Takaful for the good of all

Today, insurance plays a very important role in commercial and personal finance. But while most of us take insurance for granted, for people of the Islamic faith, conventional insurance is incompatible with their religious beliefs. Under Islamic jurisprudence (Shari’ah), conventional insurance is not permissible. Therefore, an innovative concept based on solidarity, cooperation and mutuality, which have been the keystones of Islamic society from the days of the Holy Prophet (PBUH), began to develop in the early 70’s in Sudan, Middle East and Far-East Asia. This arrangement is called Takaful.

It is important to understand that Islam is not against the concept of insurance but the basis of operation of conventional insurance that does not meet the requirements of Shari’ah (Gharar “uncertainty”, Maysir “gambling”, and Riba “Usury”). The concept of insurance, which simply means the pooling of common resources to help the needy, is very much in line with the teachings of Islam, which propagates solidarity, mutual help and cooperation among members of the community. The essence of insurance could be seen in the system of mutual help in the Arab tribal custom of blood money or Diyah. Under this system, a victim or the injured party would be compensated by the members of the community whose action had resulted in the loss of life or impairment of the victim. Therefore, the principle of compensation and group responsibility was first introduced by the Holy Prophet (PBUH) and accepted in Islam. Shari’ah scholars have acknowledged that the basis of shared responsibility is embedded in the system of Aqila1 This was further developed by the Second Caliph Omar during his period by establishing a specific government entity (Diwan) to facilitate mutual cooperation between people, and laid the foundation of mutual insurance thereafter.

Takaful means ‘the act of a group of people reciprocally guaranteeing each other’ – is based on the concept of mutual cooperative insurance. Takaful framework is based on solidarity, responsibility and brotherhood among members who agree to share the defined losses to be paid out of defined assets.

Aqila – a mutual cooperative system that was practiced by ancient arab tribes whereby if a member of a tribe was killed by a member of another tribe without intent, then the close relatives of the executioner had to contribute a sum of money to compensate the family of the victim.