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.