THE PRACTICE OF TAKĀFUL BENEFIT (NOMINATION) IN THE CONTEXT OF IFSA 2013: A CRITICAL APPRAISAL Saba Radwan Jamal Elatrash * Younes Soualhi ** I. INTRODUCTION Nomination, in the context of takāful (Islamic insurance), involves the takāful participant nominating a person to receive the takāful benefits in the event of the participant s death before the maturity of the takāful plan. Distribution of the takāful benefits that are to be received upon maturity of the takāful plan is a main concern arising in family takāful, an Islamic alternative to life insurance. Upon the death of the participant, the takāful benefits may either be payable to the estate of the participant or to a person nominated by the participant as the sole recipient of the benefits of such a takāful policy. The effect of such a nomination is the central focus of this research paper. Reference to the Islamic Financial Services Act 2013 (IFSA) is crucial to identify the nature, position and effect of nomination in Malaysia. According to IFSA, nomination of the takāful participant has one of two possible effects: first, the nominee is chosen to be the executor of the takāful benefits; or second, the nominee is nominated as the sole beneficiary of the takāful benefits. In the event that a nominee has been nominated as an executor, the duty of the said nominee is to ensure that the takāful benefits received upon maturity of the takāful plan are distributed as part of the estate of the deceased takāful participant according to the relevant and applicable inheritance laws. * Saba Radwan Jamal Elatrash is Research Officer at the International Shari ah Research Academy for Islamic Finance (ISRA). She can be contacted at saba@ isra.my. ** Younes Soualhi, PhD, is Senior Researcher at the International Shari ah Research Academy for Islamic Finance (ISRA). He can be contacted at younes@isra.my. ISRA International Journal of Islamic Finance Vol. 8 Issue 1 2016 197
The Practice of Takāful Benefit (Nomination) in the Context of IFSA 2013: A Critical Appraisal The two designations have markedly different legal effects. When the nominee is appointed as sole beneficiary, he/she is gifted the takāful benefits by the takāful participant under the concept of conditional hibah (gift). The condition of this hibah is that the nominee will only become the sole beneficiary of the takāful benefits if the takāful participant dies before the nominee and before the maturity of the takāful plan. This would mean that the takāful benefits would not be included in the takāful participant s estate but would rather be solely owned by the nominee. II. THE LEGAL AND SHARĪʿAH ASPECTS OF NOMINATION IFSA discusses in Section 142 the payment of the takāful benefits upon the death of the takāful participant under the family takāful certificate and the personal accident takāful certificate. This research will only focus on the payment of takāful benefits under the family takāful plan. Section 142 of IFSA stipulates: Schedule 10 sets out provisions for the payment of takaful benefits upon death of a takaful participant under a family takaful certificate, and a personal accident takaful certificate, issued in respect of a contract of takaful entered into by the takaful participant upon his life. As can be seen from the above section, reference must be made to Schedule 10 of IFSA, which discusses the process and effect of nomination. This research seeks to analyse the relevant paragraphs in Schedule 10 and discuss whether such provisions have a Sharīʿah (Islamic law) basis. Furthermore, the Sharīʿah Advisory Council (SAC) of Bank Negara Malaysia (BNM) resolved the following in its 165 th meeting, dated 26 January 2016: In conditional hibah, the ownership of the hibah asset is effectively transferred to the hibah recipient upon the 198 ISRA International Journal of Islamic Finance Vol. 8 Issue 1 2016
Saba Radwan Jamal Elatrash and Younes Soualhi occurrence of [the] agreed conditions. This forms the basis for transfer of ownership of [the] 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/participant even though he has not yet taken possession (qabd) of the hibah asset, in this case, the takaful benefit. The above resolution reiterates the previous resolution of SAC- BNM at its 34 th meeting, held on 21 April 2003, which states: Takaful benefit can be used for hibah since it is the right of the participants. Therefore the participants should be allowed to exercise their rights according to their choice as long as it does not contradict with Shariah. The status of hibah in takaful plan does not change into a bequest (waṣiyyah) since this type of hibah is a conditional hibah, in which the hibah is an offer to the recipient of hibah for only a specified period. In the context of takaful, the takaful benefit is both associated with the death of the participant as well as maturity of the certificate. If the participant remains alive on maturity, the takaful benefit is owned by the participant, but if he dies within such period then hibah shall be executed. A participant has the right to revoke the hibah before the maturity date because conditional hibah is only deemed to be completed after delivery is made (qabadh). Furthermore, in 2016, BNM issued a concept paper on hibah which includes a general rule that hibah is legally transferred upon physical or constructive possession by the recipient of that hibah: S 13.1 Hibah must take effect upon the recipient taking possession of the hibah asset, at which point ISRA International Journal of Islamic Finance Vol. 8 Issue 1 2016 199
