Takaful is a Shariah (religious law of Islam) compliant insurance. The word ‘Takaful’ is derived from an Arabic word which means ‘joint guarantee’, whereby a group of people 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.
Takaful is founded on the co-operative principle and also on the idea 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.
In recent years, the phenomenal success and growth in Islamic banking and investment models have encouraged a growing interest in the Takaful business. This allows providers to offer insurance protection to large numbers of people who still remain uninsured on the basis of religious faith.
Today, the Takaful way of insurance has grown into a widely accepted instrument in many countries. Even a few years ago, there were only a small number of Takaful operators. By contrast, today, Takaful coverage has grown substantially in many Muslim countries, with a large untapped potential in countries with large Muslim communities. Takaful models can be distinguished by the way contributions are managed, surpluses are distributed, funds are allocated, and fees are deducted.
Growth forecasts for Takaful vary, but the consensus amongst most market forecasters is for the current level of worldwide contributions written by Takaful insurers, estimated at roughly $2.0 to $2.6 billion as of 2006, to soar to $7.0 billion or more by 2015 This is well becoming a reality, for the forecast of $2.1 billion1 in contributions by 2010, which was published by Asian Insurance Review a decade ago, has already been surpassed. However, when compared with the $3.7 trillion level of global premiums for conventional insurance, the enormous growth potential for Takaful becomes obvious.
To find out more follow the link below:
http://www.ft.com/cms/s/0/706ed304-de0b-11e0-a115-00144feabdc0.html#axzz1ax1BHn3s
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