“Takaful” is an infinitive noun which is derived from the Arabic root verb kalaf’ or kafala which means to guarantee or bear responsibility. Takaful can be considered as the Islamic alternative to insurance form as the noun suggests.

In principle, Takaful eliminates Al-Gharar (uncertainty), Al-Maisir (gambling) and Riba (interest) which are against the teachings and practices of Islam.

Islamic jurists conclude that insurance in Islam should be based on principles of mutuality and cooperation. It encompasses the elements of shared responsibility, joint indemnity, common interest and solidarity.

The principles of takaful consist of the following:

♦ Policyholders cooperate among themselves for their common good.

♦ Every policyholder pays his subscription to help those that need assistance.

♦ Losses are divided and liabilities spread according to the community pooling system.

♦ Uncertainty is eliminated in respect of subscription and compensation.

♦ It does not derive advantage at the cost of others.

Theoretically, takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of “bear ye one another’s burden.”