Takaful Insurance: A New Breed of Insurance Business - Assignment Example

Takaful Insurance: A New Breed of Insurance Business Takaful Insurance: A New Breed of Insurance Business Introduction Takaful insurance is an Islamic version of traditional concept of the featured sort of trade. The Islamic teachings do not allow the followers of Islam to do business in which interest is involved (Soysal, 1997). The conventional approach of insurance business involve interest and therefore, forbidden for the Muslims. The policyholders lend money to the insurance companies and then they are paid interest against their investments (Choudhury, 1983). The involvement of interest caused distastefulness to spread in all Islamic cultures about traditional insurance. The risks towards one’s life, wealth and health are growing as numbers of incidents and thefts are growing in all parts of the world but these threats are more severe in the case of Islamic countries where terrorism and unlawfulness is rising all the time (Lapidus, 1996). The whole idea behind Islamic Takaful insurance is to legalize and Islamize the notion of insurance (Maysami & Williams, 2006). The conceptual framework of Takaful insurance is not a new one because Prophet Mohammad had implemented it fourteen centuries ago. However, the featured concept is based on mutual cooperation of all the policyholders (Wahab, Lewis, & Hassan, 2007). The funds are gathered and then deserving policyholder is paid by all others so that he or she can get through a rough time. The responsibility of each policyholder to pay the suffering partner is found to be stemming from ethics and humanity. No legal measures are taken in order to bind policyholders to help each other. The Islamic teachings promote charity and genuine concern for others and the emphasis on the need to assist those Muslims who are going through rough times increase manifold in Islamic teachings and Quran. The policyholders usually do not help those partners who did not help them in the difficult period of life and it is also considered totally acceptable by Muslim Scholars as human relations are based on rule of reciprocity. The Takaful insurance challenges the presence of interest which according to teachings of Islam promotes exploitation and social inequality in the society. Moreover, it is imperative to note that Takaful insurance is not a very powerful tool of moneymaking right now and therefore, the companies engaged in this business have to get themselves ensured with other conventional service providers in order to remain afloat in the industry. Additionally, most of the Muslim capitalists do not consider the notion of Takaful insurance viable in nature because according to them, it ignores the important and valuable element of time value of money (Choudhury, 2008) and therefore, cause the policyholders to lose worth of their money. Takaful Insurance: A Misfit in Modern Economic World The socio-political experts are of the view that Takaful insurance is nothing more than a scam in the globalized economic world of the 21st century. They continue by saying that the money supply is in control of capitalistic hands of the developed nations and majority of the capitalists are Jews by religion and because of this reason, they do not have any regard for Islamic teachings to say the least. They are lenders by profession and they talk and understand the language of money, finance and returns. The capitalistic mindset believes in accumulating political power with the help of economic one (Zou, 1994) and unfortunately, political strength is gathered by keeping surrounding population disadvantaged. In this way, powerful people are ruling the world. The induction and introduction of Takaful insurance is going to fail most probably as it is equivalent to moving against the stream of water. The phenomenon of re-Takaful means that novel insurance companies do not have sufficient financial power that is needed to fulfill their own expenses and loss coverage so in this way, they are taking help of the capitalist that is operating behind the scenes of traditional insurance provider. The so-called Takaful insurance providers are indeed helping capitalistic hands in the process of making money in worst possible way (Yuhasni, 2011). The Takaful insurance companies are helping capitalists because their policyholders do not charge interest but the capitalist who sponsor the nontraditional way of insurance do. The abovementioned trend causes the money supply for policyholders of Takaful operations to deplete and with the passage of time; the companies give into the supremacy of conventional insurance providers or liquidate themselves in order to pay obscene amounts of debt. Either way Takaful insurance remains nothing more than a simple praiseworthy concept but its application is rather limited at this point in time. Antecedents of Takaful Insurance Takaful insurance is a service that is highly dependent on international mindset of global economic world where businesses are openly working in order to help capitalist in terms of making more money under the false application of Marxism and in the given set of circumstances, businesses which do not exert themselves for fulfillment of capitalistic goals are surely travelling onto the road that leads to damnation. All of the Takaful insurers will meet their logical end sooner or later but they will fail to leave a notable mark in the pages of history simply due to their inability to serve capitalistic goals and objectives. The financial power is currently residing in the hands of the capitalist and he or she make his or her living by earning interest on his or her lending to others and as entire money supply has remained accumulated in the hands of a few men and women and therefore, it is latterly madness to challenge the entire economic world order in the name of following Islam (Said, 1989). If Islamic countries want their dream of world dominance to come true then they should plan to work on devising ways to attract Foreign Direct Investment from developed nations. The previously stated goal cannot be achieved without vesting significant level of funds into development of science and production technologies. The featured sort of countries is suggested to drive down local production costs so that they can become capable of providing substantial cost advantages to multinationals. The indigenous educational industries must be assisted in the process producing world-class professionals in all walks of life (Rumer, 1993). The human capital is the most valuable asset of any nation but unluckily, Muslim societies are notorious for neglecting people all around the world. The empowerment of local industrial sectors will help the populations in terms of increasing their disposable income levels and in this way; they will become more capable of sustaining Takaful insurers. Before that the concept will remain a failure despite best of the efforts. Self Interest, Takaful Insurance and Islamic Ethics The Islamic ethics state that humans must prioritize working for the benefit of the society before safeguarding his or her self interest but the prevalent mindset dictates that individuals must ensure and protect their own goals before thinking about serving the society. Islamic economic philosophy is exactly opposite to Marxism because latterly mentioned approach states that whole society must exert itself in order to help a few capitalists regarding fulfillment of their goals and objectives of making more money. The notion of Takaful insurance appeals to humanity of the Muslim population and urges them to help others without making a fortune out of it. The people get impressed by the hefty promises of the new way of getting insured against modern day