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Takaful is a type of insurance based on Islamic religious law, Sharia. Members of the insurance system contribute money into the system. If the damage or loss occurs member obtains compensation from the system. The sharia describes what is responsibility of individuals in protecting each other.

The alternative system of insurance was necessary, as sharia restricts using interest and risk (uncertainty). Therefore, systems used all over the world cannot be simply used in Islamic countries. Operator of takaful system charges an agreed fee to cover costs of operation.

Any surplus remaining in the system is owned by members, not the operator. Those funds can be distributed among members of kept for future events.


Persion Gulf region was one of the first one where Islamic banks were located. In 1980 there were appearing first insurance companies. Islamic Takaful is a financial product which is expanding all over the world. The foundation of Islamic economy is the rule that Allah is an owner of all creation and people can gain things by following his principles. Moreover, concept of contract is very important in Islamic finance. It is a way to achieve specific goals. This is because of in Sharia, God's law is just a single contract between God and humans. Takaful was created from the concept of blood money (idemnity paid to the victim's family). The insurance concept was evolving through the years. The first persons who registered its legal basis was Ibn Abidin. Additionally, he is the first one who established premium as sukra (English: security). The first time in Islamic world that insurance practices were legalized was in the 2nd half of the 20th century. It was achieved by Sheikh Muhammad Abduh. Later on in 1970 the first Takaful Islamic Financial Institutions were created. Fourteen years later it expanded to Malaysia. In 1980 there were only 10 Takaful companies, but in comparison, in 2012 there was already more than 200 units.[1]


There are some principals of Islamic Takaful in order to be acceptable by Sharia.

  • Interaction and partnership. It works as a fund with specified stakeholders.
  • Tabarru (any input is a donation treated as a payment for claims for any inconvenience suffered by any other participants)
  • Preservation of moral values
  • Must be based on one of four models:
  1. Al-Mudharabah - distribution of profit between supplier of the capital (fund stakeholders) and businessman (operator) depends on a previously agreed ratio.
  2. Al-Wakalah - there is an agency which fullfil all of the obligations instead of members of agreement. Operator obtain an ujrah (English: fee). Any losses or profits are covered (paid) by stakeholders.
  3. Al-Waqf – Stakeholders - tribute all rights they have to Allah (right to increase/decrease percentage of property). Takaful Risk Fund has an account opened by an operator. All costs of the fund are to be paid by the fund.
  4. Mix of above three models. Operator of the fund is not only a businessman but also an agent. The stakeholders responsibility is to provide an agent with capital and principal. When it comes to fees and ROI (Return on Investment), it is to be collected (given) from the fund.[2]

Takaful vs. conventional insurance

The main idea of Takaful is cooperation, people can help others and can receive help from others but in conventional insurance there is just one goal – profit. Commercial Insurance is always owned by one person or a group of people who are not policyholders in comparison to Takaful which is owned by group of people who are insured by the policy. When it comes to the risk, the owner of the insurance is exposed so in Takaful every single participant is a subject. Profits belong to the owner of the insurance – in commercial type profits are given to the shareholders and in Takaful any gain is divided by the participants. The ownership ratio (percentage of profits) is specified by the contract in Takaful but when it comes to conventional insurance policyholders do not know what happens with the profits.[3]



  1. Wahab, A. R. A., Lewis, M. K., & Hassan, M. K. (2007). Islamic takaful: Business models, Shariah concerns, and proposed solutions, p. 371-396
  2. Komorowski R., Kubiszewska K. (2016). Islamic takaful: Has it successfully substituted conventional insurance?, p. 104-114
  3. Ismail M. (2013). The case of General Takaful and Insurance Companies Malaysia", p. 111-130

Author: Ewelina Kruszewska