An Introduction to Islamic Finance: Theory and Practice

TABLE 10.2

Comparative features of

takaful

, conventional and mutual insurance

Conventional insurance

Mutual insurance

Takaful

Responsibility for

providing protection

Risk is transferred from the

insured to the insurer

Mutual risk sharing among

members

Mutual risk sharing amongst

participants

Governing law

Secular law and regulation

Secular law and regulation

Secular law and regulation and

Shari’ah

law

Ownership

Shareholders of insurance

company

Members

Participants

Contract forms

Bilateral insurance policy

Bilateral insurance policy

Wikala

/mudarabah

agreement and

unilateral contracts based on principles of

tabarru

(donation)

Investment

No restrictions on equity/debt

investments

No restrictions on equity/debt

investments

All investments to be in accordance

with

Shari’ah

principles

—

excludes

all debt and some equity investments

Liability of the

operator

The insurance company (and

ultimately its shareholders) are responsible for any claims payments

The members of the mutual are

collectively responsible for the payment of claims and may be asked to contribute in the event of shortfall

The participants are collectively

responsible for the payment of claims and may be asked to contribute in the event of shortfall if the

takaful

operator does not

provide

qard

• ul


• hassan

(interest

• free

loan)

Surplus in

operational income

Ultimately for account of

shareholders

For account of members

For account of participants

Source: Hodgins (2009)

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