Islamic finance has developed mainly in two directions namely Islamic banking and Islamic insurance (Takaful). While information about Islamic banking is being increasingly disseminated; features, models and structures of Takaful are little known to the people in general. Purpose of this brief article is to enlighten brothers and sisters about the form of Takaful system which operates in various parts of the world including Malawi.
Basis of Takaful
“Takaful” is not a new concept in Islamic commercial law. It is an economic term, which is frequently used for a unique system of insurance or insuring activity that is quite different from the conventional insurance by some ways. It is based on the Islamic law of economics and works in such a marketing framework that follows strict rules fixed by Islamic Law and teachings and flexible regulations determined by various prominent insurance experts. It is known as “Islamic Insurance” as well.
Before going to simplify the “Islamic Insurance”, let me first clarify the meaning of insurance. The English word “insurance” means “a contract or an act of assuring by which persons or precious items, articles or valuable properties are guaranteed against a possible loss or damage by a contingent event in routine life.
The contemporary jurists acknowledge that the foundation of shared responsibility or Takaful was laid down in the system of ‘Aaqilah’, which was an arrangement of mutual help or indemnification customary in some tribes at the time of the Holy Prophet (pbuh). In case of any natural calamity, every body used to contribute something until the loss was indemnified. Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe. Islam accepted this principle of reciprocal compensation and joint responsibility. The distinction between the conventional insurance and Takaful business is more visible with respect to investment of funds. While insurance companies invest their funds in interest-based avenues and without any regard for the concept of Halal-o-Haram, Takaful companies undertake only Shariah compliant business and the profits are distributed in accordance with the pre-agreed ratios in the Takaful Agreement. Likewise they share in any surplus or loss from the pool collectively. Takaful system has a built-in mechanism to counter any over-pricing policies of the insurance companies because whatever may be the premium charged, the surplus would normally go back to the participants in proportion to their contributions.
Differences Between Takaful and Conventional Insurace
In conventional insurance, there are many elements, activities and procedures involved which are considered un-ethical, un-Islamic and un-lawful by the majority of Islamic scholars. Elements such as uncertainty (Al-Garar) in the contract, gambling (Al-Maisir) a consequence created by the presence of uncertainty and excessive interest (Al-Riba) are the major culprits in the hindering of Muslim families, companies and organizations to take a shelter of insurance against the possible unseen misfortunes of the routine life. For the satisfaction of Muslim concerns, market experts and Islamic intellectuals introduced a new kid in the insurance block by the name of “Takaful”
What gives “Takaful” a priority over conventional insurance is its divine touch. “Takaful” is mainly based on the principles of “Shariah”. Islam is a complete religion. It prohibits usury, the collection and payment of interest, trading in financial risk (gambling) and investing in such businesses that are against the general principles of ethics. In replacement of all such menaces, Islam presents many solutions through its law of economics and “Takaful” or Islamic Insurance is nothing but just an example of this practicable framework. The concept of insurance where resources are pooled to help the needy does not contradict Shariah in any way. The whole “Takaful” is based on this principal theme.
Significances of Takaful
“Takaful” is a relatively new insurance trend which is not just gaining acceptance and popularity from the Muslim dominated countries and societies but also from the peoples of the developed world too. The Muslims, who are in search of Halal products and those non-Muslims but curious minds who want to taste a bit new insurance trend, are the major subscribers of this new insuring market.
By its nature, “Takaful” is more human friendly as compared to business friendly. Currently, the ratio of Islamic Insurance is not significant as compared to conventional insurance but its annual growth rate will definitely boost its market share in up-coming years. The future of “Takaful” looks bright.
Helium: – Insurance Basics –