Takaaful Operation: Appraisal of the Existing Models and Exploration of a Possible Alternative, the Wadi’ah Model

Abstract

Practice differs regarding the underlying Islamic financial contracts used in various takaaful operational models. However, the current takaaful operational models have been subject to several criticisms from both operational and Shariah compliance viewpoints. This paper examines the fundamental and modus operandi of the existing takaaful models. It highlights area of strengths and weaknesses. The paper then explores takaaful model based on wadi’ah. It evaluates the extent to which the wadi’ah yad Damaanah contract can be used as an alternative for takaaful operational functions. The viability of takaaful companies implementing the wadi’ah model is assessed. The aim of this paper is to have an in-depth understanding of the existing models and open horizons for possible alternative models.