Takaful: An Islamic insurance instrument

Origins of Takaful

Takaful as a concept has been in existence for a long time. From the Muhajirin of Mecca, Ansar of Medina to the Hijra of the Prophet Muhammad, Takaful has been in practice since time immemorial. The concept of Takaful is derived from the Al Aqilah and Diya systems, practiced by the Arab tribes, in which the members of a given tribe had to provide financial assistance to a member who was facing any form of liability. For instance, if a member faced an unexpected liability such as paying for blood money (Diya), the other members of the tribe would come to his rescue by providing financial help.

Modern-day Takaful is not different from what was practiced in the earlier days. Based on the ideologies of Ta’awun (mutual assistance) and Tabarru’ (donation/ gift), the current system of Islamic insurance or Takaful was majorly developed in 1985. It was in that year when conventional insurance was declared Haram by the Grand Council of Islamic Scholars in Makkah, Saudi Arabia, and Majma Al Fiqh. The declaration stated that only Shariah-compliant donations would be considered permissible (Halal). It is also noteworthy that before the declaration in 1985, efforts to institutionalize Takaful already took root in Sudan in 1979 and Malaysia in 1984.

Meaning of Takaful

The word Takaful, which originated from the Arabic term Kafala or Takafala, translates to mutually guarantee one another. In this system, which is also based on the concept of donation, participants agree to mutually help each other without any underlying motive. Participants can subscribe to various Takaful plans by offering their contributions or donations (Ta’awun). The donations are pooled into a Takaful fund. Funds from the pool are used to provide financial help to any incumbent member of that plan. For example, if a member of a plan were to experience any personal financial loss, then the funds collected from the other members would be used to provide financial help.


Participants can subscribe to different types of Takaful plans, such as family takaful, motor takaful, Term Takaful, and so on. Takaful or Islamic insurance plans come with several features and add-ons that provide coverage for death, hospital, disabilities, accidents, damage of vehicles, property loss, etc.

Global Rise

In the global insurance market, Takaful is rapidly growing at a rate of 20-25% per year as compared to conventional insurance. As the plans are ethical and are based on the principles of helping each other, the demand is growing immensely. These plans can also be subscribed by the non-Muslims as Takaful is for ALL.