Principles of Islamic banking and finance/PIBF203/Takaful/Video signpost
In this video, Dr. Shamim Siddiqui from Hamdan Bin Mohamed Smart University, provides an overview of Takaful or Islamic insurance
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Video transcript
The Islamic alternative to conventional insurance is takaful which is although close to the concept of mutual insurance, has some distinct features. Takaful is governed by the principles of Shari’ah, where transactions involving Riba is prohibited. Riba is avoided in Takaful using contracts for profit shares and investment in other Shari’ah compliant schemes. Another essential difference is that conventional insurance by its conception is a risk-transfer mechanism. Takaful on the other hand does not entail a risk transfer mechanism, but rather a social function of mutual risk-sharing. The contract of Takaful is not a sale or an exchange, but is rather a membership contract to a common pool, of which every member is entitled to certain benefits but also exposed to some risks of loss. This also what makes Takaful system commercially more viable, as the remaining money after all claims does not belong to the shareholders, but rather to the participants and it should thus be given back. In addition, motivations of conventional and Islamic insurance companies are different; while conventional companies are directed by the search of profit. Takaful companies are directed by ethical considerations and work for the overall benefit of society and the environment. Regulation in Takaful is undertaken through Shari’ah supervisory bodies that ensure that all operations are conducted in line with the Shari’ah principles and fulfil Islamic objectives of social welfare.
