Humanity is not immortal and is prone to accidents and disasters. It is subjected to the divine law that the characteristics of a mortal being are also mortal; therefore, humanity is naturally threatened by a variety of dangers. These dangers may exist in the, present or future, and humans are bound to face all kinds of dangers. The nature of these dangers and threats may also vary from time to time.
It is an established fact that these harms and threats have been an integral part of human existence since the day humanity was created. So, human beings have always been taking measures to reduce their vulnerability and protect themselves from danger.
If we ponder over the teachings of the Shariah, we can see that Islam teaches numerous methods and measures to overcome the dangers surrounding the humanity. There are examples available in Islamic History as follows:
1- Dhaman Khatr Al-Tareeq (•), is when any person personally guarantees another that a particular road is safe to travel and that the liability of any financial losses that might incur along the way is on him; effectively, this is a case of risk transference but without any involvement of fees which makes it acceptable.
2- Dhaman Al-d’ark (•), is when any person assures another with personal guarantees to influence the sale by telling the buyer that the guarantor would be responsible for the loss, if the purchased item proved to be faulty. So, in the event of a financial loss, that person (the buyer) has the option to either demand full repayment from the seller or from the guarantor.
3- Aqila (•), is when in some situations, the payment of Diyat to the victim’s family is made obligatory on the members of the community and not on the murderer. Effectively, risk is distributed amongst and shared between them as a result.
4- AqdMuwala’at (•), is when any person embrace Islam at the hand of another and then pact an agreement with him or with any third that he will be the inheritor of his wealth after his death, and that all liabilities for his wrongs will be upon him.
The Shariah law actually admires such collaborative behavior and suggests various methods in this regard. This valuable concept is called Risk-Management.
In order to find solutions to such situations, Man has created various collaborative and effective systems, known as “Insurance”. Certain aspects of the insurance system (such as Riba/Interest, Gharrar/Uncertainity and Qimar/Gambling) did not comply to the Islamic laws, whereby the Muslim experts and scholars, after due deliberation of the pre-existing system, have decided in favor of it as an alternative system and created the concept of Takaful protection, which is rapidly growing as a Shariah-compliant business model and being adopted all over the world, over the years.
In the early days of the 13th century (Hijri), Turkey established trade relations with the European countries, and also began imports and exports with the Muslim nations. For this purpose, Turkey established its trading centers in various Muslim countries. The shipment of cargo through sea-vessels began and trade activities with Muslim countries were promoted through these trading centers. Similarly, as newer trade channels were evolving, the Muslim traders also began using larger cargo ships to deliver their products.
With this evolution, the Muslim scholars began to analyze the Halal and Haraam aspects of trading. One major factor was the concept of “Sokrah” (Security), whereby; when a Muslim trader hired a ship from a non-Muslim shipping company, for exporting his products, the shipping company used to charge an additional amount in the name of “Sokrah” (Security). The purpose of this additional fee was; in case the cargo on a ship sinks in the ocean, or is looted by pirates, the shipping company will compensate for the trader’s loss through the “Sokrah” fund. When the famous Syrian scholar – AllamaIbn e Abideen AlShami was asked for his opinion on this matter, he declared the concept of “Sokrah” as Haraam and against the principles of Shariah. The same concept of Sokrah is called “Insurance” in the modern world.
In the present Islamic world, most of the Muslims agree that insurance is prohibited in Islam. This belief is based on a Resolution passed in Makkah, in 1978, by the Majma al Fiqah al Islami. This committee comprised of many renowned scholars and it declared that “Insurance” is based on the concepts of Interest, Gambling, Risk and unlawful acquisition of wealth. This 1978 Resolution also responds to various arguments given by the scholars who support insurance as Islamic. Moreover, the National Fatwa Committee in Malaysia also issued a fatwa in 1972, declaring insurance as un-Islamic.
In the Indo-Pak subcontinent, the first conference to discuss the insurance issue was held by the Majlis Tehqeeqat e Shariah – Nadwatul Ulema Lucknow. This forum published a questionnaire on 19th October, 1964. The answers to these questions were provided from Pakistan by Mufti Shafi and Mufti Wali Hasan. These replies were validated by the Majlis Tehqeeqmasaael e haazra from Jamia Dar ul Uloom, Karachi.
