Abstract

Purpose:

Insurance has always been a matter of concern among Islamic scholars owing to its involvement in interest, gharar, gambling, and other prohibited elements. Takaful has been introduced, as a Shariah compliant alternative to conventional insurance. However, Shariah scholars and economists have reservations and doubts regarding the current practices of takaful with regard to Maqasid al-Shariah.

Methodology:

The current study has examined as to how far the current takaful practices are in conformity with the objectives of Shariah relevant to Islamic finance and takaful. For this purpose, at first place, the study identified the related objectives of Shariah through utilizing the classical and contemporary writings on the subject. For the current study, the important objectives of Shariah i) hifz al-din, ii) hifz al-mal, iii) establishment of justice, fairness and equity, and iv) social welfare and wellbeing of the society, have been selected, as they are very close to and directly linked with the Islamic finance. The current takaful practices have been analyzed against these objectives, with the help of literature review.

Findings:

The paper finds that current takaful practices meet, to a greater extent, requirement of a valid or Shariah compliant transaction. However, these takaful institutions have failed to achieve the desired objective of Shariah related to financial dealings. Takaful institutions lack transparency and fairness in their transactions. Moreover, many unethical practices have been reported on part of takaful agents.

Significance:

The study is unique in its nature as takaful practices have not been analyzed against these four specific maqasid of Shariah. The study may open a discussion on the objectivity of Takaful institutions in the context of Pakistan. The study would also help takaful institutions in reformulating their policies in the light of objectives of Shariah.

Keywords

Takaful, Islamic finance, Maqasid al-Shariah, Shariah compliance

KAUJIE Classification:

I44, H21, H22, P1

JEL Classification:

G22, I13, P46, Z12