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Islamic Insurance
(APRIL 26, 2004)

  By Dr. Rukhsar Ahmed
Todays muslim ummah is demanding "Islamic Insurance" as alternate system for non islamic interest based system. The Islamic Insurance System, is called Takaful in Shariah.

Takaful is an arabic word, means mutual co-operation/responsibility. It is also being used in modern economy as islamic insurance which is based on the principle of mutual assistance. It provides mutual protection and joint risk sharing in the event of a loss by one of its members. This evolved from the Islamic practice of Aqilah, or blood money. This was practiced by Arab tribes before the advent of Islam and was approved by the Messenger of Allah, Aan Hazrat Muhammad Sallalahu Alahe Wasalam.

In the event of death caused by someone from another tribe, the members of the offender's tribe would share the 'blood-money' to provide for the family of the victim. Without this sharing, the person inadvertently causing the death would face great hardship in paying the blood money.

The islamic insurance (takaful) is a classic example of consumer-driven response to their needs. For generations, Muslims around the world have grown with a mind set that insurance (especially life insurance) is unacceptable because it contravenes some of the Islamic tenets. Life insurance as sold in conventional way was declared unacceptable in 1903 by some prominent Islamic scholars in the Arab countries. The search was on for an acceptable alternative ever since, and not until the 1970's the debate took sufficient momentum to reach a consensus.
In 1985, the Grand Counsel of Islamic scholars in Makkah, Saudi Arabia, Majma al-Fiqh, approved takaful system as the alternative form of insurance written in compliance with Islamic Sharia. It is outside the scope of this presentation to explain how the takaful system works except to say that it is a concept of protection for the good of society, a concept that was never an issue in Islam in the first place. The Grand Counsel approved this system as a system of co-operation and mutual help but the exact method and operation was left to Islamic scholars and insurance practitioners to resolve, develop and implement.

The growth potential that exists in islamic insurance with great many opportunities for innovative development of unique products, techniques and systems needed to fill gaps in insurance penetration in many of the markets around the globe. There is a need to have an insight into the size of the current takaful industry worldwide and sketches the signs of change that may lead to realization of the potential that exists in this sector.

An overview
Takaful industry is still not past its formative years and there are many areas unresolved, especially in life insurance. The key areas to resolve are the global standardization of takaful terminology, the development of an acceptable form of life insurance (family takaful) especially for countries in the Arab regions and a common consensus for a system to determine profits (or surplus) distributable to participants and shareholders.

The very first Takaful company was established in 1979 - the Islamic Insurance Company of Sudan. Today there are more than 30 registered Takaful companies worldwide writing takaful directly and dozens more as Islamic windows or marketing agencies placing insurance risk with conventional and takaful companies. In fact the number of takaful companies is higher as all insurance companies in Sudan are deemed to operate in accordance with Islamic Shariah principles. In addition, new takaful companies have been established recently in Sri Lanka, Tunisia. More Takaful companies are under formation in the Bangladesh, Kuwait, UAE, Egypt and Pakistan. Takaful industry is under-developed compared to other markets such as Malaysia.
Dr. Rukhsar Ahmed