In Takaful, risk from individuals or organizations is spread or shared with other individuals or organizations that have a relatively homogenous pattern.
Depending on which model the Takaful operator adopts, individuals or organizations pay a contribution (Mushahamah) or in the form of donation (Tabarru) with a condition that in the event a risk materializes, they will receive proceeds of Takaful funds in order to recover from their losses.
To avoid Gharar, Maisir, and Riba, the Takaful concept has a protection wall which is the contract itself. Instead of sales contract, Takaful utilizes a Mudharabah (Profit Sharing) contract or a Wakalah (Agency Contract), or other suitable contract that would fit a particular scheme.
Inside the contract, the following Takaful best practices must be followed:
- Proper risk identification and risk analysis
- Proper underwriting practice to ensure there is adequate funds to pay losses but at the same time should not be of an excessive level that would in turn become a burden to the participants
- Proper risk sharing and risk spreading. Operators must ensure proper and healthy risk sharing between participants; furthermore by anticipating potential losses above their capacity, operators could further spread the risks to other operators in the Takaful or Retakaful market.
1 comments:
This is really interesting. Thanks for sharing the info. :)
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