Challenges and Opportunities
Studies in Islamic Finance, Accounting and Governance series
Edited by S. Nazim Ali and Shariq Nisar
Modern takaful practices have evolved in response to reservations against conventional insurance that trades in risk; where operations involve excessive uncertainty (gharar) that is prohibited in shari’ah; and where investments are made in interest bearing instruments and activities that are generally harmful for society and the environment. The chapter discusses the inspirations and factors behind the development of takaful as an alternate mechanism for social protection. It analyses various takaful models that have been developed in response to market needs and shari’ah compliance preference. It also discusses the challenges associated with these models in view of the practical realities where takaful businesses are mostly publically quoted entities and required to bring risk-based capital to support participants’ risk pools. Finally, the chapter analyses some of the key challenges impeding the growth and development of takaful and offers suggestions that can help overcome these challenges.