A Research and Comparative Review of the Arguments of Proponents and Opponents of Conventional Takaful
Among the economic issues of the present era, there are some matters that are entirely unlawful and forbidden. One of these issues is insurance. The meaning of insurance is: a person or institution takes a guarantee that in the event of certain types of risks, I will compensate for the financial effects of the resulting loss.
In conventional insurance, elements of interest (riba), gambling (maysir), and deceit are present, which are unlawful and forbidden. Due to these reasons, Islamic scholars have declared insurance to be haram. There is a resolution on this matter by the Jeddah Fiqh Academy. The insurance system has become deeply entrenched in society and communities in a very organized manner. Despite being declared unlawful, society has embraced it wholeheartedly. To eliminate this malignancy from the Islamic society, the scholars of the Ummah made great efforts. In the 1970s, meetings were held to find a solution to this issue. In these meetings, the establishment of an alternative system to insurance was deliberated. Therefore, in 1979, the first takaful company was established in Sudan and Bahrain as an alternative to insurance. Gradually, this system was introduced in other Islamic countries. In December 2002, a gathering of scholars and grand muftis of the Hanafi school of thought was held at Jamia Darul Uloom Karachi, where the takaful system as an alternative to insurance was declared permissible.
Subsequently, scholars wrote books and articles on the legitimacy of this issue. For example, Mufti Taqi Usmani’s treatise ’’تأصيل التامين التكافلی‘‘ on the Shariah status and Dr. Ijaz Ahmad Samdani’s book “The Islamic Method of Takaful Insurance” are noteworthy. In Pakistan, when the concept of Takaful emerged as an alternative to conventional insurance, a few scholars wrote against its permissibility, including Mufti Abdul Waheed and Hafiz Zulfiqar Ali, among others. In this brief article, we will present a research-based and comparative review of the arguments of both proponents and opponents of conventional Takaful and present the prevailing opinion to the esteemed readers. Before mentioning both views regarding Takaful, it is necessary to clarify the meaning and concept of Takaful.
Meaning and Concept of Takaful:
According to the limited knowledge of the author, the word Takaful is not used in the Quran, Hadith, and ancient lexicons. However, its root is used in the form of the chapter of mutual interaction (Tafa’ul) and other derived chapters. In the Holy Quran, regarding the guardianship of Lady Maryam (peace be upon her), Allah Almighty says:
إِذْ يُلْقُونَ أَقْلَامَهُمْ أَيُّهُمْ يَكْفُلُ مَرْيَمَ
“When he cast her in, saying, ‘Who will be her guardian?'”
In another place, it is stated:
فَتَقَبَّلَهَا رَبُّهَا بِقَبُولٍ حَسَنٍ وَأَنبَتَهَا نَبَاتًا حَسَنًا وَكَفَّلَهَا زَكَرِيَّا ۖ
“Then her Lord accepted her well and made Zakariya her guardian.”
Similarly, in Hadith, the root of Takaful is also used, for example: The noble saying of the Prophet Muhammad ﷺ is:
أَنَا وَكَافِلُ الْيَتِيمِ فِي الْجَنَّةِ هُكَذَا
“I and the one who takes care of an orphan will be together in Paradise like this,” then he joined his index and middle fingers together as a sign.
The root word for Takaful used in these texts is “K-F-L”. While explaining the literal meanings, Ibn Faris writes:
الكفيل: الضامن، تقول: كفل به يكفل كفالة والكافل الذي يكفل إنساناً ،يعوله ، قال الله جل جلاله: (وَكَفَّلَهَا زَكَرِيَّا)
وأكفلته المال: ضمنته إياه.
“The meaning of Kafeel is guarantor (one who gives a guarantee). You say: كَفُل به يكفل كفالة meaning to be a guarantor, to be responsible, to be accountable. And Kafil refers to one who nurtures another person. Allah Almighty says: (وَكَفَّلَهَا زَكَرِيَّا) and appointed Zakariya as her (Maryam’s) Kafeel (responsible guardian).” And in اکفلته المال I made him the guarantor of the wealth.
