Islamic Contract – Bay’ al-Murābahah: Takaful Coverage for Asset Under Seller’s Possession


Q1: What is the purpose of takaful coverage in a murābahah transaction?


Answer:
In a murābahah transaction, the seller or Islamic bank may obtain takaful coverage for the asset while it remains under the seller’s ownership and possession before being sold to the purchaser.


The purpose of takaful is to:

• protect the asset against damage or loss;

• manage ownership risks borne by the seller; and

• ensure proper risk management in accordance with Shariah principles.

This reflects the Shariah principle:


“Risk accompanies ownership.”


Since the seller owns the asset before resale, the seller bears the associated risks during that ownership period.




Q2: What is the AAOIFI position regarding takaful cost?


Answer:
According to AAOIFI Shariah Standard No. 8 (Paras 3/2/6–3/2/7):

• the seller is obligated to bear the takaful cost while the asset remains under the seller’s possession; and

• the seller may include the takaful expense as part of the acquisition cost of the asset.

This means the seller initially bears the takaful responsibility because the seller still owns the asset before transferring ownership to the purchaser.


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Q3: What is the BNM position regarding takaful cost?


Answer:
According to the Bank Negara Malaysia (BNM) Policy Document on Murābahah (Para 17.5):

• the purchaser may absorb the takaful cost before entering into the murābahah contract.

This allows:

• greater operational flexibility; and

• cost-sharing arrangements agreed upon between the parties before the sale contract is concluded.

However, the arrangement must be:

• clearly agreed upon; and

• properly documented.

Comparison Notes: AAOIFI vs BNM on Takaful Cost


AAOIFI Position

• Seller bears takaful cost during ownership period.

• Takaful cost may be included in acquisition cost.

• Emphasises ownership-risk principle.

• Seller remains responsible until ownership transfer.

BNM Position

• Purchaser may absorb takaful cost before murābahah contract.

• Allows more operational flexibility.

• Requires proper contractual documentation.

• Commonly applied in Islamic banking practice.

Case Study 1: AAOIFI Approach with Figures


An Islamic bank purchases industrial machinery for a customer under a murābahah arrangement.


Transaction Details

• Purchase price of machinery: RM200,000

• Takaful contribution paid by the bank: RM5,000

• Total acquisition cost borne by the bank: RM205,000

• Bank’s profit margin: RM25,000

• Final murābahah selling price: RM230,000

The bank obtains takaful coverage while the machinery remains under its ownership before reselling it to the customer.


Analysis

• The bank bore the takaful cost because it owned the machinery.

• The takaful contribution was included as part of the acquisition cost.

• The customer was informed that:

• original cost = RM205,000; and

• profit = RM25,000.

• This arrangement complies with AAOIFI standards.

Case Study 2: BNM Approach with Figures


A customer applies for murābahah vehicle financing from an Islamic bank.


Transaction Details

• Purchase price of vehicle: RM100,000

• Takaful contribution: RM3,000

• Customer agrees to bear takaful contribution before murābahah execution.

• Bank’s disclosed acquisition cost: RM100,000

• Bank’s profit margin: RM15,000

• Final murābahah selling price: RM115,000

Before the murābahah contract is concluded, the customer separately agrees to pay the RM3,000 takaful contribution.


Analysis

• The purchaser absorbed the takaful cost before the sale contract.

• The bank’s murābahah cost excluded the takaful amount.

• Proper documentation separated:

• takaful arrangement; and

• murābahah contract.

• This arrangement is permissible under BNM guidelines.

Notes: Important Principles Regarding Takaful in Murābahah


AAOIFI Emphasis

• Ownership risk remains with seller before sale.

• Seller responsible for takaful during ownership period.

• Takaful expense may be included in cost price.

BNM Emphasis

• Purchaser may absorb takaful cost earlier.

• Greater flexibility in banking operations.

• Proper agreement and documentation required.

Common Shariah Principle


The party bearing ownership risk should generally bear the corresponding liabilities and responsibilities associated with the asset until ownership is transferred.