web analytics

The Potential Growth of Islamic Takaful in Modern Economy

Human life is prone to all kinds of risks prevalent almost everywhere thus affecting human lives and most importantly their property, earning, business etc. A natural drive would therefore be to devise strategies to avoid or at least minimize them. One of those safety contracts to minimize the risks is the idea of insurance. When it comes to practicing insurance in Islam, the idea is subject to huge controversies and arguments.

The concept of Shariah based insurance is thought to affect the nationwide huge business capacity. Islamic financing has given roots to new terms in trade and commerce, commonly known as Takaful. Recently, the concept of Islamic Takaful is gaining huge interest in many major markets and in Muslim dominated countries around the world. The word “Takaful” originates from the Arabic word “Kafala” which means “guarantee”. In this practice, individuals jointly guarantee themselves against loss or damage. The core idea behind the system is the most certain and gambling free is the concept of ”Tabarru”. Pakistan is also on the road of setting up joint ventures with countries like Malaysia which is known to hold the Takaful business with other countries like Saudi Arabia and India. It is reported that currently there are more than 80 Takaful insurance companies operating worldwide and the number is rapidly rising.  The rapid increase in size of the Muslim market is an indication of the popularity of the Takaful concept.

The Takaful products strictly follow the Shariah law, rules and regulations. Here individuals in the community jointly contribute a small amount into a Waqf Fund to protect themselves against future losses or damages. The Waqf Fund is used to compensate for the individual losses. Any excess money left in the Waqf Fund after paying off claims and meeting expenses is normally distributed amongst the participants at the end of the year, as per the advice of country’s Shariah Board. The shareholders of the company do not participate in the profits generated by the insurance operators whereas in the case of conventional insurance the primary motivation is to earn profit from the insurance transactions. The policy holders of a conventional insurance do not vote in the elections of the directors of the company. Also they are not entitled to see the annual accounts of the company. On the other hand in Islamic insurance system, the policy holders are not deprived of such rights thus increasing the value to the Takaful industry.

At the moment, Takaful industry is appearing as a strong candidate against conventional insurance especially in the Muslim countries. Despite the fact that Takaful industry is contributing a lot of new things to the global insurance industry, the popularity of the idea among the users is still in its infancy. A good amount of efforts are needed to done to increase awareness about the terms of the Takaful system.  In a nutshell, the system has its own unique position in an emerging global insurance market.

Facebook Comments