Allama Raghib Asfahani writes:
الكَفَالَةُ: means guarantee, and تَكَفَّلْتُ بِكَذَا means to become a guarantor of something, and كَفَّلْتُهُ فُلانا means: I have placed him under the care of so-and-so. In the Quran it is: (وَكَفَّلَهَا زَكَرِيَّا)
and Zakariya was made his caretaker. Some have read کفـل with the Tafkheem of the letter Fa, in which case its doer would be Zakariya (peace be upon him), meaning that Prophet Zakariya (peace be upon him) took them under his care.
From the above details, it is understood that تکافل كفالة is derived from. Its meaning is to guarantee, take care of, and be responsible. When this root entered the form of mutual interaction (tafāʿul), it acquired the meaning of mutual participation and mutual assistance. Thus, the meaning of takaful so far has become “mutually guaranteeing each other” or “mutually taking care of each other.”
The word takaful has been discussed in modern lexicons. Accordingly,
states:
تَكَافَلَ يَتَكَافَلُ ، تكافُلاَ تَضَامَنَ / تَبَادَلَ الضمانَةَ مَعَ غَيْرِهِ .
“Exchanging guarantee with another.”
Dr. Muhammad Amarah says about ”تکافل“:
التكافل : هو التضامن والإعالة والرعاية، على النحو الذي يجبر القصور الحادث لدى طرف من أطراف علاقة التكافل والتكافل الاجتماعي هو النظام الذي يقيم علاقة التفاعل والتضامن والإعالة والرعاية بين أعضاء الإجتماع الإنساني في مجتمع من المجتمعات.
Takaful means mutual guarantee, sponsorship, and care in such a way that it removes the deficiency arising among the individuals related to takaful, and collective takaful means a system that establishes the relationship of mutual cooperation, guarantee, sponsorship, and care among human social and collective individuals in any society.
Now let us present the concept, types, and foundations of conventional Takaful to the esteemed readers and provide a research-based and comparative review of the arguments of proponents and opponents.
Meaning of Conventional Takaful:
Dr. Ismatullah Sahib defines the conventional Takaful terminologically as follows:
“Takaful is an Islamic insurance system based on the principles of mutual cooperation, solidarity, and Tabarru (donation), where all participants share the risk (hazards), and thus, through mutual cooperation and solidarity, the participants are protected from possible financial impacts under specified rules and regulations.”
This definition limits the Islamic system of Takaful. The prevailing Takaful system is far removed from the system presented by Islam. In this system, only those people who are the insured under this system and who are generally capitalists can participate. Those who are poor, destitute, helpless, and unsupported cannot buy the prevailing Takaful policy due to their poverty, whereas in the Islamic system of Takaful, the state guarantees the social and economic needs, protection against unforeseen accidents, and compensation for losses of all individuals without discrimination between Muslims and non-Muslims. In this system, there is no need to pay a fixed amount to become an insured.
Afterwards, the doctor explained the concept of Takaful in the light of the Quran and Hadith, providing arguments that align with the Islamic system of Takaful. In the end, he writes:
“From all these references, it becomes quite clear that the concept of Takaful is neither new nor invented, but rather derived from the Quran and Hadith, based on mutual cooperation, solidarity, and donation. Therefore, there is no doubt about the permissibility and even the commendability of this system, provided it is conducted according to its correct principles and with sincerity.”
There is no doubt that the concept of Takaful is derived from the Quran and Hadith, but which Takaful? The one that resembles conventional insurance, which is based on uncertainty (Ghadar and Dhokha). Such Takaful, whose purpose is not cooperation with others but actually to compensate for one’s own loss and is adopted as a business. The arguments are correct that the purpose of Takaful is mutual cooperation and solidarity, but presenting this in defense of conventional Takaful is not an intellectual achievement.
The method of conventional Takaful:
Dr. Ijaz Ahmad Samdani has described the method of a Takaful company as follows: In principle, the method of a Takaful company consists of the following stages.
➊ Establishment of the company:
Like conventional insurance, in Takaful first a company is established that manages the affairs of Takaful. People are encouraged to obtain Takaful policies within it. Similar to general insurance, in Takaful different groups of people with various risks are formed; however, the Takaful company differs from a general insurance company in that it acts as a manager and trustee (Ameen). Unlike a general insurance company, it does not become the owner of the policyholder’s premium (donation), rather the policyholder’s premium remains with it. The second difference is that in a Takaful company, shareholders endow movable or immovable property or cash or both according to Shariah rules; nowadays generally only cash is endowed. A pool is created from the endowed amount.
