Takaful and Poverty Alleviation

This paper discusses a special type of Islamic insurance called Takaful and advocates its use as a poverty alleviation strategy. The paper discusses:

• The low-income of the Muslim population of the world and their lack of access to formal insurance;
• Insurance as a poverty alleviation strategy;
• The reason why conventional insurance goes against Islamic principles;
• Muslim jurists' decision that Islamic insurance should be founded on the concept of Al-Takaful.

The paper lists the principles of Takaful:

• Policy-holders cooperate among themselves for their common good;
• Every policy holder pays his subscription to help those who need assistance;
• The division of losses is according to the community pooling system;
• Uncertainty is eliminated in terms of subscription and compensation.

The paper states that the cooperative system, which Takaful is similar to, can be one of the most effective distribution systems to provide insurance to the poor if it adheres to the following principles:

• Good corporate governance;
• Proper accounting and transparency;
• An open, non-discriminatory and voluntary membership;
• Autonomy and self-reliance;
• Clear focus to hold members together;
• Ensuring that everybody has access to, and can afford to, join the cooperative.

The paper concludes that:

• Takaful needs to be recognized as an important component of a poverty alleviation strategy;
• It can provide the safety net for communities to develop their standard of living;
• The products it offers will protect the middle and the working class from falling into poverty.