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Takaful ( Arabic: التكافل) is defined as an Islamic insurance concept which is grounded in Islamic muamalat ( Islamic banking), observing the rules and regulations of Islamic law. It is a co-operative system of reimbursement or repayment in case of loss, paid to people and companies concerned about hazards, compensated out of a fund to which they agree to donate small regular contributions managed on behalf by a takaful operator. [1]. This concept has been practised in various forms since 622 AD. [2] 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.
Commercial insurance is strictly disallowed for Muslims (as agreed upon by most contemporary scholars) because it contains the following elements:
In order to avoid Gharar and Maisir, Takaful reframes insurance premiums as donations.
The solution is to consider the premium as a donation (tabarru) as from the Shariah perspective, tabarru is not covered by the laws of Muamalat (the basic principles that govern commercial transactions in Islam). Being a donation, it is not considered a commercial contract of exchange. Instead it is considered as a unilateral gratuitous contribution. As such, the element of gharar in the uncertainty of loss is deemed acceptable as instead of a premium, a donation is being made into the takaful fund.
— Zainal Abidin Mohd Kassim, FIA, Actuarial analysis: Tabarru - An actuary's dilemma [4]
Takaful avoid Riba by investing in profit-sharing securities, such as equities, mutual funds, and REITs, or Sukuk -- specifically Sharia-compliant bond-equivalents. Due to the scarcity of Sukuk and the volatility of investment portfolios missing major asset classes, many Takaful contain fixed-interest bonds. [5]
The principles of takaful are as follows:
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".
These fundamentals are based on the sayings of the Islamic prophet Muhammad. Based on the hadith and Qur'anic verses mentioned below, Islamic scholars have decided that there should be a concerted effort to implement the concept of takaful as the best way to resolve these needs. Some examples are:
Takaful funds hire professionals to handle their investment and underwriting. There are three models (and several variations) for takaful operator compensation:
In addition to the more common tabarru contracts, there is the Al Waqf implementation, mainly used in Pakistan and South Africa. In such funds, surpluses stay with the endowment rather than being periodically distributed to policyholders [10].
According to this principle the al-Mudharib (takaful operator) accepts payment of the takaful installments or takaful contributions ( premiums, known as ra's-ul-mal) from investors or providers of capital or funds (takaful participants), acting as sahib-ul-mal. The contract specifies how the profits (or surplus) from the operations of the takaful is to be shared in accordance with the principle of al-mudharabah – between the participants (as providers of capital) and the takaful operator. The sharing of such profit may be in a ratio of 50:50, 60:40, 70:30 and so forth, 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, contribute, or give away") is incorporated. Relating to this concept, a participant agrees to relinquish (as tabarru) a certain proportion of his takaful installments (or 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 enables participants to perform their deeds in 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 a 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 striving prudently to ensure the funds are sufficiently protected against over-exposure. Therefore, the provision of insurance coverage in conformity with Shariah is based on the Islamic principles of al-takaful and al-mudharabah.
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 a 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.
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 firms are full-fledged takaful operators, but conventional insurance companies have also entered the market offering takaful "window" operations. As with the traditional forms of insurance, reinsurance of a takaful operation may be used, known as "retakaful". [11] Total Takaful contributions doubled from 2009 to 2014 when they amounted to $14 billion (USD) [12] of which Saudi Arabia made up about half [13]. It is expected to grow to $20 billion by 2017 [14].
Chakib Abouzaid: Presentation of the World Islamic Insurance Directory at the World Takaful Conference (2006/07/08/09/10/11/12) www.takaful-re.ae
Part of a series on |
Islamic jurisprudence (fiqh) |
---|
![]() |
Islamic studies |
Takaful ( Arabic: التكافل) is defined as an Islamic insurance concept which is grounded in Islamic muamalat ( Islamic banking), observing the rules and regulations of Islamic law. It is a co-operative system of reimbursement or repayment in case of loss, paid to people and companies concerned about hazards, compensated out of a fund to which they agree to donate small regular contributions managed on behalf by a takaful operator. [1]. This concept has been practised in various forms since 622 AD. [2] 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.
Commercial insurance is strictly disallowed for Muslims (as agreed upon by most contemporary scholars) because it contains the following elements:
In order to avoid Gharar and Maisir, Takaful reframes insurance premiums as donations.
The solution is to consider the premium as a donation (tabarru) as from the Shariah perspective, tabarru is not covered by the laws of Muamalat (the basic principles that govern commercial transactions in Islam). Being a donation, it is not considered a commercial contract of exchange. Instead it is considered as a unilateral gratuitous contribution. As such, the element of gharar in the uncertainty of loss is deemed acceptable as instead of a premium, a donation is being made into the takaful fund.
— Zainal Abidin Mohd Kassim, FIA, Actuarial analysis: Tabarru - An actuary's dilemma [4]
Takaful avoid Riba by investing in profit-sharing securities, such as equities, mutual funds, and REITs, or Sukuk -- specifically Sharia-compliant bond-equivalents. Due to the scarcity of Sukuk and the volatility of investment portfolios missing major asset classes, many Takaful contain fixed-interest bonds. [5]
The principles of takaful are as follows:
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".
These fundamentals are based on the sayings of the Islamic prophet Muhammad. Based on the hadith and Qur'anic verses mentioned below, Islamic scholars have decided that there should be a concerted effort to implement the concept of takaful as the best way to resolve these needs. Some examples are:
Takaful funds hire professionals to handle their investment and underwriting. There are three models (and several variations) for takaful operator compensation:
In addition to the more common tabarru contracts, there is the Al Waqf implementation, mainly used in Pakistan and South Africa. In such funds, surpluses stay with the endowment rather than being periodically distributed to policyholders [10].
According to this principle the al-Mudharib (takaful operator) accepts payment of the takaful installments or takaful contributions ( premiums, known as ra's-ul-mal) from investors or providers of capital or funds (takaful participants), acting as sahib-ul-mal. The contract specifies how the profits (or surplus) from the operations of the takaful is to be shared in accordance with the principle of al-mudharabah – between the participants (as providers of capital) and the takaful operator. The sharing of such profit may be in a ratio of 50:50, 60:40, 70:30 and so forth, 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, contribute, or give away") is incorporated. Relating to this concept, a participant agrees to relinquish (as tabarru) a certain proportion of his takaful installments (or 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 enables participants to perform their deeds in 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 a 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 striving prudently to ensure the funds are sufficiently protected against over-exposure. Therefore, the provision of insurance coverage in conformity with Shariah is based on the Islamic principles of al-takaful and al-mudharabah.
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 a 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.
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 firms are full-fledged takaful operators, but conventional insurance companies have also entered the market offering takaful "window" operations. As with the traditional forms of insurance, reinsurance of a takaful operation may be used, known as "retakaful". [11] Total Takaful contributions doubled from 2009 to 2014 when they amounted to $14 billion (USD) [12] of which Saudi Arabia made up about half [13]. It is expected to grow to $20 billion by 2017 [14].
Chakib Abouzaid: Presentation of the World Islamic Insurance Directory at the World Takaful Conference (2006/07/08/09/10/11/12) www.takaful-re.ae