15
since the beginning of the 19
th
century. Unlike the issue of usury (
riba
), which is well defined in
the primary sources of Islam - the Holy Qur’an and Sunnah - as anything claimed by a lender
froma borrower above the principal of a debt or a loan (as explained in
surah
“al-Baqarah”, verse
275), the concepts of mutual solidarity, cooperation and insurance are left to the
ijtihad
(independent legal deduction) of Muslim jurists, to decide upon, depending on the
maslahah
(public benefit or utility). Hence, this has resulted in different opinions (Chachi, 2017).
Therefore, with the advancement in civilization, emergence of nation-states across the world
and the rising volumes of trade and commerce and the resulting complexity of life, new risks
emerged in an increasing manner that required the attention of policymakers. The more
mankind looks into the future, the more they encounter inexplicable uncertainties as Sidiqqi
(2000) pointed out. He argued that: “
handling risk and uncertainty became an increasingly
prominent aspect of economic life, even for ordinary men and women. Early ways and means of
handling risks and uncertainty took simple forms of cooperation between the near and the dear.
Pooling, sharing, diversification all occurred within the framework of trust, reciprocity and
mutuality. That was insurance/Takaful
”. He further reasoned: “
As uncertainties increased and risk
became more complex, shifting risks to those willing to take them (in expectation of gain, of course)
and unbundling them into manageable parts took new forms.
” (Sidiqqi, 2000).
Based on the fundamental Islamic principles of cooperation and social solidarity, preserved in
the Qur’an and Sunnah, every member of the early Islamic societies was naturally insured by his
relatives, neighbours and by the state against any misfortune that may happen to him. That is
why some of the contemporary Muslim scholars, like Abdullah Al-Qalqeeli (1961), Shawkat Al-
Ulayyan (1981), Suleyman Al-Thenayan (1993) and others, think that there is no need for
commercial or even
Takaful
insurance companies to exist. However, given the complexity of life
and the need for organised insurance, contemporary Muslim scholars agree that solidarity and
cooperation among the people are not only recognised but encouraged in any form possible,
including in an organised manner that would help in achieving the original value proposition of
Islamic economic principles. However, they disagree on the form of solidarity and cooperation
that such solidarity and cooperation may take. This is undoubtedly in view of its great
importance in reducing the impact of risk and uncertainties, pooling contributions from the
member of participants, investing the collected funds in profitable businesses, employing a
skilled staff to manage them, compensating the victims of misfortunes and, thus, contributing to
economic growth and development and also to social harmony and political stability of the state.
The Islamic finance industry is made up of three sections: Islamic banking, Islamic capital
markets and Islamic insurance or
Takaful
. Among other segments of Islamic finance, Islamic
insurance, which is called
Takaful
is the objective of this study. Being one of the major
constituents of the modern Islamic finance industry, the theory and practice of
Takaful
are based
on fundamental principles of Islamic finance. The concept of Islamic finance is based on some
core tenets of Islam, relating to just wealth distribution, property rights, social and economic
justice, and proper good governance. Given the Islamic finance industry’s current volume and
composition, Islamic finance has become an integral part of the global financial system. It has