Exploring the Model of Musharakah Taʿawuniyyah in Takaful

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Tabarruʿ (unilateral gratuitous contribution), which technically refers to giving favour to the recipient without any specific consideration in return, is the basic concept that distinguishes takāful from Sharīʿah non-compliant insurance. It implies payment of a contribution or donation in order to cover the loss on the occurrence of a peril for any member of a group of participants. Accompanied by the concept of taʿāwun (mutual help or assurance), this takes the form of a system of mutual indemnification, the sharing of one another’s losses by group members. It is important to observe, however, that this is a special kind of taʿāwun which involves refund to participants, possibly even more than what a participant contributed, if and when the need arises. It shifts the nature of the insurance arrangement from an exchange contract of bilateral nature to a charitable concept of unilateral nature. Mutual relationship among the participants in takāful arrangement is that of partners for a good common cause who pool resources for mutual indemnification of defined losses to any of them, as in case of nahd, (or nihd), an institution that existed before the lifetime of Prophet Muḥammad (), and which was approved by Islam. PricewaterhouseCoopers (PWC) pays tribute to this cooperation-based institution of shared responsibility, saying that the world’s youngest and most dynamic insurance market in reality traces its origins back more than 1,400 years. Takāful, the name for Sharīʿah-compliant insurance, can be translated as ‘shared responsibility’ and refers to the cooperative risk-sharing beginnings of takāful—not unlike the birth of insurance within different communities in Europe and the USA.

However, as the system has evolved over the last three decades, takāful has emerged as a business conducted by the boards of directors (BoDs) of companies on the basis of wakālah and/or muḍārabah. Hence, the fundamental structure of takāful operations, originally based on the basic concept of tabarruʿ, has been questioned due to its allegedly being a commutative contract. It has been criticised as being practically akin to the commercial corporate structure of insurance companies due to the same marketing strategies, allocation to reserves, the companies taking a share of the underwriting surplus (UWS) one way or the other, and their providing loans to the takāful funds and resultantly absorbing the underwriting losses (UWL).


The concerns raised by some Sharīʿah scholars in this context led the International Islamic Fiqh Academy (IIFA)—a subsidiary organ of the Organization of Islamic Cooperation (OIC), in its conference on “Cooperative Insurance: Dimensions, Perspectives, and the Position of the Islamic Sharīʿah”, held in Amman during 11-13 April, 2010—to call for a re-examination of all juristic characterisations applied in takāful practices so as to arrive at a determination of the relationship among the participants and other stakeholders that is free of controversy. Although the IIFA in its latest session, held in Riyadh during 22-28 November, 2013, attempted to provide a detailed resolution as to the structure and Sharīʿah-compliance, it is mainly theoretical and cannot be used in practice since it has not been substantiated by the industry players, legal experts and practitioners. Nor did the relevant attempts identify an appropriate and concrete fiqh characterisation (takyīf fiqhī) of the concept of taʿāwun and the relevant issues pertaining to its application. The takyīf fiqhī of our proposed mushārakah taʿāwuniyyah model takes full cognisance of six basic principles envisaged in IIFA Resolution No. 200 (21/6) of 2013—namely, the principles of insurance benefits, good intention, direct approximate cause, compensation, mutual sharing; and of solution and rights. It is more fundamentally supported by evidence from the Sharīʿah sources and by the practice of munāhadah (the community-based partnership in provisions on the basis of mutual cooperation) by the companions of the Prophet (). Moreover, precedents in Islamic history imply that a truly cooperative model could be an effective step forward towards the removal of mental blocks and bottlenecks in the way of spreading takāful-based risk mitigation and Sharīʿah-compliant savings and investments in Muslim societies. The very essence of this model is the shared responsibility among the participants based on mutual forgiveness and sympathy and making personal property lawful to one another. It is not based on mutual exchange, nor on a demand of rights, nor the intention of making profit, in contrast with the current commercial structure of takāful companies and the existing takāful business models.

With regards to the benefits of the mushārakah taʿāwuniyyah model as compared to the existing concept of takāful, it is expected that upon implementation of 

this model no Sharīʿah issue will remain unresolved. What may make the existing models, which use tabarruʿ and other concepts, Sharīʿah non-compliant is that the actual intentions of takāful participants when paying their contributions seem to be far removed from the intention of unilateral donation. Rather than acting as a commercial partnership, the proposed mushārakah taʿāwuniyyah model would provide mutual benefit to the participants without turning their commitment to offer contributions into a muʿāwaḍah (commutative/exchange) contract. The relationship between the participants would be that of cooperation among members of a group to pay specific amounts to compensate the loss that may afflict any of them, or to bring a benefit. In such a way it is expected that excessive ambiguity would be avoided and that the arrangement would not be tantamount to ribā and/ or gharar. Given its benefits, takāful in the proposed structure could become an institution for social and financial inclusion of those who either wish to abstain from the conventional insurance system due to Sharīʿah prohibitions or are not in a position to approach these institutions due to some deficiencies. Another possible benefit is that it would have the potential to become a unique community development institution for broad-based development devoid of exploitation of the masses. Also, community members would be helping one another in all conditions of sorrow and happiness. It would, moreover, provide participants the opportunity to plan for future needs and to invest their savings in the light of Sharīʿah principles.


The present study seeks to investigate whether takāful companies are functioning in line with the Islamic principles of mutual help and indemnification, solidarity and cooperative risk sharing. It suggests that participants/policyholders should be partners in takāful companies as is the case with the mutual insurance companies (“mutuals”) operating in America, other Western countries and Japan. In other words, managing a pool for mutual indemnification by group members should not be a business for companies as is currently the case. Rather, all participants should be the owners, paying claims and getting UWS in case the takāful pool is in surplus or shouldering UWL if it runs into a deficit. It implies that the system will neither be a commercial partnership nor a case of the insurer and the insured. In that case the commitments of the participants to offer their contributions on a mushārakah taʿāwuniyyah basis would not render the arrangement a muʿāwaḍah contract. As was the case in nahd, the partners/contributors can validly expect to get help as would be established in the contribution agreement. The overall aim of the study is to discuss the cooperative model of takāful in order to address the current as well as future Sharīʿah and legal concerns. The study suggests that the mushārakah taʿāwuniyyah model can best serve the objectives of takāful, which is intended to operate on the principle of taʿāwun.



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