Research Handbooks in Financial Law series
Edited by Julian Burling and Kevin Lazarus
Chapter 20: Takaful Insurance: Squaring the Insurance Circle in Islamic Law
Mark Hoyle 1. INTRODUCTION Islamic insurance is usually referred to as ‘takaful’, which essentially means ‘sharedresponsibility’ or ‘guaranteeing each other’. It is derived from the word ‘kaﬂ’, which means ‘guarantee’ or ‘responsibility’. Takaful insurance is based on rules and principles either derived from, or consistent with, the Sharia (and Islamic law), and can be characterised as an Islamic form of cooperative or mutual insurance, but one which is available to the general public. In order properly to understand the issues facing takaful, the structures and principles behind takaful must be understood. The legal and regulatory framework surrounding takaful is still in its infancy, with the most developed systems of Islamic ﬁnance and takaful being found in Malaysia. Although several Middle Eastern, Asian and some European countries offer takaful insurance products, they do not all have the legal and regulatory framework in place that is necessary to ensure competitiveness in the market place, stability, transparency and efﬁcient ﬁnancial reporting. This chapter will outline the basic concepts and structures of takaful insurance and attempt to deal with some of the legal and regulatory issues facing takaful around the world. 2. TAKAFUL Under a takaful system of insurance, participants make contributions to a fund to cover claims for insured events, whilst also beneﬁting from any returns generated by the investment of the fund in Sharia-compliant vehicles. Non-Muslims are free to participate together with Muslims. Unlike conventional insurance, the contributions are not owned by the operator, but held on trust. In...
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