Takaful- Islamic insurance, Oppurtunity unlimited

Origin of Takaful3. Interest (riba) in the investment activities of the
Originated from the Arabic word Kafalah, whichconventional insurance companies;
means "guaranteeing each other" or "joint guarantee".4. Conventional insurance companies are motivated
Takaful originated within the ancient Arab tribes as aby the desire for profit for the shareholders;
pooled liability that obliged those who committedMode of Operation
offences against members of a different tribe to payThe policyholders agree to guarantee each other and,
compensation to the victims or their heirs.instead of paying premiums, they make contributions
Takaful is founded on the cooperative principle andto a mutual fund or pool & create the Takaful
on the principle of separation between the funds andfund. The amount of contribution that each
operations of shareholders, thus passing theparticipant makes is based on the type of cover
ownership of the Takaful (Insurance) fund andthey require, and on their personal circumstances. As
operations to the policyholdersin conventional insurance, the policy (Takaful
In modern-day conventional insurance, the insuranceContract) specifies the nature of the risk and period
vendor (the insurance company) sells policies andof cover.
invests the proceeds for the profit of its The Takaful fund is managed and administered on
shareholders, who are not necessarily policyholders.behalf of the participants by a Takaful Operator who
There is therefore a clear disjunction betweencharges an agreed fee to cover costs. These costs
policyholders and shareholdersinclude the costs of sales and marketing,
Principles of Takafulunderwriting, and claims management. Any claims
- Policyholders co-operate among themselves formade by participants are paid out of the Takaful
their common good.fund and any remaining surpluses, after making
- Every policyholder pays a part of the contributionprovisions for likely cost of future claims and other
as a donation to help those that need assistance.reserves, belong to the participants in the fund, and
- Losses are divided and liabilities spread according tonot the Takaful Operator, and may be distributed to
the community pooling system.the participants in the form of cash dividends or
- Uncertainty is eliminated in respect of subscriptiondistributions, alternatively in reduction in future
and compensation.contributions
- It does not seek to derive advantage at the costRetakaful or Reinsurance
of others.When insurers insure a risk again with another
Difference between conventional insurance &company, it is called reinsurance which allows the
Takafulinsurance industry to spread its losses, lessening the
1. Conventional insurance involves the elements ofimpact of claims on any one company.
excessive uncertainty (gharar) in the contract ofThere is currently a shortage of retakaful capacity
insurance;and the lack of companies in the market presents a
2. Gambling (maysir) as the consequences of thechallenge as well as an opportunity. The challenge is
presence of excessive uncertainty that rely on futureto have a large enough Takaful market to justify
outcomesReTakaful business.