Takaful - the Islamic alternative to insurance - is to be introduced in Pakistan by the middle of next month after the market regulator finalises its rules and regulations.

Takaful is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members. It is a pact among a group of persons who agree to jointly indemnify the loss or damage that may be suffered by any of them, out of a fund they collectively put together.

The Takaful contract usually involves the concepts of Mudarabah and Tabarru (to donate for benefit of others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty.

A delegation from Malaysia, which introduced the Takaful system in the 1980s, Tuesday met officials of the Securities and Exchange Commission of Pakistan (SECP) to finalise the rules and regulations of the new system.

Takaful is not a new concept in Islamic commercial law. Historians say its foundation was laid down in the system of Aaqilah, which was an arrangement of mutual help or indemnification customary in some tribes at the time of Prophet Mohammed. In case of any natural calamity, everybody would contribute something until the loss was indemnified.

Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe. Islam accepted this principle of reciprocal compensation and joint responsibility.

"The delegation shared its experience in the field of Takaful and offered valuable insights into operational issues," The News reported Wednesday.

"(It) expressed particular interest in the rules and regulations framed by the SECP for Takaful operations in the country," the newspaper added.

Malaysia has already invested in the first Takaful insurance company in Pakistan.

Zamani Abdul Ghani, Deputy Governor of Bank Negara Malaysia, headed the visiting delegation. It comprised chief executives and senior officials of Malaysian commercial banks, insurance companies, Takaful companies and other financial institutions.

The delegation also shared its experience in the non-banking financial sector and emerging trends in Malaysia.

The two sides discussed matters of mutual interest and decided to increase mutual cooperation in the fields of non-banking finance and insurance, particularly Takaful insurance. A formal mechanism for cooperation would be explored in future.