Potential Growth of Islamic Takaful in Modern Economy

Risks are everywhere and these risks are always associated with human life and most of their activities are exposed and not free from risk. It may affect any life, property or even a business organization. Risk exists in every course of life and everyone wants to minimize it. This situation gives a wide room to the idea of insurance that is a contract to minimize the risk of loss as. Unknown events occurring in the future may be fortunate or unfortunate. However, in Islam the acceptability of insurance is arguable. The Islamic Takaful has expanded in many major markets and in Muslim dominated countries around the world. Takaful operators from Malaysia have set up joint-ventures in Pakistan, Saudi Arabia and in India provided technical expertise to many countries in the Asian region. There are currently more than 80 Takaful insurance companies worldwide. 

In Pakistan, the need for Shariah-based insurance has become more urgent and this will affect huge business capacity. Islamic finance gave birth to a new term in trade and commerce that is known as ‘’Takaful’’. The word “Takaful” originates from the Arabic word “Kafala” means "guarantee". Takaful, therefore, is the practice whereby individuals in the community jointly guarantee themselves against loss or damage. The very idea of ‘’Tabarru’’ is the core of Takaful system which is pure without the elements of uncertainty and gambling. Another indicator of its growth is the increase in the size of the Muslim market.

The Takaful products strictly follow the Shariah law, rules and regulations. The role of the Shariah board is to watch closely the business decisions. In Takaful individuals in the community come together on a common platform and contribute a small amount into a Waqf Fund to protect themselves against future losses or damages. Loss is compensated through the Waqf Fund and not by the Takaful Operator. At the end of every year, any excess amount left in the Waqf Fund after paying off claims and meeting expenses may be distributed amongst the participants as per the advice of the Shariah Board. In Takaful shareholders of the company are not entitled to participate in the profits generated by the insurance operators. While in the case of conventional insurance the primary motivation is to earn profit from the insurance transactions. The policyholder of conventional insurance has no right to vote in the elections of the directors of the company or to see the annual accounts of the company. However, in Islamic insurance companies, these facilities are available to all policyholders. These differences increase the value to the Takaful industry and Takaful is becoming popular day by day.

The Takaful industry is appearing as a strong competitor against conventional insurance, especially in Muslim countries. The Takaful industry is contributing a lot of new things to the global insurance industry. However, there is still a lack of awareness about Takaful and there is still a great deal of work needed to increase its awareness. Takaful is for all as it has its own unique position in an emerging global insurance market. 

Written by: Hassan Jamil
COMSATS Institute of Information & Technology, Lahore

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