Part II Islamic Law and Contracts in Practice, 10 Takaful

Subject(s):

Islamic financial services

This chapter examines takaful (Islamic insurance), which is one of the fastest growing sectors of the global insurance market. Takaful is a form of insurance structured so as to satisfy the requirements of the Shari’a. It is based on the concept of mutuality, whereby each participant (the equivalent of an insured) makes a donation (tabarru) to a takaful fund. In its commercial form, the takaful fund is managed by a takaful operator on behalf of the participants and is therefore similar to a conventional mutual insurance company. However, the concept of takaful is fundamentally distinct from conventional insurance whereby the insurance company sells a policy protecting the insured against certain defined risks for a specified amount of money. Such conventional insurance arrangements involve no element of mutuality. In contrast, takaful is structured on the basis of mutuality and is intended to create an arrangement that is mutually beneficial for both the takaful operator and the participant.