➋ Waqf Deed:
The donations obtained in the Waqf pool are spent according to the principles and regulations of Waqf. For this purpose, a deed is created, which is called the Waqf Deed.
➌ Contracts that come into existence:
After the above principles and regulations are established, the Takaful company collects premiums from policyholders and deposits these premiums into the pool created on the basis of Waqf.
❀ Types of Takaful:
Regarding the types of Takaful, Dr. Ismatullah Sahib writes:
Like conventional insurance, Takaful also has two major types:
❀ Types of Takaful:
◈ General Takaful
◈ Family Takaful
◈ General Takaful:
In General Takaful, membership is provided to cover potential risks to assets such as ships, vehicles, and houses. If any accident occurs to the asset for which Takaful membership has been obtained, the compensation for the loss is paid from the “Waqf Fund.” The company manages this fund and charges an agency fee. Additionally, the amount in this fund is invested in Shariah-compliant businesses, which have various Shariah forms and structures. In this, the fund acts as Rabb-ul-Mal (capital provider), and the remaining profit goes to the Waqf Fund, and this profit becomes the property of the fund itself. In the Takaful Rules 2005, the following definition of General Takaful is given:
“General Takaful means Takaful other than Family Takaful.”
That is, General Takaful refers to all types of Takaful except Family Takaful, such as vehicle Takaful. In General Takaful, there is only one fund called the PTF (Participant Takaful Fund). This fund is Waqf-based, meaning it is neither owned by the company nor by the members. The operator, i.e., the company, manages it and invests it in Shariah-compliant businesses, which have various Shariah forms and structures. In this, the fund is Rabb-ul-Mal, and the operator or company acts as Mudarib (manager). A specific profit-sharing ratio is fixed, according to which the company receives its share as Mudarib, and the remaining profit goes to the fund, making it owned by the fund or a Waqf-owned fund. From this same fund, participants, i.e., members, receive coverage according to the prescribed rules.
◈ Family Takaful or Life Takaful:
Life insurance is known as Family in the Takaful system. It includes PTF as well as PIA and PIF, i.e., Participant Investment Fund. This means a separate fund consisting of those assets that represent PIA units under the Family Takaful plan.
A: Group Family Takaful:
(Group Family Takaful) Like group insurance, employees of an institution are covered in this. The institution is called the Participant, and each employee is called the Covered Person. Generally, only PTF is present in this; PIA is not included.
B: Individual Family Takaful:
(Individual Family Takaful) This is like regular insurance, in which the individual is the member (Participant) themselves, and their institution is not involved; rather, they take this policy as an individual (Person). Family Takaful provides membership to cope with possible risks to human life. It offers participants not only the protection of Takaful but also the facility of halal investment. Besides the Waqf fund, there is another fund called “PIA (Participant Investment Account).” This is the investment fund of the Takaful participant. Whereas in General Takaful, the participant does not have a (PIA) account. The stepwise details are as follows:
❀ The amount given by the Takaful participant first goes into their (Participant PIF) (investment account), where it is invested in the style of Islamic mutual funds, and units are purchased in the fund for the participants with this amount.
❀ Then, according to a specified procedure, the amount keeps coming into the PTF. The amount coming into the Waqf pool is solely based on donation, and based on donation, this amount can vary according to the participant’s age, health, permanence, their methods, and membership plan.
❀ After deducting expenses from the amount present in the PIA, the company, as an agent, invests this amount under the supervision of the Shariah Board.
❀ The company charges its agency fee for the investment.
❀ The profit earned as a result of the investment is provided to the participant.
❀ If the participant ever faces an accident, compensation is made from the Waqf fund.
Summary is that the contribution paid by the participant is divided into two purposes: a portion of the amount goes as a donation to the Waqf fund, and the remaining part is invested.
Honorable readers! You have observed the method and types of conventional Takaful, from which it has become clear that the conventional Takaful system is completely different from the collective Takaful of Islam, and its method and types are closer to traditional insurance.
