OPEN UNIVERSITY MALAYSIA
Course Code : BMLW5103
Course Name : BUSINESS LAW
Program : MBA
Semester : SEMESTER THREE SEPTEMPER 2017
Assignment : ASSIGNMENT
Date due : 13 Nov, 2017
Submission Date : 13 No, 2017
In this paper was divided in to two parts according to the course questions, this paper was discussed separately in each question.
Question One: In this question was provided discussions of considerations as one of the elements of valid contracts according to “An agreement without consideration is void” (S.26 Contracts Act 1950). Also, discussions were included the requirement of consideration, the legal concept of consideration, the characteristics of consideration, types of consideration and problems with consideration. And finally, will compare the compare the position of consideration between Malaysian law and the English law by referring several cases.
Question Two: In this question the researcher was selected Manulife and John Hancock is Canadian insurance company and Takaful insurance of Africa and was compared the principles related to insurance contract offered by both companies.
In 1965, the congress of Islamic research in Cairo were discussed the legitimacy of insurance in the Islamic world. In 1976 the first international conference on Islamic economics was held in Mecca, Saudi Arabia were reached that insurance for profit is contrary to shari’a. This was confirmed by the Islamic Fiqh academy in Jeddah in 1985 and was started the formation of Takaful Insurance.
Manulife and John Hancock is Canadian insurance company and were founded in 1887, just 20 years after our nation was born.
Manulife began expanding internationally in 1893 with the sale of first policy outside Canada in Bermuda, quickly followed by entry to Asia in 1897 and the U.S. in 1903. Manulife growth accelerated throughout the 1980s and 1990s, leading to largest acquisition.
As noted partially, an agreement should be upheld by consideration to be lawfully enforceable. consideration implies something which is of some incentive according to the law it is the cost for which the guarantee of the other is purchased. According to Weitzenböck, (2012 consideration was characterized as:
“some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”
consideration is another imperative component of an agreement and any agreement made without thought is a void understanding. Segment 26 of the Contracts Act 1950 gives that „an agreement made without thought is void. As indicated by Section 2(d) of the Contracts Act 1950, when, at the want of the promisor, the promisee or some other individual has done or refused to do, or does or keeps away from doing, or guarantees to do or to decline to do, something, such act or forbearance or guarantee is known as a consideration of the guarantee (Dr Rozanah, 2011).
There are two valid types of consideration: executed and executory. This reflects the two different ways in which a claimant may purchase the defendant’s promise.
Executory consideration consists of a promise made in return for a promise where both promises are still to be performed such as a contract between a buyer and seller for the future delivery of a car on credit (Weitzenböck, 2012).
Executed consideration occurs when one of the two parties has done all that they are required to do, leaving any outstanding liability on the other party, for example, where there is a promise of a reward if lost property is returned. If the property is returned by B to A, then B has fulfilled their part of the contract, and is said to have executed their consideration, whilst A’s consideration, payment of the reward, is still outstanding (Weitzenböck, 2012).
What happens if the promise (the alleged consideration) is given after the act has been completed? In English law this is treated as “past consideration” and the general rule is that past consideration is no consideration at all. In cases involving executed and executory consideration the claimant, in order to succeed in any claim, must prove that his act or promise was given in exchange for the defendant’s promise. If the defendant made the promise afterwards, it can be regarded only as an expression of gratitude (i.e. a gift) and thus not a binding contract. It is
important to understand that the term “past” here means past in relation to the making of the promise that the claimant is seeking to enforce, not past in relation to the time at which the claimant is seeking to enforce the promise (Weitzenböck, 2012).
Considerations might be executory when one guarantee is made in kind for another guarantee. For instance, you consent to offer a fax machine to B for RM8,000. Here, Bês guarantee to pay RM8,000 is the considerations for your guarantee to offer the fax machine and your guarantee to offer the fax machine is the considerations for Bês guarantee to pay RM8,000. These are legal contemplations (Dr Rozanah, 2011).
Guarantees which frame the considerations for each other are called complementary guarantee, and each guarantee and sets of guarantees shaping the considerations for each other is an understanding (Dr Rozanah, 2011).
Next, considerations might be executed when one guarantee is made in kind for the execution of a demonstration. For example, you publicize a reward of RM300 to any individual who finds and returns your lost watch. C finds and returns the watch to you in light of the offer. Cês considerations for your guarantee is executed. Just your obligation stays extraordinary which is to pay C the RM300 remunerate. exhibits the contrast between these two contemplations (Dr Rozanah, 2011).
1.3 POSITION OF CONSIDERATION BETWEEN MALAYSIAN AND ENGLISH LAWS
Under English law, past consideration will not support a claim in contract because the act which was performed before the promise of reward was made is regarded as gratuitous. However, under the Malaysian Contracts Act 1950, past consideration is sufficient to support a promise because Section 2(d) and Section 26 (b) apply to past consideration. The words „has done or abstained from doing referred to an act which has been performed before the promise is made. Thus, the position in Malaysia is that, even though the consideration is past, it is valid if it is done „at the desire of the promisor (Dr Rozanah, 2011).
1.4 Requirements of Consideration
The law has dependably declined to uphold most, or free, agreements. The terms of an understanding must be anticipated in the event that they are to tie on the gatherings. An understanding is expected when each side is constrained to surrender something of significant worth in return for something different of significant worth. This trade, or the guarantee to trade
things of significant worth, is the thing that ties the gatherings to each other in a legally binding relationship (Gordon, 2006).
