Takaful An Arabic word meaning “guaranteeing each other” or joint guarantee through mutual support and shared responsibility whereby a group of persons agree to jointly guarantee among themselves against a defined loss. Known as Islamic insurance, a form of insurance based on the Quranic principle of mutual assistance ( ta'awuni). Structured as a charitable collective pool of funds based on the idea of providing mutual protection and shared responsibility and joint risk sharing in the event of a loss by one of its participants. The p articipants regulary contribute a sum of money into the pool of funds. Takaful schemes are designed to avoid the elements of conventional insurance (i.e. interest and gambling) as well as investment of the (takaful) funds in activities that are prohibited by the Shari'ah. There should be a credible Shari’ah Supervisory Board comprising of Shari’ah scholars and advisors; they should be independent and qualified to give rulings that pass moral judgment on proposed contracts and transactions as well as to ensure that business is conducted according to the requirements of the Shari’ah. Reinsurance on Islamic principles is known as Retakaful; reinsurance is a mechanism used by direct insurance companies to protect their retained business by achieving geographic spread and obtaining protection, above certain threshold values, from larger, specialist reinsurance companies.
See Also: Statutory Definition