Defining of Takful by Justice Khalil ur Rehman
DEFINING
TAKAFUL / RETAKAFUL
SHARIAH PRINCIPLES
BY
MR. JUSTICE (R) KHALIL-UR-REHMAN KHAN
CHAIRMAN
INTRODUCTION
UNDERSTANDING RATIONALE OF
ECONOMIC SETUP OF ISLAMIC WAY
OF LIFE TO COMPREHEND ISLAMIC
MODES OF ECONOMIC ACTIVITY
BELIEF IN DIVINE
GUIDANCE
ONENESS OF GOD
REQUIRING OBEDIENCE IN:
TERMS OF WORSHIP
&
WORLDLY AFFAIRS
NATURE OF COMMANDS
NON-EXHAUSTIVE NOR AMBIGUOUS
ROLE AND SPACE FOR HUMAN
INTELLECT
GUIDANCE FOR HUMAN PERCEPTION
ROLE AND SPACE FOR
HUMAN INTELLECT
RATIONAL JUDGMENT BASED ON
REASONS
ASSESSMENT OF FACTS
EXPERIENCE
SET OF PRINCIPLES FOR
ETERNAL APPLICATION
CREATOR OF THE UNIVERSE
PROVIDED GUIDANCE THOUGH HIS
PROPHETS AND DIVINE
REVELATIONS WHICH CANNOT BE
VIOLATED ON SUPERFICIAL
GROUNDS OF EXPEDIENCY BASED
ON HUMAN ASSESSMENT
PURPOSE OF GUIDANCE
MAN’S INHERENT INCAPACITY TO
REACH THE ‘TRUTH’
PROPHET (PUH) OF ISLAM
&
BELIEF OF MUSLIMS
CAPITALIST
VERSUS
ISLAMIC ECONOMIC
COMMON FEATURES
MARKET FORCES
MARKET ECONOMY
PROFIT MOTIVE
BASIC DIFFERENCE
CAPITALISM
PROFIT MOTIVE / PRIVATE
OWNERSHIPS ARE GIVEN
UNBRIDLED POWERS TO MAKE
ECONOMIC DECISIONS
THESE ARE NOT CONTROLLED BY
ANY DIVINE INJUNCTIONS
IMBALANCES IN THE
SOCIETY
ONLY RESTRICTIONS DEVISED BY
HUMANS THROUGH LEGISLATION
&
NO GUIDANCE FROM ANY DIVINE
REVELATION / AUTHORITY
CONSEQUENCES OF
IMBALANCES
INTEREST, GAMBLING & SPECULATIVE
TRANSACTIONS TEND TO
CONCENTRATE WEALTH IN THE HANDS
OF THE FEW
UNBRIDLED PROFIT MAKING CREATE
MONOPOLIES PARALYZING MARKET
FORCES OR HINDERING THEIR NATURAL
OPERATION
CONCEPT OF FREE
COMPETITION
SUPPLY AND DEMAND
&
NOT MONOPOLIES
DEVICE TO CONTROL
MARKET MANIPULATION
TO BREAK CARTELS & ITS
LIMITATION
LEGISLATION
DOMINATING PLAYERS
&
BUSINESS HOUSES
ISLAMIC RESTRICTIONS
BREAKING BARRIERS BY SUBMITTING TO
DIVINE AUTHORITY
PROHIBITION OF RIBA (INTEREST)
GAMBLING
HOARDING
DEALING IN UNLAWFUL GOODS /
SERVICES
SHORT-SALES
SPECULATIVE TRANSACTIONS
CUMULATIVE EFFECT OF
ISLAMIC RESTRICTIONS
MAINTAINS BALANCED DISTRIBUTIVE
JUSTICE
&
EQUALITY OF OPPORTUNITIES
ISLAMIC FINANCING IS
ASSET-BACKED
ISLAM DOES NOT RECOGNIZE MONEY AS
SUBJECT MATTER OF TRADE EXCEPT IN
SOME SPECIAL CASES
MONEY HAS NO INTRINSIC VALUE AND IS
ONLY A MEDIUM OF EXCHANGE
FINANCING IN ISLAM IS ALWAYS BASED
ON LIQUID ASSETS, WHICH CREATE
REAL ASSETS & INVENTORIES
CONTD…
EACH UNIT IS 100% EQUAL TO ANOTHER
UNIT OF THE SAME DENOMINATION AND
NO PROFIT IS MADE BY EXCHANGE OF
THESE UNITS, INTER-SE
PROFIT IS GENERATED WHEN SOMETHING
HAVING INTRINSIC UTILITY IS SOLD FOR
MONEY OR WHEN DIFFERENT
CURRENCIES ARE EXCHANGED ONE
FOR ANOTHER.
