Business Models in Takaful and Regulatory Implications
Conventional insurance is based on an exchange of premium payments now for future indemnities in case of specified events. Such an exchange (sale) contract would not be valid under Shari'ah law due to the uncertainty (gharar) of the value of the future indemnities. The Shari'ah view on conventional insurance and the basics of an Islamic alternative are outlined in Chapter 3. Shari'ah scholars accept uncertainty in contracts for one-sided transfers (tabarru') such as endowments or donations. Therefore, they base takaful schemes as the Islamic alternative to insurance on the concept of “donations” (voluntary individual contributions) to a risk pool out of which indemnities are paid to other contributors. The term “donation” may be somewhat misleading because there is no recipient who can dispose of the donated funds at his will, and the motive of the donor is not altruism or the well-being of others but a claim to benefits for himself in case of damage. The result is a “conditional donation,” which is in conformity with Shari'ah: takaful participants donate a sum of money to a risk pool (the takaful fund) subject to the condition that they will receive compensation from the pool for specified types of losses suffered by them.
An important question remains; namely, whether the compensation for damages will be in full or only partial. It cannot ...