This coupling component is known as Consideration. Consideration recognizes a legitimately official agreements from different sorts of understandings. Numerous understandings are not lawfully restricting in light of the fact that they need Consideration. For example, social agreements that contain an offer and an acknowledgment, for example, consent to go with somebody to the homecoming move are not contracts. As a result of the focal significance of Consideration to every legally binding relationship, it is essential to comprehend the idea of Consideration (Gordon, 2006).
1.4.1 Consideration must not be past
Consideration must be given in kind for (must be, to some degree, caused by) guarantee or demonstration of other gathering, i.e. there must be genuinely immediate co-connection amongst Consideration and guarantee/act. Something improved the situation reason other than guarantee won’t be legitimate consideration for guarantee (Weitzenböck, 2012).
This necessity is frequently summed up by the (marginally deceptive) articulation consideration must not be past.
1.5 EXCEPTIONS OF CONSIDERATION
1.5.1 Agreement made on account of Natural Love and Affection
This special case is given in Section 26(a) of the Contracts Act 1950. The decide gives that any agreement which is made without considerations is as yet legitimate on the off chance that it is communicated in composing and enrolled under the law (assuming any) for now in drive for the enlistment of such records, and is made by virtue of characteristic love and warmth between parties remaining in a close connection to each other (Dr Rozanah, 2011).
As stated Dr Rozanah, (2011) the agreement that isn’t bolstered by any considerations is substantial on the off chance that it satisfies the accompanying conditions:
(a) The understanding is made in composing;
(b) The understanding is enrolled under the current law which requires its enlistment; and
(c) The understanding is made because of common love and love between the gatherings remaining in close connection to each other.
In this way, so as to implement the agreement made because of normal love and warmth, the court must be fulfilled that the gatherings who go into the understanding must remain in close
connection to each different other than having regular love and love. The term „near connection isn’t characterized in the Act. Hence, what implies close connection might be distinctive for each social gathering, contingent upon the ethnic gatherings and their traditions. This is on account of the individual law identifying with family matters is relevant to the gatherings (Dr Rozanah, 2011)..
| Re Tan Soh Sim [1951] MLJ 21
In this case, there was an agreement made between members of a Chinese family governed by their personal laws. The deceased Tan Soh Sim (in her illness) had made a wish that her estate should be divided among her two adopted sons and two adopted daughters. The legal next-of-kin drew up an agreement renouncing all rights in favour of the four adopted children (who were their nephews and nieces). The issues to be resolved in this case were whether: ● An agreement was made on account of natural love and affection; and ● Three sisters and seven half-sisters and brothers stood in near relationship to their adopted nephews and nieces. The court granted that: Chinese adopted children are related to the adoptive parents and brothers, but they were not nearly related to the family of their adoptive mother. Thus, the uncles and aunties of the adoptive mother did not stand in near relation to their nephews and nieces. In such a case, there was no natural love and affection between the signatories and the donees. The agreement was void (Dr Rozanah, 2011).. |
1.5.2 Agreement to Compensate a Past Voluntary Act
This is the exemption gave in Section 26(b) of the Contracts Act 1950. The decide gives that an understanding without considerations is substantial if „it is a guarantee to adjust, entirely or to a limited extent, a man who has as of now intentionally supported the promisor, or something which the promisor was lawfully compellable to do (Dr Rozanah, 2011)..
That is to say, if the promisee has done some demonstration deliberately all alone will, for the promisor (without being asked for by the promisor) and thusly the promisor guarantees to remunerate the promisee for such act, at that point that guarantee is enforceable. Essentially, if the promisee has done some demonstration (a demonstration which the promisor is compellable to do in law, for instance, paying duty to the legislature) willfully all alone will for the promisor,
the guarantee made by the promisor to remunerate the demonstration is likewise enforceable (Dr Rozanah, 2011)..
2.2.3 Agreement to Pay a Statute-banished Debt
This is another special case gave in Section 26(c) of the Contracts Act 1950. The decide gives that an agreement without considerations is legitimate if „it is a guarantee, made in composing and marked by the individual to be charged therewith, or by his operator by and large or uncommonly approved for that benefit, to pay completely or to a limited extent an obligation of which the bank may have implemented installment yet for the law for the confinement of suits (Dr Rozanah, 2011)..
1.5.3 MUST CONSIDERATION MOVE FROM THE PROMISEE?
In the wake of understanding the general manage of considerations and the special cases, it is imperative to know from whom the considerations can come. Must the considerations originate from the promisee just or can the considerations originate from some different people (who isn’t the gathering in the agreement)?
The guideline identifying with who ought to outfit a considerations is distinctive in the Malaysian Contracts Act and the precedent-based law of England. Under precedent-based law, considerations must move from the promisee. This implies, the individual who receives the guarantee should by and by give something consequently as the considerations for the guarantee. The considerations is that, if a man outfits no considerations, he takes no part in the agreement. Under the Malaysian Contracts Act, the promisee can implement the guarantee despite the fact that he by and by does not give any considerations. Such considerations can originate from some different people. The specialist for this guideline is in Section 2(d) of the Contracts Act which gives the words „any other individual, in the accompanying piece of the arrangement (Dr Rozanah, 2011)..
