Cargo Insurance, Corporate Insurance, Health Insurance, Life Insurance, Motor Insurance

Takaful in Pakistan

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. 

What is Takaful: The History 

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 Concept Model of Takaful 

The typical model is based on the foundation of a Management Company called “Takaful Company,” based on the following principles.

  • The company creates a simple Waqf Pool where people make contributions and become its member to avail Takaful facilities. The rules of contributions are settled beforehand, and the pool then covers up for the urgent needs and financial losses of its members while they continue to contribute to the pool. The rules & regulations of the Waqf are set following the boundaries of Shariah and other regulatory laws.
  • The management company is not the owner of the pool. It functions only as an operator or facilitator of the pool running the operations while keeping the accounts intact. The company, however, charges a Wakalah fee (Management Fee) for providing all the services to the members.
  • Companies make monetary investments in the pool on the basis of “Wakalah” or “Mudaraba,” in which the company acts as an Investment Manager called “Mudharib,” and the pool is treated as “Rab-ul-mal.” 
  • The total sum of the pool keeps increasing with the number of members participating in the pool, which generates profits for everyone. After deducting expenses, setting off claims among the members, and distributing the profit share of the Management Company (Takaful Operator), the remaining amount in the pool (the surplus amount) can be kept by the company as contingency reserves. This amount is used to do some charity or distribute equally amongst the participants of the pool.

Principles of a Takaful Company 

To conclude, the following are the basic principles of a Takaful Company: 

  • Participants become members of the pool by making contributions. 
  • Pool releases the funds as per Shariah rules and regulations.
  • Surplus funds can be shared amongst participants.

These three principles are interlinked, and formal rules and regulations are applied to them to make the whole thing beneficial for every participant.