Takaful and the Objectives of the Shariah

By Dr. Hafiza Harun

Under the realm of Islamic Wealth Management (IWM), wealth protection has a major role to play in this overall process. Wealth creation, wealth enhancement, and wealth distribution which serve to protect existing prosperity are duly encouraged by Islam. 

The Hadith narrated by Anas Ibn Malik, “One day Prophet Muhammad ﷺ noticed a Bedouin leaving his camel without tying it”, and he asked the Bedouin, “Why do not you tie down your camel?” The Bedouin answered, “I put my trust in Allah.” The Prophet Muhammad  ﷺ then said, “Tie your camel first, and put your trust in Allah.” [Tirmidhi. 

The key lesson highlighted in this event is how the concept of “Tawakkal” (trust in Allah) has to be practiced in its most real sense. It simply means that complete reliance on Allah is encouraged after all relevant efforts had been put in to ensure the objectives or targets are achieved. As S.E.U. Agha and R. Sabirzyanov argue in ‘Risk Management in Islamic Finance: An Analysis from Objectives of Shari’ah Perspective’:  “The hadith does not only illustrate how a Muslim should deal with his fate, but it also instructs to manage the risk of calamities and losses”.

Objectives of shariah

As a complete religion, Islam was revealed with specific guidance for every process or event. This includes how people gain, manage, and ensure the growth of their wealth to be in line with God’s rules. Overall wealth management in Islam is meant to fulfil the objectives of the Shariah (Maqasid Al Shariah). 

Islamic wealth management basically entails strategies and mechanisms to protect and develop wealth for different segments of the population and provide a sound framework for transferring it in a Shariah-compliant manner. There are five objectives of Shariah as explained by Al-Ghazali, which is to safeguard the faith, self, intellect, posterity, and wealth. 

Fulfilling these basic needs leads to social harmonization. This could be partly achieved from Islamic trade and industry as wealth management. In a Hadith narrated by Ibnu Mas’ud,  Prophet Muhammad ﷺ said: 

“In the Day of Judgement, the generation of Adam will not be allowed to escape without being questioned on the following five basic responsibilities:

1. How did one spend his/her own lifetime
2. How did one spend his/her own young life
3. How were the sources of one’s income
4. How did one spend his/her wealth
5. How much did one practice knowledge, which one acquired?

Benefits of takaful

In this space, we shall be highlighting takaful and its benefits in fulfilling the objectives of Shariah or Maqasid Al-Shariah. Takaful emerged as an alternative to insurance. It is well known that insurance has grown at a faster pace compared to takaful in terms of global market and acceptance. Takaful operators or companies have been established to cater to the demands for takaful products and services by Muslim communities who look for alternative protection based on Shariah requirements. 

This Islamic version of insurance arose as an alternate choice for Muslims who desire similar products and services offered by conventional insurance institutions. As noted by N.A.Kasim, in his paper ‘Disclosure of Shariah compliance by Malaysian Takaful Companies’: “Takaful consumers’ confidence in the product is dependent on two criteria – first, the operations of the business must fully comply with Shariah principles and second, the consequential wealth and financial progress of the takaful operators need to be disclosed.” In view of this, it can be seen that consumers’ choice of Takaful is basically backed by Shariah and its principles such as transparency, value addition and so forth. 

Takaful would be one of the solutions for unforeseen events such as the death of the sole breadwinner of a family, critical illnesses, permanent disability, and accidental incidents that cause an incapability to work. It is worth considering this Hadith of Prophet Muhammad ﷺ who said that: “Allah blesses those who acquire wealth in a good manner, then the wealth is spent accordingly, and the remaining is saved for future use when hardship occurs”  [Bukhari and Muslim]. 

How does takaful work?

There are various plans offered by takaful operators in ensuring that products and services remain competitive in the market. Wealth preservation using takaful aims to safeguard wealth against financial risks and threats, protect assets and physical property against unpredictable occurrences and potential loss. It also protects personal health and energy against hardships from illness, prolonged sickness, injury or disability, or death. 

Basically takaful ensures wealth protection and social security. After all, a proper wealth and social security plan leads to justice, and enjoys the mutual support of society ensuring it is in line with the objectives of the Shariah. Nowadays, takaful products are designed with exciting riders’ selections rather than being traditional in nature. Attached elements such as hibah, tabarru’, and waqf, for example, can be embedded in the takaful plan subject to strict requirements such as being Shariah-compliant and compatible with the Maqasid Al-Shariah. 

This arrangement could be made with a few objectives in mind such as:

1. To increase gifts and donations so that they may benefit the public as well as individuals.
2. Gifts and donations must be voluntary and free from any reservation.
3. There must be tolerance and flexibility in the validation of donation contracts according to the donor’s wishes.
4. The act of donation does not cause loss of rights and suffering to others, such as heirs and creditors.

Additionally, takaful is considered one of the critical avenues in protecting an individual’s life, wealth, and pride. This emphasis is basically observed from the Hadith of Prophet Muhammad ﷺ: “Leaving behind one’s heirs rich is better than leaving them poor” [Bukhari]. Thus wealth protection plays an important role in risk management, especially for affected heirs and family. With the availability of takaful, immediate wealth is ready for distribution in the case of death of the participant.

In conclusion, the existence of takaful fulfils the objectives of the shariah through its underlying principle of mutual cooperation and unity. Participating in a Takaful plan depending on our needs contributes to effective wealth management for both the short and long term.