Business Takaful

Source: The Edge Daily, 26th September 2007

Distribution of surplus from tabarru’ (donation) fund in takaful scheme and the application of wakalah contract in deposit instrument would be permissible from the syariah perspective, the Syariah Advisory Council of Bank Negara Malaysia (BNM) announced yesterday.

The council’s resolution to allow for the distribution of the surplus from the tabarru’ fund, for both family and general takaful plans, is based on the premise that takaful contract is generally established on the Syariah principles of tabarru’ and ta’awun (mutual cooperation), apart from the agreement among the contracting parties.

“In the formulation of takaful product, the principle of tabarru’ has been the main underlying Syariah principle although the application of other principles such as wakalah and mudharabah also complement the takaful operational structure,” BNM said in a statement.

The council’s resolution to allow such distribution is also based on the permissibility of performance fee for the takaful company, and this method of distribution is practised by some takaful companies in the Middle East.

BNM said while the application of wakalah bi al-istithmar (agency for investment) contract in deposit account is also permissible, the implementation of such contract must be carried out prudently to avoid any element of guarantee by the agent on the investment returns

“Following this approval, it is expected that the Islamic financial institutions would be able to diversify their syariah-compliant products, and be more creative and innovative in their product offerings from time to time,” it said.