The Shariah Advisory Council of Bank Negara Malaysia (the Council) has made the resolution that the distribution of surplus from tabarru' fund in takaful scheme and the application of wakalah contract in deposit instrument is permissible from Shariah perspective.
The Council's resolution in allowing the distribution of surplus from tabarru' fund (for both family and general takaful plans) to the participants/certificate holders and takaful operator is based on the premise that takaful contract is generally established on the Shariah principles of tabarru' (donation) and ta'awun (mutual cooperation), apart from the agreement among the contracting parties. In the formulation of takaful product, the principle of tabarru' has been the main underlying Shariah principle, although the application of other principles such as wakalah and mudharabah also complement the takaful operational structure. The Council's resolution to allow such distribution is also based on the permissibility of performance fee for the takaful company. It is noted that in general, such method of distribution is practiced by several takaful companies in the Middle East.
The Council also resolved that the application of wakalah bi al-istithmar (agency for investment) contract in deposit account is permissible. However, the implementation of such contract must be carried out prudently to avoid any element of guarantee by the agent on the investment returns. Wakalah bi al-istithmar is a Shariah contract that has recently been approved by Bank Negara Malaysia to be applied in deposit instruments. Following this approval, it is expected that the Islamic financial institutions would be able to diversify their Shariah-compliant products and be more creative and innovative in their product offerings from time to time.
The Shariah Advisory Council of Bank Negara Malaysia is an independent advisory body which is established under section 16B of the Central Bank of Malaysia Act 1958. The Council shall be the authoritative body under the law for the ascertainment of Shariah law in Islamic banking, finance and takaful business. The Council shall have jurisdiction over the Islamic financial institutions under the regulation and supervision of Bank Negara Malaysia. The Act also provides that the Council can be referred by the court in its proceedings relating to Shariah matters in Islamic banking and financial business disputes.
The Council acts as an advisory body to Bank Negara Malaysia and is responsible to ensure that all aspects of Islamic banking and takaful businesses are implemented in accordance with Shariah law and principles. In executing the duties and responsibilities, the Council examines and endorses the validity of application of Shariah in Islamic financial products which are submitted by the Islamic financial institutions under the purview of Bank Negara Malaysia. The Council would also issue Shariah resolutions and decisions relating to Islamic banking and takaful issues from time to time.
The members of the Council consist of experts who possess knowledge and wide experience in the disciplines of Shariah, banking, finance, economics and law. They are appointed by the Minister of Finance on the recommendation of the Board of Directors, Bank Negara Malaysia pursuant to section 16B(2) of the Central Bank of Malaysia Act 1958