The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 165th Meeting

Shariah Advisory Council (SAC) of the Central Bank of Malaysia in its 165^th meeting dated 26 January 2016 has discussed on the issue of application of tabarru` contract (voluntary gift) in takaful, transfer of ownership of hibah asset, breach of condition in wakalah bi al-istithmar contract (agency contract for investment) and wa`d (promise) which is attached to action, time or situation.
 
Application of Tabarru` in Takaful

The SAC has decided the following:

1. The underlying concept/principle for takaful scheme is tabarru` and ta`awun (mutual assistance) among the takaful participants.
2. Tabarru` in takaful is applied through contributions from the participants to the tabarru` fund which is managed by (and entrusted to) takaful operator in the interest of takaful participants based on the agreed terms and conditions.
3. Financial obligation (zimmah maliyah) of tabarru` fund is independent from the financial obligation of takaful operator and individual takaful participant.

 
This ruling has considered the following:

1. The underlying concept for takaful is tabarru` which is applied among the takaful participants based on the agreed terms and conditions in relation to the utilization of the tabarru` fund.
2. Contribution by the participants based on tabarru` has transferred the ownership of the contribution to the tabarru` fund.
3. Financial obligation (zimmah maliyah) of tabarru` fund is independent from the financial obligation of the individual takaful participant because the individual takaful participant is no longer the owner of the takaful contribution and has no obligation in relation to it once the tabarru` is made to the fund.
4. In addition, in the context of takaful practice in Malaysia, individual takaful participant is not responsible to fulfil any financial obligation of tabarru` fund if the fund is incapable of fulfilling its own financial obligation.
5. Meanwhile, the takaful operator as the party who is entrusted in managing the tabarru` fund has fiduciary duty that has to be performed based on the agreed terms and conditions as well as the duties outlined by the regulator of takaful industry.

The clarity from Shariah perspective in relation to the application of tabarru` contract in takaful will be the basis for formulation of takaful-related policy and operational aspects for takaful in Islamic financial system.
 
Transfer of Ownership of Hibah Asset to the Hibah Recipient

The SAC has decided that in hibah contract, generally, the ownership of the hibah asset is transferred effectively once the hibah recipient takes the possession (qabd) of the hibah asset physically or constructively. This forms the basis for transfer of ownership of hibah asset. Without qabd,the donor may still revoke the hibah.
 
However, in conditional hibah, the ownership of the hibah asset is effectively transferred to the hibah recipient upon the occurrence of agreed conditions. This forms the basis for transfer of ownership of hibah asset in conditional hibah. As such, in conditional hibah, it is not possible for the donor to revoke the hibah upon the occurrence of the agreed hibah conditions even though the hibah recipient has yet to take possession of the hibah asset physically or constructively. Notwithstanding this, hibah which is attached to the condition of the demise of the donor shall only be applicable in the context of takaful. This is to provide certainty to the beneficiary in relation to his ownership of the takaful benefit upon the demise of the donor/participants even though he has not yet taken possession (qabd) of the hibah asset, in this case, the takaful benefit.
 
Breach of Condition in Wakalah bi al-Istithmar Contract

The SAC has decided that in the event of breach of condition by wakil under the wakalah bi al-istithmar contract, in line with its ruling in the previous 150^th SAC meeting, the wakil shall guarantee:

1. Investment capital; and
2. Actual profit generated up to the date of breach of condition.

In addition to the above, the SAC has decided that the investor (muwakkil) is eligible to claim actual cost incurred due to the breach of condition by the wakil.  
 
In the event of breach of condition that results in profit to be higher than the expected profit, the excess profit shall be treated based on the agreed terms and conditions in relation to performance fee. If the terms and conditions are not stipulated or not agreed, the excess profit is subject to the discretion of the muwakkil.
 
This ruling is based on the principle that wakil performs his duty on the basis of trust (amanah) and he is not allowed to guarantee the investment capital and profit except in the event of misconduct, negligence and breach of condition by the wakil.
 
In the event of breach of condition that results in profit to be higher than expected profit, the SAC views that it is in line with the opinion by several fuqaha that allow sharing of profit in mudarabah in the event of breach of condition by mudarib. In addition, the permissibility to claim actual cost incurred due to the breach of condition by wakil is a form of penalty for the breach and also intended to emphasize on the aspect of amanah and discipline on the wakil.
 
This ruling is aimed at ensuring the interest of investors is protected and for the contracting parties to agree on all terms and conditions which are clearly outlined at the inception of the contract to avoid dispute.
 
Wa`d Attached to Action, Time or Situation

The SAC has decided that wa`d is binding (mulzim) on the promisor if the wa`d is attached to any of the following:

1. A particular action which is done by a party including the promisee in the future;
2. A particular time or date; or
3. A particular situation which will occur in future.

This ruling is based on the view of fuqaha that wa`d, which is attached to conditions is binding. The types of conditions, which are attached to the contractas outlined by fuqaha that include a particular action, date/time and situation may be applied in the context of conditions attached to wa`d.

This ruling may clarify the types and categories of conditions attached to wa`d that lead to the bindingness of wa`d, especially in the financial instruments that involve promise to enter into contract that is attached to a particular date/time in the future.