Understanding Ijarah and Takaful Concepts
Explore the concepts of Ijarah and Takaful, focusing on Ijarah as a form of lease and Takaful as a cooperative system of risk-sharing. Learn about the principles, mechanisms, and responsibilities associated with these Islamic financial practices. Join Shah Fahad at the international conference on Ijarah and Takaful for comprehensive insights.
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Presentation Transcript
Ijarah and Takaful Presented by Shah Fahad For international conference on Ijarah and Takaful bu Al Huda CIBE at Radison Blue Hotel, Istanbul
A sale of a usufruct(Manfaa) or service for a given price(Thaman) Service (when Human work is included)- Known as Services Ijarah Usufruct of surviving assets (not consumed during the contract period) Ijarah is; An Exchange contract An Amanah hand Contract
The Concept Of Ijarah Literally Ijarah means to give something on rent It means to employ the services of a person on wages given to him as a consideration for his hired services (Doctor, lawyer, Teacher or any person who can render some valuable services) Technically Ijarah has two meaning Ijarah in this sense means transfer the usufruct of a particular property to another person in exchange for a rent claimed from him The employer in this case is called Musta jir While the employee is called Ajir Ijarah here is relate to the usufruct of assets and properties and not to the services of human being. 1. The lessor is called mu jir 2. The lessee is called Musta jir 3. The Rent payable is called ujrah
1. Lease of an equipment from inventory Customer Islamic Bank 2. Promissory notes of the rentals 3. Rental payments 4
IJARAH MUNTAHIA BTAMLK THROUGH GIFT (TRANSFER OF LEGAL LITTLE FOR NO CONS DERATION) IJARAH MUNTAHIA B TAML K Through transfer of legal title (sale at the end of lease period for a token consideration) IJARAH MUNTAHIA B TAML K Through transfer of legal title (Sale at the end of lease period for an amount specified in the lease) MECHANISM OF IJARAH FINANCING IJARAH MUNTAHIA B TAML K Through transfer of legal title (sale) prior to end of lease term for a price equivalent to remaining Ijara installments. IJARAH MUNTAHIA B TAML K through gradual transfer of legal title of leased asset.
Responsibility of lessee: Return the Asset in same condition Pay rent Keep asset safe, Lessee s hand is an Amanah hand * Normal wear and tear * Negligence or abuse
Responsibility of lessor: - Make sure availability of the usufruct/service - and Maintaining usability for lease period Minor maintenance may be charged to lessee, by mutual consent Operational maintenance is on the lessee anyway contractually
As of 2013 the leading takaful countries are "Malaysia and the Gulf states". It was reported in 2016 that there are 308 takaful companies worldwide. According to Islamic Finance Development Report 2018 total assets of Takaful and re-Takaful are USD 46 billion which is only 2% of total Islamic finance industry with total 324 Takaful operators in 47 countries.
Sale of risk Is risk a commodity, a service, or what? 1 2 Can risk be object of exchange?
Risk and its Sale? What is Risk? Risk Sale? A risk is the chance of something happening that will have a negative effect. The level of risk reflects the likelihood of the unwanted event and the potential consequences of the unwanted event. Generally No restrictions As per Sharia h Not considered as an asset, goods or a service So can t be traded
The The Problem of Gharar Problem of sale of risk Conventional Insurance Contract From Islamic Shari ah Point of view The The Problem of Riba Problem of Maysir
The first fatwa that explicitly prohibited commercial insurance in its modern application and its related activities was made by Ibn Abdeen (a Syrian Scholar) in 1834. While opinions vary among Muslim scholars, the overwhelming majority of them have concluded that conventional insurance contracts are unacceptable to Islam. In particular, life insurance involves the use of certain elements that directly contradict the rules of Shari a. These elements are:Al Maysir, Ghrar, Riba
Insurance that violates the basics priciples of Sharia h Sale of Risk Al-Maysir Gharar Riba
Three misconceptions in Islamic Financial transactions Why Fixed Return Fixed return in sale in prohobitted Taking Risk-taking more Shariah compliant activity Mitigation of Risk is against the will of ALLAH (SWA)
The element of Gharar Gharar means ambiguity in the basic elements of an exchange contract Prophet Muhammad (SAW) prohibited sale that involves Gharar, e.g., fish in the sea, Birds in the air
Riba Interest The element if interest/Riba in the Takaful contract same as in conventional bank. Although some Islamic economists are of the opinion that premium in insurance is not a debt. In Takaful arrangements there is no Riba as the funds are utilized in Shariah compliant activities.
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