If you’ve not seen part 1 already, please do go through that to give you a good background for this article. Thank you.
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The issue of unnecessary complexities in modern Takaful structures was briefly discussed in the previous article. However, today we see that another point has been highlighted and blamed for these intricacies. What is it? Tabarru’.
Overview of tabarru’ & its challenges
The word tabarru’ (Arabic: تَبَرُّعٌ) linguistically means ‘to contribute’ or ‘to donate’.
Within the context Takaful, tabarru’ is a key component which refers to the initial input of a participant into a Takaful plan, the funds of which are pooled together with those of other participants; the idea is that these financial inputs are put together to ultimately benefit the community. Its role within Takaful is to eliminate excessive uncertainty: the assurance provided that funds will be readily available when needed is opposed to the nature of uncertain payouts that are dependent on claim events (found in conventional insurance structures). This ensured fairness eliminates the presence of excessive uncertainty (gharar) and fosters social cohesion within the community, through the medium of mutual assistance.
The risk-sharing model in Takaful is built upon the foundation of tabarru’. Here’s a table juxtaposing between conventional insurance (that has no donation component) and Takaful (that has a donation component):
Feature
Conventional Insurance
Takaful (With Tabarru’)
Nature of Payment
__________________Buying risk coverage (commercial contract)
___________________________________Contribution for mutual aid (charitable contract)
_________________________________Ownership of Funds
__________________Insurer owns and invests the money
___________________________________Participants collectively own the fund
_________________________________Risk Transfer
__________________From individual to insurer
___________________________________Shared among participants
_________________________________Uncertainty
__________________Uncertain payout, dependent on claim events
___________________________________Assurance that funds are available when needed
_________________________________Profit Motive
__________________Insurance company profits from unused premiums
___________________________________
No profit motive—funds serve participants only
_________________________________
However, in this article, let us zoom in on this component itself: is it right, and is it needed? Here are some underlying issue one may find with this component:
1️⃣ It is identified as a ‘donation’, when participants may in actuality expect a payout from the fund (even though it may not equate to the value of their contribution(s)). What would then differentiate tabarru’ from a charitable donation or a gift?
2️⃣Takaful should come with a legally-binding contract. If a voluntary donation is made by the participant could not then withdraw that donated fund from the pool. Also, a general donation is not necessarily bound by terms and agreements.
3️⃣The lack of altruism stemming from the fact that participants may benefit indirectly from the fund. This is a problem since this element of donation here is based on the spirit of charity.
📌Remember, the issues here aren’t ‘charity’ or ‘donations’ in and of themselves but rather the validity of this component, within the context of Takaful. What possible implications could it also have? Is tabarru’ like a membership premium? Above all, can we finally look at Takaful differently to prevent all the commotion?
If you read part 1 to this article, you may recall the Takaful model of Zubayr Ibn Al-A’wwam (R.A) and his international financial empire. If you saw the model displayed there, do you notice something? What is it?
Wrong! Unless you got it right (then good job!).
There’s no sign of donations to be seen. Rather, due to his ‘credibility’ & trustworthiness, ‘people wanted to deposit their money with him’. However , he refused to accept any deposit given as a trust instead of a loan; this was ‘beneficial for the depositor, because after treating it as a loan’, the liability of repayment came on his shoulders. This liability would stand regardless of any case. Had the money been deposited as a trust then Ibn Al-Awwam (R.A) would have no obligation to make repayments in the event of theft, a fire etcetera.
This deposited capital, which was a loan, was then ‘invested in trade’ [
The truth is is that we do not need a ‘donation’ mechanism to achieve the ultimate goals of Takaful. Keep in mind that mutual assistance is a benefit attained is not the end goal; it is rather a desired outcome. So let us at least not this great social benefit of community cohesion whilst trying to develop new models.
What does a non-donation Takaful model look like?
You may already be familiar of models where the participants do not contribute donations. Examples include Takaful-(profit-sharing), where investment-generate profits are used rather than funds. In this way, mutual assistance (ta’awwun) is still achieved, whilst also abiding by the Shariah.
Zubair ibn Al-A’wwam (R.A)’s Takaful model (a sketch of the model can be found ). A visual layout of his model can be found below and is available, online.
________________________
| Wealth Owners/Depositors |
________________________
|
v
___________________
|Wadi’ah (Safekeeping)|
|with Guarantee|
___________________
|
v
____________________
|Trust-Based Investment|
|(Trade, Real Estate)|
____________________
/ | \
v v v
______________________________
|Asset Growth| |Mutual| |Inheritance|
|(Profits)| |Risk Fund| |Protection|
______________________________
|
v
_________________________
|Payouts & Financial|
|Security for Members|
________________________
This demonstrates that this element of ‘donation’, despite it being a splendid piece in and of itself, is not a vital component in and of itself within Takaful models. Consider the following guidelines:
1️⃣ Focus on where the product demand is most right now (e.g, general Takaful).
2️⃣ Objectives:
✦ Avoid hybrid models and from resembling the common structures too much.
✦ Base off Zubair (R.A)’s model.
✦ Avoid tabarru’ at all costs 🛑 for the sake of innovation.
✦ How else can innovation utilise elements to make this possible?
3️⃣How to observe a non-donation framework whilst ensuring solidarity?
4️⃣Shariah compliance: has an authentic structure been constructed, based on sound prin
Apologies if this reads more like a wish-list for Santa 🎅, but we think this could definitely be achievable. Of course, don’t stop at these guidelines and ensure that all product plans take a conventional procedure whereby which it is approved by an authentic, uninfluenced Shariah scholar and/ or your SSB (Shariah Supervisory Board).
So is there truly a need to move away from donation-based Takaful plans?
A lot of debate has been sparked by there being donations within Islamic insurance Takaful models, and we’re here to attempt at putting an end to all of it. Tabarru’ has brought about some speculation regarding tis validity, particularly due to ownership issues.
Remember, Islamic Finance is there to provide solutions and not problems; understandably initial barriers can arise in terms integration and regulation etc, but, the timeless principles of the science have always owed the ability to give great solutions as gateways for humanity. Thus, it goes without saying that when we deliver such solutions they need to come with limited complexities and not a Pandora’s box.
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[1] tabarru’ (تبرع). See “تبرع” in Hans Wehr Dictionary of Modern Written Arabic: Arabic-English, ed. by J.M. Cowan, 4th edn, p 66. On the authority of ‘The Misbah’ of El-Feiyoomee El-Mutarrizee.
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