TAKAFUL
An alternative for the contemporary insurance contract. A group of persons agree to share certain risk (for example, damage by fire) by collecting a specified sum from each. In case of loss to anyone of the group, the loss is met from the collected funds.
A Takaful company has the following features:
i) The company is not the one who assumes risks nor the one taking any profit. Rather, it is the participants, the policy holders, who mutually cover each other.
ii) All contributions (premiums) are accumulated into a fund. This fund is invested using Islamic modes of investment and the net profit resulting from these investments is credited back to the fund.
iii) All claims are paid from this fund. The policy holders, as a group, are the owners of any net profit that remains after paying all the claims. They are also collectively responsible if the claims exceed the balance in the fund.
iv) The company acts as a Trustee on behalf of the participants to manage the operations of the Takaful business. The relationship between the company and the policy holders is governed by the terms of mudarabah contract. Therefore, should there be a surplus from the operation, the company (mudarib) will share the surplus with the participants (rabb-al-mal) according to a pre-agreed profit-sharing ratio.
