Takaful is a type of Islamic insurance based on the principles of mutual cooperation and shared responsibility. Two essential elements of Takaful are:
1. Risk sharing: Takaful is based on the concept of mutual assistance and shared risk. The participants of Takaful pool their resources together to create a fund that is used to compensate any member who suffers a loss. The contributions made by the participants are used to pay claims and any surplus is returned to the participants. This risk-sharing mechanism is a fundamental principle of Takaful and distinguishes it from conventional insurance.
2. Shariah compliance: Takaful is governed by the principles of Shariah law, which prohibits interest-based transactions and investments in industries that are considered harmful to society. Therefore, Takaful companies must ensure that their operations are compliant with Shariah law, and their investments are made in ethical and socially responsible businesses. The Shariah Supervisory Board oversees the operations of Takaful companies to ensure compliance with Shariah law. This ensures that Takaful is not only a financial product but also a moral and ethical one.