In this way, despite the fact that the promisee does not give any considerations for a guarantee made by the promisor, he can in any case assert for the guarantee if the considerations is given by some different people (Dr Rozanah, 2011)..
| Venkata Chinnaya v. VerikataraÊmaÊya (1881) I.L.R. 4 Mad. 137.
The case was about a sister who agreed to pay an annuity of Rs 653 to her brothers who provided no consideration for the promise. On the same day, their mother gave the sister some land with the requirement that the sister must pay the annuity to her brothers. Later, the sister failed to fulfill her promise to pay the annuity and her brothers sued her on the promise. The court ruled that: The sister was liable to pay the brothers. Even though the consideration did not move from the brothers, there was a valid consideration that was given by their mother (Dr Rozanah, 2011).. |
Another essential standard is the ampleness of considerations. The inquiry is: must considerations be satisfactory? Would you be able to offer your home worth RM100,000 for just RM100 to Mr Man? Is the measure of RM100 adequate as considerations for your guarantee?
As indicated by Section 26, Contracts Act 1950, „an consent to which the assent of the promisor is openly given isn’t void just in light of the fact that the considerations is deficient. What is implied by the arrangement is that, the ampleness of considerations is insignificant. The considerations given for the guarantee require not be sufficient as long as the agreement hosts been gone into by the gatherings with free assent. Free assent implies the gatherings don’t go into such contract under extortion, abuse, deception, concealment of the estimation of property, critical need for cash, shortcoming of comprehension or obliviousness (Dr Rozanah, 2011)..
2.0 QUESTION 2: TAKAFULAND MANULIFE INSURANCE
This question the researcher was discussed and compared the following titles: Organizations backgrounds, Takaful model verses Manulife models and operational framework of Takaful Manulife insurance agency.
Actually, protection as rehearsed in regular money related framework alludes to a monetary security framework which includes the execution of agreements (protection contracts) between the backup plan and the guaranteed in which the safety net provider consents to endorse the subject danger of such contracts. Characterizes the protection as “a gadget for decreasing danger
by consolidating an adequate number of presentation units to make their individual misfortunes all things considered unsurprising (Ali K. M., 1989)
The standards and down to earth system of Takaful is one of the vital parts of Islamic money related market. As one of the hazard moderation devices, Takaful supplements its partners, to be specific Islamic managing an account advertise, Islamic capital market and Islamic currency showcase. In fact, alleviation and judicious administration of hazard are necessary parts of Islam keeping in mind the end goal to accomplish equity in the framework which is in accordance with the targets of shari’ah (maqasid al-shari’ah) (Arbouna, 2000).
In this inquiry the course work will answer all inquiries of the standards of Insurance agencies both Takaful insurance agency of Africa and Manulife and John Hancock is Canadian insurance agency lastly, this course work will thoroughly analyse the distinctions of both insurance agencies.
Takaful Insurance Background
In 1965, the Congress of Islamic Exploration in Cairo had talked about the authenticity of protection in the Islamic world. In the Primary Global Meeting on Islamic Financial aspects held at Mecca, Saudi Arabia in 1976, worldwide agreement was achieved that protection for benefit is in opposition to shari’ah. This was affirmed by the Islamic Fiqh Foundation at Jeddah in 1985 and that time was started the formation of Takaful insurance company (El-Gamal M. , 2000).
Manulife insurance Company Background
Manulife and John Hancock is Canadian insurance company and were founded in 1887, just 20 years after our nation was born.
Manulife began expanding internationally in 1893 with the sale of first policy outside Canada in Bermuda, quickly followed by entry to Asia in 1897 and the U.S. in 1903. Manulife growth accelerated throughout the 1980s and 1990s, leading to largest acquisition(Allen, 2009).
There are different models received in various Muslim nations, the one model is Mudarabah Display which portrays that all policyholders must consent to share benefits (or misfortunes) from the endeavour (Maysami, 1999).
Under this model, the administrators don’t need to pay a commission yet will get a compensation which will be paid from offer of benefits made by the organization. These same conditions apply to the administration (Billah M. , 1996).
The sharing of benefit and misfortune between the member and administrator is resolved ahead of time and judged on the premise of organization’s formative stage and income. The sharing proportion is endorsed by the Shariah board on propel premise. Ordinarily add up to costs are charged to investor under Mudarabah. The second model is Wakalah Show. This model portrays that the overflow of policyholders’ assets ventures net of the administration charge or costs go to the policyholders. The member pays the Wakalah charge from commitments that cover the aggregate administrator costs ofthe business and administrator pay rates. The Wakalah charge is controlled by the Shariah Admonitory Leading group of the organization one year propel premise. To offer motivating force to administrator for good administration, administration expense is paid according to the level of execution. The third model is Wakalah Waqf Display. As indicated by this model, a Waqf support is made as particular legitimate element with the commitment of the member’s sum and the sum stored to this reserve is considered as a “tabarru” gift (El-Gamal M. , 2000).
2.2.1. Social Solidarity/ Shared Responsibility
Takaful, the Islamic other option to regular protection depends on the possibility of social solidarity, collaboration and joint reimbursement of misfortunes of the individuals. It is an agreement among a gathering of people who consent to mutually share duty of misfortune or harm that may endless supply of them; out of the reserve they give by and large however in traditional setup misfortune is repaid by the insurance agency as indicated by the terms and state of the arrangement (Maysami, 1999).