As for whether the basis of conventional Takaful is a contract of compensation (Aqd-e-Muawadah) or a contract of donation (Aqd-e-Tabarru), the proponents of Takaful claim that the basis of Takaful is a contract of donation, which is a permissible form. Those who disagree consider it a contract of compensation. Now let us conduct a research-based and comparative review of the arguments of both parties.
Basis of Takaful:
Advocates of Takaful have declared the basis of Takaful to be the contract of Tabarru (donation). Dr. Ismatullah Sahib writes:
“From the above details, it has become very easy to decide why Takaful is a Shariah-compliant method, why it is permissible, and why it does not contain the defects present in conventional insurance, such as interest (riba), gambling (maysir), and uncertainty (gharar). This is because Takaful is not among contracts of exchange (mu’awadhat), but rather among contracts of donation (tabarru). Tabarru is the plural of Tabarru, which means giving something to someone as a favor without expecting anything in return
. Therefore, the concept of interest automatically disappears in it, because the definition of interest does not apply here, as interest occurs in loans or sales, and the method of Takaful is neither a loan nor a sale, so the element of interest is eliminated. And since this is a contract of donation, if there is gharar (uncertainty) in it, there is no harm, because gharar is legally harmful in contracts of exchange, but not in contracts of donation.”
According to those who do not accept it, this contract is not a gift. On this matter, Maulana Zulfiqar Sahib writes:
“The commercial insurance has been declared forbidden due to certain defects. Chief among them are interest (riba) and uncertainty (gharar). At first glance, both these defects are found here as well, in that if the policyholder dies before the term is completed, the predetermined amount under the policy is paid to him. A part of this amount he has not even paid, and the company is legally bound to pay it. As for gharar, there are two possibilities: it is possible that the loss for which the policy was taken does not occur and the amount paid is wasted. And it is also possible that the loss does occur and the company is obligated to pay.”
Supporters of commercial takaful say that increase and gharar are prohibited only when there is a contract of exchange (a type of transaction in which one party has the right to receive compensation from the other), whereas this contract is one of donation. But this is not correct. Because the benefits obtained by the policyholder depend on the increase or decrease in the policy value, meaning if the premium is less, the benefit is also less; if the premium is more, the benefit is also more, and all this happens under a proper contract which is binding on both parties and also has legal protection. Even if there is no money available for the payment of claims, it is made possible by taking a so-called waqf loan. In such a case, calling it a contract of donation is incomprehensible. Moreover, the definition of donation does not apply here because donation means giving something to someone without expecting compensation, whereas here the motive is that I will receive these benefits in return.
Review:
After examining the arguments and evidence of both parties, we have reached the conclusion that the basis of Takaful is correct only in name as Waqf or Tabarru, but in practice, it is a contract of exchange. The method of the Takaful company in the prevailing Takaful is similar to commercial insurance.
Even if its basis is the contract of Tabarru, the proponents have expressed dissatisfaction with it. Dr. Samdani writes:
The personal legal nature of Waqf is a characteristic that has facilitated the presentation of a Shariah-compliant alternative to insurance. That is why the scholars of Pakistan have preferred to establish the Takaful system based on Waqf because, compared to Tabarru, Waqf has somewhat more flexibilities, and in the current era, the prevailing method of Takaful does not fully assure that this matter has completely moved away from the contract of exchange. There is no complete assurance about this matter.
Furthermore, he summarizes Mufti Taqi Usmani Sahib’s article: In the Tabarru model, the policyholder who pays the premium, his Shariah status is under consideration by those who have deemed the Tabarru model correct. They have presented the following justifications:
➊ This premium is “Hiba bi Shart al-‘Awad,” meaning the policyholder gives this premium to the company as a gift (hiba), but with the condition of receiving compensation in return. In other words, he tells the Takaful company that he gives this amount on the condition that they will compensate for his possible loss. This justification is not correct because Hiba bi Shart al-‘Awad falls under the ruling of sale (buying and selling).
Therefore, this situation falls under the contract of exchange (Mu’awadah).
➋ This is of the type “commitment to donation,” in which the policyholder commits to donating a certain amount to the company, and the company undertakes that the person who pays this premium will have certain risks covered by it. This explanation has been presented according to the Maliki school of thought.
