Takaful or Islamic insurance is an Islamic financial instrument, which is getting momentum across the world. Takaful is not an alien or foreign concept to Islamic financial system. It was present in the pre-Islamic society of Arabia in the name of "Aquila". Also, its traces can be found in the First Charter of Madina and the sayings of the Holy Prophet (S.A.W).
"Takaful" is an Arabic word whose root is "Kafalah", which means guarantee. It is a way of mutual guarantee for the partners of some agreement, whether the agreement is a social one like that of Aquila, in which a family or tribe of murder has to pay the ransom or penalty money to the relatives of the murdered on behalf of the murderer if he is not able to pay off the money, to save him or her from the capital punishment, or it can be an economic one, like a joint trade or business venture of some partners, who agree to compensate possible loss life of the partners or the loss of their merchandise.
This practice was present even in the pre Islamic days in the social norms of Arabia. Islam maintained it as such in its financial system. This practice was present throughout the periods of Umayyad, Abbasids and Ottoman Empire. It only came to stagnancy when in the late 19 century the whole Islamic world was losing its spirit and vigor and there were no signs of leadership development in the social and financial systems of Muslims.
Anyhow, due the renewed verve, particularly, of the economic leadership and management of Islamic finance managers and scholars, the world witnesses another revival in Islamic finance. Islamic banking, Sukuk, Ijarah, Takaful etc are taking firm roots in the world economic system in parallel to conventional monetary system. And Takaful is one of the most successful Islamic financial instruments, which is being hailed around the world.
Here is brief history of modern Islamic Takaful and its assimilation in different countries of the world. The first Takaful Company was established in Sudan in the year 1979, and in the same year another Takaful company was set up in Bahrain. Since its inception some doubts were raised against the modern practice of Takaful by the Islamic conservative scholars and the Muslim masses, which were not very well aware how the modern Islamic Takaful manages to follow Islamic injunctions in its practices. However, in Malaysia, the National Religious Council of Malaysia issued the religious verdict (Fatwa) in the favor of Takaful in the year 1972. After this Fatwa, the Higher Council of Saudi Arabia issued their Fatwa in the favor of Takaful as lawful according to Islamic economics.
The Takaful companies had to struggle in two ways. Not only did they manage to run their business but also they had to create awareness in the people about the forgotten concept of Takaful by removing their doubts through seminars and through programs for leadership development to keep ready the supply of Islamic economic leaders.
A number of Takaful companies started to grow and groom in the Middle East, Malaysia, Pakistan, India, like Saudi Islamic Takaful and Re-Takaful Company, Bahamas, established in 1983, The Islamic Arab Insurance Company, which was first established in Saudi Arabia in 1979 and then shifted to UAE. Islamic Takaful companies were established in European countries too, like Dar Al Mal Al Islamic Trust Switzerland established in 1981, Islamic Takaful Company in Luxembourg established in 1983, to name a few.
The Islamic countries have issued rules and regulation for Takaful companies to bring them into mainstream financial organizations, for example, Takaful Malaysia and Takaful National developed code of ethics for Takaful industry in 2000. Securities and Exchange Commission of Pakistan notified rules for Takaful in Pakistan in 2005.
Takaful is a need of the people. Takaful not only did attract Muslims but non Muslims too, according to estimation, around 60% of the Takaful clients in Malaysia are non-Muslims. It is really a triumph of the leadership and management of Takaful.
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