ABSTRACT
Parallel to the development of the Islamic financial system, risk management alternatives to conventional insurance became an essential need in Islamic finance operations. The takaful system was developed as an alternative risk management method for insurance operations in the 1970s. Conventional insurance has the elements of gharar (high uncertainty), maysir (gambling), and riba (interest) since it is considered unlawful according to Islamic scholars. Takaful solves these issues by changing the insurance operations; contractual structure and separating collected contributions (insurance premiums) and shareholders; funds. However, the practical implementation of takaful has diverged from its theoretical framework over time. It has been more than 40 years since the first takaful company started its operations, but many issues have still not been resolved. This study reviews contemporary discussions on takaful studies and takaful operations. The most problematic issues in the takaful sector have been discussed and categorized. Then, possible solutions are offered to those issues. Besides that, the wakalah-cooperative takaful model proposed and its operational framework explained, which is expected to solve several Shariah concerns discussed in the literature.
