Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law. This concept has been practised in various forms for over 1400 years. It originates from Arabic word Kafalah, which means "guaranteeing each other" or "joint guarantee". In principle, the Takaful system is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. It is a form of mutual insurance. This is a sub-article of fiqh and Law and economics. ... This is a sub-article of Islamic economical jurisprudence. ... In states ruled by Islamic law, jizya or jizyah (Arabic: جزْية; Ottoman Turkish: cizye) is a per capita tax imposed on able bodied non-Muslim men of military age. ... In Sharia (Islamic Jurisprudence) from the arabic نصاب is the amount which savings or capital or product must exceed in order for the muslim owner to be obliged to give Zakat (Charity). ... Khums (خمس) is the Arabic word for One Fifth (1/5). ... This is a sub-article of Zakat, Infaq and Mustahabb. ... This article is about the religious endowment. ... Bayt al-mal is an Arabic term that is translated as House of money. ... Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics. ... Riba is the (Arabic: ربا ) term for intrest, the charging of which is forbidden by the Quran here, among other places: And that which you give in gift (loan) (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other... Murabaha is defined as a particular kind of sale, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities to be sold and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. ... Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. ... This is a sub-article to Islamic economical jurisprudence and inheritance. ... Islamic politics is the profession of Muslim politicians. ... This is a sub-article to Islamic jurisprudence and Marriage. ... Islamic criminal jurisprudence is the Islamic criminal law. ... This is a sub-article to Islamic jurisprudence and etiquette. ... Islamic theological jurisprudence is the filed of Islamic jurisprudence specialized in theological issues. ... This is a sub-article to fiqh and Hygiene Hygiene in Islam is a prominent topic but one which non-Muslims are not very familiar with. ... Islam (Arabic: ; ( â–¶ (help· info)), the submission to God) is a monotheistic faith, one of the Abrahamic religions and the worlds second-largest religion. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... Sharia (Arabic شريعة also Sharia, Shariah or Syariah) is traditional Islamic law. ... Arabic can mean: From or related to Arabia From or related to the Arabs The Arabic language; see also Arabic grammar The Arabic alphabet, used for expressing the languages of Arabic, Persian, Malay ( Jawi), Kurdish, Panjabi, Pashto, Sindhi and Urdu, among others. ... Mutual insurance is a type of insurance where those protected by the insurance (policyholders) also own the organization. ...

Islamic References to Takaful

These fundamentals are based on the sayings of Prophit Muhammad (pbuh). Based on the hadith and Quranic verses mentioned below, Islamic scholars had decided that there should be a concerted effort to implement the Takaful concept as the best way to resolve these needs. Some of the examples are: Muhammad in a new genre of Islamic calligraphy started in the 17th century by Hafiz Osman. ...

• Basis of Co-operation Help one another in al-Birr and in al-Taqwa (virtue, righteousness and piety): but do not help one another in sin and transgression. (Surah Al-Maidah, Verse 2)^[1]

• Allah will always help His servant for as long as he helps others. (Narrated by Imam Ahmad bin Hanbal and Imam Abu Daud)

• Basis of Responsibility The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)

• One true Muslim (Mu’min) and another true Muslim (Mu’min) is just like a building whereby every part in it strengthens the other part. (Narrated by Imam al-Bukhari and Imam Muslim)

• Basis of Mutual Protection By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam Ahmad bin Hanbal)

“The basic fundamentals underlying the Takaful concept are very similar to co-operative and mutual principles, to the extent that the co-operative and mutual model is one that is accepted under Islamic Law." Allah is the Arabic language word for God. ... Imam Ahmed ibn Hanbal (780 - 855) was an important Muslim scholar and theologian. ... Muhammad Ibn Ismail Ibn Ibrahim Ibn al-Mughirah Ibn Bardiziyeh al-Bukhari محمد بن اسماعيل بن ابراهيم بن المغيرة بن بردزبه البخاري), was the author of a collection of traditions, compiled in Sahih Bukhari. ... Abul Husayn Muslim ibn al-Hajjaj Qushayri al-Nisaburi (Arabic: أبو الحسين مسلم بن الحجاج القشيري النيسابوري) (born 204...

