In recent years, Takaful has flourished as an alternative to insurance in pockets of the world where Islam is the dominant religion, evident by both the phenomenal revenue growth recorded as well as significant investments into takaful operations by large multinational insurance groups. Unfortunately, Takaful is often misunderstood outside the Muslim world to be a religious instrument rather than a risk management instrument. As a consequence, the appreciation it attracts within the financially intellectual community, including actuaries, outside the Muslim world is poor in contrast to equivalently novel and innovative financial instruments.

In brief, Takaful is an alternative to insurance. The fact that takaful is developed in accordance to Islamic business principles and practices does not impede the effectiveness of takaful in meeting the risk management needs of its consumers as well as meeting the profit requirements of shareholders, but rather enhances it with values build around a socially responsible overlay.

This paper seeks to explain and communicate Takaful on a purely conceptual level, to actuaries who are not expert in the subject matter, without references to, but importantly also not in contradiction with, any underlying Islamic business principles and practices.