Takaful is one of the most important and priority issues in the field of Islamic finance, as any Islamic financial instrument, especially asset-based investments, requires insurance coverage, Director of Saf Takaful Insurance and Reinsurance Broker LLC Eyvaz Jafarli said in a statement to APA-Economics.
According to him, this need is met through Islamic insurance, namely the takaful system.
“Takaful is an Islamic insurance model and, unlike conventional insurance, is based on specific principles. The main elements considered prohibited in Islamic finance — interest (riba), the trade of uncertainty (gharar), and gambling-based gains — are excluded from the takaful model. Therefore, the system is considered compliant with Islamic principles and halal,” he said.
He noted that the key distinguishing feature of the takaful system is that insurance risk is shared among participants rather than being borne by the company. For this purpose, a takaful fund is established. A certain portion of the funds collected from participants is retained by the company as a management fee, while the remaining amount is transferred to the takaful fund.
“Compensation for insured events is paid from the fund. If a surplus remains in the fund at the end of the year, those resources are considered the participants’ share and may be offset against future insurance contracts. This mechanism is one of the main advantages of the system,” he added.
Jafarli also noted that positive momentum is being observed in the development of Islamic finance in Azerbaijan.
“Currently, extensive meetings with the private sector are being held within the framework of the Islamic Development Bank’s annual events and the Islamic Economic Forum, which contributes to the development of the Islamic economy. At the same time, efforts are underway to introduce sukuk and other Islamic investment instruments, and their implementation is expected to begin in the near future,” he said.
Eyvaz Jafarli emphasized that these developments will expand the investment opportunities of Islamic financial institutions.
“After deducting a certain management fee, the income generated from the investment of fund resources will be redirected to the participants’ fund, allowing participants to receive additional benefits from investment returns as well,” he said.
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