Tabarru Contract

As a practical religion, Islam has a solution for the implementation of insurance system that is in line with the principle of Islamic syariah. The “Tabarru’” contract was introduced as the basis in a takaful system where it is considered more practical and safe in managing insurance systems, in which the original intention was benevolent.

 

The debate being presented in this column is related to the concept of “Tabarru’” and the reason it is considered a safe contract from an Islamic point of view, especially in handling insurance transactions and activities.

 

“Tabarru’” is a form of voluntary donation from a particular party without soliciting any reciprocation, or exchange, from the other party. It is categorised as a unilateral contract whereby it is sufficient that one party declares their handout without any exchange.

“Tabarru’” is considered a symbol of piety, it is among the most encouraged practice in Islam. Apart from the obligatory almsgiving known as zakat, voluntary donations are very highly regarded in Islam as the spirit of mutual assistance and compassion are encouraged,

Islam also places alms at its utmost position for it is the basis of a harmonious society.
In takaful, each individual who participates in any of its products, be it family, or general, will set aside a part or the whole contribution in one fund. It is then named as the Risk Fund, which contains the collective donations of the participants.

The fund acts as a source of assistance for participants that suffer a bout of misfortune.
“Tabarru’”, the way in which it is applied in takaful, has eliminated any elements of “deceptive uncertainty”, “riba”, and gambling, where these features have made conventional insurance forbidden in Islam.

This is due to “Tabarru’” being categorised as a one-sided contract that does not require any exchange or reciprocation. This is unlike any other exchange contract, especially sale and purchase ones where an exchange is decided between two parties in their respective contracts.
In takaful, it is sufficient for any person extending a donation to present them to related parties, and their contracts will be considered fulfilled.

For an exchange contract, namely sale and purchase, the contract is deemed complete once the purchaser submits the money (the item’s price) and the seller surrenders the agreed item. If not, the contract will be considered as invalid.

Through the implementation of Tabarru’, tied in with the principles of takaful (Mutual Assistance), an environment of mutual assistance will be established.

For a simple analogy, consider that Participant A extended a donation for the express purpose of helping Participant B, while Participant B also donated to help Participant A, and this situation of mutual assistance is what deemed as “takaful” where participants endeavour to help each other and not through a company as what transpired in a conventional insurance system.

According to the principle of “Tabarru’”, each donation cannot be retracted. Even if
the participant cancels his participation in the takaful, the portion invested in the Risk Fund will not be returned. However, they can retrieve the balance in their individual fund.