of riba:

“Every loan that attracts a benefit is riba”. Gold for gold.., if it is hand to hand”.

The Hadith on riba in sale:

The actual concept of this riba is going beyond compensation for lending money. This is no interest in loan but it is a sale of excess or delay in exchange of certain type of property such as foodstuffs and currency. Therefore, we need to consider riba in sale to has a full meaning of its. And this type of exchange was fully mentioned in the hadith that we can be used in this practice as long as the exchange with equal amount. There is no excess or increase value in delay. Due to the first form of riba, the Prophet advises conducting such exchange through the medium of money that mean one selling his good for cash and then buying other’s good with cash. Such this transaction is applicable in Islam.

The Sunnah on Riba in loan:

The second hadith is related to common practice in the modern economic life. Profit on loan is banned without regard to whether the fungible subject matters of the loan. In the Hadith of Prophet Muhammad (saw) said:

“ …a man would sleep and honesty would be taken from his heart and only it trace will remain in his heart…” Bukhari.

This is a sign for those who conduct any transaction of Riba in the last Day of Judgment. Riba has blinded Muslim, Riba has destroyed value, and corrupted mankind and non-can be trusted.

Riba in Qiyas and Ijma:

In the book of Imran Hussein, he had taken one example about Riba has practiced or has been fulfilled in miserable lifetime. He mentions, “One man from othaman Khalifa had borrowed money on interest from Europe. This amount of interest is over his effort, at the end, this man submits to European financial black mail…” He has mentioned about the financial imperialism. This is common practice in the Muslim world nowadays. This action is not mentioned in the Qur’an. In the world to day Riba can be many other forms, which are readily identifiable by businessmen. Some of businessmen will glue new form of Riba. Muslim must make them aware of the different form of Riba, and must exercise the greatest care to avoid them. Some forms of buying and selling money today take the form of borrowing from a bank on interest. It is a form of Riba and is strictly prohibited. The Prophet had taught that when the two things are bought and exchanged not the same in nature or equal money value is invalid such as gold for silver.

Re-takaful? a need to face the socio-economic catastrophe

The challenges posed by both neo-modern and postmodern society and their secular cultures are very far reaching. The impact can be felt in every facet of life be it religious, political, social and economical. Following the rapid and strangulating development of the economy of the super other western powers, the insurance sector inclusive, most developing economies especially in the Muslim world feel a pressing need to re adjust their economies in order to meet up with the rapid development and high rate economic growth taking place in these developing economies.

The Muslim world among others is in need of access to large and open markets among the different Muslim countries in order to have a high rate economic growth too. A survey of recent Muslim scholarship on western theories and epistemologies reveals an attempt to understand western legacy on modern society so as to liberate Muslim societies from secular and foreign control. This is to ensure that political, economic and other preoccupations of Muslims do not become mere distractions of the world from their care and development for the hereafter. Islam is concerned both with material and spiritual advancement.

The Islamic worldview can therefore never be compared to any other worldview.  It is against this background that current Muslim scholarship in the field of finance and economics in general should be viewed. It is an attempt at the total Islamization of the banking and financial sector so as to free the Muslim world from the dominant Western civilizational and ideological value-laden economic, financial and banking principles. Presently, most of the Muslim world like third world countries has under-developed economies suffering enormously under the claws and yokes of western economic and financial interest-based system. One of such key areas of modern financing where the Muslim world need a kind of economic co-operation in order to confront the challenges posed by western interest based financial system is Re-takaful Business.

It is sad that in spite of the abundance of human and natural resources in the Muslim world, the Takaful and Re-takaful Business and the entire Muslim world economic sector can still not compete with conglomerate companies like the American Insurance Group and the likes. Though the insurance business in principle was accepted by Islam right from the time of the Prophet when he instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina), yet the insurance business has undergone a lot of developments and innovations since the time of the Prophet. 

In view of the Islamic acceptance of insurance in principle as well as the necessity of the insurance scheme in our complex society, there is need to examine for a continuous research into the modern concept of insurance in its entirety so as to bring it in harmony with the rulings and requirements of the Shari’ah. The need to abide by Islamic teachings, guided by Muslim historical heritage and current global insurance and reinsurance indexes cannot be over emphasized. This work therefore is an attempt to examine an aspect of the insurance system in Islam known as the re-takaful business.

What is Re-takaful?

The term Retakaful refers to the Islamic form of reinsurance. The Retakaful business is based on the principles of Takaful in Islam. As stated before Takaful implies a group of people coming together to be jointly responsible for someone or something.  ReTakaful therefore means a joint guarantee or pact among clients or cedants who are all the operators of this important work of Takaful based on mutual agreement to jointly indemnify themselves from part of the losses and risks that may happen to any of them.  It also may also accrue from the policies they underwrite.

