Mar 02 - 08, 2009

Islamic concepts and principles are taking higher levels of acceptability in Insurance and Banking sectors of Pakistan. It is evident from a rapid increase in numbers of Islamic Banks and Takaful Insurance recently appeared on the horizon of mentioned industries. Even in the arena where the world economy is under the control of few hands of capitalist and socialist, these Islamic institutes are flourishing successfully. Increasing the demand graph and recognition even in non-Islamic countries speaks itself that Islamic laws have always been effective and successful, if implemented completely, in every period of history.

Takaful insurance is becoming very popular as a risk management system based on the principal of mutual cooperation, sharing responsibility and assistance amongst groups of participants. The word "Takaful" is an Arabic word which means joint guarantee by a group of people who agree to cover each other's losses in the event of any occurrence.

There is no concept of profit making in Takaful. The underwritten surplus is either distributed amongst participants or kept as a reserve for the future probable mishaps unlike conventional insurance, risk is not transferred to others but shared in Takaful. In true sense Takaful can be considered as a social institute aiming to mitigate the burden of individuals by dividing it amongst the participants as per Islamic laws.

The basic difference between Takaful and conventional insurance is that in Takaful the funds are managed in a way to avoid Gharar (uncertainty or speculation), Maisir (gambling) and Riba (interest). Contrasting features of Conventional and Takaful modes of insurance. The different terms used in Takaful Insurance are as under:

Takaful Insurance Conventional Insurance
Operator Insurer
Participants Policyholders
Risk is shared amongst participants Risk is transferred to others
Welfare concept Profit making incentive
Contribution Premium
Surplus (profit) belongs to participants Surplus goes to the owner
Deficits to be borne by the shareholders only Deficits to be made up by the insurer
Co-Takaful Co-Insurance
Re-Takaful Reinsurance
Offering Sharia compliant solutions Investments are interest based

In today's risky environment, insurance is inevitable and by means of Takaful, people who used to avoid insurance on the basis of Islamic reasons can get coverage for their Assets and Life.

There has been immense growth in the numbers of Takaful companies during the last few years. This rapid growth is considered as worthwhile investment opportunities, which has made reinsurers as well think about establishing a pool based according to Islamic Laws to meet Re-Takaful (re-insurance) requirements.

It is worth mentioning that under Takaful Rules 2005 no windows are allowed into conventional insurance companies. But some insurers are seeking a permission to start windows operation. In this scenario it seems appropriate to mention that giving a permission for window operation may create an obstacle standing in the way of Takaful to emerge as alternative for conventional insurance. This will be just like a saving account introduced in the past with a view to promote Islamic culture in banking sector in the country but ended in confusion amongst people with no good to Islamic Banking. If we want to promote Islamic laws in the insurance industry, we should avoid taking such steps leading towards confusion in the public. It would be better to let Takaful companies flourish with its separate rules and regulations in the country. The government's support in this way to develop infrastructure will enable the insurance industry to tap the market of Takaful in the sectors where people avoid taking conventional insurance

It is the need of the hour to accelerate the cycle of Islamic finance in the country in order to keep pace with today's competitive world. Even Islamic banks flourishing in the country can get full benefits from Takaful to make sure of their transactions and products to be truly Islamic by purchasing its products necessary to comply with statutory requirement.

It would not be out of place to mention here that the awareness about Takaful is most important in order to nock at the door of those people who keep themselves away from insurance because of religious belief. Media particularly electronic one can play a significant role to achieve the desired target. QTV which is watched widely by religious people can serve the purpose of building up people's confidence in Takaful insurance.