African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4094

Full Length Research Paper

Can a takaful company reinsure with a reinsurance company?

  Asmak Ab Rahman1*, Wan Marhaini Wan Ahmad2 and Ahmad Hidayat Buang3      
  1Department of Shariah and Economics, Academy of Islamic Studies, University of Malaya, Malaysia. 2Department of Finance and Banking, Faculty of Business and Accounting, University of Malaya, Malaysia. 3Department of Shariah and Law, Academy of Islamic Studies, University of Malaya,Malaysia.
Email: [email protected]

  •  Accepted: 21 February 2011
  •  Published: 30 November 2011

Abstract

 

Insurance is an important mechanism of risk management. However, due to the existence of Islamically unacceptable elements in its operation such as ribaghararand maysir, insurance is considered prohibited. An Islamic alternative to insurance istakaful whose operations are based on Islamic acceptable contracts such astabarru’mudarabawakala and waqf. Considering the technical similarities of takafuland insurance, a takaful company similarly needs reinsurance facilities, which in this case must be provided by retakaful companies. In the early stage of takaful business, reinsurance facilities for takaful companies were predominantly provided by reinsurance companies. The practice continues to be acceptable by some Muslim scholars based on the argument of unavoidable circumstances or darura, among which is the inadequate number of retakaful companies. Some scholars, however, believe that takaful operators are not in need of reinsurance. This article looks at the issue of whether the argument of darura on the use of reinsurance facilities in takafulbusiness still holds some ground. This paper shall also discuss the Shari’a view on the practice of reinsurance by takaful companies to provide better understanding of the subject.

 

Key words: Retakaful, reinsurance, daruratakaful.