 It is therefore an attempt by a group of people who are Takaful operators to pool resources together so as to share among themselves any loss or damage that befalls any of them. The Retakaful business is based on the same human attempt to make provision or protection against any future loss. Just as individuals are motivated to insure themselves with a direct insurer, so also is the insurer also desirous of reinsuring himself against any future loss or damage with a reinsurer. It is this need for reinsurance that brings about Retakaful.

As stated above, the Retakaful business is based on the principles of Takaful in Islam. It can be traced to the early days of Islam when the Prophet himself instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina).  By that act, he laid the foundation of Takaful.  This ma’qil al-ijtima’ or the system of ‘aqil is similar to what obtained among the Arabs in the Jahil or pre-Islamic period during which a group of Arabs undertook to alleviate the burden of any member of the group that was liable to pay any form of compensation.

Though the insurance as well as the reinsurance business has undergone a lot of developments and innovations since the time of the Holy Prophet (saw), it can still be brought into harmony with the rulings and requirements of the Shari’ah as explained by Muslim jurists. Unless this harmony is effected, the insurance as well as the reinsurance business will be found wanting in respect of many of its operations in modern society.

Need for Re-takaful?

Just as the Prophet recognized the need for ma’qil al-ijtima’ or the system of ‘aqil to protect Muslims against any future loss or damage, so also is there the need to protect the operators of this important work of Takaful from part of the losses and risks that may accrue from the policies they underwrite. This will help to spread the losses and risks involved in the Takaful business as well as lighten the financial impact of such risks and losses on Takaful operators and the financial industry at large.

It is clear that no one is immune from losses and damages against property, business venture and even life itself including Takaful operators themselves, hence the need to offer double securities against them. RETAKAFUL is therefore part of the general precautions than can be taken against damages, risks and losses. Islam is not opposed to taking such precautions as long as it does not contradict with any Islamic contractual law.

Online Financial Services with Holistic Humanitarian Concern

The emergence of Internet  had changed our life, either directly or indirectly. This is also true with the corporate and business world nowadays. Companies and organizations no longer regard the Internet only as a tool or reminder to the public to show who they are or what are they doing. Today, Internet has become a very important tool to do business. Among the earliest and important examples of how Internet has changed the ways companies fully utilized the benefits of Internet are, e-Buy and others.

Banking and financial institutions have also realized the true potentials and benefits of the internet. Right now, their websites are no longer just another advertisement to show that they are still alive and kicking, but also offer various type of products and services to the customers. The services are no longer just to show what is the amount of money in the accounts of their customers, but also offers various products and services such as online banking, bill payment, mortgage, loans, insurance and so on. These terms are what we are now calling ‘online financial services’.

Basically, commercial banks performed two functions: money transfer services (including all current account operations) and money lending. In general, the former does not involve any interest. On the other side of the balance sheet, we have two types of deposits: current account (demand) deposits and savings deposits. Here too, the former generally does not involve any interest. Therefore current account operations and money transfer operations are free of riba on both sides of the balance sheet. As such all commercial banks are interest-free banks with respect to these operations.

The problem, then, arises only in respect of savings deposits on the one side and loans on the other, because both incur interest. Thus, the questions of lending and accepting savings deposits, without dealing in interest (riba) arise.

Interest-Free Commercial Banking

A real Muslim does wish to avoid dealing in interest in order to comply with their religious belief, and limits itself to finding a simple, logical and easily executable methodology of achieving this objective. It does not concern itself with providing a justification or philosophy for the prohibition nor with the subtle differences and related discussions regarding the correct definition of riba. It simply accepts the commonly understood meaning of it that, any money demanded or received by the lender in addition to his original capital is riba and proceeds from there. The resulting system, therefore, is practicable irrespective of why one wishes to avoid dealing in interest. For there are also people who are convinced for various reasons that demanding or receiving interest is bad.

The approach adopted is to “first take a closer look at modern banking practices and find out whether and where the prohibited riba (interest) occurred and then to see whether it could be eliminated from the existing practices and then to check if the resulting system was still viable.”

On the deposit side, what the depositor receives in addition to his capital is the interest. This is riba (pure interest) by definition. If a Muslim refuses this interest because it is prohibited by his religion, then this side of the balance sheet is free of riba. On the other side of the balance sheet, we have the “interest” collected by the bank from the borrower. Ideally, the bank uses the funds it receives from depositors to grant loans to clients. But the “interest” it charges the borrowers is more than the interest it pays the depositors. This is because the former should also cover, besides the interest paid to the depositor, the costs the bank incurs in collecting and disbursing the funds as well as in accounting, administration, safekeeping, etc.