But this is not reliable because in it both parties (i.e., the company and the policyholder) each undertake the commitment of donation on the condition that the other also undertakes the commitment of donation. The company does not undertake the commitment of donation from a person who does not pay the premium to it after undertaking the commitment of donation, and the policyholder also undertakes the commitment of donation for that company which undertakes to compensate for his loss. Such a commitment of donation which is conditional from both sides is considered a commutative contract according to the Maliki school.
Therefore, this explanation is also not reliable.
➌ Some individuals have said that Tabarru is merely a donation, meaning it is not conditional, as a result of which the premium policyholder loses ownership of it; therefore, neither Zakat is obligatory on it nor do inheritance rules apply to this amount. However, this reasoning can only be considered correct if the pool created as a result of Tabarru is regarded as a legal person so that first it becomes the owner and then it covers the policyholder’s risk according to its own rules. Whereas in the current system of Takaful, the pool established on the basis of Tabarru is not considered a legal person because it has no separate existence from the company.
After quoting Mufti Sahib’s statement, Sadani Sahib writes:
On the contrary, since Waqf itself is a personal legal entity and the given donations directly become the property of the Waqf, and the Waqf then pays claims in accordance with its established regulations, therefore the Waqf system is more reliable.
From Mufti Taqi Usmani Sahib’s discussion, it is understood that the current Takaful system based on donation is not reliable, and secondly, the personal legal status of the pool established on the basis of donation in the Takaful system is also questionable.
The remaining structure proposed to be established on the basis of “Waqf” also contains all those objections and concerns. Here too, the policyholder gives the premium amount to the company as Waqf. If a condition of compensation is attached to it, this situation falls under the contract of exchange. The solution to this Waqf method is that the one who donates more is entitled to compensation for greater loss, while the one who donates less is entitled to compensation for lesser loss. In other words, the reduction or increase in the donation (premium) leading to a decrease or increase in compensation for loss brings it closer to a contract of exchange.
The first case has itself been declared a contract of compensation by the proponents, and in the second case, claiming that I am entitled to compensation for loss from the endowment based on its established rules and regulations is also a weak justification because the policyholder’s right to claim under the rules and regulations is obtained only in exchange for the amount given. Furthermore, saying that compensation for loss based on increase or decrease is not a legal right of the policyholder but merely a promise from the endowment means this matter undoubtedly does not fall under a contract of compensation.
This is merely a pretext.
The Prophet Muhammad ﷺ said:
يَا أَيُّهَا النَّاسُ! إِنَّمَا الْأَعْمَالُ بِالنِّيَّةِ ، وَإِنَّمَا لِلأَمْرِي مَا نَوَى
“O people! Verily, actions are judged by intentions, and every person will get what he intended.”
Maulana Khalil ur Rehman Javed writes:
“It has been said that if the policyholder does not have the right to compensation for loss based on the surplus or deficit of his endowment fund, but rather the endowment promises to compensate for the loss, then this contract is not a contract of exchange. This is also merely a pretext like other pretexts; otherwise, the Takaful company should explain on what basis it made the promise. Obviously, this fund is the basis, which the endower has deposited into the Takaful company’s pool. All these agreements are predetermined, and the policyholder always purchases the policy after carefully reviewing the benefits offered by the company, and this very thing makes it a contract of exchange. Since the policyholder is already aware that if the premium amount is such, then in case of loss, he will receive this much, and if it is less, then he will receive that much, this is a business rule, and both the Takaful company and the endower are bound that one party pays its installment and the other party compensates for the loss at the time of damage. This is explicitly a contract of exchange, which is impermissible. Whether this contract is given to the policyholder based on his accumulated amount or on the promise and rules and regulations of the Takaful company, the result is the same. Because the right given under the rules and regulations or the promise is also based on the policyholder’s amount. Therefore, this contract in no way differs from a contract of exchange.”
The Issue of Endowment of Cash:
Here, the discussion is very important whether cash can be endowed or not? Because the entire structure of Takaful is based on this. All the scholars and jurists agree that in an endowment, the principal item is preserved and only its benefits are spent. The evidence for this is the saying of the Messenger of Allah ﷺ:
إِنْ شِئْتَ حَبَستَ أَصْلَهَا وَتَصَدَّقْتَ بِهَا
“If you wish, you can withhold the principal and give its produce as charity.”
