With the transformation of the entire
financial system, there is a significant shift taking place
from the conventional system of finance to the new concept
of interest-free finance. Islamic finance which until recently
was confined only to the Gulf Cooperation Council (GCC)
countries and some other countries is now gaining acceptance
globally as a viable investment option due to the popularity
among the regulators. This is supported by the fact that
worldwide Sukuk is growing phenomenally. Religion
has now gained an important aspect of the economic behavior.
The term `Islamic finance' refers to financial activities
and transactions (including insurance) that conform to
Shariah. The principle of Shariah prohibits Riba (interest
or usury), Maysir or Qimar (gambling
and speculation), Gharar (elements of uncertainty),
exploitation, unfairness and undertaking Haram activities
(dealing in alcohol, pork, gambling, etc.). The principle
of Shariah on the other hand also requires risk and reward
sharing, fairness and transparency as well as the sanctity
of contracts. The rules followed by Islamic finance have
been derived from the Holy Quran (the Holy book of the
Muslims), `Hadith' (the sayings of the Holy Prophet Muhammad)
`Sunnah' (the way the Holy Prophet Muhammad led his life)
and centuries of scholarly interpretations of all three.
These rules clearly define what is Haram (prohibited),
and what is Halal (permissible) in a Shariah-compliant
financial transaction.
The Islamic insurance, also called as Halal insurance which is an integral part of the Islamic finance, provides to its members the same level of protection as is provided with the conventional insurance practices, but with a different principle of operation prominently called as the Islamic principle of Takaful. In conventional insurance, the risk is transferred from the policyholders to the insurance company and thus, the elements of uncertainty and chance is quite high for one of the two parties. While in case of Takaful, the risk is shared between all the participants thereby removing the elements of uncertainty and gambling from the contract. The principle of Takaful is not a new phenomena and it extends since the early days of Islam. The word is derived from Arabic, meaning `guaranteeing each other' and it is based on the principles of `Ta'awun' (mutual cooperation) and `Tabaru'a' (donation). All Takaful participants (policyholders) agree to guarantee each other so as to share the risk of a potential loss to any of them, by making a donation of all or part of their contribution (premium) to compensate for a loss, this collected contributions is called as the Takaful fund. The Takaful contribution is based on their individual risk, the type of cover that the investors want and the likelihood to make a claim, i.e., on their economic condition. The Takaful contract (insurance policy) like the conventional insurance explains what cover and protection is provided, the time period of the cover and how the claim can be made. |
