Takaful: A Shariah-Compliant Alternative to Conventional Insurance
Takaful Explained by Assistant Vice President, Pak Qatar Takaful: A Shariah-Compliant Alternative, Takaful is derived from the Arabic word kafalat. It is based on the concept of brotherhood and mutual assistance. Unlike conventional insurance, which operates on risk transfer, Takaful emphasizes risk-sharing among participants. Insurance investments are typically made globally, without restrictions, in pursuit of high returns. In contrast, Takaful investments adhere to strict Shariah principles. These investments exclude areas such as electronic media but focus on permissible sectors such as crops, grains, properties, Sukuk funds, and Islamic banks like Meezan Bank.
Key Differences Between Takaful and Insurance
While both Takaful and conventional insurance provide similar services, their methodologies differ. Takaful operates on a waqf pool mechanism, a feature absent in traditional insurance. Additionally, Takaful does not refund unclaimed contributions due to the waqf pool’s structure, although participants may benefit from investment profits.
If a waqf pool lacks sufficient funds to cover claims, shareholders or directors step in to ensure payments. It is noteworthy that Takaful is open to non-Muslims as well, and all products are certified 100% Shariah-compliant by a dedicated Shariah advisory team.
Cost and Public Perception
Takaful products tend to be more expensive than insurance due to limited investment opportunities. However, trust in Takaful products is often bolstered by endorsements from muftis, ulema, and the organization’s financial reports. In Pakistan, despite the availability of digital platforms, many people prefer interacting with agents for greater reassurance.
Takaful and Digital Transformation
With the increasing use of online platforms, Takaful companies must leverage websites, videos, and social media for greater outreach. Ensuring transparency and trust through digital channels can help bridge the gap between the public and Takaful providers.
Takaful Explained by Assistant Vice President, Pak Qatar Takaful: A Shariah-Compliant Alternative can be listened to on YouTube channel: https://www.youtube.com/@islamicfinance2538
