Takaful Industry in Pakistan

Topics: Insurance, Sharia, Islamic banking Pages: 19 (6267 words) Published: May 13, 2013
TAKAFUL: Objectives and Methodology

Lecture Prepared by Mr. Atiquzzafar Khan

IIIE, International Islamic University, Islamabad, Pakistan

About The Course & How To Use This Lecture

The Distance Learning Course entitled “Fundamentals of Islamic Economics” is a joint offering of Imam Sadiq University, Tehran, Iran; International Islamic University, Islamabad, Pakistan; Markfield Institute of Higher Education, Leicester, UK; and Islamic Research and Training Institute (IRTI), Islamic Development Bank with participation of Kuwait University, Kuwait and Imam Ouzai University, Lebanon.

The Lecture no. 9 of this course is prepared by Mr. Atiquzzafar Khan of IIIE, International Islamic University, Islamabad, Pakistan.

Students are required to read the lecture/notes before attending the lecture in a Distance Learning session. They are also expected to read through some supplementary reading material indicated at the end of each lecture.

For active learning take notes and ask questions during the lecture. You will also have opportunity to interact with the lecturer through e-mail for a period of one week after the lecture.

Views expressed in this lecture, as well as any errors, are sole responsibility of the authors and do not necessarily represent the opinions of IRTI/IDB Board of Governors or other members of the IRTI staff. The same applies to the collaborating institutions of this course.

© 2005. Copying of this lecture in any form (print, electronic, or other retrieval systems) for commercial purposes is not allowed without an explicit permission of IRTI, Islamic Development Bank.

For inquiries write to: Islamic Banking and Finance Division, Islamic Research and Training Institute, P.O. Box 9210, Jeddah 21413, Saudi Arabia. E-mail: ibfd@isdb.org


Insurance is an important sector for any present day modern economy. This business has attracted the attention of Shari’ah scholars since its introduction in Muslim societies. The opinions were diversified on the status of insurance business from Shari’ah point of view. After long discussions and debates a consensus emerged among the scholars that although the nature and objectives of insurance are not contradictory to Islamic principles, the present form of this business involves elements of interest, uncertainty, gambling etc. which are prohibited in Islam. Cooperative insurance was suggested as substitute for contemporary insurance. Some scholars suggested another substitute for the commercial insurance under the name of Takaful, which means ‘joint guarantee’. On the basis of this suggestion many Takaful companies have been established and running their business quite successfully in various countries such as Malaysia, Bahrain, Sudan etc. Takaful scheme is based on the elements of Tabarru’ (Donation o Gift) and Mudharabah. Use of these two elements in the business removes the forbidden elements like interest, uncertainty (gharar) and gambling from the contract. Under Takaful scheme a policy holder deposits his contribution to the company which is divided into two separate accounts. A larger portion (90 – 97%) goes to investment account and the remaining goes to a Waqf fund as donation. The Company invests the available funds in different opportunities according to Islamic principles and shares the profit with the policy holders. In case of occurrence of the event, against which insurance protection was arranged, the total amount deposited in investment account along with the profits are returned to the person. Another supplementary amount is provided from the Waqf fund according to a formula to compensate the loss. TAKAFUL: Objectives and Methodology

Atiquzzafar Khan


Insurance is the most important sector in present day modern economies after banking. In fact, banking and insurance go Hand-in-Hank and greatly complement...
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