TAKAFUL THE ISLAMIC INSURANCE Dr Imran Usmani

Conventional Insurance It means a way to provide security / and compensation of what is valuable in the event of its loss, damage or destruction based on the principle of risk taking and speculation.

Problems with Conventional Insurance 1. Gharar ( uncertainty ) Literally Gharar means: Uncertainty; cheating; (Jahalah) ambiguity. There are two types of Gharar: Jahalah which causes to dispute. E.g. un specified or un quantified subject matter in sale. Uncertainty of one party’s profit. E.g. One party’s (such as policy holder’s) profit in Insurance. 2. Khatar: ( Risk) Taleequl milki al alkhatr, wal mal fil janibain: To stipulate ownership (of any amount) on a risk, where both consideration is money or commodity

Problems with Conventional Insurance 2. Mayser ( Qimar or Gambling ) Mayser means Qimar in Arabic language. Mayser has two basic elements which cause to prohibit Mayser namely: 1. Gharar (2) Khatar Having the above two elements speculation, gambling and insurance is prohibited.

Problems with Conventional Insurance The participant contributes a small amount of premium in a hop/risk to gain a large sum is Khatar. The participant loses the money paid for the premium when the insured event does not occur is Gharar. The company will be in deficit if the claims are higher than the amount contributed by the participants is Gharar.

Problems with Conventional Insurance 3. Riba The element of Riba (Interest) exists in lending or borrowing funds/investments at fixed interest, and other related practices in the investment activities of the conventional insurance companies

The Solution Islamic Cooperative Insurance ( Takaful)

Definition for Takaful Takaful is an Arabic word that means "guaranteeing each other". It is a system of Islamic insurance based on the principle of TA-AWUN (mutual assistance) and Tabarru (Voluntarily) where the risk is shared collectively by the group Voluntarily. This is a pact among a group of members or participants who agree to jointly guarantee among themselves against loss or damage to any of them as defined in the pact.

Basic Principle behind Takaful 1.The principle of “fortunate many helping the unfortunate few" is a concept recognized by Islam. 2.The Quran states in Surah Al-Maidah verse # 2: "Help ye one another in righteousness and piety, but help ye not one another in sin and rancor". 3. Principles of Muwalat, Maaqil, and Kafalah are examples for its permissibility.

Features Firstly, the participation into a Takaful fund must be performed with utmost sincerity in order to help those faced with difficulties. Every policy holder would pay his subscription in order to assist those who need assistance Any member or participant suffering a catastrophe or disaster would receive a certain sum of money or financial benefit from a fund, as also defined in the pact, to help him meet the loss or damage

Operation of Takaful Fund The transactional aspect of the commercial activity of Takaful must be subject to the Islamic contractual laws in order to ensure its compliance with the Shariah . The Company involved in takaful business, as the operator, will accept payment of the takaful installments or takaful contributions (premium) from the participants (clients) for the takaful plan or takaful scheme they wish to participate.

Operation of Takaful Fund 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 it. In relation to this a participant shall agree to relinquish as “gift” certain portion of his Takaful installments . For the service rendered as manager of the Takaful Operations the company will charge a management fee.

Operation of Takaful Fund The Takaful Fund, consisting of the contributions paid as Tabarru, will be further invested by the Company based on the principle of Al –Mudarabah, through which the element of interest (riba) will be replaced. All premium holders will participate in pofit and loss. Profit will be shared on agreed ratio.

Uses of Takaful Takaful can be used to cover Property like house, factory, mosque, offices Vehicles (car, motorcycle etc..) Goods ( like during import or export ) Valuables Health, accidents and Life