ANALYSIS OF CONVENTIONAL INSURANCE UNDER ISLAMIC TEACHINGS AND IMPLEMENTATION OF TAKAFUL IN PAKISTAN

Abstract

Pakistan is an Islamic country which has made a commitment through its Constitution that no law can go against the spirit of Islam. It is with this spirit that laws of Insurance should also be viewed. The chief legislation of Pakistan in relation to insurance is Insurance Ordinance 2000. There is a need to conceive Islamic alternative to insurance which is called takaful. Conventional insurance is viewed as form of contract where risk is shifted from the person who has paid consideration known as premium to another party. The person paying the premium is the policy holder or the insured while the person who takes on the risk is the policy provider or the insurer. The conventional concept of insurance is riddled with problems of riba (Interest), maysar (gambling), and gharrar (uncertainty). The Islamic concept of takaful is on the other hand conceived as maintenance of fund known as tabaru fund by collective contributions of indemnified members. In this concept, there is no one who takes risk but rather all people agree to be liable to the person who has suffered a misfortune and this is based on the concept of aaqilah which existed in Arab tribes at the time of the Prophet ﷺ. The tabaru fund is also invested as forming part of mudarabah investment and any surplus in the fund is distributed accordingly. For the implementation of takaful form of insurance in Pakistan there is a need to overcome certain obstacles such as lack of education and willingness of people along with problems of corruption and transparency in the country.