Dictionary Meaning of Takaful (Lexicon):
The word “Takaful” originates from Arabic word “Kafalah” which means “To Guarantee”. Through inflection it changed to “Takaful” which means to “jointly guarantee each other”.
Definition of the Term “Takaful”
Takaful is an Islamic Insurance system, an alternative of conventional insurance wherein all participants contribute the funds in a pool and share the risks according to rules of mutual understanding, cooperation and contribution. In this system, as per common rules of mutual understanding, cooperation & trust; all participants are safeguarded against the financial risks.
THE UNDERSTANDING OF TAKAFUL IN HOLY QURAN
Takaful is not a newly invented system of Islamic insurance, as it is based on the concept of mutual assistance and solidarity which is very well explained and elaborated in detail in Holy Quran and Hadith. As, Takaful’s foundation lies in contribution, mutual cooperation and understanding amongst each other therefore, we shall look into its concept under the light of Quranic verses and Hadith of Prophet (PBUH).
Allah Almighty Says in the Holy Quran, Chapter: Al-Maida, Verse # 2
Translation: “Help you one another in Al-Birr (righteousness) and At-Taqwa (virtue, and piety)”.
Takaful is based on this concept of contribution and cooperation with each other.
Likewise, Allah Almighty Says in the Holy Quran, Chapter: Al-Hijrat, Verse # 10
Translation: “Muslims are brothers to each other”
This brotherhood requires all Muslims to trust and cooperate with each other and support each other when they are in trouble or in times of dire needs. The way real brothers help out each other.
Hadith – Saheeh Muslim: 4685
Translation: “All Muslims should live together with love, peace and harmony and it should exemplify like a human body. If there is a pain or trouble in one part of the body, then whole body is affected with the pain and fever”.
This is the case with Muslims, if one Muslim is in trouble than all the Muslims should feel the pain which means all must try their best to help him get out from trouble.
These are the Islamic preachings with which peace, harmony and brotherhood amongst human beings can be established in the world.
Therefore, Takaful is based on the same principal of helping and assisiting each other (participants) in times of trouble and safeguard against financial crisis.
TAKAFUL & TAWAKKUL:
Some people have a concept that Takaful is against the concept of Tawakkul in Islam, which is incorrect and a misunderstanding. Because “Tawakkul” does not mean forgetting causes/reasons, leaving precautions and results for circumstances, in fact, acceptance of causes, taking proper precautions and precautionary measures and relying on Allah for all results is the very understanding of “Tawakkul”. Hence, acceptance of the causes, adopting proper measures and reasons and leaving the results and blessings to Allah is called Tawakkul.
As quoted in Hadith – Tirmizi Shareef: 2441
A Sahabi (RA) (companion) asked our Prophet (Peace be upon Him) “Oh messenger of Allah! Should I tighten my camel with rope and then rely on Allah Tawakkul or should I simply leave the camel open and rely on Allah Tawakkul?”
Prophet (PBUH) replied, “Don’t act like that, first tighten your camel with a rope and then rely on Allah Tawakkul”.
This incident has also been mentioned in Tirmizi Shareef
Similarly Prophet (PBUH) and His companions (Sahaba-e- Kiraam) have acquired prompt precautionary meansures, reasonings and treatment in times of illness.
As sighted in this incident quoted from Hazrat Osama Bin Shareek:
Hazrat Osama Bin Shareek asked the prophet “When we get ill shall we go for the treatment?”
Our Prophet (Pease be upon him) replied:
“Oh men of Allah! Yes, you should seek treatment, because God almighty has created the treatment and cure for all diseases expect for aging”.
Hadith – Bukhari 1/383
“It is better to leave your children rich, rather than leaving them poor & weak and begging before others”.
Therefore, the argument is simple misunderstanding and based on lack of knowledge regarding principles of Shariah which should be avoided.
THE HISTORY & EVOLUTION OF TAKAFUL
The concept of Takaful which is based on trust, mutual understanding and cooperation. This is a very old concept and existed even before the existence of Islam. Different tribes used to follow the same system of creating a joint pool for helping each other in different ways. When Islam got promoted, it had also continued the same system which is evident from Meesaq-e-Madina.
Afterwards, different caliphs of Islam have also made such agreements, although they were not labelled as Takaful, however the concept of Takaful existed in them.
Later due to Risk Management, commercial ways have been applied & in this way the concept of conventional Insurance came into existence and transformed into a proper business. However since, majority of nation had declared conventional insurance as Non-Shariah Complaint keeping the principles of Islam in mind and Muslims were asked to abstain themselves from it, therefore in 1970 Muslim Scholars started research on its Islamic alternative.
In 1979, the first Takaful Company was founded in Sudan & Bahrain.
At present, approximately more than 84 Takaful Companies exist in more than 25 countries.
GENERAL MODEL OF TAKAFUL
General model is based on a foundation of a “Takaful company” by a few shareholders, which is called “Management Company”. It is based on the following principles.
- The company creates a Waqf Pool and asks the people to make contributions to the pool and become its member who wish to avail Takaful facilities. The rules of contributions are settled and these persons continue to be the members of the Pool by make contributions and the pool then covers up for the financial losses of its members as per the rules & regulation set by the Shariah and the regulatory laws.
- The company does not owns the pool. It operates only as facilitator or operator of the pool. It keeps the records and accounts intact. Company’s accounts and pool accounts are different from each other. The company charges a Wakalah fee (Management Fee) against the services provided by it.
- Companies invest the money of the Pool on its behalf on the basis of “Mudaraba” or “Wakalah” in which the company act as “Mudharib” or “Investment Manager” and the pool is treated as “Rab-ul-mal” or the “Muwakkil” the Investor.
- The number of Participants in the pool can increase over the period of time and profit can also occur which causes the total sum of the pool to increase.
After deducting expenses, distributing the profit share of the company (Takaful Operator) and setting off the claims (if any) among the members of the Pool / Participant, remaining amount in the pool (if any) is called surplus amount In which, company has the right to keep some funds as contingency reserves, do some charity, distribute some amongst the participants of the Pool.
BASIC PRINCIPLES OF A TAKAFUL COMPANY
In context of previous explanation, following are 3 basic principle of a Takaful company.
- Participants make contribution to fund the pool and become its member.
- Pool releases the funds as per rules and regulations.
- Surplus funds in whole or partially can be shared amongst participants.
These three principles are interconnected and formal rules and regulations apply on it. Therefore, participants make contributions to the Pool and pool is covers their losses in times of their needs.