Research Monograph

The outbreak of the coronavirus epidemic (COVID-19), classified by the World Health Organization as a pandemic, has led to the emergence of many challenges. It started as a health crisis and then turned into a global economic crisis that most countries could not manage or control as a result of lockdown policies and restrictions on movement and travel. This is not to mention the forms of damage that have affected the contractual obligations and rights of various contracting parties at the level of financial institutions such as banks, takaful companies and others. The challenges imposed by the coronavirus pandemic have led to a reexamination of the fiqh treatment of catastrophes. The role of Islamic economic experts and the Islamic financial industry has had to be clarified in addressing its effects on contractual relations and future obligations in distressed financing contracts. The theory of catastrophes (jawa'ih) is one of the most important jurisprudential theories in Islamic fiqh. It comprises a set of principles and provisions that deal with the harmful effects upon one of the parties bound by a contract as a result of damage to what the party is obliged to deliver, or failure to obtain the intended benefit from the obligation. It is based on achieving justice in the practical application of financial transaction contracts, removing difficulty, taking into account arising circumstances, and preventing abuse in the exercise of rights and the freedom to contract. It thus regulates the rights of people related to the exchange of properties and usufructs.

This report is the last part of a four-part thought leadership series delivered by the International Shari'ah Research Academy for Islamic Finance (ISRA) in partnership with the Islamic Finance Council UK (UKIFC). The series is intended to inspire IFIs to embrace the SDGs and demonstrate to the world that consideration for people, planet and purpose can coexist with profit and form the heart of the next generation of Islamic financial products. This part will mainly document the current level of knowledge, understanding and perspectives on the SDGs amongst key IF industry stakeholders, primarily Shariah scholars. The concept of sustainable development was articulated for the first time in the Brundtland Report, also called "Our Common Future", published in 1987 by the World Commission on Environment and Development (WCED) and supported by the UN. According to the Report, sustainable development is defined as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs".

The issue of unearned wakalah fees (UWF) arises due to the statutory requirements in the Islamic Financial Services Act (IFSA 2013) that mandate takaful operators to refund any undue contribution with the corresponding wakaah fee in the event of surrender or termination of a takaful certificate. The relevant statutory provisions and Bank Negara Malaysia (BNM) guidelines on the valuation basis for liabilities of family and general takaful are open to more than one interpretation, and the exact definition and components of money not due are not clear. The implementation of the statutory provisions and regulatory guidelines on the refund of UWF has raised the following issues for the Malaysian takaful industry: 1. How to determine UWF and its components from money not due that must be refunded as stated in the statutory provisions and BNM guidelines? 2. What are the Shari'ah justifications, if any, to support the requirements for refund in the event of surrender? 3. How to resolve any Shari'ah and technical issues pertaining to the implementation of the refund of UWF due to lack of clarity regarding its definition and components? Accordingly, this paper delineates the concept and components of the wakalah contract, its salient features, contractual relationship, subject matter, including the wakalah fee, and juristic deliberations regarding it. It also examines the background and means of identifying UWF by explaining its subject and components, differences between earned and unearned wakalah fee, and the treatment of UWF. Further, it studies Shari'ah and technical issues related to recognition, calculation and refund of UWF and other surrender values.