Principles of Takaful

The principles of Takaful are as follows:

• Policyholders co-operate among themselves for their common good.
• Every policyholder pays his subscription to help those that need assistance.
• Losses are divided and liabilities spread according to the community pooling system.
• Uncertainty is eliminated in respect of subscription and compensation.
• It does not derive advantage at the cost of others.

Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one anothers burden." Commercial insurance is strictly not allowed for Muslim as agreed upon by most contemporary scholars because it contains the following elements: i) Al-Gharar (Uncertainty) ii) Al-Maisir (Gambling) iii) Riba (Interest) Riba is the (Arabic: ربا ) term for intrest, the charging of which is forbidden by the Quran here, among other places: And that which you give in gift (loan) (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other... For other senses of this word, see interest (disambiguation). ...

There are three (3) models and several variations on how takaful can be implemented.

1. Mudharabah Model
2. Wakalah Model
3. Combination of both

The Mudharabah Model (Profit Sharing)

By this principle, the entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ra's-ul-Mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-Mal. The contract specifies how the profit (surplus) from the operations of takaful managed by the takaful operator is to be shared, in accordance with the principle of al-Mudharabah, between the participants as the providers of capital and the takaful operator as the entrepreneur. The sharing of such profit may be in a ratio 5:5, 6:4, 7:3, etc. as mutually agreed between the contracting parties. Look up premium in Wiktionary, the free dictionary A Premium may refer to: Premium rate telephone number, the UK Premium Bond Premium outlet Risk premium, in finance, the monetary difference between the guaranteed return and the possible return on an investment This is a disambiguation page — a navigational aid which... This article or section does not cite any references or sources. ... An entrepreneur (a loanword from French introduced and first defined by the Irish economist Richard Cantillon) is a person who operates a new enterprise or venture and assumes some accountability for the inherent risks. ...

In order to eliminate the element of uncertainty in the takaful contract, the concept of tabarru (to donate, to contribute, to give away) is incorporated. In relation to this a participant shall agree to relinquish as tabarru, certain proportion of his takaful installments or takaful contributions that he agrees or undertakes to pay thus enabling him to fulfill his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss.

In essence, tabarru would enable the participants to perform their deeds in sincerely assisting fellow participants who might suffer a loss or damage due to a catastrophe or disaster. The sharing of profit or surplus that may emerge from the operations of takaful, is made only after the obligation of assisting the fellow participants has been fulfilled. It is imperative, therefore, for a takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure. Therefore the provision of insurance cover as a form of business in conformity with Shariah is based on the Islamic principles of al-Takaful and al-Mudharabah.

Al-Takaful is the pact among a group of people, called participants, reciprocally guaranteeing each other; while Al-Mudharabah is the commercial profit-sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business. The operation of takaful may thus be envisaged as the profit-sharing business venture between the takaful operator and the individual members of a group of participants who desire to reciprocally guarantee each other against a certain loss or damage that may be inflicted upon any one of them. Profit sharing, when used as a special term, refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on companys profitability in addition to employees regular salary and bonuses. ...

Notes

External Links

Takaful Resources:

• Takaful Resources: Articles, Presentations and Online Books | AAB Resource Center

Fatwa:

• (Indonesian) Fatwa DSN-MUI about General Principles of Islamic Insurance
• (Indonesian) Fatwa DSN-MUI about Tabarru' in Islamic Insurance
• (Indonesian) Fatwa DSN-MUI about Mudharabah Musytarakah in Islamic Insurance
• (Indonesian) Fatwa DSN-MUI about Wakalah bil Ujrah in Islamic Insurance

Other:

• Takaful – Islamic Insurance – from the International Cooperative and Mutual Insurance Federation
• Web directory on Islamic finance, banking and takaful
• Takaful Summit 2007 in London