A model is constructed where the “interest” charged by the bank is split into several components. Then each of these components is studied to see if it contained the prohibited riba. The idea is that if any one component contained such riba then to see if it could be removed. If some components are free of riba, and others containing riba can be removed, then we have an “interest” which is free of riba. If this can be achieved and if the resulting system is viable, then we have a riba-free system that is also viable. And, since it was originally derived from the conventional model it should also be compatible with it.

This “interest” collected by the bank from the borrower is a cost to the borrower, of obtaining this amount of financing. Therefore, it is named the Cost of Borrowing (CoB) and is considered as consisting of six components: interest (paid to the depositor), services cost, overheads cost, risk premium, profit, and compensation for the value erosion of capital due to inflation. It is shown that only the first component falls under the definition of riba and all others are free of it.

Muslims are prohibited by to deal in interest (riba) in any way. Giving and receiving as well as witnessing are all prohibited. Thus an Islamic banking system cannot pay any interest to its depositors; neither can it demand or receive any interest from the borrowers nor could the banks witness or keep accounts of these transactions. But the lender is entitled to the return of his capital in full. This is a Qur’anic injunction. The proposed system complies with these fundamental Islamic requirements.

A basic tenet of commercial banking is capital guarantee. The capital entrusted to the bank by a depositor must be returned to him in full. The proposed system fully complies with this requirement. Islamic banking as practised today does not provide capital guarantee in all its deposit accounts. In many countries, this is one of the two main objections to permitting the establishment of Islamic banks. There is no objection to paying zero interest on deposits.

Thus, by paying zero interest and guaranteeing capital, the proposed system satisfies both the riba-prohibition rule of Islam and the capital guarantee requirement of conventional banking acts. This enables it to obtain permission to set up and operate as a deposit bank in all countries of the world, while obeying the riba-prohibition rule and qualifying to be an “Islamic” bank. This is of paramount importance to Muslim minorities living in non-Muslim countries. Furthermore, the existence of interest-free banks in all countries will also remove the many difficulties faced today by Islamic banks in transacting international business. Like any other human being, Muslims also need and desire a secure dwelling for themselves and their families. For example, in the past, owning a home was an unthinkable proposition for practicing Muslims, because Islam prohibits usury. The Qur'an (2:276) says: " Allah has permitted trade and forbidden usury," and in 2:278 reminds the Muslims: "O ye who believe, keep your duty to Allah and relinquish what remains (due) from interest, if you are believers."

The Prophet (p.b.u.h) forbade usury. One of the better-known Hadith, narrated by Ibn Mas'ud, quotes the Messenger of Allah (p.b.u.h), saying, "Allah has cursed the receiver, the giver of the interest and also the witness and the scribe of the interest- bearing transaction; they are alike." (Muslim, Tirmidhi).

The concept of interest-free housing finance is still unknown in the West, thus the term "mortgage" is used here in the sense of collateral and as having the title of the property in the names of those who provide the funds. The cooperative housing programs help those Muslims who need financial help to purchase a home, while helping to generate income for the investors from the rent and shares in the appreciation of the property's value.


Islamic investment equity funds market is one of the fastest growing sectors within the Islamic financial system. Currently there are approximately 100 Islamic equity funds worldwide. The total assets managed through these funds currently exceed US$5 billion and is growing by 12-15% per annum. With the continuous interest in the Islamic financial system, there are positive signs that more funds will be launched. Some western majors have just joined the fray or are thinking of launching similar Islamic equity products.

Despite these successes, this market has seen a record of poor marketing as emphasis is on products and not on addressing the needs of investors. Over the last few years, quite a number of funds have closed down. Most of the funds tend to target high net worth individuals and corporate institutions, minimum investments ranging from US$50,000 to as high as US$1,000,000.

Target markets for Islamic funds vary, some cater for their local markets e.g. Malaysia and Gulf based investment funds. Others clearly target the Middle East and Gulf regions, neglecting local markets and have been accused of failing to serve Muslim communities.

Since the launch of Islamic equity funds in the early 90's, we have seen the establishment of credible equity benchmarks by Dow Jones Islamic market index and the FTSE Global Islamic Index Series. The website monitors the performance of Islamic equity funds and provide a comprehensive list of the Islamic funds worldwide.