Takaful protection has become as a creative money related instrument, as well as on religious thought (Maysami, 1999). The agreement of Takaful gives solidarity in regard of any catastrophe in human life and misfortune to business or property (Ayub, 2003). The Islamic model of protection arrangement depends on the crucial rule of shared collaboration and solidarity, as appointed by Allah (SWT) specified to this impact in the Sacred Quran (Maysami, 1999).
In any case, for customary protection there are no any religious limits and the motivation behind protection is to shield hazard unwilling from torment the full cost of those activities with respect to nature which influence them horribly.
Takaful isn’t a cutting edge idea in Islamic business law. The present legal scholars recognize that the establishment of shared risk or Takaful was set down in the arrangement of ‘Aaqilah’, which was a game plan of common help or reimbursement standard in a few tribes at the season of the Blessed Prophet (S.A.W). If there should be an occurrence of any cataclysmic event, each individual used to contribute something until the point when the misfortune was reimbursed. Takaful is essentially in light of the possibility of Aaqilah for the instalment of blood cash wherein instalment was made by the entire tribe. Islam acknowledged this guideline of common remuneration and joint risk (Billah, 1996).
The reasonable distinction amongst Takaful and customary protection is that hazard in Takaful isn’t traded by method for commitment instalments made to administrator which implies administrator isn’t offering and member isn’t purchasing any hazard scope (Omar and Dawood 2000). Administrator is assuming the part of reserve supervisor for the benefit of the member. So administrator isn’t attempted hazard, the hazard is be that as it may, appropriated among the members who consented to mutually accept the hazard (Yusof, 1996; Maysami and Kwon 1999; Billah 2003).
Under regular structure Protection is an agreement between two gatherings, whereby first gathering consents to attempt the danger of other gathering in return of premium and the other party guarantees to pay settled whole of cash to the main party on the occurrence of questionable occasion with in a particular span.
2.3. OPERATIONAL FRAMEWORK OF TAKAFUL AND MANULIFE INSURANCE
The operational structure of customary protection depends on “hazard suspicion” however Takaful work under shared co-operation premise. The protection framework depends on following components:
Gharar implies that an agreement might be done such that instalment will be made on the event of a questionable occasion results (Kamali, 1999). One may consider “offering the fish in the water” or the organic products on the trees toward the start of the season. It might bring about the outlandish loss of one gathering and similarly undue advancement of the other party. Gharar is prohibited to guarantee full assent and fulfilment of the gatherings in an authoritative
understanding, since it isn’t demonstrating the full information, divulgence and straightforwardness (Haberbeck, 1987). Other than riba, which makes any business exchange precluded, it must be comprehended that vulnerability can’t be completely stayed away from in any business; it is unnecessary vulnerability that is disallowed (Khan, 2011).
The Islamic writing utilizes term “Gharar” to depict chance. It is for the most part portrayed as danger of misfortune or guarantee to pay cash upon the occurrence of determined occasion. An exchange under Islamic law ought to be held invalid, on the off chance that it includes the component of Gharar however customary protection framework is completely in light of the hypothesis of hazard taking and vulnerability. (El-Gamal, 2000). Gharar can exist in protection in four structures. Gharar in the outcome, Gharar in the presence, Gharar in the consequences of the trade lastly and Gharar in the agreement time frame (Billah, 2000).
Maisir or betting starts from Gharar and exists in protection, since benefit or misfortune to safety net provider particularly relies upon chances which are nearly connected with claims level. Maisir, in protection operation, takes after to a specific degree “hazard taking” whereby safeguarded got enormous measure of cash without an identical measure of info (Yusof, 1996; Maysami and Kwon 1999; Omar and Dawood 2000; El.Gamal 2000; Billah 2003a,b). However the run of “vast number” likewise assumes its part i.e., questionable concerning an individual and it is additionally indeterminate with respect to a substantial number of people. As Gharar is wiped out, so likewise, Maisir which is because of Gharar is additionally maintained a strategic distance from under Takaful framework (Siddiqui 2000). Be that as it may, the customary protection is viewed as a sort of betting as the guaranteed makes a wager on the misfortune event and the same applies the other way around for the safety net provider (Khan, 2011). It is likewise viewed as getting riches on fortunes or by chance at the cost of others (Houston 1964).
Instalment and accumulation of intrigue isn’t reasonable under Islamic logic. Riba is emphatically censured by the Quran and Sunnah, since reward of cash isn’t reasonable in Islamic economy (Iqbal, 2007). Fiscal capital is dealt with comparable to generation factors like land or work, each being qualified for return paying little heed to benefit or misfortune. Yet, one needs to comprehend that a key standard of the Islamic money related framework is that any benefit from exchange and business needs to join an obligation or risk(Mahmood, 1991). Cash capital in
Islamic back is viewed as keeping pace with an undertaking which accompanies the two dangers and prizes (Siddiqi, 2004). Traditional insurance agencies ordinarily put protection subsidizes in Riba/enthusiasm bearing instruments, for example, bond and credits (El.Gamal, 2001).
