PTPTN riba in its operational before turning

PTPTN is a statutory body whichresponsible to manage the financing of education for students in both public andprivate higher education institutions in Malaysia. PTPTN was established underthe National Higher Education Fund Corporation Act 1997 (Act 566) which cameinto force on July 1, 1997. Students can apply loan from PTPTN to finance theireducation and pay back PTPTN once they complete study.  PTPTN practices riba in its operational before turningto ujrah. Prior to 2009, PTPTN charged 3% interest on PTPTN borrowers. Forexample, if borrowing worth RM 19,000 is required to repay RM 23,083.89 afteradding a 3% interest for the 10 years payment period.

The additional 3% paid bythe borrower to PTPTN contains the element of Riba. However, theMalaysian National Religious Council Fatwa Committee convened on 28 July 2008resolved to agree on the service charge charged by PTPTN to the students on theconcept of Ujrah at reasonable rates and not burdensome students. The PTPTN cancharge compensation (ta’widh) to students who have earned a fixed and capablejob from financial aspect but intentionally do not want to repay PTPTNfinancing.

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Thus, the Riba element has been removed from PTPTN.  (i)         GhararGharar inconventional insurance occurs due to the uncertainty of compensation to be paidby the insurer from the point of its existence and duration. In shari’ah, oneof the conditions in a sale and purchase contract is the delivery of prices andgoods within a period, and both parties need to be clear of the existence andtime of delivery.

 Theconventional insurance contracts are containing Gharar element in four states:a)    The doubt aboutthe duration of the contract;b)    The existenceof contracts and compensation;c)     Payment ofcompensation; andd)    The actualamount of compensation or premium paid. These Ghararare attributed to the uncertainty of participants about when the insured eventwill take place and how far the impact to the policyholder when the contract issigned. This problem arises because the outcome of the insurance contractitself is affected by the fate and the amount of money provided by individualis different or known as aleatory. In conventional insurance contracts, participants willnot know whether the disaster will happen nor do they know when thecompensation payment will be paid. (ii)       MaysirInvest in stock priceindex definitely involve element of maysir. Different from buying stockactivity, which the owner of funds buy shares and obtain stock certificatesworth the money he submitted.

But, in stock price index transaction whattransacted is the stock price index and not the stock. The owner of the fundhanded over a certain amount of money to agent to be traded in the stock priceindex. For instance, Hanseng Index, which is one of the largest stock exchangesin Hong Kong. The agent will provide the information to the investor (owner ofthe funds) regarding the development of the stock price index and provideadvice to buy or sell. Such transactions are forbidden because they containmaysir (gambling) elements. Investors are risking their money to get thebenefit from these transactions without real buying and selling. (iii)     Immoralpractice to increase salesTo achieve orincrease sales targets, agents of takaful insurance often compete with eachother. To increase their sales, takaful agents and brokers need to get newcustomers to avoid dismissal.

They will use different types methods to increasetheir sales and try to keep their performance in the firm. They may promiseany benefits that are not in the contract or guarantee capital and investmentprofits and so on. Theseimmoral and unethical practices of takaful agents arise in order to increasetheir sales. They may act out of control to maintain self-interest andmay cause agent misconduct has been identified. Insurance agentshave the opportunity for ethical misconduct because the service provided isvery abstract and difficult for customers to fully understand. Anotherscenario is agent tend to earn another commission from the existingparticipant. Towards this purpose, agent need to sell new policy to existingparticipants.

Thus, there is a twisting occur which the participants will bepersuaded by the agent to replace the existing purchased plan to another planthat need to contribute more. Takaful operation might address this issue as itwill affect the overall takaful industry image. 

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