The Legal Life of a Gift: Understanding Conditional Hibah in Takaful

Author:  Mohamad Khairul Daim Ahmad Shamsuri

1. Public interest in aspects of Islamic finance waxes and wanes across different topics. Among them, conditional hibah (gift) periodically attracts attention whenever questions arise about how takaful benefits are distributed. Publicised claims and social commentary often thrust the subject back into focus, prompting questions about how conditional hibah works in practice, whether it is Shariah-compliant and how the law treats such nominations. 2. The legal and Shariah framework for conditional hibah in the takaful context is neither ad hoc nor recent. It is the product of sustained Shariah deliberation and legislative refinement that eventually gave it statutory force within Malaysia’s Islamic financial services law. 1. From Shariah Resolution to Law

1.1 The conditional hibah approach in takaful traces back to a Shariah Advisory Council of Bank Negara Malaysia (SAC BNM) resolution in the early 2000s, which recognised hibah as an acceptable mechanism for distributing takaful benefits. That resolution was later reflected in policy development and legislative drafting, culminating in Schedule 10 of the Islamic Financial Services Act 2013 (IFSA 2013), which sets out the rules on nomination and payment of benefits for family and personal accident takaful plans.

1.2 To appreciate this development, it helps to recall that Malaysia operates a dual financial system, as recognised under section 27 of the Central Bank of Malaysia Act 2009 (CBMA 2009), which provides that “the financial system in Malaysia shall consist of the conventional financial system and the Islamic financial system.” The latter refers to a framework of financial intermediation guided by Shariah principles, where among others, interest (riba) and uncertainty (gharar) are prohibited, and transactions must be anchored in genuine economic activity and ethical purpose. Within this system, takaful represents the Islamic alternative to conventional insurance, structured on mutual assistance and risk-sharing rather than risk transfer. 1.3 This article touches briefly on that broader Islamic financial framework to situate the conditional hibah discussion in context, how it evolved and how it operates within Malaysia’s regulatory structure. 2. Hibah Takaful — A Misused Term

2.1 In market practice, hibah takaful is often misunderstood. Agents and promotional material sometimes use “hibah” as though it were the takaful product itself. In reality, the participant joins a takaful plan; the benefit payable upon death is part of that contractual arrangement.

2.2 A participant may then choose to nominate someone to receive that benefit, and one lawful method of nomination is through a conditional hibah. Confusing the two (the takaful plan and the nomination mechanism) fuels persistent misunderstanding among consumers.

2.3 Legitimate questions follow: who gives the hibah, why does it take effect on death, is the benefit part of the estate, and which forum has jurisdiction in disputes? These questions are answered squarely by the statutory framework in IFSA 2013 and Schedule 10, the SAC’s Shariah resolutions and the industry’s consistent application of those rules. 3. What is Conditional Hibah?

3.1 A conditional hibah in the takaful context is a nomination mechanism where a participant designates a person to receive the takaful benefit upon the participant’s death. The operative provisions governing this are found in Schedule 10 of IFSA 2013, which prescribes how such payments are to be made and in what capacity the nominee receives them.

3.2 Under Schedule 10, a takaful participant may make two types of nomination: a. To assign the takaful benefits or designate the nominee as a beneficiary under a conditional hibah; or b. To appoint the nominee as an executor, who will distribute the benefits according to the applicable inheritance laws.

