Basic Concepts of Takaful

Defi nition of Takaful

The term takaful is an Arabic word that originates from the root verb kafala—to

guarantee, to secure, or to be responsible for others. In the literal sense, takaful means

joint responsibility or guarantee based on mutual agreement. That is, guaranteeing each

other through collective assurance and mutual undertaking among members of a

particular group. In such a symbiotic relationship, three basic concepts of mutuality are

embodied in the takaful model of insurance: mutual help, mutual responsibility, and

mutual protection from losses.

(image taken from AIMS islamic fince university from the course of mba islamic finance)

This triangular relationship in Figure 8.1 is based on the underlying principle of the

objectives of Islamic law, which seeks to bring benefi t to mankind and ward o_ every

form of harm.

Takaful is an alternative system of insurance whereby members contribute their

fi nancial resources to a common pool based on the principles of ta’awun (mutual

assistance) and tabarru’ (donation) and the group undertakes to share the mutual risk.

Generally, takaful is premised upon the concept of tabarru’, which encompasses mutual

assistance and mutual social security among the members. Tabarru’ is the concept of

donation in Islam and is often used to mean the premium in takaful although the two

terms are generally used interchangeably.

In the takaful structure, the members jointly agree to guarantee one another against

any unexpected loss or damage based on the common pool of resources. Accordingly,

AAOIFI defi nes takaful as the collective undertaking by the participants to donate.

This article was written by my teacher when I was doing my islamic finance course 3 years before now iam sharing it for my students

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