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Shariah Treatment Of Disposal Of Insurance Surplus In Respect Of A Takaful Arrangement Based On The Waqf Model

   8 August 2016

Maulana Musa Zuma


Dear Maulana



         Fatwa of Mufti Taqi Usmani

1.       I enclose herewith an extract of the research paper (Waqf model) of the distinguished jurist Mufti Taqi Usmani, relating to the distribution of the surplus. (page 1) : it is to be kept as a reserve, or, otherwise divided into 3 parts : one part retained as a reserve. Another part distributed to the participants to show the fundamental difference between the conventional and Islamic models; and the third portion distributed to charity. No part thereof is allocated to the managing insurance company for the benefit of its shareholders consistent with the standpoint of AAOIFI, which prohibits the distribution of the surplus to the managing company: Shariah Standard 26 : 5/5.


         MaQaasid of the Shariah

2.       There is a cogent argument that, a term or condition in a Waqf, which empowers the trustees to distribute a portion of the surplus to the insurance company, for the ultimate benefit of its shareholders, is an impermissible heelah or stratagem, which is contrary to the overriding objectives of the Shariah, embodied in the Prophetic model of mutual assistance, mutual co-operation, cross-subsidization, and solidarity. (Al Bukhari and Muslim - Hadis on Nahd) In substance, such a provision constitutes a reversion to the conventional model of insurance. (hence, certain Shariah experts commencing from Shaykh Mustafa Al –Zarqa (RA), Shaykh Abdullah Al Mani etc, are of the view that there is no practical real distinction between the conventional and Islamic models of insurance.

         Fatwa of Shakh Guddah

3.       In relation to the opinion of the distinguished jurist Shaykh Abdul Sattar Abu Guddah, I enclose herewith:

3.1     the resolution of the 12th economic conference (1996) of the Dallah Albaraka Group, which states that the surplus is the exclusive right of the Takaful participants. (pages 2 -3);

3.2     the fatwa of the global Unified Shariah Supervisory Board of the Dallah Albaraka Group to the effect that it is impermissible to participate in a profit insurance company (with a share capital) which distributes a portion of its insurance surplus, to its shareholders (pages 4 -5);

3.3     an extract of an article on Takaful written by Shaykh Guddah, to the effect that the surplus is jointly owned by the participants (pages 6 to 7);

3.4     Fataawah on Islamic Insurance relating to the distribution of the surplus (pages 8 to 11). At page 11, Shaykh Guddah states : “the insurance surplus is for the exclusive benefit of the policy holders”; (Takaful Participants)

          Fatwa of Prof Siddiq Al Amin Al Dharir (RA)

3.5     the fatwa of the Shariah Board of Faisal Islamic Bank, Sudan, headed by the distinguished jurist Prof Siddiq Al Amin Al Dharir (RA), the father and founder of Islamic Insurance, in Sudan. He stated at the Global Fiqh Academy debate on Islamic Insurance as follows:

          “The basis of the difference (between conventional and Islamic modes of insurance) is that in the commercial profit insurance arrangement, the managing company itself, shares in the profits and losses of the insurance scheme. On the other hand, in a Takaful arrangement, (based on tabarru) the insurer and the insured is the same person : there is no party in this tabarru insurance arrangement that trades for profit; The participants are the (true) owners of the company : they gain from the profits, if any accrue, or otherwise from the surplus total contributions, after payment of compensation, and such surplus is returned to the participants. The participants incur the loss, if the compensation paid exceeds the aggregate gratuitous contributions of the participants”.

          (my translation from the Arabic : volume 2, page 680 of the record of the proceedings of the Global Fiqh Academy, held in Jeddah on the 22nd to 28th December 1985, on the subject of insurance and re-insurance)

4.       Extract from the books of Shaykh Sameer Shaair, relating to the distribution of the surplus to the Takaful participants, as an increase on their contributions, together with any legitimate growth thereon, after payment of all liabilities, on the basis of enforceable gratuitous obligations, within a tabarru model. (pages 12 to 15)

Incentive To Employees Not To Exceed One-Sixth of Surplus

5.       I have yesterday telephonically clarified with Dr Shaykh Abdul Satar Abu Guddah on the question whether it is permissible to distribute any part of the surplus to the insurer for the ultimate benefit of its shareholders. His opinion is that a maximum of one-sixth may be distributed to only the workers directly employed to administer the Takaful fund, on a waqf model, or otherwise on a tabarru model, if expressly stipulated in the founding deed, purely as an incentive, حافز, to the موظفين workers, but provided that any distribution of any portion of the surplus to the registered managing insurer and its shareholders is prohibited. He also confirms that the surplus belongs to the Takaful participants.


Best Regards


Specialist Corporate and Shariah Attorney

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