ESSENTIAL CONTRACT IN TAKAFUL OPERATION A takaful scheme essentially involves two main parties which is takaful operator and group participants There are two aspects of the contractual relationship between two parties; i. the contractual relationship among the group of participants ii. The contractual relationship between the group of participants and the takaful operator

The contractual relationship among the group of participants The contractual relationship among the group of participants is tabbaru’ contract Tabbaru’ means a sum of contribution/donation/gift/waqaf that participants agrees to pay into a takaful fund The purpose of this donation is to provide protection/help or mutual indemnity/compesation to the takaful participants if any participant suffers

Contractual relationship among the group of participants mutual mutual indemnity indemnity Takaful participant Tabbaru’/donation Takaful fund

Contractual relationship between the participants and takaful company In takaful, the participants are insuring themselves The takaful company is engaged by the participants to manage the takaful scheme for them; i. manage the undewriting of takaful contribution and claims ii manage any investment portfolio of the fund

Contractual relationship between the participants and takaful company donation Contract; mudarabah wakalah manage jihalah wadiah yad dhamanah investment pay claim Takaful participant Takaful funds Takaful operator

Mudarabah Concept Mudarabah means the giving of a specified amount of capital to another person who will trade with the capital for the purpose of sharing the profits generated according to agreed ratio Once the money had been contributed by the participants into takaful fund, the participants then appoint takaful company to be their manager by way mudarabah contract

Wakalah Concept Wakalah means agency contract The participants as a group, apoint and authorise the takaful operator to be their agent to manage the takaful fund

Jihalah Concept Jihalah means the commitment to pay a specified amount of reward for the performance of a prescribed task The participants contibute to the takaful fund as tabbaru’, then the participants collectively apoint the takaful company to manage the takaful fund in a prescribed manner for a specified amount of reward if the task is done

Wadiah yad dhamanah Concept Basically means quaranteed safe custody This concept combines wadiah and dhaman The participants donate to the takaful fund, then deposit the fund to be safe-kept by takaful company As quarantor, the takaful operator can be use the fund for investment purpose

Wadiah yad dhamanah Concept Profits from investment belong to the takaful company In practice, the takaful company may want to give some of the profits as hibah (gift) but this cannot be promised upfront.

Conclusion Takaful is a viable and shariah compliant alternative to conventional insurance Whatever the choice of contract, it should aim at being fair and just to all of the parties involved (participants and takaful company)