Takaful is a type of social system based on the Islamic concept of mutual assistance/cooperation (taʿāwun), brotherhood (ukhuwwah), and voluntary contribution (tabarruʿ), where risk is shared collectively among participants. It is an Islamic alternative to conventional insurance, which has been deemed impermissible by Shariah. The Islamic Fiqh Academy of the Organisation of Islamic Cooperation (IFA-OIC), in its Resolution No. 9 (9/2), resolves that “the commercial insurance contract with a fixed periodical premium, which is commonly used by commercial insurance companies, is a contract which contains major elements of deceit, which is a void contract and therefore is prohibited according to Sharīʿah” (IFA-OIC, 1985).
Takaful is gaining momentum and is widely accepted in many Muslim and non-Muslim countries alike. The takaful industry has come a long way from its initial basic teachings and practice. Although the word takaful is not mentioned in the Qur’an literally, its concept and philosophy—i.e., taʿāwun and ukhuwwah—can be found in the Qur’an and the Sunnah (traditions of the Prophet). The Qur’an says: “And cooperate in righteousness and piety, but do not cooperate in sin and transgression…” (Al-Qurʾān, 5:2). As for the Sunnah, Prophet Muhammad (pbuh) said: “The believers, in their affection, mercy and sympathy to each other, are like the body, if one of its organs suffers and complains, the entire body responds with insomnia and fever” (Sahih Muslim) and also “Whoever removes a worldly hardship from a believer, Allah will remove from him one of the hardship of the hereafter. Whoever alleviates the needy person, Allah will alleviate from him in this world and the next.” (Sahih Muslim).
Historically, this concept existed during the time of Prophet Muhammad among the Arabs, whether by means of tribes assisting each other to pay diyah (blood money) under the tribal system of al-ʿāqilah (payment of blood money to the heirs of the murdered) or through al-nahd (sharing of provision), kafalah (guarantee or suretyship), and other means of providing support to other tribe members.
Unlike conventional insurance, which can trace its roots back to the 17th century, takaful can be considered a relatively new industry that emerged within the past four decades. The first takaful institution, i.e. Islamic Insurance Company Ltd., was established in Sudan in 1979. According to Ernst and Young’s World Takaful Report (2014), the global takaful industry, although still small compared to conventional insurance, continues to grow at a sustainable rate of about 14% per annum and is expected to reach over US$20 billion by 2017. There are currently more than 130 takaful companies operating worldwide. In some countries with Muslim majorities, such as Pakistan, Nigeria, Egypt, and Bangladesh, the takaful market is still in its early stages of development.