Takaful organizations can just put resources into Shari’a-agreeable resources subject to neighborhood administrative restrictions (eg. in specific nations, there are limitations on the level of benefits one can put resources into values because of dissolvability confinements). Manulife insurance organizations are just limited by neighborhood administrative restrictions. In Islam, the fundamental standard of speculation is that reward must be joined by chance. On this premise, it is reasonable to put resources into Shari’a affirmed stocks, as costs of values and profits from values charge no assurance in esteem. Be that as it may, Takaful organizations can’t put resources into any ventures that are:
obligation based (eg. bonds), as this abuses the riba rule;
• have an ensured or least profit for the venture, as this damages the hazard/remunerate sharing rule; or
• in light of haram rehearses (eg. clubhouse and betting organizations). With the current developing enthusiasm for Islamic back, there are, be that as it may, inventive Shari’a-agreeable ventures, for example,
• Commodity murabaha – what might as well be called currency advertise instruments that depend on the basic estimation of items; and
• Sukuks – what might as well be called traditional bonds that are resource based as opposed to obligation based.
The venture choices are, be that as it may, the same for Takaful and ordinary resources, and include thought of similar inquiries. For instance, which speculations will empower the business to coordinate the money streams to the risk money streams of the protection Takaful business? What are the neighborhood administrative confinements?
The salary from the venture of the policyholders subsidize is come back to the policyholders support after the finding of any “mudaraba charge”. On the off chance that the Takaful structure incorporates a mudaraba charge, this is come back to the investors’ fund.
The refinement between ordinary protection and Takaful business is more noticeable as for speculation of assets. There is no immovable control from venture perspective in protection
setup. Customary back up plans may put resources into such kind of benefits that are entirely taboo by the Shariah, for example, liquor, betting or pork are haram (Al Janahi and Weir, 2005; Stride and Worthington, 2008). While Takaful organizations put finances in intrigue free roads and with the idea of Halal-o-Haram (Ayub, 2003; Thanasegaran, 2008; Khan, 2011).
By their tendency, Takaful organizations confront extra dangers when contrasted with ordinary protection. Customary insurance agencies put expansive sum in settled salary securities on their asset report keeping in mind the end goal to limit the dangers and the fluctuation related with the value. Be that as it may, in Takaful under Shariah law, premium is illegal, which precludes the interest in settled salary securities.
In Manulife insurance the agreement depends on the standards of trade of intrigue. The relationship is outlined such that the safeguarded purchases security by instalment of premium, and safety net provider gives assurance against the protected hazard. Under Islamic law protection exchange cannot be closed on this premise of purchase and deal contract (Ali, 2006). Under Takaful get each policyholder has the privilege to know how their cash is utilized, how the surrender esteem is ascertained, and Takaful policyholders must be sure that neither returns nor stores paid out in guarantee settlements, begin from unlawful means, for example, interests in supplies of organizations delivering non-halal products however in customary protection policyholder have no privilege to think about this (Arbouna, 2000).
In the event that the holder of an Islamic protection arrangement chooses to end an approach in a way that isn’t given under terms of the agreement, premiums are refundable alongside any comparing surrender esteem less regulatory expenses, however in ordinary protection safeguarded relinquished his/her premiums on end ofa strategy (Billah, 1997)
Under Takaful get each policyholder has the privilege to know how benefits from various ventures are partitioned among the members yet under traditional framework there is no rigid administer revenue driven circulation, it is thoroughly relies upon organization administration (Gordon, 2006).
2.3.7 MUSHARAKA (JOINT VENTURE OR PROFIT AND LOSS SHARING)
This is an association, regularly of the confined traverse, surrounded to finish a specific wonder. Interest in a Musharakah can either be in another endeavour venture, or by giving additional help
to a present one. Advantages are secluded on a pre-chosen introduce, and any mishaps shared in the degree to the capital duty. For this circumstance, the bank goes into an association with a client in which both offer the esteem capital-and maybe the organization – of a wander ordeal, and both offer the advantages or hardships as demonstrated by their esteem shareholding.
Musharakah invigorates affiliations, moreover made work for a few people in general society eye, propels try and association meanders, making occupations in the country, progresses business undertaking society in the general population field and improvement of skilled people. Musharakah intensely influences the controlling development and spread of amazing credit, propelling joint undertakings without capable examinations and research ensures business achievement, not restricted (Ackermann & Jacobs, 2008).
2.3.8 MURABAHA (MARKUP FINANCING OR COST IN ADDITION TO FINANCING)
A kind of “cost notwithstanding” trade in which the bank buys the advantage by then rapidly pitches it to the customer at a pre-agreed higher esteem payable by parcels. This office is much of the time used as an almost that standard overseeing account customers may search for a home credit when acquiring the property.
The most supported procedure for financing for some Islamic banks in light of the straightforwardness of the model. Murabaha has no quick effect upon destitution reducing, be that as it may, roundabout, it gives a nice device to a capable surrendered bargain, giving pros the upside of its choice and giving banks advantage to the effort and danger that its gadget. Murabaha has little effect on the diminishing of joblessness; there is no sure examination on the effect of Murabaha on swelling (Abdul-Gafoor, 2006)
According Ashraf (2008) There are currently four takaful models being operated worldwide which apply several forms of contract governing the relationship between participants and takaful operator. The most widely practised models are mudharabah and wakalah. Some takaful operators adopt a hybrid model either combining mudharabah and wakalah or wakalah with waqf model or even mudharabah and waqf. However, the most commonly used contracts are mudharabah (profit-sharing), wakalah (agency) and waqf (endowment).
