The following Banking & Finance practice note Produced in partnership with Dr Hiba Allam, PhD in Islamic Insurance Law provides comprehensive and up to date legal information covering:
Takaful is a means of providing risk-cover conducted in line with the principles of Islam. To understand the mechanics of takaful and its documentation, it is critical to bear in mind the following:
the concept of takaful is rooted in Shari’ah (Islamic law)
the essence of takaful is risk sharing between participants (policyholders) and not risk transfer to the takaful operator (insurance company), and
the risk remains at all times with the fund into which all contributions are paid by the participants and from which claim payments are made to participants as and when necessary (the Participants Solidarity Fund).
Tabaru' is an Arabic word which means ’donation’ or ’voluntary and gratuitous contribution’. Legally (under Islamic law), tabaru’ is a contract of a particular nature as it does not refer to a bilateral contract but rather to a unilateral declaration of intent to transfer ownership without expecting any consideration in return.
Like its conventional counterpart, takaful must be based on a valid contract to support the takaful/insurance cover. Whereas insurance contracts must be in line with the applicable laws of the country in which the insurance policy is issued, takaful contracts must, in addition, comply with the principles of Shari’ah.
A takaful contract must, at all times, be free from any Shari’ah prohibited
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