CONTD….
THE PROFIT EARNED THROUGH
DEALING IN MONEY (OF THE SAME
CURRENCY) OR THE PAPERS
REPRESENTING THEM, IS
INTEREST, HENCE PROHIBITED
THE CONCEPT OF
FINANCING IN THE
CAPITALIST SYSTEM
BANKS AND FINANCIAL INSTITUTIONS
DEAL IN MONEY AND MONETARY
PAPERS ONLY. SO THEY ARE
FORBIDDEN FROM TRADING IN GOODS
AND MAKING INVENTORIES.
CAPITALIST THEORY
CAPITAL & ENTREPRENEUR ARE TAKEN TO
BE TWO SEPARATE FACTORS OF
PRODUCTION
CAPITAL EARNS INTEREST WHILE
ENTREPRENEUR IS ENTITLED TO PROFIT
INTEREST IS THE FIXED RETURN FOR
PROVIDING CAPITAL
PROFIT IS EARNED ONLY WHEN THERE IS
SURPLUS AFTER DISTRIBUTING THE FIXED
RETURN TO LAND, LABOUR AND CAPITAL
(RENTS, WAGES & INTEREST)
ISLAMIC CONCEPT
ISLAM RECOGNIZES CAPITAL AND
ENTREPRENEUR AS A COMMON
FACTOR OF PRODUCTION
EVERY PERSON CONTRIBUTING (IN THE
FORM OF MONEY) IN A COMMERCIAL
ACTIVITY ASSUMES RISK OF LOSS,
HENCE IS ENTITLED TO
PROPORTIONATE SHARE OF ACTUAL
PROFIT
PARAMETERS OF ISLAMIC
FINANCE / BANKING &
INSURANCE
CAPITAL HAS AN INTRINSIC
ELEMENT OF ENTREPRENEURSHIP,
SO FAR THE RISK OF THE
BUSINESS IS CONCERNED
INSTEAD OF A FIXED RETURN AS
INTEREST, IT DERIVES CAPITAL
CONTD….
THE MORE THE PROFIT OF THE BUSINESS,
THE HIGHER IS THE RETURN ON
CAPITAL
PROFITS GENERATED BY COMMERCIAL
ACTIVITIES IN THE SOCIETY ARE
DISTRIBUTED TO ALL PERSONS WHO
HAVE CONTRIBUTED CAPITAL TO THE
ENTERPRISE
CONTD…
WITHIN THESE PARAMETERS OF
ISLAMIC FINANCE, THE ISLAMIC
BANKING AS WELL AS ISLAMIC
INSURANCE ARE TO OPERATE &
ARE DEVELOPED
CONVENTIONAL INSURANCE
VERSUS
ISLAMIC INSURANCE
(TAKAFUL)
SHARIAH SCHOLARS BELIEVE THAT
CONVENTIONAL INSURANCE IS
UNLAWFUL DUE TO INVOLVEMENT
OF RIBA (INTEREST), MAISIR
(GAMBLING) AND GHARAR
(UNCERTAINTY)
RIBA, MAISIR & GHARAR
INTEREST AS PER SHARIAH IS ANY
AMOUNT CLAIMED BY THE CREDITOR,
OVER AND ABOVE THE PRINCIPAL
ADVANCED BY HIM TO DEBTOR
HOLY BOOKS OF CHRISTIANS & JEWS
ALSO UNDERSTAND THE TERM USURY
IN THE SAME SENSE
CONTD…
MAISIR
ANY FORM OF BUSINESS IN WHICH
MONITORY GAINS CAME FROM
MERE CHANCES, SPECULATIONS &
CONJECTURES AND NOT FROM
WORK OR REAL SECTOR BUSINESS
(GAMBLING)
CONTD….