risks but soon after that their interest run out because they come to realize the fact that their money supply is dropping with the passage of time (Giannakoudi, 1999). The money supply shrink as Takaful insurance does not give value to time value of money and those companies that choose to hedge against their operational risks with the help of getting reinsured by traditional service providers make customers unhappy even more strongly. The clientele think that companies deceived them by promising to take the element of interest out of insurance’s equation but it is again there with all of its intensity. Liberal Islamic Scholars are starting to argue that Muslims are in need to return to Quran’s teachings that state that God is responsible for feeding all of the humanity and those who remember this should be blessed in the worldly quest and they will have a good life in the life that lies hereafter (Gottlieb, 2003). A few Islamic Researchers allow people to have traditional insurances in unavoidable conditions such as individuals with disabilities will have to have health insurance in order to cover their futuristic health expenses. The Takaful way of insurance is no doubt like a balloon or bomb that may go off any time. The uncertainty in this kind of business is severe as compared to that in traditional approach. The uncertainty is high in the business of Takaful insurance business because firstly, it is not legally binding, secondly, it appeals to ethical duty towards sufferers in people which is a total rarity to find in the current world order and finally, the modern technique of insurance does not protect people from experiencing reduction in buying power. All of the highlighted variables impress people to abandon Takaful insurance and they eventually revert in the direction of using traditional insurance once again and in this fashion, balloon of Takaful insurance bursts. Takaful Insurance and International Financial Reporting Standards The countries like Malaysia are planning to apply International Financial Reporting Standards in their Takaful insurance providers (Sherif & Shaairi, 2013). The identified approach towards financial reporting is ideally suitable and complimentary to Islamic Work Ethics and professional code of conduct. The IFRS focuses on both form and substance of the accounting cycle while; Islamic code of professional Ethics tends to support truthfulness in the business. In this way, both of the philosophies will play a significant role in terms of supporting and sustaining each other. However, the need to give the new system to operate over a longer period of time is emphasized in order to evaluate the compatibility of IFRS and Takaful insurance. The Takaful insurance companies work with noninvolvement of interest and they also minimize risks of their policyholders and IFRS is a collection of financial reporting standards which can be used in variety of industries. The main issue is not about the collaborative potential of Takaful insurance and IFRS but the real problem resides within the inability of modern insurance companies to raise enough money that is required to keep the business running. IFRS does not allow any company to use creative accounting techniques in order to fool the shareholders and Islamic Work Ethics are forebears of the abovementioned need as well (Alali & Foote, 2012). On a theoretical perspective IFRS is ideally capable of being applied as a financial management framework for the Takaful insurers. Nevertheless, Takaful insurers are needed to generate sufficient revenue in order to remain afloat and avoid getting dependent on capitalistic insurance companies. The negative factors discussed in the preceding section of the report tell a different story as the modern Takaful companies do not take time value of money into the account and therefore, unknowingly cause policyholders’ funds to deplete with respect to buying power (Calabrese, 2012). The policyholders are then forced to take their money out and invest it in a traditional insurance scheme. In short, it can be established that macroeconomic and macro-financial variables are acting against the basic philosophy of Takaful insurance and that is why, this type of insurance schemes are falling apart in great numbers and few of them are being backed up by capitalistic service providers. Based on the above arguments, Muslims are suggested to follow the herd and get insured with the traditional schemes because Islamic teachings suggest safeguarding one’s life and property under adverse conditions by non-Islamic methods if necessary. The current law and order situation of most Muslim countries indeed qualify as adverse and therefore, the traditional way of getting insured are acceptable until and unless global economic forces shift towards supporting Takaful insurance on a worldwide basis which appears quite unlikely even in the distant future. This is because the capitalistic hold on global economy is going to get strong with the passage of years. Findings The key findings of the study are summarized as follows: - The Islamic teachings do not allow the followers of Islam to do business in which interest is involved. The involvement of interest caused distastefulness to spread in all Islamic cultures about traditional insurance. The risks towards one’s life, wealth and health are growing as numbers of incidents and thefts are growing in all parts of the world but these threats are more severe in the case of Islamic countries where terrorism and unlawfulness is rising all the time The whole idea behind Islamic Takaful insurance is to legalize and Islamize the notion of insurance. The funds are gathered and then deserving policyholder is paid by all others so that he or she can get through a rough time. The responsibility of each policyholder to pay the suffering partner is found to be stemming from ethics and humanity. No legal measures are taken in order to bind policyholders to help each other The Takaful insurance challenges the presence of interest which according to teachings of Islam promotes exploitation and social inequality in the society. The socio-political experts are of the view that Takaful insurance is nothing more than a scam in the globalized economic world of the 21st century. Takaful insurance is going to fail most probably as it is equivalent to moving against the stream of water. The so-called Takaful insurance providers are indeed helping capitalistic hands in the process of making money in worst possible way. Takaful insurance is a service that is highly dependent on international mindset of global economic world. All of the Takaful insurers will meet their logical end sooner or later. The featured sort of countries is suggested to drive down local production costs so that they can become capable of providing substantial cost advantages to multinationals. The Islamic ethics state that humans must prioritize working for the benefit of the society before safeguarding his or her self interest but the prevalent mindset dictates that individuals must ensure and protect their own goals before thinking about serving the society. Islamic economic philosophy is exactly opposite to Marxism. A few Islamic Researchers allow people to have traditional insurances in unavoidable conditions. Conclusion This paper identified, reviewed and analyzed prominent features of Takaful insurance and found that the concept is not in accordance with current and prevalent economic mindset of the world. The economic and national systems across the globe are working in order to serve capitalistic goals of making more money and in the given circumstances, the initiative that challenges capitalistic economic hold will eventually fail. 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