FAMILY TAKAFUL : ITS ROLE IN SOCIAL ECONOMIC DEVELOPMENT AND AS A SAVINGS AND INVESTMENT INSTRUMENT IN MALAYSIA

This study has dual objectives: firstly, to find out whether there exist any relationships between the macro economic variables and the demand for family takaful (Islamic life insurance) in Malaysia, secondly, to examine whether the establishment of the Takaful institution has produce a positive social economic impact in Malaysia, measured by the economic indicators. Islamic life insurance or family takaful, a form of savings instrument popular amongst Malaysians who are Muslims in general, has its appeal due to its Shari’a compliant attribute as compared to the conventional life insurance products. This study found that from the time of its inception, Takaful Malaysia and Takaful Nasional in 1984 and 1994 respectively, that their existence have a healthy impact on the socio economy of the country. This is attested by the positive employment increment, and its profit before tax and zakat (tithe) has on the economy. Being the pioneer in offering syari’a compliant insurance product, Takaful Malaysia’s profit performance and its capacity to generate new business in the form of premium or contribution is directly affected by the macro-economic variables as measured by Malaysia’s gross domestic products, consumer price index and the treasury bills or the short-term interest rates. If this trend continues, then it is signaling to the government the necessity to provide a conducive economic environment that will ensure this business activity continue to flourish in Malaysia. Lastly, as it is common knowledge that 90 percent of the Muslim market comprising the indigenous race or Malays have not purchased any form of life insurance or family takaful, thus, it is pertinent that the Central Bank of Malaysia, the regulatory body of financial institutions in Malaysia considers issuing new licenses to would-be takaful operators to provide a wider offerings of takaful products that would appeal to this untapped market. INTRODUCTION Insurance or Takaful in Arabic, means joint guarantee, in practice, however, it can be visualized as a pact among a group of members or participants who agree to jointly guarantee one another against loss or damage that may be inflicted upon them. Each member of the group pools effort to support the aggrieved member. This is similar to some customs or traditions practiced in the Arab society during the Jahiliyyah period, where mutual help was extended within the society with the death of its members. They contribute together in terms of energy to help settle the funeral affairs of the deceased member. Some were more sympathetic, and went further to offer material or financial assistance to the deceased family. During the era of the Prophet Mohammed s.a. w. , some of the practices of the Jahiliyyah were continued. This specifically involved the payment of compensation to the relatives of the deceased in one tribe who was killed by another person from another tribe. The practice was thought to be able to reduce the tension between the tribes, as the Arabs in that era, were more prone towards revenge. This practice of paying compensation is called dyat or blood money and must be paid by the killer’s relatives (aqilla) to the heirs of the deceased. This was later extended to include, that, if a tribe killed someone from another tribe, all the people from the same tribe must be responsible to compensate the deceased relatives under the doctrine of Aqilla enshrined under Article 3 of the Madinah Constitution (Chua 2000). In this era of peace however, members of society pool resources in order to compensate one another after sustaining an accidental loss. A person in distressed or experiencing loss may not be brought about by animosity between humans as witnessed during the preIslamic age, more so from unexpected events, such as natural death, health impairment, unemployment, sickness, retirement and others. Because insurance in its essence is an important device created to solve many social obligations as mentioned above, then it therefore exist an urgent need to create a shari’a based insurance practice especially in developed Muslim majority countries, such as Malaysia.