Principles of Takaful
The operational framework of Takaful avoids elements of Riba (interest or usury), Maysir (gambling or investing the Takaful Funds in non-compliant Shari’ah activities or instruments which include gambling) and Gharar (uncertainty-unknown or ambiguous factor in the operation of contract). Riba, Maysir and Gharar are the basic aspects where Shari’ah deviates from conventional insurance.
The core principles of Takaful are:
- Members cooperate among themselves for their common good.
- Every member pays a subscription to help those that need assistance.
- Divide losses and liabilities among the members through a pooling system.
- Eliminate uncertainty in respect of subscription and compensation.
- Not to derive advantage at the cost of others.
- Invest in Shariah-compliant funds.
From an operation viewpoint, under Takaful, the members agree to devise schemes under which they themselves are insured and are insurers. Each member pays a premium as a contribution to a common fund referred to as the Takaful Fund. The Takaful operator, which invariably is an insurance company, manages this Takaful Fund on behalf of the members. The Takaful operator has to ensure that the member’s level of contribution commensurate with the level of risk.
The Takaful operator can apply scientific principles in the assessment calculation of contribution. The members allow the Takaful operator to take Tabarru (donation) from Takaful Fund to pay the losses suffered by other members in the pool. If there is any surplus left from the contribution after deduction of Tabarru and charges, it will be distributed amongst the members In case of deficit, Takaful Operator shall arrange for an interest free loan “Qard Hassan” to cover such deficit. Such a loan can be repaid in future from surplus (if any) generated in the following year / years .
Takaful is a unique way of managing future financial needs and safe guarding against unforeseen events in a Sharia’h Compliant way.