Misconception 1: Takaful is only for Muslims
More often than not, many non-Muslims dispel the notion of even exploring Takaful because they think it is religion-exclusive. This could not be further from the truth; Islamic financial institutions would never turn away someone of a different creed. The major reason for this misled perception is pretty obvious, since it is called Takaful in the first place. To truly understand what sets Takaful apart from conventional insurance for the non-Muslim, one must understand its origin.
The concept of Takaful dates back to even before the establishment of Islam, when Arabic traders pooled their funds to hedge one another against risks during trade voyages. Today, the system has evolved while adhering to its moral principles to become a financial tool alongside conventional insurance. The major difference is that it utilises applied Islamic principles such as the avoidance of gambling and usury in its investment portfolios. In other words, it functions the same as conventional insurance, in that it provides financial protection, but is a more socially conscientious alternative due to its origin and moral elements.
Misconception 2: The objective of Takaful is different from conventional insurance
One common perception of Takaful among Malaysians is that it loses out to conventional insurance in protecting your interests, since it has difference objectives, and is not governed by the same bodies. The truth is that Takaful aims to do the exact same thing as conventional insurance – to insure you! Just like conventional insurance, you pay premiums in to manage your risk in the event something happens to you. The characteristic of Takaful that has brought about this misconception is that Takaful does not exist for profit, but rather holds mutual assistance of its participants as its main objective.
In terms of being regulated, Takaful might be even more strictly regulated than conventional insurance, and all the more so in Malaysia! Here, Takaful is regulated through the Islamic Financial Services Act 2013, which was specifically introduced to grow and govern the industry. This act is supervised by none other than Bank Negara Malaysia, placing regulatory responsibilities with the Governor of the Bank, effectively. One thing to note specifically for Takaful in Malaysia is that internationally, it stands out in underwriting services, better returns as well as a stable and efficient financial system.
Misconception 3: Takaful contains unethical elements due to its religious nature
Due to the pious undertones of Takaful, many tend to carry the misperception that Takaful does not protect one’s interest as well as conventional insurance policies. Indeed, Takaful operators are limited by the fact that they are not allowed to deal with any investments that contain elements of usury, gambling or uncertainty, and the ultimate objective of the participants is mutual assistance and not profit; however, Takaful funds are by no means fruitless or bear higher risk of being liquidated.
Some even harbour the mind-set that Takaful favours a select group over non-Muslims, but that is hardly the case! For one, there are regulations preventing preferential treatment based on creed or religion. Additionally, it is in fact a global challenge of the Takaful industry to encourage non-Muslims to introduce themselves to Takaful. To accomplish this, the supervisorial bodies are currently exploring initiatives to increase inclusion and education of non-Muslims in Takaful.
Conclusion
Takaful, over the years, has grown leaps and bounds to become the refined financial tool it is today, with billions of dollars in annual growth. With its stability and socially conscientious elements, more and more people, both Muslim or otherwise, are exploring it as a financial instrument to complement their portfolio and manage their risks. For more information on what Takaful can do for you please visit http://www.malaysiantakaful.com.my.
READ MORE: How Does Takaful Compare To Conventional Insurance?
Why Socially Conscientious People Choose Takaful
