Cooperative Investment

As insurance costs of residential and commercial spiral out of control, a 1400-year-old tradition is poised to offer long-term, sustainable growth for real estate investments.

Which tradition offers an alternative to current conventional insurance models that have resulted in skyrocketing costs, lack of trust, and instability for the real estate industry? To answer that, let’s look at the Islamic alternative to insurance known as تكافل (takaful).

Takaful is a type of Islamic insurance where members contribute money into a communal pool system to guarantee each other against losses and damages occurred. Takaful insurance is based on shariah, or Islamic religious law, which outlines how individuals are to conduct transactions that allow parties to cooperate and protect one another.

Takaful products range from general property to family products. For example, conventional insurers offer property insurance, whereas takaful operators have a shariah-compliant alternative known as general property takaful, which can be used to cover a real estate asset during times of distress, such as a hurricane event. Family takaful products are used to provide families with protection and long-term savings as contributions are deposited into shariah-compliant savings accounts.1 The takaful industry has seen double-digit growth and poised for continued expansion as Muslim populations increase and the broader appeal of Islamic financial products takes hold in non-Muslim countries such as the United States.


Conventional insurance is prohibited in Islam as it possesses the following elements that are incompatible within the shariah:

  • الغرر (Gharar)—contractual uncertainty that leads to dispute. Gharar exists in conventional insurance as one party in the contract, the insurer, has a right to profit from the investment of insurance premiums, while the other party (the insured or policy holder) does not have access to its funds.
  • ميسي (Maisir)—the element of speculation in a contract. In conventional insurance, the insured pays a premium (i.e., a contribution) expecting a much greater amount in case of loss. However, the policy holder loses all premium contributions when an uncertain event does not occur. This is believed to be an unfair advantage for the insurer and can lead to fraudulent behaviors during claims from the policy holder.
  • الربا (Riba)—any amount that is charged in excess which is not in exchange for a due consideration. Riba consists of two categories, including (riba an-nasiya), which includes interest or any other increase on a loan of cash. The other is ابر لضفلا) riba al-fadl), which is an exchange of unequal quantities or qualities of a given quantity. Within the conventional insurance industry, riba occurs when interest is paid when splitting the insurance premiums over a period of time instead of paying it upfront, or when late fees are incurred. We also see riba as part of the investment portfolio made by the insurer, leading to investments in interest-based bonds and other investments that aren’t shariah-compliant.


According to McKinsey, the world average growth has been around 4% percent for general insurance between 2010 and 2020.2 However, due to the pandemic and other market trends such as higher claims, increased losses, and increased operational costs, premium growth slowed to approximately 1.2%.

The worst impact of these issues can be seen in the Florida insurance market, where rising homeowner and commercial insurance premiums paired with billions in losses, has led to six companies liquidating and with three more planning to pull out of the market. This leaves millions with 30% to 100% premium increases. Contrarily, we see takaful markets exceeding general insurance with double-digit growth rates ranging from 15% annually in Malaysia to 37% in Saudi Arabia. With the US market having little to no takaful operators, any fi rm that pursues takaful operations is likely to see high growth and a new source of revenue that is strong and stable as the current US Muslim population is nearly four million. This population is expected to become close to 10 million by 2050. Additionally, between 2005 and 2020, the number of takaful operators jumped from 77 to 324, with more planned as countries such as Morocco and the United Kingdom setting new regulations to ease the facilitation of takaful companies.3 Overall, the US is behind on takaful when compared to other non-Muslim majority countries.

We also see that takaful model can slow premium increases and reverse mounting costs, while still providing the same coverage. However, there are some challenges:

  • Setting up windows within existing insurers and creating new shariah-compliant insurers. Windows may take six to nine months for inception and regulations currently do not exist to create a guideline in the US.
  • As many people within the Muslim community are not aware about the restrictions in Islam, let alone those outside of the faith, bringing takaful operations into non-Muslim markets will take educational efforts.
  • As with any new concept, portfolio managers and investors may be hesitant to adopt a different model after being used to the conventional insurance model.


Despite the challenges of setting up takaful operations in North America and Europe, we can still see how takaful can provide growth opportunities for the real estate sector.

As the general insurance industry experiences premium price increases of 30% or more, and the dropping of millions of policies, this environment offers a unique window to capture value by offering takaful as an alternative to both Muslim customers and non-Muslims alike Lloyds of London started their takaful operations in 2017 in the United Kingdom, and these operations have experienced zero claims since its inception. By being able to replicate those numbers in a volatile environment where customers are desperately looking to save, takaful can prove to be a viable alternative.

Additionally, with mechanisms built in place within takaful models, such as unused premiums being returned to the policyholder, investors and portfolio managers can expect to see reduced insurance costs as well as secondary dividend income. Operational savings of 10 to 250 BPS can translate to significant portfolio improvements, especially in low-cap rate environments. This leads to higher portfolio values and higher exit prices.

With movements towards the real estate industry to be more inclusive and diverse, investment firms can transition to takaful-based portfolios that can appeal to Muslim investors from MENA, GCC, and Asian regions. Having funds and product offerings that cater to the Muslim demographics will lead to more fundraising opportunities. With more fundraising, Fitch Ratings reports shariah-compliant portfolios have performed better, averaging 13% returns compared to general returns of 11% percent.4


The Islamic model of takaful offers insurance policy holders the benefit of having their unused premiums returned as an annual dividend or rolled over to the next year as a reduction in premiums. This can lead to portfolio performance increase of up to 5% and reduce the increases we have seen the last two years within the conventional market.

With the implementation of takaful operations in non-traditional markets such as the US, Canada, or the UK, we can expect to see challenges such lack of regulations, lack of consumer awareness, and limited data. As companies begin operating takaful windows or launching insurance providers, real estate investors should ask some of the following questions:

  • As insurance costs rise and make it increasingly difficult to reach performance targets, what are some of the ways I can help to ease the implementation of takaful? How can I use takaful afterwards?
  • Can Islamic finance and a portfolio covered by takaful be part of the value proposition to potential investors looking for faith-based alternatives?
  • What would be the performance improvements to my portfolio?
  • How do I stay informed and engaged about takaful and Islamic finance?

As the real estate investment industry continues to evolve, we see that to be more inclusive and diverse with our practices, implementing Islamic elements within investment portfolios can unlock the market potential of nearly two billion inhabitants of our planet. We can continue to strengthen our relationships with countries across the globe and use the real estate market to capture a US$44 billion market by 2024—an increase of US$23 billion from 2020. With the creation of multicultural and diversity sensitive real estate spaces we can nurture those bonds, leading to increased returns, a better understanding of Islamic alternatives, and reduced points of conflict.


Ishmam Ahmed is a student fellow for AFIRE and is pursuing his master’s degree in real estate from Georgetown University, with a focus on Islamic finance and shariah-compliant investment.


1. “Creating Value, Finding Focus: Global Insurance Report 2022,” McKinsey & Company, updated February 15, 2022,

2. “Creating Value, Finding Focus: Global Insurance Report 2022,” McKinsey, 2022.

3. Cate Deventer, “Will 2022 Bring the Collapse of the Florida Homeowners Insurance Market?” Bankrate, updated May 23, 2022,

4. Sunil Singh, “Shariah-Compliant Fun



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