Towards sharing economy through proposed ‘shared responsibility’ model of Takaful: a Sharī‘ah analysis
Background: Takāful operation is based on shared responsibility, brotherhood, solidarity and mutual cooperation or assistance, which provides for mutual financial security and assistance to safeguard participants against a defined risk. The basic notion of Takāful is to bring equity to all parties involved, while the profit earning is not the prime objective, but is to help others, who face risks and sharing misfortunes. In today’s social and economic environment Takāful is a necessity since it conforms to the higher objectives of Shari`ah in the protection of life and wealth. It can be regarded as a risk management technique that is based on the principles of brotherhood and mutual solidarity and is in compliance with Shari`ah. Given the importance and need of risk mitigation in today’s business environment, the Shari`ah scholars have decided in favour of its application as an alternative to conventional insurance on account of its avoidance of riba, gharar and qimar in the risk mitigation process. It has been observed that almost all Takāful Business Models on the market today provide the use of a Takāful Operator that is led by a board of directors nominated by the shareholders. The Takāful Operator manages the Takāful Fund on behalf of the participants. Though this operational arrangement has been endorsed by the Shari`ah scholars, this arrangement is subject to severe criticisms. Aims: Given the above backdrop, the proposed shared responsibility model aims inter alia a) to discuss the concepts and foundations involved in the operations of the Takāful system; b) to describe the jurisprudential characterization of cooperative participation and its application in Takāful operations; c) to deliberate the structure and the contractual relationship among the Takāful participants in the proposed model; d) to delineate potential benefits and issues of proposed model; and e) to put some suggestions in line with its objective of making the system of Takāful a means for social welfare. It is pertinent to know that in order for any structure such as that of our proposed ‘Shared Responsibility’ model, to be valid from the perspectives of Sharīʿah, it must contain the following two key elements: i) It should not be of a commutative in nature in order to make sure that the inherent gharar in risk mitigation will not invalidate its contracts; and ii) It must be along the lines of the genuine intention and objectives of the participants in Takāful system to help and cooperate with each other in various situations. Having accomplished the above as per proposed ‘Shared Responsibility’ model, it is expected that no Sharīʿah legal problem will remain unresolved, gharar (ambiguity and risk) will not nullify the contracts, and the Takāful participants will hold the ownership of the risk fund. Our attempt also tends to ascertain the following two key points in order for the ‘Shared Responsibility’ contract to be sound and acceptable: i) Whether ‘Shared Responsibility’ is analogous to tabarru` (donation) to qualify deactivating the causes of gharar on contracts like an ordinary donation carries it out; ii) Whether the mutual commitments of Takāful participants to put forward their contributions on the basis of Shared Responsibility cause to invalidate the array of a mu`awadah (commercial) character and as a result the intrinsic gharar. In order for addressing the first issue we may refer to the practice of munahadah or pooling resources for the common good based on mutual cooperation as was explained by Ibn Hajar Al-`Asqalani in his explanatory treaties Fath Al-Bari on Sahih Al-Bukhari. His statement proves that notwithstanding the fact that nahd contains some degree of gharar emanating from the uneven contribution and disproportionate consumption of food; it was excused taking into consideration the underlying purpose of mutual cooperation behind it and that it was not a business or commercial venture. With regards to the second issue, it can be argued that the essence of mutuality and group sharing which has been recognized in nahd as mentioned by Al-Bukhari, Ibn Hajar and Al-`Ayni is an unambiguous proof that the reciprocal commitment of participants do not make the underpinning virtuous Takāful contract for mutual indemnification a mu`awadah based contract. This argument is valid in respect of the Takāful structures in vogue, but the commercial nature of the Takāful companies creates problem as the end products are practically the same as in case of insurance. Methodology: The study will utilize qualitative methodology, particularly document analysis. Most of the data are expected to be found in published literature. This literature consists of relevant academic journal papers, magazine articles, case studies, reports and other data, readily available online. Document analysis seems to be the most suitable approach based on the conceptual nature of the research. This method is also adopted due to the limited availability of resources and time constraint. Despite that constriction, it goes without saying that this research seeks to conduct and present a rigorous analysis of the comprehensive data set available from various sources regarding the subject matter; and try to fill up the research gap in this area. Expected Findings: The proposed ‘Shared Responsibility’ model is expected to best serve the objectives of Takāful that operates on the principle of co-operation. With the goal of community well-being, the Takāful entities need to be structured on the basis of cooperation, as the spirit of Takāful really requires. The members would pay contributions to a common pool managed by any of themselves as a Takāful Operator (TO) through some hired managers/directors. In this structure, such entities might be earning (valid) profits as allowed in Islam that will go to the participating community as per the principles of Islamic law of contracts. Mutual relationship among the participants in Takāful arrangement is that of partners for a good common cause who may pool resources for mutual indemnification of defined losses to any of them, as in case of nahd, a pre-Islamic institution approved by Islam. Every member will be getting benefit from the pooled resources in the form of claims money or the profits. It reflects a sense of brotherhood and solidarity among members of a group who mutually undertake by way of a non-commutative undertaking to help and assist one another in need. A provision can also be made that in case of any real and established difficulty or problem with a participant who is unable to pay the agreed contribution; the due amount could be deferred or even forgone in specific cases. Keeping in view the features of various Takāful business models in vogue, it can be said that the companies working as mutuals could be considered as the highest in ranking. The members/partners pooling resources for mutual indemnification of defined losses to any of them will be transferring the ownership to the common pool as they will contribute, while at the time of getting any help they would be taking ownership, and both activities would be independent – one is not in direct exchange of the other. Every member will be allowed to get benefit from the pooled resources, as in case of nahd. The model could also be feasible for corporate world in big-ticket developments for infrastructure projects that are being undertaken almost in all Islamic countries' economies. “It is a part of Islamic social philosophy according to which members cooperate and help each other in times of sadness as well as happiness” (Patel, 2004). It may also become a savings vehicle by way of family Takāful in case of demise of a bread-earner or for future planning and need fulfilment through entrepreneurial activities for entity’s fund management using the commutative contracts like wakalah, mudarabah or musharakah.
Application invited for: PhD