Solidarity, cooperation and mutuality in takaful

Takaful is often presented as a system of cooperation and mutual help. This does not capture takaful realities properly. Islamic insurance schemes were not initiated by people looking for mutual protection against risks of life but by Islamic banks seeking protection for leased assets, collateral and outstanding debt. Most takaful undertakings are not organized as member-centred mutuals, but as hybrids with a profit-oriented shareholding company as the driving force. Regulators have stipulated that the solvency of the participants’ risk fund has to be guaranteed by the takaful operator through an interest-free loan (qar_) in case of need. However, the repayment of a qar_ is highly unlikely in a competitive market. An unrecoverable loan implies the factual transfer of the underwriting risk from the participants to the takaful operator. Contrary to takaful rhetoric, the economic quality and socio-economic impact of takaful and conventional insurance do not differ in substance.