The Concept of Takaful (Insurance) and Risk Management in Islam

Topics: Risk management, Insurance, Risk Pages: 21 (5535 words) Published: January 8, 2011
Insurance is not a new concept within Islam. The principle of a person protecting himself against loss or misfortune is even described in the Qur'an through stories of some of the prophets. In Arabic this concept is known as "takaful". It is acknowledged that the foundation of shared responsibility or Takaful was laid down in the system of "Aaqilah", which was an arrangement of mutual help or indemnification. In case of any natural calamity, every body used to contribute something until the loss was indemnified. Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe. Islam accepted this principle of reciprocal compensation and joint responsibility.

It is also a generally accepted view that Islamic insurance was first established in the early second century of the Islamic era. This was the time when Muslim Arabs started to expand their trade to India, Malay Archipelago and other countries in Asia. Due to long journeys/voyages, they often had to incur huge losses because of mishaps and misfortunes or robberies along the way. Based on the Islamic principle of mutual help and cooperation in good and virtuous acts, they got together and mutually agreed to contribute to a fund before they started their long journey. The fund was used to compensate anyone in the group who suffered losses through any mishap. In fact the Europeans copied this, which was later known as marine insurance.

Takaful, means "guaranteeing each other", is the same as insurance. It represents the concept of insurance based on mutual co-operation and solidarity of people by participating in a takaful scheme. Takaful (which is based on the concept of social solidarity, co-operation and mutual indemnification) satisfies the need for insurers that now need to provide Shariah compliant insurance services as an alternative to the conventional insurance.

Takaful (التكافل) 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 practiced in various forms for over 1400 years. Muslim jurists acknowledge that the basis of shared responsibility in the system of Aquila as practiced between Muslims of Mecca and Medina laid the foundation of mutual insurance. Islamic references to Takaful:

These fundamentals are based on the sayings of the Islamic prophet Muhammad. 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: •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) •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...
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