Takaful

Template:Fiqh-Eco Takaful ( التكافل) is an Islamic insurance concept which is grounded in Islamic muamalat (Islamic banking), observing the rules and regulations of Islamic law. This concept has been practised in various forms for over 1400 years. Muslim jurists acknowledge that the basis of shared responsibility in the system of aquila as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance.

Islamic references to Takaful

These fundamentals are based on the sayings of the Islamic Prophet Muhammad. Based on the hadith and Quranic verses mentioned below, Islamic scholars had decided that there should be a concerted effort to implement the Takaful concept as the best way to resolve these needs. Some of the examples are:

• Basis of Co-operation Help one another in al-Birr and in al-Taqwa (virtue, righteousness and piety): but do not help one another in sin and transgression. (Surah Al-Maidah, Verse 2)

• Allah will always help His servant for as long as he helps others. (Narrated by Imam Ahmad bin Hanbal and Imam Abu Daud)

• Basis of Responsibility The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)

• One true Muslim (Mu’min) and another true Muslim (Mu’min) is just like a building whereby every part in it strengthens the other part. (Narrated by Imam al-Bukhari and Imam Muslim)

• Basis of Mutual Protection By my life, which is in Allah’s Power, nobody will enter Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam Ahmad bin Hanbal) The basic fundamentals underlying the Takaful concept are very similar to co-operative and mutual principles, to the extent that the co-operative and mutual model is one that is accepted under Islamic Law.

• Some Muslims believe insurance is unnecessary, as society should help its victims. Others believe that Muslims should not ignore the fact that they live, trade and communicate with open global systems, and the need for banking and insurance. They believe in creating Muslim-friendly banking systems and a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life.

Principles of Takaful

The principles of Takaful are as follows:

• Policyholders cooperate among themselves for their common good.
• Every policyholder pays his subscription to help those that need assistance.
• Losses are divided and liabilities spread according to the community pooling system.
• Uncertainty is eliminated in respect of subscription and compensation.
• It does not derive advantage at the cost of others.

Theoretically, Takaful is perceived as cooperative or mutual insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden." Commercial insurance is strictly not allowed for Muslims as agreed upon by most contemporary scholars because it contains the following elements:

1. Al-Gharar (Uncertainty)
2. Al-Maisir (Gambling)
3. Riba (Interest)

There are three (3) models and several variations on how takaful can be implemented.

1. Mudharabah Model
2. Wakalah Model
3. Combination of both

Islamic Insurance

A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. According to the author of the book, Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid states that the initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.

Islamic Insurance (Takaful) Companies

The growth in demand for Islamic insurance over recent years, particularly within the GCC countries and other areas of the Middle East, has seen a proliferation of new companies offering Islamic insurance products in these markets. The majority of these companies are fully fledged Takaful operators, but conventional insurance companies have also entered the market with Takaful 'window' operations.

The Mudharabah Model (Profit Sharing)

By this principle, the entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ra's-ul-Mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-Mal. The contract specifies how the profit (surplus) from the operations of takaful managed by the takaful operator is to be shared, in accordance with the principle of al-Mudharabah, between the participants as the providers of capital and the takaful operator as the entrepreneur. The sharing of such profit may be in a ratio of 50:50, 60:40, 70:30, etc. as mutually agreed between the contracting parties.

In order to eliminate the element of uncertainty in the takaful contract, the concept of tabarru (to donate, to contribute, to give away) is incorporated. In relation to this concept, a participant shall agree to relinquish as tabarru, certain proportion of his takaful installments or takaful contributions that he agrees or undertakes to pay should any of his fellow participants suffer a defined loss. This agreement enables him to fulfill his obligation of mutual help and joint guarantee.

In essence, tabarru would enable the participants to perform their deeds in sincerely assisting fellow participants who might suffer a loss or damage due to a catastrophe or disaster. The sharing of profit or surplus that may emerge from the operations of takaful, is made only after the obligation of assisting the fellow participants has been fulfilled. It is imperative, therefore, for a takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure. Therefore the provision of insurance cover as a form of business in conformity with Shariah is based on the Islamic principles of al-Takaful and al-Mudharabah.

Al-Hari Raya is the pact among a group of people, called participants, reciprocally guaranteeing each other; while Al-Mudharabah is the commercial profit-sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business. The operation of takaful may thus be envisaged as the profit-sharing business venture between the takaful operator and the individual members of a group of participants who desire to reciprocally guarantee each other against a certain loss or damage that may be inflicted upon any one of them.

External links

• Islamic Insurance
• Takaful - financial Islam