Table of Contents

Takaful and Islamic Cooperative Finance

Takaful and Islamic Cooperative Finance

Challenges and Opportunities

Studies in Islamic Finance, Accounting and Governance series

Edited by S. Nazim Ali and Shariq Nisar

Islamic finance distinguishes itself from conventional finance with its strong emphasis on the moral consequences of financial transactions; prohibiting interest, excessive uncertainty, and finance of harmful business. When it comes to risk mitigation, it is unique in its risk sharing approach.

Chapter 1: Takaful journey: the past, present and future

Ajmal Bhatty and Shariq Nisar

Subjects: economics and finance, islamic economics and finance, law - academic, finance and banking law, islam and the law


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.