Al-Taslif Credit Card (AmBank Group, formerly known as Arab Malaysian Banking Group):

 Based on Shari’ah Principle:

 The AmBank Al-Taslif Credit Card has been formulated based on the Shari'ah principle of Bai' Al Inah (Buy back sale), which govern installment payments over a fixed period. One can use the Al-Taslif Credit Card with the assurance that it has been tailored with one's spending needs in mind, and without compromising Islamic values.

Low Banking Cost of 15% p.a.:

Customer will only be charged a low banking cost of 1.25% per month or 15% per annum on our outstanding balance. What's more, if we decide to settle only the minimum amount each month, customers will not be subjected to additional banking cost. It's free of Interest!

Annual Fee Waiver & Charity:

With AmBonus, there is more than providing customers with savings on card annual fees! It also allows customers to do a bit for charity. For every RM100 spend on retail transactions, we will receive AmBonus worth RM1 which can be set off against the annual card fees. What's more, the excess will be donated on our behalf to charitable organizations.

More Cash Rebates For Our Loyalty:

 With AmTransfer, one can use up to our available card limit to consolidate customers' outstanding balances from our other credit or charge cards at 15% p.a. until full settlements.


For only RM0.03 on every RM 100 outstanding balance, we and our family will enjoy peace of mind as our outstanding balances are covered up to maximum of RM50, 000 in the event of any mishap.

Instance Acceptance and Cash Worldwide:

The card is welcomed at more than 22 million establishments worldwide. However, in keeping with Shari’ah principle, card members are advised not to use the card in establishments that contradicts Islamic values e.g. casino, massage parlors, dating and escort services, bars etc. We'll also have instant access to more than 600,000 MasterCard/CIRRUS and VISA/PLUS ATMs or affiliated banks and financial institutions worldwide.

Automatic Travel Accident Plan Charge:

Travel tickets to our Gold card and we will enjoy automatic free travel accident insurance of up to RM500, 000. We will also enjoy additional coverage for travel inconveniences.

AmDirect Phone Banking and Online Banking Service:

One may easily access the card account anytime for a host of financial services and enquiries. We can simply enjoy your personal banking service by calling AmDirect Call Center at 03-2612 6888 or login to

No Joining Fees:

No fee is required for securing a Card (membership) of AmBank.

 Zakat payment:

For the convenience, AmBank has made provision for Al-Taslif card members to make our zakat (tithe) payments directly through the card. This facility is currently available with Pusat Pungutan Zakat Wilayah Persekutuan. 

0% Interest Easy Payment Plan:

With interest-free installment payment, we can select from a range of products and services from AmBank’s partnering establishment.

MasterCard Global Service:

Provides emergency 24-hour travel assistant service and worldwide emergency assistant for lost and stolen reporting, emergency card replacement, emergency cash advance, ATM network location information, and issuer directory assistance.

MasterAssist Travel Assistant Service for Gold card members:

Provides 24-hour travel assistance service and worldwide emergency assistance, pre-trip information, traveling assistance, legal referrals and bail bond assistance.

VISA 24-hour Global Customer Assitance Service(GCAS):

Provides medical referrals, monitoring, assistance and follow-up, transportation assistance, legal assistance, pre-trip assistance, interpreter assistance as well as lost/valuable document delivery.

Flexible Payment Options:

We have a worldwide choice of payment method on how we want to make our monthly card payment, either in full or the minimum repayment of 5% or RM50 whichever is higher.

ATM Services:

AmBank’s Extensive AmBank Group ATM network and CIRRUS/PLUS ATM, which covers a wide range of automated services allows us access our card account 24 hours a day.


Because the online financial service is still a new phenomenon worldwide, it does have benefits to everyone. But if we take the Shari’ah principles into consideration, some extra works must be done in order to make sure that it is accordance with Islamic principles as mentioned before. Just for a note, usually, Shari’ah based online financial system is still based on ‘off-line’ financial services provided by financial institutions, only now, instead of physical building, there will be a cyberspace!

First, financial institutions must provide a clear picture to the customers of how does the shari’ah based online financial services works. It is not only shown some figures but also explanation like which company that they are going to invest, what principles that they take, how does the profit is distributed and so on. If possible, they should also provide the list of the companies that they are invested and also the member of the Shari’ah panel board in their financial institutions. It will make customers feel secure because they know that their deposits is legally invested and supervised by Islamic scholars.

Then, for the customers, they should put aside the stigma in their mind that just because some financial institutions’ name is not sound like Islam, they do not follow accordingly with Islamic rules and regulations. For instance, there are an interview with Malay/Muslim customers on why don’t they invest in one financial institution, which they reply that that financial institution is not sound like Islam at all! This perception must be discarded from our mind to ensure that Shari’ah based financial system will be better accepted worldwide.