Takaful
Mutual cover: participants contribute to a common fund, as donations, to help one another against specified losses.
Takaful is a mutual guarantee in which a group of participants agree to support one another jointly against losses from specified risks, from a fund to which all commit to donate, as IFSB-29 defines it. The fund belongs to the participants collectively and is managed by a takaful operator, usually for a wakalah fee, a mudarabah share of investment profit, or both. Keeping participants' funds separate from the operator's own is central to the model.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
TabarruThe donation portion of a takaful contribution, paid into the risk fund to meet claims as mutual help.Participants' risk fundThe pool of donated contributions from which takaful claims are paid, owned collectively by participants and managed by the operator.Takaful operatorThe entity that manages a takaful business on behalf of participants, usually for a fee, a profit share or both.Shareholders' fund (takaful)The takaful operator's own fund: its capital, fees and expenses, kept apart from the participants' funds.RetakafulTakaful for takaful funds: a takaful undertaking cedes part of its risks to a retakaful fund on behalf of its participants.