By the principle of mudharabah, the takaful operator who acts as an entrepreneur or al-mudarib will accept payment of the takaful contributions (premium) termed as ra’s- ul-mal from takaful
participants acting as sahib-ul-mal. The contract specifies that the share of profit (surplus) from the operations of takaful managed by the takaful operator is to be distributed between the participants as the providers of capital and the takaful operator as the entrepreneur, in accordance with the principle of mudharabah (Ashraf, 2008).
Generally the risk-sharing arrangements allow the takaful operator to share in the favourable investment performance of both the participant’s account (savings account) and the participant’s special account (tabarru’). However, if there are losses in the participant’s special account, the takaful operator provides an interest-free loan (qard al-hassan) that has to be repaid when the participant’s special account returns to profitability and before any future surplus is distributed. Therefore, takaful operator must be both prudent and active in investing the takaful funds to gain profits because their main income is generated from a certain ratio of such investment profit.
Of course, when investing the funds, the instruments used should be shari’ah-compliant. The mudharabah contract is cancellable, and upon cancellation all cumulative capital plus profit must be returned to the capital provider (participants), after deducting administrative expenses.
The mudharabah model for takaful is rapidly losing ground as the takaful model of choice. This is due to the current trend among takaful operators which are inclined to adopt wakalah model. The mudharabah model is suitable for shorter term products, such as one-year renewable products, like motor insurance in which the sharing of surplus happens earlier than that in long term business. Another challenge for takaful operators adopting this model is their direct exposure to the ups and downs of business since they share profits from investments (Ashraf, 2008).
Wakalah model is becoming increasingly popular. As mentioned earlier, wakalah is a contract of agency. Based on this principle, participants remain the actual owners of the takaful fund, and the takaful operator acts as an agent for the participants to manage the fund for a defined fee. As an agent, the operator is entitled to agency fee (remuneration) and performance fee (as commission). The surplus of the participants’ fund investments goes to the participants. The agency fee rate is fixed annually in advance in consultation with shari’ah committee of the company. Performance fee which is related to the level of performance is given as an incentive for good administration and governance of the participants’ fund (Ashraf, 2008).
The main issue in a pure wakalah model is that, the management and shareholders of a takaful operator cannot share in the profits because they merely act as an agent to the participants. However, they may be entitled to a fee based on their performance in the investment. Therefore, many takaful operators today attempt to adopt a combination of wakalah and mudharabah or modified wakalah model (Ashraf, 2008).
2.4.3 Hybrid of Wakalah and Mudharabah Model
This model basically combines some features in both wakalah and mudharabah model. Wakalah principle is applied in underwriting activities while mudharabah contract is used in investment of the takaful funds. Thus, the takaful operator is entitled to agency fee for managing the fund as a wakil and a share of profit for managing the investment of the fund as a mudarib.
2.4.4 Hybrid of Wakalah and Waqf model
In addition to the earlier models, the latest model that has emerged from Pakistan was introduced by renowned shari’ah scholar, Taqi Usmani. The general concept of the takaful waqf plan is designed to enable any individual to save regularly with the aim of accumulating a fund that can be left as a donation under the waqf system. In this model, the shareholders of the takaful operator will initially make a donation to establish the waqf fund. The fund needs to be invested in a shari’ah-compliant investment, and the returns will be used for the benefit of the participants. Tabarru’ fund from participants special account also becomes part of a waqf fund.
Therefore, waqf fund consists of donations from the shareholders and participants seeking takaful protection. The combined amount will be invested and any profits earned will be returned to the same fund. Based on waqf principles, the donors (shareholders and participants) would lose ownership rights on their monetary contributions into the waqf fund. The monies eventually become the property ofwaqf fund which can only be used for the benefits of all participants.
The shareholders, who act as the owner of the waqf fund, delegates authority to the operator to become the administrator of the fund, whose function among others, include paying claims from the fund. The operator also undertakes the role of investment agent (wakalah bil-istithmar) when it invests the waqf fund and is entitled to a certain percentage of the investment profit as a performance fee (Ashraf, 2008).
2.5 WHY CONVENTIONAL INSURANCE IS NOT ACCEPTED BY SHARI’AH
The present approach to risk mitigation is to buy an insurance policy whereby an insured will transfer his risk to the insurance company which in exchange of a premium accepts the
responsibility of indemnifying the insured in case the risk insured for materialises. This method of risk mitigation has been declared to be haram by most Muslim scholars as it contractually contains haram elements such as riba , gharar and maysir (Khan, 2011)..
The main elements which make conventional insurance unlawful are discussed as follows:
2.5.1 Riba (Interest or Usury)
Riba is evident in conventional life policies in two situations; firstly, the amount of money received by the insured, either on the occurrence of the insured event or upon maturity of the policy, is always in excess of total premiums he has actually paid. Riba is clearly affecting the two parties to the contract since there is no equality between installments paid by the insured party and the compensation paid by the insurance company. What the company actually pays may be more, less or equal to that which is paid by the insured and equality is very unlikely. Moreover, since the payments are deferred, the compensation which is greater than the instalments paid by the insured constitutes surplus riba (riba al-fadl) and credit riba (riba al- nasiah) (Khan, 2011).
Secondly, even if someone may argue that the insurance contract is based on the foundation of charitable (tabarru’) and cooperation (ta’awun) to ameliorate losses and injuries, riba is still present in the compensation by the insurance company since the profits of the latter are accumulated through riba-related transactions like fixed income and interest-based transactions (Khan, 2011).
