Economic Paradigm

TAKĀFUL (Islamic Insurance): AN ECONOMIC PARADIGM∗

© Mohd. Ma'sum Billah (Ph.D.)

E-mail: masum2001@yahoo.com

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Introductory Remarks Islamic jurists resolved that the system of insurance, which falls within the confines of Islamic framework, should be founded on the concept of al-Takaful. An Islamic insurance transacting is a policy of mutual co-operation, solidarity and brotherhood against unpredicted risk or catastrophes, in which the parties involved are expected to contribute genuinely. The nature of the principles of Takaful is fundamentally different from the principles of conventional insurance. An attempt is however made in this paper to analyze the conceptual framework of Takaful practices in the contemporary economic reality. Conceptual Framework The concept of insurance (Takaful), according to the jurists, is acceptable in Islam for the following reasons: • the policyholders would co-operate2 among themselves for their common good; • every policyholder would pay his subscription in order to assist those of them who need assistance; • it falls under the donation contract which is intended to divide losses and spread liability according to the community pooling system; • the element of uncertainty is eliminated insofar as subscription and compensation are concerned; • it does not aim at deriving advantage at the cost of other individuals. Under Islamic law, generally, any transaction that has the following elements: unjustified enrichment, uncertainty, risks, riba would vitiate a contract.3 Clearly, the contract of insurance under Islamic law would not be valid unless it were free from these elements. Thus in consonance with the above characteristics the jurists resolved that the system of insurance which falls within the confines of Islamic framework should be founded on the concept of al-Takaful. An Islamic insurance transaction is a policy of mutual co-operation, solidarity and brotherhood4 against unpredicted risk or catastrophes, in which the...