In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance. But, the fundamentals of insurance principle is against Islamic believes which led to muslim scholars coming up with the concept called TAKAFUL INSURANCE.
I will be trying as much as possible to summarise the idea behind this concepts in two (2) blog posts. I hope you enjoy and find it educative enough.
Takaful is commonly referred to as Islamic Insurance; this is due to the apparent similarity between the contract of kafalah (guarantee) and that of Insurance.
Takaful is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholder, thus passing the ownership of the takaful (insurance) fund and operations to the policyholder.
In Takaful, the policyholders are joint investors with the insurance company (takaful operator), who acts as a mudarib (manager/agent for the policyholder). The policyholders shares in the investment pool profit as well as its losses.
Three (3) basic important differences distinguish between Takaful and Conventional Insurance;
- Conventional insurance involves the element of excessive uncertainty (gharar) in the contract of insurance, which is against Islamic believe.
- Gambling (maysir) is the consequence of the presence of excessive uncertainty that rely on future outcomes. Islam does not support gambling in any form.
- Interest (riba) in the investment activities of the conventional insurance companies. Riba is seen as an unjust & exploitative gains made in trade or business, which is not acceptable in the Islamic world.
In my next post, i will take us further on;
- Basis and principles of Takaful,
- How does Takaful work
- Insurance companies in Nigeria carrying out Takaful Insurance.
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