that is prohibited due to the existence of

riba

gharar

and

maysir

. The resolution also indicated

that the

Takaful

and

Re-Takaful

activities must be supervised by a permanent

Shari'ah

Advisory

Board. Such

Takaful

and

Re-Takaful

operators are to adopt investment strategies which comply

with the

Shari'ah

and ensure they operate by utilizing modes of financing that are in line with

the

Shari'ah

principles and concepts (Benbouzid, 2005).

Since the early 1980s, there have been a lot of efforts and initiatives to develop the

Re-Takaful

operations and models that are

Shari'ah

-compliant and distinguishable from the conventional

reinsurance practices that are tainted with prohibited elements of

riba

gharar

and

maysir

. The

Shari'ah

-compliant operations have been introduced to replace the traces of all the three

prohibited elements (

riba

gharar

and

maysir)

that are substantially unavoidable in reinsurance.

The practice of conventional reinsurance involves

riba

in the contract between a cedant and a

reinsurer. This is questionable from the

Shari'ah

perspective because the ceded premiums being

invested by the reinsurer in financial instruments may contain elements of

riba

. The commission

Re-Takaful

, in contrast, does not depend on the investment of profit, but it is based on the

agreed

wakalah

fee for the services rendered by the

Re-Takaful

company. In addition, the

investment activities in

Takaful

and

Re-Takaful

are conducted in a

Shari'ah

-compliant manner

and free from any prohibited elements.

Gharar

and

maysir

relate with the element of ambiguity and gambling that must be eliminated

from a contract of sale whose existence and description of the items are not confirmed or where

there is asymmetric information leading to deception (El-Gamal, 2001). In a conventional

reinsurance contract, the reinsurer’s gain or profit is made from the premiums paid. In this case,

the beneficiary may not gain any profit, if there was no claim made during the contract period;

and thus, the element of uncertainty exists (Zuhayli, 1997). Distinctively, the

Takaful

and

Re-

Takaful

operations that are developed based on the concept of cooperation (

tabarru’

ta’awun

)

eliminate

gharar

and

maysir

. The operation of

Re-Takaful

is, in fact, a cooperative exercise in

which the TO contributes towards a pool of fund. The claims are then made from the fund and,

then, in case of underwriting surplus, all unclaimed profits (surpluses) are shared with the TOs

(Yusuf & Yuhasni, 2011).

Permissibility or Legality of

Takaful

There is no direct legal text in the Holy Qurʻan and/or the Sunnah on the permissibility or

non-permissibility of

Takaful

, but there are many legal texts in the Qur’an and prophetic

precedents (

hadith

) that encourage the spirit of

Takaful

which is based on cooperation,

shared responsibility, joint indemnity, common interest and solidarity. Allah the Almighty

said:

“

And help ye one another in righteousness and piety but help ye not one another in sin

and rancour, and fear Allah for Allah is strict in punishment

” (Qur’an, Surah al-Maidah,

5:2)