An Introduction to Takaful: How Does Takaful Differ from Conventional Insurance

Abstract

For generations, Muslims around the world have grown up with the mindset that insurance particularly life insurance is prohibited by Islam. This is because conventional insurance involves the elements of uncertainty (gharar), gambling (maisir) and interest (riba) which are not permissible under the Sharia. In response to the above negative phenomenon, the contemporary Sharia Scholars argue that Takaful is the Islamic alternative of insurance, which offers Sharia compliant insurance products all over the world and its contract is vested on the issues of "joint benefit», cooperation, mutual help, solidarity, brotherhood, profit and loss sharing.

This allowed the creation of Takaful in the early second century of the Islamic era especially in Sudan in 1979.

Although its acceptance in the Muslim world was slow at first, in recent years, the Takaful way of insurance has grown significantly and has gained popularity not only with Muslim countries but also with non-Muslim countries due to its competitiveness and efficiency.

In this paper, we describe main features and models of Takaful system. The arguments put forward by religious scholars in favour of and against insurance are also discussed. We then try to give a brief comparison of Takaful and conventional insurance. We attempt after that to analyse the development of Takaful and Retakaful in Muslim and non-Muslim countries as well. Finally, we clarify the challenges and the opportunities that Takaful is exposed to.