GHARAR
ANY MAJOR UNCERTAINTY ABOUT
THE SUBJECT MATTER OR RIGHT
AND OBLIGATIONS, LIABILITIES OF
PARTIES TO CONTRACT
CONTD…
ALL THIS LEADS TO UNDUE LOSS
TO A PARTY AND UNJUSTIFIED
ENRICHMENT OF OTHERS, WHICH
IS PROHIBITED.
ALTERNATIVE IS TO BE PROVIDED
WHICH IS FREE FROM INTEREST,
MAISIR AND GHARAR
TAKAFUL / INSURANCE
TAKAFUL IS THE ISLAMIC
ALTERNATIVE TO CONVENTIONAL
INSURANCE
ONE OTHER OBSTACLE IN THE WAY
OF AND PROMOTION OF
INSURANCE IS THE CONCEPT OF
QADHA-O-QADR
AUTHORITY OF ALLAH
MISCONCEPTIONS
&
REASONED CONCEPT
THE ACTIONS ON WHICH
MAN HAS NO CONTROL
HATCHING
MATCHING
&
DISPATCHING
CONTD…..
INSURANCE & TAKAFUL CANNOT
PROLONG OR SHORTEN MAN’S
LIFE OR POSTPONE HIS DEATH
HE HAS BEEN GIVEN INTELLECT, THE
REASONING FACULTY IS TAUGHT
TO AVOID OR REDUCE THE LOSS
CAUSED BY CALAMITIES OR
MISFORTUNES
TRADITIONS OF THE HOLLY
PROPHET(PUH)
IT IS BETTER FOR YOU TO LEAVE YOUR
OFF SPRINGS, WEALTHY, THAN TO
LEAVE THEM POOR, ASKING OTHERS
FOR HELP
THE ONE WHO LOOKS AFTER & WORKS
FOR A WIDOW & A POOR PERSON IS
LIKE A WARRIOR FIGHTING FOR
ALLAH’S CAUSE OR LIKE A PERSON
WHO FASTS DURING THE DAY AND
PRAYS FOR ALL NIGHT
SYSTEM OF AQUILA
SUPPORTIVE COMMUNITY
A GROUP OF PEOPLE HAVING COMMON
AFFINITY, RELATIONSHIP OR COMMON
INTEREST BY PROFESSION OR TRADE
USED TO CONTRIBUTE TOWARDS
FINANCIAL BURDENS BY THE FELLOW
MEMBER
RECIPROCAL
COMPENSATION & JOINT
RESPONSIBILITY
EXAMPLES
IN RESPECT OF BLOOD MONEY
ANY DISASTER
TAKAFUL / JOINT
GUARANTEE
CONCEPT OF TABARRU
&
ITS PURPOSE
PRINCIPLES OF TAKAFUL
POLICY HOLDERS COOPERATE
AMONGST THEMSELVES FOR
THEIR COMMON GOODS
EVERY POLICY HOLDER PAYS HIS
SUBSCRIPTION TO HELP THOSE
WHO NEED ASSISTANCE
CONTD…
LOSSES ARE DIVIDED AND
LIABILITIES SPREAD THROUGH THE
COMMUNITY POOLING SYSTEM
UNCERTAINTY IS ELIMINATED IN
RESPECT OF SUBSCRIPTION AND
COMPENSATION
CONTD..
IT DOES NOT DRIVE ADVANTAGE AT
THE COST OF OTHERS
ELIMINATION OF UN-
ISLAMIC ELEMENTS
MECHANISM ADOPTED IN TAKAFUL
ELIMINATES:
GHARAR (UNCERTAINTY)
MAISIR (SPECULATION & CHANCE)
RIBA (INTEREST)
COMMERCIALIZATION OF
TAKAFUL
MODARABA MODEL
NON-PROFIT MODEL
AL-WAKALA MODEL
RETAKAFUL
CONCEPT & NATURE
TAKAFUL
FOR
TAKAFUL OPERATORS
