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2.2. Shari'ah Principles of Takaful and Re-Takaful
This section discusses the various views, interpretations and thoughts of Muslim jurists based
on their interpretation of Shari'ah principles underpinning Takaful and Re-Takaful businesses,
and their similarities and differences from the conventional insurance.
Takaful as a concept has its root, reflected in many forms, in the Muslim society since its
inception. Nevertheless, the legality of the current Takaful practice is viewed by contemporary
Shari'ah scholars from three different perspectives. These differences in the legality of the
Takaful practice arise from the way the scholars have classified the insurance contract. Some
scholars consider Takaful as cooperation and donation contract while others classify it as an
exchange contract.
Scholars who view Takaful as an exchange contract are further divided into two groups. The first
group prohibits in general all types of insurance, whether it is Islamic or conventional, due to
the nature of exchange contract used in such transaction. Takaful in an exchange contract would
entail gharar (contractual uncertainty) that is prohibited by the Shari'ah . The second group
takes the opposite view in legalising all types of insurance, including the commercial/
conventional insurance based on an exchange contract. This view is supported by Sheikh
Mustafa Zarqa who was the first to write on the legality of conventional insurance from the
Shari'ah point of view (Zarqa, 1984).
Meanwhile, scholars who view Takaful or insurance as a contract of cooperation and donation,
deem it permissible under the Shari'ah. This is the most dominant view among scholars and
upon which the modern Takaful industry is based. This view is represented by the central bodies
of fatwa6 in the Muslim world such as the IIFA, AAOIFI, the Islamic Research Academy of Al-
Azhar Al-Sharif, and Islamic Fiqh Academy of the MuslimWorld League as well as the Council of
Eminent Shari'ah Scholars of the Kingdom of Saudi Arabia. Below are excerpts of the resolutions
of the bodies as mentioned above;
The first resolution issued on the matter was in 1985, by the IIFA in its second session where it
distinguished between Commercial and Cooperative insurance. It prohibited the former and
permitted the latter. The IIFA resolved (Mikail & Tijani, 2014) thus:
“ First: The commercial insurance contract with a fixed periodical premium, which is
commonly used by commercial insurance companies, is a contract which contains major
elements of deceit, which void the contract and, therefore is prohibited (haram) according
to the Shari'ah.
Second: The alternative contract, which conforms to the principles of Islamic dealings is the
contract of cooperative insurance, which is founded based on charity and cooperation.
6 A response given by a qualified Muslim scholar (Mufti) to a particular issue in particular circumstances.