Takaful in Arabic, means joint guarantee. Thus it can be visualised as a pact among a group of members or participants who agree to jointly guarantee among themselves against loss or damage that may inflict upon any of them as defined in the pact. Should any member or participant suffer a catastrophe or disaster he would receive a certain sum of money or financial benefit from a fund, as also defined in the pact, to help him meet the loss or damage.

In other words, the basic objective of takaful is to pay for a defined loss from a defined fund. Each member of the group pools effort to support the needy. It means mutual help among the group.

As an insurance system, we are to confine the operation of takaful within the `Tijari' (commercial) sector or popularly known as the private sector. Thus the transactional aspect of the commercial activitiy of Takaful must be subject to the Islamic contractual laws in order to ensure its compliance with the Shariah. Within this fundamental framework the contract of `tijari' takaful is therefore based on the Islamic commercial profit-sharing principle of al-Mudharabah.