The Practice of Takāful Benefit (Nomination) in the Context of IFSA 2013: A Critical Appraisal S 13.2 ownership of a hibah asset must transfer from the donor to the recipient. Possession of a hibah asset must take effect by the donor releasing ownership of the asset (takhliyah) to the recipient through any mechanism permitted by Shariah including customary business practice (ʿurf tijari) so that the recipient would have an access to the asset (tamkin) and would have assumed its ownership risk. Although the position of the law in Malaysia under IFSA, the position of SAC-BNM and BNM s concept paper on hibah have been ascertained, many questions and issues remain unresolved. Family takāful and the takāful benefits derived from this policy have stirred debates on various matters related to the death of the takāful participant, the effects of the nomination of a nominee upon the death of the participant, and the position of such a nomination from the Sharīʿah perspective. The main issues that have given rise to these debates and criticisms relate to the ownership of takāful benefits, the true nature of the capacity of the nominee as a sole beneficiary through conditional hibah or in his capacity as an executor, whether the nomination amounts to a waṣiyyah to the nominee, and whether there is transfer of takāful benefits to the beneficiary through actual or constructive possession (qabḍ ḥaqīqī/ḥukmī). III. RESEARCH OBJECTIVES This research seeks to juristically evaluate the nomination principles legislated in Schedule 10 of IFSA 2013 and the resolutions of the SAC of BNM and re-examine the Sharīʿah compliance of IFSA s promulgations related to the ownership and transfer of takāful benefits to the nominee. An assessment on the Sharīʿah compliance of transferring investment assets to the nominee when the latter is named as the sole beneficiary as per IFSA 2013 will also be undertaken along with an examination on the issue of qabḍ in nomination and its prospective application through IFSA 2013. Furthermore, this 200 ISRA International Journal of Islamic Finance Vol. 8 Issue 1 2016
Saba Radwan Jamal Elatrash and Younes Soualhi research will survey and critically evaluate the actual practices of takāful operators vis-à-vis IFSA 2013 with regard to the issue of nomination in Malaysia. The research is significant as it will provide an articulated Sharīʿah basis for the relevant issues of nomination as promulgated in Schedule 10 of IFSA 2013 and it will critically examine the clauses in Schedule 10 still deemed debatable from the Sharīʿah point of view. IV. RESEARCH METHODOLOGY The research will employ a qualitative approach to achieve the objectives set. Beside the content analysis of the relevant literature, the research will also conduct a gap analysis to assess the level of compliance of the takāful industry to Schedule 10 of IFSA 2013 on the aspect of nomination. As a result of the gap analysis, policy recommendations could be made for standardisation of nomination practices or, alternatively, acknowledgement of the different practices of nomination in Malaysia. V. CONCLUSION Although IFSA 2013 has addressed many issues that were seen as problematic before its promulgation, IFSA has ably codified Sharīʿah principles such as conditional hibah, execution of waṣiyyah, and estate. However Sharīʿah debates on ownership, validity of the conditional hibah in nomination and revocation of hibah have not ceased, raising questions about the extent of the gap that still exists between law and Sharīʿah with regard to Islamic finance in general and takāful in particular. This research aims to provide a clear Sharīʿah analysis for the issues stated under Schedule 10 of IFSA with regard to nomination. The Sharīʿah analysis will be useful to practitioners and lawyers wanting to know the Sharīʿah basis for such promulgations. Furthermore, one of the expected outcomes of this research would be to attain and disseminate knowledge regarding the actual practices of nomination in the Malaysian takāful market. ISRA International Journal of Islamic Finance Vol. 8 Issue 1 2016 201
The Practice of Takāful Benefit (Nomination) in the Context of IFSA 2013: A Critical Appraisal References Abdullah, N. I. & Abdul Aziz, N. A. (2010). Case Studies of the Practice of Nomination and Hibah by Malaysian Takāful Operators. ISRA International Journal of Islamic Finance. 2(2), 67-100. Bank Negara Malaysia (2010) Shariah Resolutions in Islamic Finance. 2 nd Ed. Kuala Lumpur: Bank Negara Malaysia. Bank Negara Malaysia (2016). Hibah Concept Paper. Retrieved from http://www. bnm.gov.my/guidelines/05_shariah/cp_hibah.pdf Ismail, A. (2009). Nomination and Hibah Issues in the Takāful Industry. Paper presented at the ISRA Takaful Workshop, 7 May 2009. Marican, P. (2007). Islamic Inheritance Laws in Malaysia. Kuala Lumpur: Malayan Law Journal. Mohd Noor, A. & Abdullah, M. A. (n.d.). Takaful (Islamic Insurance) Benefit: Ownership and Distribution Issues in Malaysia. Journal of Islamic Economics, Banking and Finance. 5(3). 35-48. Mohd Noor, A. & Abdullah, A. (2008). Ownership and Hibah Issues of the Takaful Benefit. Paper presented at the ISRA Islamic Finance Seminar, 11 November 2008. 202 ISRA International Journal of Islamic Finance Vol. 8 Issue 1 2016