History of takaful .

1. History of takaful.Presented by ibrahim muhammad muyeHead, department of business administrationbaze university

2. History of takaful.

3. History of Insurance • Insurance is defined as “the equitable transfer of the risk of a loss from one entity to another in exchange for a premium and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss” (Htay et. al., 2013) • It is a means of managing risks. • It is used to replace uncertainty with certainty regarding economic cost of loss yielding event. • Chinese and Babylonian traders were the first recorded in history to have practiced some form of risk transfer or distribution.

4. History of Insurance • After a thousand years, the citizens of Rhodes put in place the idea of “general average” • The origins of life and health insurance date back to 600 AD when Roman and Greek citizens formed a guild or union termed ‘benevolent societies’. • Holdsworth (1922) uncovered some contracts similar to insurance, showing different examples of conditions that traders from Rome and Greece would insert in contracts of carriage.

5. History of Insurance • The Jewish have also been credited with establishing insurance in the year 1182 following their expulsion by Philip Augustus from France. • The Talmud handles a number of aspects of insuring goods. • In the late seventeenth century England, there existed “friendly societies” before insurance was established. • The will of the great British colonizer Robert Hayman, disclose two “policies of insurance” agreed upon with the chancellor of London diocese, Arthur Duck.

6. History of Insurance • The development of insurance in the UK became a matter of necessity rather than convenience following the 1666 Great Fire of London that destroyed more than 13,000 homes. • Nicholas Barbon and some partners set up the pioneer fire insurance firm of England in 1681 named the Insurance Office for Houses. • As the city grew as an important center for trade, the demand for marine insurance increased in London.

7. History of Insurance • The first insurance firm in the United States of America was formed in 1732 dealing with fire insurance and was based in Charleston (then known as Charles Town), South Carolina. • Commercial insurance was later introduced to the Arabian peninsular in the 19th century and was regarded as an external pact meant for Muslim Arabs (Alhumoudi, 2012).

8. Takaful: Concept & Evolution • An alternative to conventional insurance. • Based on a risk-sharing mechanism and it’s a system built on “the law of large numbers” according to Maysami & Kwon (1999). • Popular in a lot of Muslim-dominated countries and it is found in a few western nations (e.g. Luxembourg, Switzerland, Australia). • In Islam, belief in ‘qada’ and ‘qadr’ or destiny and predestination is among the six pillars of faith.

9. Takaful… • “No disaster strikes upon the earth or among yourselves except that it is in a register before We bring it into being- in that, for Allah, easy” (Al-Hadid, 57:22). • “Say, ‘never will we be struck except by what Allah has decreed for us; He is our protector.’ And upon Allah let the believers rely” (At-Tawbah, 9:51) • “No disaster strikes except by permission of Allah. And whoever believes in Allah, He will guide his heart. And Allah knows of all things” (At-Taghabun, 64:11).

10. Takaful… • There is no consensus in the opinions of Muslim scholars regarding whether insurance is ‘halal’ or ‘haraam’. • The spirit of insurance lies in the technique of mutual assistance. • It is widely accepted that the idea of insurance does not conflict with the Shariah. • ‘Takaful’ stems from the Arabic verb ‘kafala’ that literally means ‘mutual guarantee’ or in a broader sense, a treaty guaranteeing members in a group against damage or loss suffered by any of them.

11. Takaful… • It is “a scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for the purpose” (Section 2 of Malaysia Takaful Act of 1984). • Even though insurance may be accepted in Islam, conventional insurance constitute a problem to the Muslim faith. • One of the fundamental objections to conventional insurance in Islam is that its gambling.

12. Takaful… • In all, there are 3 major hindrance to conventional insurance: • Gharar (Uncertainty) • Riba (Interest or Usury) • Maysir (Gambling) • Gharar is the basis of the debate concerning the permissibility of conventional insurance. • Insurance should be built on the concepts of Tabarru,Ta’awun & risk pooling.

13. Takaful… • Tabarru in Islamic insurance strikes a distinction between it and a business akin to purchase and sale of insurance. • Gharar exists in Tabarru (among participants, which is acceptable in Shari’ah) • There are different models of conducting Takaful business around the world, although, the main difference lies around the model application and not around the aspect of investment.

14. Takaful… • The origins of Takaful can be traced back to the second century of the Islamic years when Arab Muslims began to extend their business into the Asian and other far eastern Countries. • In later centuries, Ottoman Muslims adopted similar mutual assistance practices in their business encounters with Spanish traders (Schoon, 2008). • Sudan pioneered the development of modern day Takaful in 1979, when the Islamic Insurance Company of Sudan was founded by Faisal Islamic Bank in January that year.

15. Takaful… • Then Malaysia followed in 1984. • The pioneer Takaful firm, Syarikat Takaful Malaysia Sdn. Bhd. was established in 1985. • A number of Takaful operators have been established ever since, with most situated in Malaysia and the GCC.

16. Thank you.