The main purpose of takaful is to help folks through bad times. Profit earnings is not the main goal, while sharing any incidental profits generated is acceptable. Conventional insurance faces barriers under Shariah Law because of:
- Maysir (gambling) – underwriting of risks by shareholders in anticipation of a profit is prohibited,
- Gharar (uncertainty) – the insured pays premiums in exchange for indemnity against risks that may not occur and
- Riba (usury) – the company engages in investments that derive their income from interest and/or prohibited industries.
PeerCover which offers peer-to-peer insurance is a form of co-operative insurance but is it Takeful? Please let us know by commenting to this blog.
For more information on Takeful see:
- Hussain, M.M. and Pasha, A. T. (2011). Conceptual and operational differences between general takaful and conventional insurance. Australian Journal of Business and Management Research Vol.1 No.8 [23-28]
- World Bank presentation ‘Takaful and Mutual insurers: alternative approaches to managing risk’;
- International Co-Operative Alliance web site.