2.5.2Gharar (Unknown or Uncertain Factors)
Gharar, or uncertainty in Islamic jurisprudence, refers to purposive cheating and deception as well as ignorance of the object of sale and undeliverability of the object.
An insurance contract appears to have an element of gharar when it is often involved with doubtful and uncertain matters. The element of gharar exists in both the life and general insurance policies, whereby the subject matter of the contract or ma’qud ‘alayhi is not certain until the insured event has taken place. This is particularly true since the amounts being paid by the two parties are not known at the contract session. This is the case since an accident may occur immediately after the insured makes the first payment, and the latter may make all the payments without any accidents happening (Khan, 2011)..
The shari’ah requires that all particulars relating to the contract must be known to the parties at the time of contract, otherwise the contract will become invalid. In such a contract, the
policyholder agrees to pay a certain premium sum in consideration that the insurance company guarantees to pay a certain sum of compensation (sum insured) in the event of a catastrophe or disaster. But the policyholder is not informed, for example, of how the amount of the compensation that the company will pay him is to be derived nor is he certain of the amount (Khan, 2011)..
Maysir, or gambling, means to court such risk as it involves both the hope of gain as well as the fear of loss, and which is not a necessary part of any of the normal activities in life. Islam also prohibits all kinds of gambling and games of chance (Khan, 2011)..
The nature of insurance is said to contain an element of maysir because policy holders are held to be betting premiums on the condition that the insurer will make payment (indemnity) contingent upon the circumstance of a specified event. On the other hand, the insured does not get anything from his premiums if the insured event does not happen at all (Khan, 2011)..
2.6 THE MAIN DIFFERENCES BETWEEN TAKAFUL AND MANULIFE INSURANCE
The fundamental difference between Takaful and Manulife insurance is rooted from the type of contract adopted. The Manulife insurance contract is basically constructed between two parties, namely the insured and an insurance company. The insured deals with the insurance company by paying regular installments premium in return for the guarantee to pay compensation, in case the event stipulated in the contract happens. It is thus one of the probabilistic contracts since the compensation is contingent on events that may or may not occur. This definition and nature of Manulife insurance invoke many shari’ah issues (Khan, 2011).
Takaful differs from Manulife insurance in the sense that the Takaful operator is not the insurer insuring the participants. In fact the persons participating in the scheme or Takaful participants mutually insure one another. This is the essence of Takaful that signifies mutual guarantee, help and cooperation to one another. The Takaful operator simply functions as administrator of the Takaful fund whose responsibility includes managing and investing the fund according to the shari’ah principles (Khan, 2011)..
The agreement of business protection with periodical settled premium gave by the present day insurance agencies is an agreement which is void and consequently haram as per the prerequisite of shari’ah. Other than the above decisions, the institute has likewise endorsed the common protection or Takaful framework as an option type of protection since it depends on an
arrangement of participation and shared help for the benefit of society. The European Board for Fatwa and Exploration has reaffirmed the decisions: Business protection is initially haram as settled upon by most contemporary researchers. It is outstanding that in most non-Islamic nations there are agreeable and common insurance agencies. There is no mischief from the shari’ah perspective to partake in these exercises (Khan, 2011).
To additionally maintain the lawfulness of Takaful, the legislature of Malaysia, which is submitted in advancing the Islamic legitimate framework to represent shari’ah-consistent exchanges, has passed the Takaful Demonstration 1984. The Demonstration is the principal composed law to direct Takaful business on the planet in which the Shari’ah Counselling Board approves supervision, checking and admonitory of Takaful operations at the national level and the Shari’ah Consultative Panel, at the institutional level (Khan, 2011).
In this world, everybody is presented to the likelihood of hazard and catastrophes, for example, passing, misfortunes and harms through flame, mishap, and business and so forth. Regardless of this, every one of the Muslims trust in Qadha or Qadr, yet Islam requires that one must discover ways and intends to avoid such inconveniences and afflictions at whatever point such things happen, and one should endeavour to limit his/her or his/her family budgetary misfortunes. One conceivable way out is to purchase a protection cover. Word references characterize the hazard in various significance plausibility of confronting misfortune or danger. It is a typical component of life. Hazard can be characterized as the changeability or instability in startling results (Jorion and Khoury, 1995,). It can be characterized as the shot of occasions happening that could put an effect on the results of the occasion. Johnson (1983) characterizes hazard in protection setting and says, chance is a component of vulnerability, regarding whether an occasion happens or not. The essential thought of a protection understanding is that it is a common co-operation between two gatherings to shield one of them from surprising future money related misfortune. Under traditional setup the principle perspective of protection is to limit the hazard. Pfeffer (1956) characterizes as protection is a gadget for the lessening of danger of one gathering, called the guaranteed, through the exchange of specific dangers to another gathering, called the backup plan, who offers a rebuilding, in any event to some degree, of financial misfortunes endured by the safeguarded (Khan, 2011)..
