Takaful (Islamic Insurance): When We Started and Where We are Now

Abstract

The idea and practice of Takaful is not new as it was practiced during the time of the Prophet Muhammad (PBUH) by its adoption of the concept of Aqilah. Due to the complex nature of business activities and evolving human needs, Takaful is now fully commercialised and is an important part of the financial markets. Since it is important in our daily life, we believe that it is necessary to highlight when and how Takaful started and how it has developed. By doing so, we will know that the practice of Takaful is inherited from the Prophet (PBUH) and we will better appreciate the contributions of Muslim scholars to revitalize this industry. The discussion of this paper focuses on the historical development of Takaful, its available products, models, and regulatory framework. The practice of insurance was officially prohibited in 1976. Since then, Takaful has been introduced as Shari’ah compliant insurance product. Currently, there are 174 Takaful operators in the key Takaful markets and a variety of Takaful products are available to cater the market need. To achieve the sustainable development of the Takaful industry in the conventional world, Shari’ah scholars have developed several Takaful models. In addition, international organisations such as the Islamic Financial Services Board and the Accounting and Auditing Organisation for Islamic Financial Institutions are supporting the industry by providing guidelines. This paper acknowledges that the Takaful industry is one of the fastest growing financial industries and current loopholes can be improved upon jointly by the industrial players, Shari’ah advisors and internal organisations