Problems and Prospects of Islamic Banking: A Case Study of Takaful
This paper analyzes the working of Takaful and its popularity in the insurance sector in the world.
For generations, Muslims have viewed insurance as taboo because it contravenes Islamic tenets. Takaful or Islamic insurance is in response to consumer demand, and complies with Islamic Sharia. Takaful covers a Muslim against the risk of loss due to misfortune. Its key features are:
- Policyholders agree to pool their contributions and share each others’ liability;
- Policyholders share in the profit and loss of the takaful business;
- Assets of the takaful business have to be invested in Sharia-compliant assets;
- Takaful operators are paid explicit fees for setting up and running the company on behalf of policyholders.
The takaful market is currently concentrated in Malaysia and the Middle East, and has been experiencing significant growth rates. It is, however, still in its formative years and faces many challenges. There is a need for global standardization of takaful terminology, development of an acceptable form of life insurance and common consensus on a system to determine profits.