A protection contract limits the danger of misfortune because of mischance or disastrous circumstance. In traditional setup, this understanding is unproblematic; be that as it may, its
acknowledgment to Islamic law, or Shariah, is begging to be proven wrong (Billah, 1993, 1996). Shariah researchers have diverse conclusions about the status of Manulife insurance from shariah perspective. One gathering of researchers has discernment that the genuine legal position of any issue is possibility until there is a proof of its preclusion. They accentuate that there is no order against common protection and it ought to be permitted (Billah, 1996, remarks on Sheik Al-Azhar’s Fatwa). Muslims need to acknowledge any calamity that occurs for, as the will of Allah yet they are likewise demanded to find a way to diminish disastrous occasions. Other school of Thought contends that protection must be illicit because of the view that, each agreement or assention whose results are obscure is unlawful. The after effect of a protection contract is, by its temperament, obscure, so it is illicit. Most of the Shariah researchers trust that it is unlawful because of contribution of Maisir (betting) and Gharar (vulnerability) (Ayub, 2003). Besides, when a man is acquiring a protection strategy, the arrangement holder is guaranteed of guaranteed settled returns toward the finish of the protection contract if premium portion instalments are made. By and by, the result may repudiate with the soul of Islam, which restrict a foreordained return or Riba (El-Gamal, 2000).
| Takaful insurance company | Manulife insurance company | |
| Benefits | Paid from the related participants’ funds under mutual assistance | Paid from the company reserves. |
| Investments | The funds shall be invested in any interest- free Shari’a-approved assets and also meet any required national insurance regulations and laws. | The funds may be invested in any assets so long as they meet required national insurance regulations and laws. |
| Operations | Operational mechanisms shall be in line with the Shari’a rules. | Operational mechanisms shall be in line with the national insurance
regulations and laws |
| Profit | Underwriting profit is distributed to the
policyholders. Shareholders’ profit is generated from the return on the investments ofthe shareholder capital and expenses paid to the shareholders by the policyholders for (i) managing the company on behalf of the policyholders; and (ii) managing the policyholders’ investment funds on behalf of the policyholders. |
Policyholders do not get any share of the underwriting profit (except in
mutual companies); shareholders’ profit is generated from the company’s underwriting profit plus any investment returns. |
| Premiums | Paid premium is treated as both donation (tabarru’) and saving (mudaraba). | Paid premium creates an obligation against the insurer on a sale and
purchase relation |
| .
Company |
Company is better known as an operator, which acts as a trustee, manager and also entrepreneur. | Relationship between the company and the policyholders is on one to one basis. |
| Shari’a | Takaful practices are free from the elements of riba and other prohibited elements, and is evolved around the elements of mudaraba, | Manulife insurance insurance (including mutual insurers) may involve riba and some other |
| tabarru and other Shari’a-justified elements. | elements, which may not
be justified by Shari’a principles |
|
| Policyholder Fund | The policyholder fund belongs to
the policyholders on collective basis and is managed by the shareholders. |
All funds belong to the
company, though separation of assets may be maintained between shareholders and policyholders for specific insurances. |
| Regulations | The operational mechanisms and
products must be Shari’a-compliant and be in accordance with required national laws and insurance regulations. |
Operational mechanisms and
products have to be in accordance with the required national laws and insurance regulations. |
Source: (Khan, 2011).
Takaful isn’t another idea it has been around for quite a long time. Takaful business enables policyholders to appreciate the advantages of a common structure inside an investor wrapper. Takaful business likewise has an unequivocal moral structure which can be advertised to the two Muslims and non-Muslims. Albeit both regular and Takaful organizations produce benefits for the investors, in Takaful business the costs paid to the investors are expressly straightforward. In Manulife Manulife insurance they are not really so.
There is no repulsiveness in Shariah if protection is embraced with the assessments of and is established on collaboration, corresponding duty, common surety and volition. Assuming, along these lines, an insurance agency is built up in such a way, to the point that every single one of its individuals is protected and all these safeguarded people go into a common understanding of co- operation and equal obligation, at that point such assertion will be legitimate in Shariah by virtue of the accompanying reasons:
1. The portion paid by all the protected won’t be with the aim of reward however will be inspired by participation and common assurance.
2. In the event that on the event of an episode, some sum is paid to a protected individual, it will be thought to be a demonstration of infringement by all the guaranteed individuals in which case hypothesis and co-connection is reasonable.
3. As this methodology won’t be with the end goal of benefit, there will be no component of betting or enthusiasm for it.
4. The cash put resources into this way won’t be loaned out at premium yet will be progressed or “Mudarabah” or for carrying on business on benefit and misfortune premise.
5. Out of the contributed sum, qurzehasn credit without intrigue might be progressed to any of the guaranteed at the desperate hour.
On the off chance that amid the satisfaction of its open welfare obligations, the State, set up of the insurance agencies by and by in light of Commercial establishments, sets up a foundation, which may reimburse individuals on the event of misfortune and may get some little sum from the expecting recipients to maintain a strategic distance from risk, it will be substantial and passable in Shariah.
The photo of protection that rises in the brain in the wake of perusing the report of the board is that of a welfare and open help organization established on the standards oftabarro, Takaful and common help. (The lexicon significance of the two words are, separately, gift, unconditional present; commitment; membership and equal duty). That is the reason the committee has given such a great amount of significance to common protection. Henceforth, regardless of the possibility that a little component of benefit is a thought for a protection contract, it imperfections the picture of protection and goes in opposition to its guideline.
In my view protection against risks can be altered in a way which would convey it nearer to the Islamic standards by methods for an agreement of ‘gift with a state of remuneration’. The safeguarded would give his installments to the organization with the stipulation that the organization would repay him, if he is struck by cataclysm, with a sum which would help him and lessen the weight of his misfortune. Such a kind of exchange is permitted in some Islamic schools of statute.
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