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Takaful Overview
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Takaful Definition

Takaful originates from the Arabic word Kafalah (meaning "joint guarantee"), and is an Islamic insurance concept which is grounded in Islamic muamalat (Islamic banking) observing the rules and regulations of Islamic law (Shari’a), and explaining how it is the responsibility of individuals to cooperate and protect each other.

In principle, the Takaful Insurance system is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants, and as follows:



Theoretically, Takaful is perceived as cooperative or mutual insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits, but to uphold the principles of compensation and shared responsibilities among the community.


It is not a new concept, but one that has been practiced in various forms for over 1400 years. It is generally accepted by Muslim Jurists that the operation of conventional commercial insurance does not conform to the rules and requirements of Shari’a, and is thus strictly disallowed for Muslims, as it contains usury (riba), gambling (al-maisir) and uncertainty (al-gharar).


Reinsurance and Takaful

Retakaful; the reinsurance of Takaful companies on Islamic principles is an area of much debate, mainly due to the lack of Retakaful companies in the market.


This has left Takaful companies with a dilemma of having to reinsure on conventional basis, contrary to customer’s preference of seeking cover on Islamic principles, which lead Shari’a scholars to allow Takaful operators to reinsure on conventional basis as long as no Retakaful alternatives are available.


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