Malaysia’s Economic

CHAPTER 1

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INTRODUCTION OF TAKAFUL

1.1 Introduction

The development of Malaysia’s economic currently shows its growth on Islamic muamalah

system. This positive establishment gives one situation that attracts the society to analyze and

choose between conventional and Islamic system. The economy system introduced Shariah rules

that compiled all methods such as al-Bank alla Ribawi (banking without interest), al-Rahn

(mortgage), Islamic business stock and of course Takaful (Islamic insurance). There are some

methods and products like the al-Bank alla Ribawi and Takaful have been spread out to our

neighborhood countries in example Brunei Darussalam, Indonesia and Singapore.

1.2 Definition

Takaful is derived from the Arabic root-word “kafala” , a verb, which means guarantee, bail,

warrant or an act of securing one’s need. Therefore, takaful (in its give and take form) means joint

guarantee, other against a defined loss. In the context of Islamic insurance, takaful refers to an

agreement for mutual indemnity in providing protection and compensation to the participants who

suffered from perils or hazards.

In a word, takaful can be considered as the Islamic alternative to insurance. From the

economic point view, takaful means a mutual guarantee or assurance based on the principles of alaqd (contract) provided by a group of people living in the same society against a specific risk that

befalls an individual’s life or possessions. Takaful can also be defined as a mutual pact among a

group of members or participants whereby all mutually share the consequences of risk that may be

inflicted upon any one of them (Salahuddin Ahmed, 2006)

The basic goal of takaful is to share burdens and to do with fairness for all parties involved

and not to maximize profit as business. Unlike the conventional stock insurers, takaful operators

are not owners of the Takaful funds that are managed by them,