This hadith is clear evidence that an endowment (waqf) can be something from which benefit can be derived while preserving the original asset, whereas money and currency, in their original form, do not have the capacity to yield benefit. It is not possible to benefit from money, coins, or dinars without spending them. For this reason, it is not correct to rent out money because rent is charged on something that can be used without being spent, whereas this quality does not exist in cash; therefore, charging rent on it is not permissible. Even proponents of conventional takaful agree that charging rent on it is not correct.
Mufti Taqi Usmani Sahib writes:
“For a lease to be valid, it is necessary that the ownership of the leased item remains with the lessor, and only the right of use is transferred to the lessee. Therefore, any item that cannot be used without being consumed cannot be leased. Hence, cash, food items, fuel, and ammunition cannot be leased because their use without consumption is not possible. If such items are leased, it should be considered a loan, and all the rules of loans will apply to it. Any rent taken on such an invalid lease will be considered interest taken on a loan.”
When the proponents of conventional takaful accept that cash is something that cannot be used without being spent, then ignoring the jurists’ condition that “waqf can only be something that remains and is beneficial” and issuing a fatwa permitting waqf of cash is beyond understanding.
According to the opinion of most jurists, waqf of dirhams and dinars is not valid. Allama Ibn Qudamah writes:
’’و جملته أن مالا يمكن الانتفاع به مع بقاء عينه كالدنانير والدراهم والمطعوم والمشروب والشمع وأشباهه، لايصح وقفه في قول عامة الفقهاء وأهل العلم.“
“And the summary is that whatever cannot be retained and benefited from, such as dirhams and dinars, food, drink, candles, and other similar items, according to the majority of jurists and scholars, their waqf is not valid.”
Allama Ibn Hummam states:
’’وأما وقف مالا ينتفع به إلا بالإتلاف كالذهب والفضة والمأكول والمشروب فغير جائز في قول عامة الفقهاء.“
“As for the waqf of something that cannot be benefited from without being spent, such as gold, silver, and food and drink items, according to the majority of jurists, this is not permissible.”
Allama Anwar Shah Kashmiri writes:
’’واعلم أن وقف الـمـنـقـول لا يصح على أصل المذهب وأجازه محمد فيما تعارفه الناس.“
“Know this! In the original (Hanafi) school, the endowment of movable items is not valid. However, Imam Muhammad has permitted it in those things which have become customary among people.”
Dr. Ismatullah Sahib has written:
“According to Imam Abu Hanifa (may Allah have mercy on him), the endowment of movable items is not permissible, and the reason for its impermissibility is that endowment requires perpetuity, and perpetuity is not found in movable items, regardless of what the item is.”
On the contrary, the supporter of Takaful, Imam Zafar’s student Muhammad bin Abdullah Ansari, issued a fatwa stating that the endowment of dirhams and dinars is permissible. The text is as follows:
وعن الأنصاري وكان من أصحاب زفر فيمن وقف الدراهم أو الطعام أو ما يكال أو ما يوزن أيجوز ذلك؟ قال: نعم، قيل: وكيف؟ قال: يدفع الدراهم مضاربة ثم يتصدق بها في الوجه الذي وقف عليه.
“Ansari, who is among the companions of Imam Zafar, was asked whether it is permissible for someone to endow dirhams, food, or measured or weighed items. He replied: Yes, it is permissible. When asked how it is permissible, he said that first he should give the dirhams on mudarabah (profit-sharing), and then give the proceeds as charity for the purpose of endowment.”
However, this fatwa goes against Takaful companies themselves because the owners of Takaful companies do not give anyone the capital they have endowed as mudarabah; rather, they conduct the business themselves and charge a regular fee for it.
The rest of the gentlemen who advocate dedicating cash believe that profit can also be gained by keeping money intact; that is, by doing business with it and spending the profit earned.
In response to this, Maulana Zulfiqar Ali writes that this is not correct for two reasons.
A: Firstly, because this is not about keeping the money in its original form and gaining profit from it. Such profit can also be earned by renting out the money, but even then it is not permissible according to Shariah. Why? Because this kind of profit is not the original purpose of creating cash.
