Origins, Evolution and the Future
Studies in Islamic Finance, Accounting and Governance series
Chapter 11: Takaful (Islamic Insurance)
Insurance, particularly life insurance, is a highly controversial subject in Islamic economics. In this chapter we will analyse this debate and briefly explain how contemporary Muslims have come up with solutions. But first, we need to provide a historical background of this important institution. Historical background The concept of insurance has a long history in the Islamic world and it is known as takaful. This word is derived from the Arabic word kafala, which means to guarantee. The origins of this institution can be traced back to the pre-Islamic customs of the Arab world where tribal wars were very common and tended to perpetuate. When a member of a tribe was murdered by a member of another, revenge had to be taken and hatred and revenge continued generation after generation. This is because when a tribe lost a member it could retaliate by killing any member of the other tribe. Thus, murder committed by one put the entire tribe into danger. The concept of kafala solved this problem and was therefore absolutely important for the survival of the social fabric. When a member of a tribe committed a murder, this led to one of two consequences. Either a tribal war would break out to avenge the death of the tribal member or a settlement would be reached by paying blood money known as diyah. This blood money that was used to compensate the loss of life came from the tribal fund. The fund was collected from among the members. Each...
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