Takaful is a Shariah-Compliant Insurance system, an alternative to conventional insurance where all the participants contribute some amount in a pool and share the possible risks according to rules of cooperation, mutual understanding, and contribution. In this system, as per the foreground rules of mutual understanding, trust & cooperation, all participants safeguard each other against potential financial risks.
Originating from the Arabic word “Kafalah,” Takaful means “To Guarantee.” Through further articulation, it changed to “Takaful,” meaning “jointly guarantee each other.”
Takaful is not a newly invented system. Civilizations implemented this practice of mutual understanding and cooperation in 622 AD for the first time. Hence, the significance and purpose of Takaful are elaborated clearly in the Holy Quran and Hadith.
Allah SWT says in the Holy Quran, Chapter: Al-Hijrat, Verse # 10
“Muslims are brothers to each other.”
Islam, as a way of life, preaches its followers to always understand and help each other in difficult times. This exact idea was the ground that laid the foundation of Takaful based on the principles of mutual trust, cooperation, and contribution.
The concept of Takaful existed even before the existence of our religion. Different tribes used to follow a system where they’d create a joint pool to help and cooperate in different ways. When Islam flourished, it also continued this system of mutual trust & cooperation, which is evident from Meesaq-e-Madina.
Afterwards, different caliphs made such agreements, which were not entirely labeled as Takaful, but the very concept existed in them.
Later due to Risk Management, the idea of cooperation got commercialized, and conventional insurance came into existence. This transformed a merely kind gesture of support into a proper business. However, the majority of the Muslims declared this type of conventional insurance as Non-Shariah Compliant and abstained from it. To help the Muslim world benefit from Insurance, Muslim Scholars in 1970, began to research on its Islamic alternative.
In 1979, the first Shariah-Compliant Insurance Company founded in Sudan & Bahrain that provided Muslims with Takaful benefits.
Today, approximately 84+ Takaful Companies exist in more than 25 nations in the world.
The typical model is based on the foundation of a Management Company called “Takaful Company,” based on the following principles.
To conclude, the following are the basic principles of a Takaful Company:
These three principles are interlinked, and formal rules and regulations are applied to them to make the whole thing beneficial for every participant.