Takaful (By Irum Saba & Shoaib Soofi)

  1. Takaful

The word takaful comes from the Arabic root word Kafala, meaning "guarantee". Takaful therefore is the practice whereby individuals in the community jointly guarantee themselves against loss or damage. For example, individuals can make charitable donations to a common fund from which they may each draw in the event that they suffer loss to their houses or livelihoods. It was first established in the early Islamic era with the purpose of promoting mutual solidarity and co-operation among the Muslim community. In Takaful the elements of riba (interest), maisir (gambling), gharar (uncertainty) are removed from the operations.

  1. Takaful Models

Takaful products are based on two main business models:

  1. The Mudaraba model: This model is essentially a basis for sharing profit and loss between the takaful operator and the policy holders. The takaful operator manages the operation in return for a share of the surplus on underwriting and a share of profit from investment.
  2. The Wakala Model: Wakala model is a contract of agency. The takaful operator in this case acts as an agent (Wakeel) for participants and manages the takaful/retakaful fund in return for a defined fee. This model is used more in the Middle East region.


  1. Statistics


The very first Takaful Company was established in1979 in Sudan- the Islamic Insurance Company of Sudan.
Countries Doing Takaful

Presently, Takaful business is being carried out in over 25 countries of the world:


Saudi Arabia
South Africa  

Sri Lanka
United Arab Emirates  


Number of Takaful Operators

The number of Takaful operators worldwide is now estimated at 84 whereas the number of ReTakaful companies now exceeds 5. In addition, certain world-renowned reinsurers have now set up separate ReTakaful pools in order to meet the growing need of this emerging niche market. These include SwissRe, Tokyo Marine, HannoverRe, etc.


Takaful is one of the fastest growing segments in insurance (at around 20% Pa. on average) World Takaful contributions are conservatively estimated at around US$ 3billions.

Takaful   -- GEOGRAPHICAL Spread

The geographical spread of Takaful companies in the world is stated below.

South& East Asia:              56%
Middle East:                       36%
Africa:                                7%
Europe, USA & Others:     1%

The main markets of Takaful are in Malaysia, Indonesia, GCC countries, other Arab countries and other Asia Pacific.

  1. Retakaful

Retakaful is reinsurance and Reinsurance is a mechanism by which the direct insurance companies protect their retained business by achieving geographic spread and obtaining protection, above certain threshold values, from larger, specialist reinsurance companies and pools. In brief, reinsurance has been defined as “insurance of the liabilities of the direct insurer”. Reinsurance of Takaful business on Islamic Principles is known as retakaful.
There are currently 5 dedicated ReTakaful operators in the market providing services to primary Takaful:

    1. Asean Retakaful International (L) Ltd. (Malaysia)
    2. BEST Re (Tunisia)
    3. Takaful Re (U.A.E.)
    4. Sheikhan Reinsurance ( Sudan)
    5. MithakRe (Bahrain)

 In addition, certain conventional Reinsurers have also recently started providing coverage by forming separate “ReTakaful pools” for this purpose. These include SwissRe, HannoverRe, LabuanRe, Tokyo Marine, etc. At least two more dedicated ReTakaful operators shall become operational by early next year. One of them is a Lloyd’s syndicate – Creechurch.


  1. Growth Outlook and New Takaful Frontiers


World Muslim population is estimated at 1.5 billions, of which around 97% are based in Asia and Africa. A two-digit growth for Takaful in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East).

Markets like Europe, North and Latin America, Central Asia, Australia where large Muslim communities live offer enormous potential.

Challenges and Obstacles to Future Growth
The array of challenges that confront the primary writers of Takaful cover can be segmented and grouped into three categories:
Awareness Issue: - This is the most important impediment as still a significant sector of the population is either unaware of the availability of Takaful products or else is not fully convinced about takaful an alternative to the conventional insurance.
Internal Factors: - Internal factors as skilled staff, management style, level of capitalization and relative small retention levels particularly for the new, emerging companies of this nascent industry.
External Factors- External factors as regulatory framework, competitive environment, treatment of Takaful vs. conventional insurers, role of governments, maturity level of insurance industry (conditioning/mandates) and non-availability of suitable retakaful program.

  1. Takaful in Pakistan

In Pakistan Takaful Rules have been notified in September, 2005 under the Insurance Ordinance 2000. Any company who wishes to conduct takaful business in Pakistan has to comply with the Takaful Rules, 2005 in addition to the Insurance Ordinance, 2000, Insurance Rules, 2002 and SECP (Insurance) Rules, 2002. The Ordinance and the Rules are available at SECP website with link



Presently, there is one takaful operator (Pak-Kuwait Takaful Company), which is doing general takaful business. However, more groups are showing interest in entering the Pakistan Takaful Market including some joint ventures of local and foreign investors.



Persons interested to know further about takaful, can contact the following:

      • Islamic Financial Services Board at P.O.Box 10591, 50714 Kuala Lumpur, Malaysia www.ifsb.org
      • International Islamic University , Islamabad at International Islamic University, Faisal Mosque Campus, P O Box 1243, Islamabad, Pakistan. www.iiu.edu.pk
      • International Co-operative and Mutual Insurance Federation at PO Box 21, Altrincham, Cheshire, WA 14 4PD, UK. www.icmif.org
      • Asian Takaful Group (ATG) at www.asiantakafulgroup.com
      • Shoaib Soofi, Director (SECP)-Pakistan shoaib.soofi@secp.gov.pk
      • Irum Saba, Junior Executive (SECP) irum.saba@secp.gov.pk
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