Why Takaful

1. The goal in takaful is not profit making or maximizing returns for shareholders, the main purpose of takaful is to insure participants and communities well being and assist people in times of adversity while optimizing operations for affordable risk protections and maintaining fair profits for operations.

2. The operational frame work of conventional insurance is against the tenements of shariah but the basic concept of insurance is not. Takaful has the basic concept of insurance without the operational framework of conventional insurance.

3. Premiums in a conventional insurance contract are deposited in bank to earn interest (riba/usury) for the insurance Company plus other securities prohibited by Shariah rules. Insurer invests premiums consistent with profit-motive with few moral guidelines; hence co-existence of riba and maysir, while all Takaful business activities are performed in compliance with Shariah principles and its proscriptions. As such, no coverage is issued on prohibited activities such as gambling, alcohol, pork, armaments, tobacco, nor are investments made to earn, unlawful profits, according to Shariah Law, i.e. through usury, interest and debt securities that involve riba. Since activities are governed by Islamic ethics including: fair pricing, no injury to either party, clear and well-defined agreements, full disclosure and fair dealings, a Takaful company can neither support nor invest in other companies where business dealings are against the teachings of Islam.

4. There are no certain unspecified elements that exist in the contract of takaful; all elements are well defined and specified.

5. There is no conflict of interest, the contract ties between many interests of the same nature aiming to achieve brotherhood solidarity, protection and mutual cooperation.

6. Takaful provides the opportunity to protect and increase our savings and develop better financial planning habits. Inherent in the Takaful system are solutions for individuals at all levels of society as well as means to eradicate poverty and support saving among the rural and poor.

7. Premiums in a conventional insurance contract are a consideration for the payment of claims, as a means of protection given to the insured members. Premiums paid by policyholders are various and depend on the age of policyholder. In a Takaful contract, premiums are considered as donation or contribution from participants, as a means of mutual assistance among participants. Minimum premiums paid by policyholders can be the same for all participants or risk adjusted.

8. There is an important distinction between Takaful-insurance transactions and profit-loss making commercial transactions, frequently characterized as mudaraba, which clarifies the difference between surplus and profit. a Takaful insurance transaction begins with a contribution (premium) sum paid from which the main operating components are paid - claims and benefits to contract holders; operations, management and sales expenses; technical and general reserves. Any gains from investing the contributions may be added to the base contributions. Except for gains from investments, all other items are cost items that are subtracted from the contributed capital, which yields at year-end either a deficit or surplus.

9. In terms of surplus sharing, the surplus proportion returned to policyholders is determined by the Takaful contract on an annual basis, yet the amount itself depends on the operational results each year. In a conventional insurance policy, the surplus is typically retained by the shareholders, unless a minor dividend is paid out to policy-holders as a share of profits but policyholders have no say on the amount or the timing.

10. Takaful is promised to gain full acceptance in the west and in Muslim markets and the market is expected to grow between 15 and 20% per annum to reach 7.4 billion in annual contributions.