B: Secondly, because investing money in business carries the risk of loss instead of profit, and it is possible that the endowment may be lost altogether. Therefore, saying that the profit from the business conducted with the endowed amount will be spent contradicts your ﷺ statement: “Preserve the principal and spend its produce.”
If the arguments presented by both parties are compared and analyzed, the position of those who declare cash endowment as impermissible appears correct and stronger.
Finally, we quote Dr. Ismatullah Sahib’s statement in which he advises Takaful companies to create the Waqf pool in the form of immovable property, which clearly shows that the viewpoint of those who advocate for cash Waqf is weak. Dr. Sahib writes:
“There is no doubt that the requirement of caution in every matter is to adopt the opinion that is agreed upon, so that it respects all schools of thought and all positions. Therefore, if Takaful companies create the Waqf pool in the form of immovable property instead of cash, there is no doubt that it is better.”
Moreover, those who reject Takaful have declared the allocation and admin fees in conventional Islamic insurance as unlawful. Regarding this, Maulana Zulfiqar Ali writes:
“When the so-called Islamic insurance was in its theoretical phase, it was said that in conventional insurance there is injustice because almost the entire first installment goes into the agent’s pocket, whereas in Takaful this does not happen. But when the practical phase arrived, the so-called Islamic insurance also adopted the same path. In our opinion, this is an injustice to the policyholder in such a way that if he bids farewell to the Takaful company after paying one installment, according to the rules and regulations, he only receives the amount accumulated in the investment account or the profit earned from it. Now, 87% has already been deducted as allocation fee, and the remaining 13%, half of it goes to Waqf which cannot be reclaimed according to Shariah, and from what remains, 1.5% is taken as management fee and a monthly admin fee ranging from 65 to 110 rupees is also charged. What does the policyholder get in hand? There can be no justification for the allocation fee other than that it is the worst form of consuming wealth through invalid means.”
The summary of the discussion is that the Islamic system of Takaful is completely different from the prevailing Takaful system. The fundamental purpose of the Islamic system of Takaful is for all members of society to collectively assist and support the needy, helpless, and destitute, rather than to protect against future risks and compensate for losses. The prevailing Takaful system is not free from interest (riba) and uncertainty (gharar), similar to conventional insurance. The current Takaful system is also based on a contract of exchange (mu’awadah) rather than a contract of donation (tabarru’), and similarly, the entire foundation of the Takaful company is based on money, whereas according to the Hadith of the Prophet Muhammad, peace and blessings be upon him, the original endowed item remains intact and only its benefits are distributed. Under this principle, the foundations of Takaful become extremely weak. Furthermore, the Takaful company’s practice of charging fees from policyholders under the names of allocation and administration is outright injustice and unfair. For this reason, the stance of the dissenters appears to be justified.
From the above discussion, readers must be wondering whether there can be any legitimate form of Takaful if the conventional form is also impermissible. Regarding this, Maulana Khalil-ur-Rahman Javed writes:
“Certainly, such a form can exist provided that the contract of exchange and other defects found in it are removed… To avoid the contract of exchange, it will be necessary that whoever contributes money to the Takaful fund does so not for any personal, financial, or material benefit, but purely with a sincere intention for the welfare of others and to seek the pleasure of Allah Almighty, similar to the sincere intention one has when donating to a charitable organization, religious seminary, or a hospital, etc. But it should be remembered that these donations should not be from the Zakat fund but from other funds because those who benefit from this fund are not necessarily entitled to Zakat. Every donor should give purely out of kindness, generosity, and as a gift, from which even the wealthy can benefit.” As the Prophetic saying narrated by Muslim states:
تَهَادُوا تَحَابُوا
Exchange gifts among yourselves, as it creates love among you.
“Since this form and nature of Takaful is not a contract of exchange, therefore no person participating in the Takaful fund has the right to claim, neither on the basis that they have given donations nor on the basis that according to the Takaful rules they have a right. Rather, in case of any loss, the other partners assist them merely as a favor, charity, and gift.”
In any case, further measures are needed to reform the prevailing Takaful. To improve this system, it must be freed from the contract of exchange, and the elimination of cash in the Waqf fund is necessary. Similarly, other defects should be removed and it should be established on a purely Islamic Takaful system so that interest and uncertainty are eradicated and no one’s rights are violated.
وباللہ التوفیق
