Baku: Takaful is emerging as a crucial component in the advancement of Islamic finance in Azerbaijan, according to Eyvaz Jafarli, Director of Saf Takaful Insurance and Reinsurance Broker LLC, who spoke to APA-Economics. He emphasized that Islamic financial instruments, particularly asset-based investments, necessitate insurance coverage, which the takaful system fulfills.

According to Azeri-Press News Agency, Jafarli explained that takaful is an Islamic insurance model that differs from conventional insurance by adhering to specific principles. It eliminates elements prohibited in Islamic finance such as interest (riba), trade of uncertainty (gharar), and gambling-based gains, rendering it compliant with Islamic principles and halal.

He further highlighted that a distinctive aspect of the takaful system is the sharing of insurance risk among participants, rather than the company bearing it. This is facilitated through the establishment of a takaful fund, where a portion of the contributions from participants is retained by the company as a management fee, and the remaining is allocated to the takaful fund.

Jafarli elaborated that compensation for insured events is disbursed from this fund. Should a surplus exist at the year's end, it is considered the participants' share and may offset future insurance contracts, showcasing a primary advantage of the system.

He also pointed out the positive developments in Islamic finance within Azerbaijan. Extensive engagements with the private sector are ongoing as part of the Islamic Development Bank's annual events and the Islamic Economic Forum, fostering growth in the Islamic economy. Efforts to introduce sukuk and other Islamic investment instruments are progressing, with implementation anticipated soon.

Eyvaz Jafarli underscored that these advancements will broaden investment opportunities for Islamic financial institutions. After deducting a management fee, the income from fund resource investments is redirected to the participants' fund, enabling them to gain additional benefits from investment returns.