Analysis of conventional insurance in light of islamic teachings and implementation of takaful in Pakistan

Abstract

Pakistan is an Islamic country which has made a commitment through its constitution to formulate no laws that go against the spirit of Islam. It is with this spirit that the laws of Insurance should also be viewed. The chief legislation of Pakistan in relation to insurance is the Insurance Ordinance of 2000. There is a need to conceive of the Islamic alternative to insurance which is called takaful. Conventional insurance is viewed as a form of contract where the risk is shifted from the person who has paid consideration, known as premium, to another party. The person paying the premium is the policy holder or the insured while the person who takes on the risk is the policy provider or the insurer. The conventional concept of insurance is riddled with problems of riba (Interest), mai’sara (gambling), and gharrar (indeterminate contract). The Islamic concept of takaful is on the other hand conceived as a maintenance of a fund known as the tabaru fund by the collective contributions of the indemnified members. In this concept there is no one who assumes the risk but rather all the people agree to make whole the person who has suffered a misfortune and this is based on the concept of aaqilah which existed in Arab tribes at the time of the Prophet (PBUH). The tabaru fund is also invested as forming part of a mudarabah investment and any surplus in the fund is distributed accordingly. For the implementation of the takaful form of insurance in Pakistan there is a need to overcome certain obstacles such as a lack of education and willingness of the people along with problems of corruption and transparency in the country.