Takaful: An Islamic insurance instrument

Abstract

The Takaful concept evolved from individual common interest during the industrial era of the early 1900’s. Only eighty million of the world’s 2.5 billion poor are currently covered by some form of micro-insurance. Only 3% of the poor in India and China are insured, and only 0.3% of the poor in Africa are insured. In 23 of the 100 poorest countries in the world, there is currently no identified micro-insurance activity. The majority of the population is in the low-income bracket. On top of that, society’s awareness regarding the importance of insurance is rather low. In this paper, it will be stressed that efforts still need to be directed towards educating the public on Islamic insurance to appreciate the protection aspects that insurance can offer. Conventional insurance involves the elements of uncertainty, gambling, and interest, all of which are unacceptable under Islamic law. There existed anxiety among Muslims regarding the inconsistency of conventional banking and insurance in compliance with Islamic laws. This allowed the creation of a new industry, takaful, which offered risk protection and savings products to the world’s 1.6 billion Muslims. One of the greatest challenges facing the takaful industry is the misconception that it is exclusively for Muslims.Takaful products have attracted even non-Muslim communities, despite the obvious religious and cultural differences. Nonetheless, the interest shown by non-Muslims and the support of Muslims is not enough to promote the awareness and the growth oftakaful and what it has to offer. It is this lack of awareness that presents one of the greatest challenges to the development and growth of the national and global industry. Key words: Takaful, insurance, kafal, conventional insurance, gambling, interest.

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