Tracing the Origins of Islamic Insurance (Takāful)

Introduction

The permissibility of insurance in Islam has sparked extensive scholarly debate. The early discussions drew a decisive line between commercial insurance—considered unlawful—and mutual insurance, deemed permissible. This opinion, now predominant, stems from rigorous collective inquiry by Muslim jurists, who concluded that only the mutualist model aligned with Islamic principles.

However, this debate took place in a context where no Islamic insurance yet existed—that is, prior to the establishment of the first takāful company in 1979. It is thus essential to clarify which model of mutual insurance was understood and accepted by Muslim scholars at the time. This article aims to fill that gap. The first section retraces the historical debate and its conclusion in favor of the permissibility of cooperative insurance (taʿāwunī)¹. The second part examines the nature of this approved model and demonstrates that it corresponded to the French mutual insurance system—then the main operational mutual insurance model known to Muslim scholars. Understanding this origin is crucial for further studies, especially assessing takāful’s fidelity to its foundational logic.

I- Islamic rulings on insurance types before takāful era

The debate on the permissibility of insurance in Islam began with the first fatwā issued on the subject in the 19^th century by the renowned Damascene jurist Ibn ʿĀbidīn². It subsequently evolved into a broader scholarly discussion, dividing opinions between those who permitted it and those who opposed it.

A significant debate on the permissibility of insurance in Islam took place during the Second International Legal Week of Islamic Law, held in Damascus in 1962. Shaykh Muṣṭafā al-Zarqā advocated for its permissibility, while Shaykh Muḥammad Abū Zuhra represented the opposing view³.

This exchange brought to light three distinct forms of insurance observed in practice:

• Commercial insurance (ta’mīn tijārī): profit-driven model in which private companies offer risk coverage in exchange for premiums, aiming to generate financial gains for shareholders. The insurer retains ownership of premiums and structures operations to maximize returns through underwriting and investment strategies, any surplus between revenues (premium + investment returns) and claims is considered as profit.
• Cooperative insurance (ta’mīn taᶜāwunī) or mutual insurance (ta’mīn tabādulī): a non-profit model in which policyholders both own the insurance structure and benefit from its coverage. Their premiums are pooled to cover their risks. Surpluses are typically reinvested, distributed among members, or used to decrease the insurance premium, rather than paid out to external shareholders.
• Social insurance (ta’mīn ’ijtimāᶜī): a government-led system funded by compulsory contributions from workers and employers to provide coverage for main risks like unemployment, illness, or old age.

Extensive scholarly discussions gradually resulted in a majority position among Muslim jurists: commercial insurance is prohibited, while the other two forms are permissible. In seeking to develop an Islamic alternative capable of commercial insurance, Muslim scholars turned to these two permissible forms. Given that social insurance is state-driven and limited in scope, the foundation of Islamic insurance (takāful) was laid primarily upon the permissibility of cooperative insurance (ta’mīn taʿāwunī) in Islamic law.

Several collective resolutions supported this view, including:

• The 1965 decision of the Islamic Research Academy at al-Azhar⁴ ;
• Decision of the 1972 Sharia Scholars Conference in Tripoli⁵;
• The 1976 First International Islamic Economic Conference⁶ ;
• The 1979 decision of the Muslim World League’s Fiqh Academy⁷ ;
• Decision n°2 No. 2 of the OIC Islamic Fiqh Academy (1985)⁸.

Nevertheless, a fundamental question remained: What exactly is the nature of this taʿāwunī insurance deemed lawful in Islam? At the time, no Islamic insurance company had yet been established. The first would appear in Sudan in 1979⁹. Understanding its legal and operational nature became essential.

II- Taʿāwunī insurance before takāful era: Origins and References

In the legal debates that took place before the establishment of the first takāful company in 1979, Muslim scholars distinguished clearly between commercial, social, and mutual (taʿāwunī) insurance models. While social insurance was already known and state-administered in some Arab countries, cooperative (taʿāwunī) insurance was not institutionally present in the legal systems of countries where these debates were unfolding—such as Syria, Egypt, and the Gulf. In those jurisdictions, commercial insurance was the only recognized form, and Muslim scholars were responding to that dominant model.

Throughout this pre-1979 period, when scholars endorsed the permissibility of mutual insurance, they were not referring to an abstract or theoretical model. Instead, the discussions—particularly those held during the influential Damascus conference in 1962—referred explicitly to French mutual insurance companies as the concrete example of a taʿāwunī framework. Shaykh Muṣṭafā al-Zarqā, a leading voice in this debate, drew directly from French legal doctrine and case law¹⁰ to illustrate how such mutual structures could comply with Islamic principles¹¹.

It is therefore evident that the cooperative insurance model considered permissible during these foundational debates was not a hypothetical insurance model neither an Islamic legal innovation in the institutional sense, but rather a validation of the Western mutual insurance system, especially the French model.

Conclusion

Muslim jurists have largely concluded that commercial insurance is impermissible under Islamic law, while mutual insurance—understood as taʿāwunī—is acceptable. Notably, the model historically regarded as compliant was that of French mutual insurance, which served as the implicit legal and conceptual reference in early Islamic legal debates. Yet, the absence of such mutual structures in Arab-Muslim legal systems at the time led to the creation of an alternative: takāful insurance.

Takāful companies adopted a hybrid model, combining mutual principles with the legal framework of joint-stock companies. This structural compromise raises a critical question: do these institutions genuinely embody the spirit of mutuality that underpins their permissibility in Islamic Law? Or have they diverged from their foundational ethical assumptions?

Those questions invite a broader re-evaluation of the takāful model’s legal and ethical coherence, in order to determine whether they may be legitimately classified as genuine mutual institutions. Such an analysis would not only help clarify the true legal nature of takāful companies, but also guide potential reforms aimed at ensuring greater alignment with the ethical objectives of Islamic insurance. This line of inquiry opens a promising field for further research at the intersection of Islamic law, comparative insurance systems, and institutional design.