Takaful

1. What is the meaning of Takaful?
Takaful is a Shariah-compliant insurance. The word ‘takaful’ is derived from an Arabic word which means ‘joint guarantee’, whereby a group of persons agree to jointly guarantee among themselves against a defined loss. Participants contribute a sum of money into a common fund, which will be used to mutually assist the members against a defined loss or damage.

2. What is the meaning of Wakalah?
Under the wakalah (agency) model, a representative is appointed to undertake transactions on another person's behalf. The takaful operator earns a fee for services borne by the participants. The fee may be varied based on the performance of the takaful operator.

3. What is the meaning of Mudarabah?
Mudarabah (trust financing/profit sharing) is an investment partnership, whereby the investor (the rab al maal) provides capital to the entrepreneur (the mudarib) in order to undertake a business or investment activity. While profits are shared on a pre-agreed ratio, losses are borne by the investor alone. The mudarib loses only his share of the expected income.
The investor has no right to interfere in the management of the business, but he can specify conditions that would ensure better management of his money. In this way Mudarabah is sometimes referred to as a sleeping partnership.
A joint Mudarabah can exist between investors and a bank on a continuing basis. The investors keep their funds in a special fund and share the profits before the liquidation of those financing operations that have not yet reached the stage of final settlement. Many Islamic investment funds operate on the basis of joint Mudarabah.

4. What is the meaning of Tabarru?
Tabarru’ (takaful donation) is a contract where a participant agrees to donate a pre-determined percentage of his contribution (to a Takaful fund) to provide assistance to fellow participants. In this way he fills his obligation of joint guarantee and mutual help should another participant suffer a loss. This concept eliminates the element of gharar from the Takaful contract.

5.How is Takaful different from the contemporary insurance contract?
Takaful is founded on the co-operative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the certificate holders. The contributions collected from the certificate holders are considered as donations and they constitute the Takaful fund from which all claims are reimbursed. At the end of each financial year, after deduction of expenses, any remaining cash surplus will not be retained by the Takaful Operator or its shareholders, but returned to the certificate holders in the form of cash dividends or distributions. In this respect, Takaful business is different from the conventional insurance in which the certificate holders, rather than the shareholders, solely benefit from the profits generated from the Takaful and Investment assets.

6. Can non-Muslims join Takaful?
Yes. Takaful is a Shariah-compliant insurance open to both Muslim and non-Muslim participants. They must agree to and abide by the terms and conditions of the contract that are based on the rules of Shariah.