Takaful is a type of Islamic insurance based on the principles of mutual cooperation and shared responsibility. The word “Takaful” is derived from the Arabic root word “kafala,” which means to guarantee or take care of one another. Takaful operates in compliance with Islamic Shariah principles, which prohibit the payment or receipt of interest (riba) and engage in activities that are considered ethically and socially responsible.
The concept of takaful can be traced back to the early Islamic era, where the community would come together to help each other in times of need. However, modern takaful as a formal financial system started in the 20th century.
The first modern takaful company, the Islamic Insurance Company, was established in Sudan in 1979. The concept gained momentum in the 1980s and 1990s, with the establishment of takaful companies in various Muslim-majority countries. Malaysia has been particularly instrumental in promoting and developing the takaful industry, with the establishment of its first takaful company in 1985.
Since then, the takaful industry has grown globally, with many Islamic financial institutions offering takaful products and services. Takaful provides an alternative to conventional insurance, offering Muslims a way to protect themselves and their assets in a manner consistent with Islamic principles.
The history of takaful in Malaysia dates back to the early 1980s when the Malaysian government took initiatives to establish an Islamic financial system. The country has played a pioneering role in the development of Islamic finance, including the takaful industry. Here is an overview of the key milestones in the history of takaful in Malaysia:
- Establishment of Malaysia’s First Takaful Company (1985): The formal introduction of takaful in Malaysia began with the establishment of Malaysia’s first takaful company, Takaful Malaysia, in 1985. Takaful Malaysia was set up as a government-backed initiative to provide Shariah-compliant insurance solutions.
- Formation of the Takaful Framework (1987): The Malaysian government, recognizing the potential of Islamic finance, took steps to create a regulatory framework for the takaful industry. The Takaful Act was enacted in 1987 to provide a legal and regulatory framework for the operations of takaful companies.
- Formation of the Islamic Financial Services Board (IFSB) (2002): Malaysia has been actively involved in promoting Islamic finance globally. In 2002, the Islamic Financial Services Board (IFSB) was established in Malaysia to set standards and promote the soundness and stability of the Islamic financial services industry.
- Introduction of Family Takaful (2004): In 2004, Malaysia’s takaful industry expanded with the introduction of family takaful, providing coverage for life and family-related risks. This marked a significant development in the evolution of the takaful market.
- Takaful Act Amendment (2013): The Malaysian government continued to refine the regulatory framework for takaful. In 2013, the Takaful Act was amended to enhance regulatory oversight, governance, and consumer protection within the takaful industry.
- Formation of the International Centre for Education in Islamic Finance (INCEIF) (2006): INCEIF, the global university for Islamic finance, was established in Malaysia in 2006. It has contributed to the education and training of professionals in the Islamic finance and takaful sectors.
- Growth and Global Recognition: Malaysia’s takaful industry has experienced substantial growth over the years, with both domestic and international players participating in the market. Malaysia has been recognized as a leading global hub for Islamic finance, including takaful, and has actively promoted the industry through various initiatives and collaborations.
The development of takaful in Malaysia reflects the country’s commitment to fostering Islamic finance and providing Muslims with Shariah-compliant financial alternatives. The government’s supportive regulatory environment and the efforts of industry stakeholders have contributed to the success and growth of the takaful sector in Malaysia.