In this way, the combined efforts of scholars of Indo-Pak Subcontinent helped in reaching a unanimous resolution regarding the prohibition of insurance. This resolution was later published under the title; Beema e Zindagi. This document has comprehensively discussed the prohibition of insurance, along with a historic analysis, the efforts of religious scholars and the alternative, Shariah-compliant forms of insurance. Moreover, many discussions were held at the Jamia Dar ul Uloom, Karachi, attended by leading scholars. The aim of all these exercises was to relieve the Muslim society from the curse of this interest-based and gambling-oriented practice.
Alhamdulillah! The collective efforts of scholars from the Arab world and the sub-continent have led to the introduction and progress of a Takaful model of insurance, which is totally Shariah-compliant and in accordance with the principles of Islam.
Many Takaful companies started operating in different countries in accordance with each of these business models. Today, there are more than 250 Takaful companies operating all over the world. The fundamentals of these three business models are given below:
Hiba Bashart al Ewaz: A pool of funds will be created. The participants will contribute their Hiba (Gift) to this pool, with the understanding that; the pool is committed to pay back whenever the participant suffers any damages. In this way, the participant’s losses will be covered.
Iltizaambil Tabarra: Some of the scholars have stated that Shariah dictates “Iltizaambil Tabarra” for the Takaful model. This means that a pool of funds should be created, and the participants will be committed to donate an amount for this pool. The pool will reciprocate by compensating for any damages suffered by the participants. This way, the participants and the pool, both will fulfill their obligations. According to the Maliki school of thought, this is called a two-way Iltizaam. Due to some Shariah inadequacies found in both these models, a third business model was developed.
The Waqf Model: In a Conference held by the Fiqah Academy in Jeddah, Mufti Mohammad Taqi Usmani presented a new business model named; Taseel al Tameen al Takafuli, which is based on the Waqf concept. In this model, a pool of funds is created and every participant donates to this Waqf pool. Every participant becomes a member and ‘MauqoofAlaeh’ of this pool. In case if a member suffers any damages, this Waqf pool will compensate for the losses in accordance with the rules and regulations. Some companies operating on this model were created in Africa and Pakistan. The concepts of Mudarabat and Wakalat were applied for this operational system. Therefore, this model is also known as; WaqfWakalah model.
The composition of the WaqfWakalah model begins as a few contributors provide the financial outlay to create a Waqf pool. As the shareholders are also the donors of this Waqf pool, it must be clearly defined as to; Who will get the benefits from this pool? And, Who will become the member or ‘MauqoofAlaeh’ of this Waqf? For this purpose, a Waqf Deed and Waqf Rules are properly documented, in which all the terms and conditions are stated in detail.
Then, the public is requested to donate to this Waqf. Every person donating to this Waqf becomes a member and thus enjoys the benefits offered by the Waqf. The usual procedure is to create a separate investment account for each member. Each members donation initially arrives in this account. The company charges a nominal fee for managing this fund. Eventually, a specified ratio of cash from this account is transferred as a support fund, into the Waqf pool, whereby the donor becomes a member of this Waqf pool. Later, the remaining amount in the investment account is invested by the company, and the company charges a certain amount as Wakalah al Astismar, a fee for these managerial services. Any profit generated by the funds is then transferred into the investment account.
However, the company invests the Waqf pool funds and the support amounts arriving in the Waqf, while it charges a small portion of the profits, for acting as the Mudarib. In case a member suffers any damages, he is given a compensation for his losses, according to the rules of the Waqf.
Eventually, after deducting various expenses and paying the claims of affectees, whatever amount remains in the Waqf, along with the profits earned, is considered as the ‘Surplus’. The company enjoys a certain authority over the utilization of this Surplus. It can decide to put some portion of the surplus into a reserve fund, while it may also give some amount to charity and philanthropic donations. Then the remaining amount can also be distributed among the members.
It is also worth mentioning here that; although Takaful is a Halal alternative for insurance, some scholars in the Arab region and the Muslim world have raised some arguments, saying that it has some inadequacies in Shariah-compliance. No one can stop the knowledgeable scholars from exercising their right to make logical objections on any matter. However, international authorities on Islamic jurisprudence have already given comprehensive replies, to counter most of these objections.
The Shariah-compliant nature of Takaful has been cautiously established through extensive religious debates and intellectual research, while many Muslim communities have collaborated to apply this system and are getting favorable results. A majority of the scholars and economic experts have already validated the economic viability and social advantages of the Takaful system.