What Is Islamic Takaful?
The sense of security of one’s life and property is natural to human beings. This sense of security gave rise the idea of insurance. Initially, insurance was a way to protect mutual losses to life, property and trade. It was not itself a business-like activity as it is now. We find the idea of insurance in the Muslim history. When Arabs expanded their trade in Asia they made an agreement with the members of the business expedition to contribute to a mutual fund which was supposed to be used to compensate any possible losses to life or property of the participants. Islamic term used for this kind of concept is Aquila. The traces of insurance can be found in the concept of Aquila. If someone might kill someone, and matter was settled with the payment of ransom money, the whole tribe of the murderer paid the ransom.
There is a Hadith of the Holy prophet, which goes:
Narrated Abu Huraira:
The Prophet said, “If somebody dies (among the Muslims) leaving some property, the property will go to his heirs; and if he leaves a debt or dependents, we will take care of them.”(Volume 8, Book 80, Number 755)
The modern term used for Islamic insurance is Takaful, which means to compensate each other. This Hadith of the prophet clarifies another aspect of Islamic concept of insurance. So the basic concept of Islamic insurance is in fact in complete compliance with Islamic Shariah.
Since the international monetary system is designed by the leadership and management of the western powers, when they held away the world in 18th and 19th centuries and Islamic leadership development was at halt, the Islamic economic laws could not be in consideration while chalking out world economic system. Same goes for insurance. It was designed on interest. So the Muslim, their majority refrained from contributing to insurance companies thus they were bereft of the benefits which were offered by insurance.
Now in the present scenario, with growing insecurity to life and property, due to terrorist activities and due to the world powers showing up their muscles to each other, the demand for security has increased immensely. Since the Muslim countries are the most who are receiving the effects of terrorism and the insecurity as its aftermaths, the Islamic insurance must come forward to not only cater the mounting demand of security to life and property through providing insurance services based on Islamic economic principles of Shariah, but also they have great potential market to enhance their business to new heights.
Thanks to the leadership and management of Islamic finance managers, the Islamic insurance is now not an alien concept and practice in many Muslim countries. In Middle East, Malaysia, Indonesia, Pakistan, and India, to name a few, the Islamic insurance companies are doing very well with positively growing business.
Mostly the Islamic insurance or Takaful is designed on two models in compliance with principles of Islamic economics of Shariah, i.e.
Mudarabah: Mudarabah means profit sharing and loss bearing. This is the form of business well known and acknowledged by Islamic scholars. This concept has been introduced in Islamic insurance or Takaful in which the contributor provides the capital and the other party or entrepreneur acts like a working partner and the profit is divided between the both according to agreed upon share of profit. In case of loss, the both will bear it. Moreover, a portion of capital and profit is transferred to the mutual fund or pool which is used to fulfill the claims by the contributors.
Waqalah:In this model the company or entrepreneur acts as agent for the capital provider and make investment on his or her behalf in the business in compliance with Shariah. For its services the company charges its fee and the profit is transferred to the capital provider, except for a portion which is transferred to the mutual fund or pool to meet the claims of the contributors.
There is still a long way to go. The job to be done is to initiate more leadership development programs in Islamic finance. Also, it is the need of the hour to make the Muslim more aware of the Islamic insurance or Takaful and persuade them to make investment in the insurance companies to make possible losses against their life and property in order to make them less damaging, but turn them into benefit.