  3.3 Where a nomination is made under a conditional hibah, the law is explicit. Upon the participant’s death, ownership of the takaful benefits transfers absolutely to the nominee. These benefits do not form part of the deceased’s estate and are not subject to debts. This statutory clarity honours the participant’s intention and protects the nominee’s rights, even where other laws or customs might suggest a different outcome. 3.4 Conditional hibah applies to any takaful participant who wishes to ensure that specific individuals - often family members or other loved ones - receive the benefits of their takaful plan directly and without delay. In practice, this means that upon the participant’s passing, the designated nominee can access the benefits immediately, without the need for probate or the complexities of estate administration. 3.5 For example, a participant with a personal accident or family takaful plan may wish to provide financial support to a spouse, children or even other family member. By making a conditional hibah nomination, the participant ensures that the funds are transferred directly to the intended recipient, unaffected by debts owed by the deceased or disputes among heirs. This mechanism not only preserves the participant’s intent but also reduces administrative burden and potential conflict, providing both certainty and efficiency for families during a difficult time. 3.6 In essence, conditional hibah operationalises the participant’s wishes, offering clarity, protection and speed, making it a practical and valuable tool for estate planning within Malaysia’s Shariah-compliant financial framework. 4. The Supremacy Effect in Schedule 10

4.1 It is also worthwhile to appreciate the role and functions of the SAC BNM, given that conditional hibah is endorsed by the SAC BNM. The SAC BNM’s authority is anchored in section 51 of the CBMA 2009 as the ultimate reference for the ascertainment of Islamic law in financial matters. Its functions include ascertaining Islamic law on financial issues, issuing rulings upon reference, and advising both Bank Negara Malaysia and Islamic financial institutions on Shariah matters.

4.2 In effect, once a conditional hibah nomination is properly executed, it prevails over competing claims that might arise under family or estate law. This legislative supremacy is deliberate and it secures finality and protection for nominees. 5. The Authority of the Shariah Advisory Council (SAC BNM)

  5.1 It is also worthwhile to appreciate the role and functions of the SAC BNM, given that conditional hibah is endorsed by the SAC BNM. The SAC BNM’s authority is anchored in section 51 of the CBMA 2009 as the ultimate reference for the ascertainment of Islamic law in financial matters. Its functions include ascertaining Islamic law on financial issues, issuing rulings upon reference, and advising both Bank Negara Malaysia and Islamic financial institutions on Shariah matters. 5.2 Section 55 further reinforces this by requiring Bank Negara Malaysia to consult the SAC BNM on any question involving Islamic financial business that calls for Shariah determination. Islamic financial institutions may likewise refer matters to the SAC to ensure alignment with Shariah principles. 5.3 It is interesting to note that when questions arise before a court or arbitrator concerning the interpretation or application of Shariah principles in Islamic financial business, section 56 of the CBMA 2009 requires that they be referred to the SAC BNM, or decided with reference to its published rulings, which, under section 57, are binding on the court and the parties. 5.4 This statutory design integrates Shariah rulings into Malaysia’s legal system with both certainty and enforceability, providing a firm legal foundation for mechanisms such as the conditional hibah. 6. Protection of Takaful Operators and Certainty of Payment 6.1 Schedule 10 also introduces operational certainty for takaful operators. It sets out the procedure for payments and, crucially, provides that payments made in accordance with Schedule 10 discharge the operator’s liability. Once a benefit is paid under a valid nomination, the operator’s responsibility is complete; any subsequent disputes rest between the nominee and other claimants.

6.2 This clarity ensures efficiency, protects operators from exposure, and safeguards participants’ intentions, illustrating how the legal and operational aspects of takaful complement each other in practice. 7. Conditional Hibah in Perspective  

7.1 The conditional hibah is a reflection of how Malaysia’s Islamic financial system harmonises Shariah principles with legal certainty. Within the country’s dual financial framework, it stands as a uniquely Malaysian innovation - born from Shariah deliberation, refined through policy formulation and ultimately codified in law. For takaful participants, it offers clarity and immediacy in ensuring that loved ones receive the benefits intended for them, without the uncertainties of estate distribution. For takaful operators, it provides a clear and lawful discharge of contractual obligations, consistent with both Shariah and statutory requirements.

  7.2 And for the broader financial system, it exemplifies the maturity of Malaysia’s approach: a structured alignment of Shariah scholarship, legal drafting and regulatory governance that allows Islamic finance to function with confidence alongside its conventional counterpart. Disclaimer:

This newsletter is for informational purposes only and does not constitute legal advice. Please consult with a qualified legal specialist for advice tailored to your specific situation