Risk Management in Islam : Takaful
Risk traditionally means possibility of meeting danger or suffering, harm or loss. Risk is an element of life in this world for being ignorant of the future. It is also factor of investing that one should take time to understand prior to selecting any specific investment instruments or any new adventures. Many Muslims misunderstand the concept of fate. For some Muslims believe that the future in the hand of God, where they are facing with fatalistic mentality by putting themselves in the doctrine, whether one is rich or poor, happy or sad, it is fated by God. It is a good dealing with luck. In fact, efforts and prayers should precede this kind of belief. Muslims are asked to work hard in order to be able to change their conditions as God says "… Verily never will God change the condition of a people until they change it themselves (with their own souls)…" (Qur'an 3:11). However, it is true that only God knows one's future and fate. Thus Muslim should strive to achieve the goodness in this world and the hereafter. Submission to God, of course, has a positive effect on human behavior. For it will lead to peace and contentment. Undoubtedly, one has to submit every single thing to God, but it supposes to be after his hands stretch out to do the best effort as he can, to change himself, so that he would be able to manage and to cope with unforeseen calamities or misfortune.
Prophet Muhammad peace be upon him once asked a Bedouin who had left his camel untied, "Why do not tie your camel?" the Bedouin answered, " I put my trust in God" the prophet then said, "tie up your camel first then put your trust in God". This conversation depicts not only how should Muslims accept their fate but it also indicates how do Muslims reduce the risk of loss and calamities.
Qur'an has presented stories of the previous prophets so that Muslims can take the lessons from their experiences. The story of the prophet Joseph, for instances, tells us about financial planning. The story of prophet Ya'qub, Joseph's father, tells us about the management of risks as Ya'qub commanded his sons to enter Egypt from different gates. Qur'an states, "Further he said: "O my sons! Enter not all by one gate: enter ye by different gates. Not that I can profit you aught against God (with my advice): None can command except God: On Him do I put my trust: and let all that trust put their trust on Him" (Qur'an 12:67).
The history of the Prophet peace be upon him is also full of lessons, how Muslims should manage the risks. For instance, the Prophet SAW initiated his sacred mission right from home and then moved to the people closely associated with him. This is to reduce the risk of rejection. He called unto Islam whomsoever he thought would attest the truth which had come from his Lord. The Prophet also used to meet and teach, the new converts, the religion in privacy because the call to Islam was still running on an individual basis.
Furthermore the history of the prophet's migration to Madinah gives us other lessons on how did the Prophet manage the risk. The Prophet reduced the risk of getting killed by asking Ali to sleep in his bed during the night of emigration. It was reported that as night advanced, the Quraish posted assassins around the Prophet's house. Thus they kept vigil all night long, waiting to kill him the moment he left his house early in the morning, peeping now and then through a hole in the door to make sure that he was still lying in his bed.
Similarly, in Islamic financial planning, takaful is a way to reduce the financial risk of loss due to accident and misfortunes. Takaful literally means mutually guarantee and solidarity. It has been defined by the takaful act 1984 as "a scheme based on mutual assistance, which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for the purpose". Thus it is a financial transaction of a mutual co-operation between two parties to protect one of them from unexpected future material risk.
As a matter of facts, takaful plan is an alternative to the insurance in the conventional financial planning. In takaful plan, the participant would pay particular amount of money as contribution (known as the premium) partly to risk fund (the participants' special account) using the concept of tabbaru' (donation) and partly to another party (known as takaful company) with a mutual agreement that, the kafiil is under a legal responsibility to provide for the participant's a financial protection against unexpected loss, should it happen within the agreed period. However, in a case whereby the loss does not occur to the participants within this specific period, the participants are entitled for the whole amount of paid premium, together with the share of profits made out of the cumulated paid premium based on the principle of Mudharabah financing technique.
Mudharabah can be explained as a conract between two parties; the capital provider (participant in this case) and the entrepreneur (known as takaful company) provides the skills in a business venture. Profits are divided between the two parties on a pre-agreed ratio. However some takaful companies use the wakalah contract. Wakalah is an agency contract under which the takaful company acts as an agent of the participants in managing takaful fund. Under such contract, the company will get its income from the charging fee. As such, Islamic financial planners should explain properly the significance of takaful plan in managing risk of one's life.