A COMPARATIVE STUDY OF THE EFFICIENCY OF TAKAFUL AND CONVENTIONAL INSURANCE IN PAKISTAN

Abstract

In the developed world, it is mandatory for everyone, to have a cover for unexpected losses. On the other hand, in developing countries, the need of such an instrument is much greater, as vulnerability to risk is high as there are very less opportunities available to recover from big losses. Therefore, in developing countries which are generally characterized for having low income levels, and lacking access to good health care, education, sanitation, and social security systems, it is of dire importance to have such a system of risk transfer. Insurance companies offer many services for the wellbeing of individuals and businesses like repaying loss to property, life or business etc. In simple words, insurance company encourages the individuals and entrepreneurs to go for high return activities which certainly possess a big risk. In the absence of such a service, most of the investors hesitate to undertake such business activities. Islamic insurance also known as Takaful, is an alternative model to conventional insurance; which is forbidden in Islam, it having some elements which are against Islamic law such as riba (usury), gharar (ambiguity), and maisir (gambling). In contrast to conventional insurance, Takaful is established on the base of mutual assistance, responsibility, mutual protection and assurance, incorporated into the concept of tabarru (donation). In its traditional form, concept of insurance had been in practice since before the time of Prophet Mohammad (PBUH) and had developed until the nineteenth century. Making the insurance according to Islamic principles started after 1979 CE. It was a Sudanese company which started practical operation of Takaful as Islamic insurance, alternative to conventional insurance.