The concept requires considerable effort to implement, since much attention must be paid to compliance with the Shariah principles, both at the fund operations level and for all underlying investments.
Shariah-Compliant funds are prohibited from investing in companies which derives income from the sales of alcohol, pork products, pornography, gambling, military equipment or weapons. Shariah allows for a small portion of an investment's income to come from prohibited sources, though a Shariah-Compliant fund cannot profit from this income. Instead, it must separately account for these earnings and donate them to a charity.
This type of cooperative insurance would be Shariah compliant, because it is a form of cooperating on piety and good deeds. There is no taking advantage of those who are sick, or who have had a car accident, or a house fire, by raising their premiums or denying them coverage. It is simply a large group of people who get together to help each other when one of them faces the difficult circumstances that always come with filing an insurance claim.
Takaful
The concept of takaful (Islamic insurance) was first introduced in Malaysia in 1985 when the frist takaful operator was established to fulfill the need of the general public to be protected based on the islamic principles.
Muslim jurists are of the opinion that the operation of conventional insurance does not conform to the rules and requirements of Shariah as it involves the elements of uncertainty (Gharar) in the contract of insurance, gambling (Maisir) as the consequences of the presence of uncertainty and interest (riba) in its investment activities.
Takaful is an insurance concept in Shariah whereby a group of participants mutually agree among themselves to guarantee each other against a defined loss or damage that may inflict upon any of them by contributing as tabarru’ or donation in the takaful funds.
Tabarru’ is the agreement by a participant to relinquish as donation, a certain proportion of the takaful contribution that he agrees or undertakes to pay, thus enabling him to fulfill his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss. The concept of tabarru’ eliminates the element of uncertainty in the takaful contract.
The sharing of profit or surplus that may emerge from the operations of takaful is made only after the obligation of assisting the fellow participants has been fulfilled. Thus, the operation of takaful may be envisaged as a profit sharing business venture between the takaful operator and the individual members of a group of participants.
Takaful operations are regulated and supervised by BNM since 1988 with the appointment of the BNM Governor as the Director-General of Takaful. In October 1995, the ASEAN Takaful Group (ATG), a grouping of takaful operators in Brunei, Indonesia, Malaysia and Singapore was formed to enhance mutual co-operation and to facilitate the exchange of business among takaful operators in ASEAN.
In 1997, the Malaysian takaful industry took a leap forward with the formation of ASEAN Retakaful International (L) Ltd. (ARIL) as an offshore retakaful company in Labuan. The establishment of ARIL was to create a vehicle for more dynamic retakaful exchanges among ATG members and provides additional retakaful capacity to further reduce their dependence on conventional reinsurance.
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