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A car accident, an illness requiring time-off from work, a death in the family, a fire in your home or not being able to afford getting your child married; these are all issues which can be very difficult for any family. Prudent planning would require that we do our best to protect ourselves from any of these events; cautious driving, living a healthy lifestyle, protecting the home from possible fire hazards, making a greater effort to save. Granted that reducing the risk factor to zero is a rare occurrence that does not mean we should not try to bring it down as low as possible.

Risk, more often than not, also has a financial element. How does one protect ones family and self from that? What can you do to reduce that aspect of your risk? This is where Takaful enters the picture.

The word “Takaful” comes from the Arabic root word Kafala, meaning “guarantee” or taking care of one’s needs. Takaful is a Shariah compliant arrangement whereby individuals in the community jointly guarantee themselves against future losses or damages for each other. This method of Risk Mitigation has been used for centuries, albeit under different names. Prior to the advent of Takaful, as we know it today, the most common has been ‘Mutual Insurance’ which, although similar, is not identical. Takaful is based on the principle of solidarity, mutual help, brotherhood and cooperation among members of the community.

The key elements of any Takaful arrangement are the participants, the Takaful Pool, and the Takaful Operator (Company). The Takaful Pool is managed in the shape of a Waqf (Endowment) by the Takaful Operator which is actually just an operator and carries out its role in the form of a Wakeel (agent). Participants pool their contribution, which are given in the form of donations, into the Waqf fund, from which they may benefit in the event that they suffer a loss. All claims are paid out by the Waqf fund.

Takaful and conventional insurance both have the same purpose; i.e. financial protection; but their difference is in terms of their operational methodology. In conventional insurance risk is transferred whereas in Takaful it is shared amongst the participants. All donations are pooled in and claims and expenses are met from this pool. The investment is made in Islamic securities and profit generated is put back into the pool. The Wakeel (operator) charges a fixed percentage and the remaining funds in the pool belong to the participants. If at the end of the year a surplus is generated after meeting all expenses this surplus belongs to the participants and is passed on to them. Takaful companies, or windows, by law, must have a Shariah Advisor that monitors business and operational activities to see that they are all in compliance with Shariah.

Risk mitigation and financial protection are things which everybody needs to be concerned about. In order to effectively carry this out they need a tool which is not only effective in mitigating risk but also immaculately serviced, competitively priced, is in compliance with our ethical and religious beliefs and, most importantly, better for the individual and the community. That tool is Takaful.