Takaful: An Introduction

All types of human activities are not immune to various losses and risks arising from unforeseen events. The efforts of individuals and companies to protect themselves from unexpected circumstances are not only considered natural but also a process in accordance with Shariah. Because when a person asked the Messenger of Allah (peace be upon him): "Should I tie my camel and rely (on Allah), or should I leave it untied and then rely?" He replied: "Tie it and then rely!" (This meaning is narrated by Ibn Hibban, Hakim, and Quzai). That is, as long as a person has the means, it is natural for him to take all necessary precautions to prevent harm that may come to himself or his property. The Shariah-compliant solution for protecting oneself from various unpleasant events is the TAKAFUL system, which is an alternative to the conventional insurance system.

Takaful is a system based on mutual cooperation, embodying the principle of collectively compensating for losses incurred by any member of society. Furthermore, elements present in conventional insurance that are prohibited in Shariah, such as speculation (gharar), gambling (maysir), interest (riba), and uncertainty (gharar), are not allowed in Takaful.

Definition of Takaful

The terms "Takaful" and "Shariah-compliant insurance" are considered interchangeable. Insurance in accordance with Islamic finance is based on the principles of mutual assistance, solidarity, and common support, and is a solution for various disasters and unfortunate events that may befall beneficiaries (parties who may benefit from the common support project), such as loss or damage to property.

Shariah-compliant insurance – Takaful (التكافل) – is derived from the Arabic word kafala (الكفالة), meaning "guarantee" or "mutual guarantee". In its place, Takaful is also considered collective insurance, but not all collective insurance is Shariah-compliant.

Takaful is a type of risk management system where members contribute their funds to a common pool to mutually guarantee against loss or damage. In other words, Takaful is based on the principle of mutual guarantee of risks through the distribution of losses. Initially, a Takaful fund is established, and those wishing to become members contribute a certain amount of money to the fund as tabarru' – donation, voluntary payment. If a beneficiary, i.e., a member, suffers a loss, that loss is compensated from the accumulated funds (the money in the fund). The Takaful fund is managed by a Takaful operator.

AAOIFI Shariah Standard defines Takaful as follows:

"Shariah-compliant insurance is a form of corporate insurance covering all types of risks, managed by a specialized company that adheres to the rules and principles of Islamic Shariah.
A Shariah-compliant insurance contract is based on mutual assistance and donation, where losses or damages arising from various risks are fairly distributed among members (i.e., the loss incurred is compensated from the funds contributed by the members)."

Prepared based on Standard No. 26 – "Shariah-compliant Insurance" of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a leading international organization

Source: islommoliyasi.uz