THE INVESTMENT INITIATIVE IN TAKĀFUL: ISSUES AND CHALLENGES

The concepts of mutual assistance and charity often come to mind when takāful (Islamic insurance) is mentioned. This is understandable given that takāful, in the generic sense, has played an essential role in risk sharing in Muslim history. However, another feature has been added to the modern practice of takāful. The current takaful scheme has added the investment element to its products, one of a number of features that it shares with conventional insurance. The investment feature has become an inherent part of takaful activities, departing from its original core roles of providing mutual guarantee, assistance and solidarity. This is most apparent when looking at family takaful where the participant’s fund is segregated into two pools: the participant’s risk fund (PRF) and the participant’s investment fund (PIF). The offering of a number of investment-linked products in the market has led to making the takaful scheme more appealing and competitive. This evolution has been the result of a natural progression to ensure that takaful operations remain continuously viable and compatible in the current economic and social environment.

However, the investment role carried out by takaful operators has raised a number of questions. Some have argued that it is inappropriate for takaful to incorporate the investment feature in addition to its core focus of protection as it contradicts the social and charitable nature of takaful. Others are of the view that there is nothing wrong with the investment initiative undertaken by takaful operators as long as the investment activities are in compliance with Islamic law and the contractual mechanic requirements are satisfied.