Contemporary Islamic Finance: Innovations, Applications and Best Practices

CHAPTER 12

Takaful

FARRUKH SIDDIQUI

President and Chief Operating Officer, Zayan Takaful

Perhaps no one would inherently associate concepts such as mutual protection, joint cooperation, risk sharing, and social responsibility with insurance. To most, insurance is a necessary evil that must be swallowed like a bitter pill to offset financial losses from the threat of risk inherent in every facet of life. How could this type of service have anything to do with the aforementioned ethical ideals? But this is exactly what Takaful, insurance designed to be in conformance with Islamic law, is based upon.

TAKAFUL EXPLAINED¹

Insurance is “a contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.”² In Islam, this core principle of insurance is not forbidden; rather it is encouraged based on an essential aspect of Islamic belief, tawakkul, which means “complete ‘reliance’ on Allah (God) and ‘trust’ that He alone is sufficient for all of one's needs.”³ However, this “reliance” and “trust” does not mean that Muslims should abandon their own faculties by never studying for an exam and only praying that Allah will earn them an A+. Muslims are obligated to make a best-faith effort to achieve their aims and then rely on and trust Allah with sincerity of faith. One of the most famous traditions (hadith) on the subject states that when Prophet Muhammad (pbuh)⁴ saw that a Bedouin had left his camel untied, the Prophet ...