TAKAFUL is derived from basic root word 'KAFALA', which means to guarantee to help or take care of one's needs. Takaful means mutual guarantee to pay each other for defined losses or damage arising from occurrence of contingencies

Deputy Managing Director
Pak-Kuwait Takaful Company Limited
Oct 23 - Nov 05, 2006

As in other fields of economic activities the influence of west prevailed in setting up banking and Insurance Institutions patterned on their own organizational structure which has been in existence for centuries in their home countries and had gone through the evolutionary process.

In South Asia and other regions where British or other colonial powers ruled or had the political and economic leverage these sectors originated mainly as branches or agencies of similar organizations in their parent countries.

We in Pakistan inherited similar system whether they were foreign or locally owned. The element of Riba had been the dominant factor beside the exploitative character of their working.

Initially there was no regulatory frame work to exercise control and supervision over such organizations and they acted rather in a free and arbitrary manner. But as time passed the need was felt by the Government of the day to rein in these institutions through enforcement of laws and regulation so as to protect the public interest.

Ever since the establishment of Pakistan their has been desire to bring in necessary changes in the country's economic system particularly banking and insurance in accordance with the dictates of Islam so eloquently expressed by the Quaid-e-Azam Mohammad Ali Jinnah himself in June 1948 while inaugurating the State Bank of Pakistan. Therefore, there have been continuous studies made in this behalf. One such effort was made for insurance by the Council of Islamic Ideology which held that the existing conventional system was Un-Islamic being based on Riba and exploitation and as such it required to be reformed for which purpose an entirely new system would have to be developed based on Islamic principles of co-operation, mutual sympathy, public service and for the pleasure of Almighty Allah.

In the meantime similar studies were also undertaken by other Muslim countries aspiring to introduce basic principles of Islamic Shariah in so far as insurance was concerned. Resultantly, the concept of Takaful was developed and introduced as an alternative to insurance system in some of the countries in Africa, Middle East and Far East and since working successfully side by side with the conventional insurance system. The same parallel system has been maintained in the banking sector also which allows to run both conventional and Islamic banking. The rate of growth of Takaful operation as recorded shows its acceptability and it can be safely assumed that in due course of time it will attain a dominant role.

The word 'Takaful' was rather new even to the insurance industry. Banking and insurance are interdependent.

Islamic financial cycle is not complete without the Islamic mode of insurance. To complete this Islamic financial cycle the need to Takaful has emerged. Takaful is an Islamic way of insurance.

It is Shariah compliant alternative to conventional insurance and is derived from basic root word Kafala, which means to guarantee, to help or take care of one's needs. Takaful means mutual guarantee to pay each other for defined losses or damage arising from insured perils.

Muslim jurist, after consideration all aspects of conventional insurance as practiced today, have concluded that although there is nothing wrong with the concept of insurance, practice makes it haram (prohibited) due to presence of Gharar, Maysir and Riba. (Non-complaint with Shariah).

Muslims, for sometime, have been looking for an alternative scheme which should be in accordance with the Islamic Shariah and principles of Islam.

It is an insurance system through which the participants donate the part or all of their contributions which are used to pay claims for damages suffered by some of the participants'.

The company role is to receive contribution in to participants fund, to manage the Takaful operations and invest participants contributions in line with Islamic principles.

The Takaful business has been divided into two categories, namely Family and General Takaful, being in line with the practice of Takaful companies operating in various countries.

Family Takaful and General Takaful cover all classes of life and non-life insurance business a laid down in section 4 of insurance ordinance 2000.