It is well-known that in practice, Takaful schemes can be structured using one of the following four models:
The various Takaful models above appear due to two reasons: namely
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Differences in the insurance regulations in each country.
Despite the differences, in all the above models there are some common features, such as:
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The separation between participants” and shareholders” accounts as reflected in two separate sets of financial statements;
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A Shariah compliant investment strategy;
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The existence of a Shariah supervisory board; and
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Internal Shariah compliance department.
The differences between the four models can be generally summarized in Table 1.
As a consequence of the different Takaful models in practice, there are at least two main issues that must be tackled by industry stakeholders.
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Accounting risk; and
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Product development.
Both issues become a major hindrance especially when a Takaful operator has operations in many jurisdictions. For the first issue, the question is how the operator can consolidate its subsidiaries” financial statements, which practice different models from their parent company. The second issue forces the operator to put a lot of effort into creating new products, as a product in one country does not always fit the models in other countries.
Dr Sutan Emir Hidayat is a senior lecturer at the University College of Bahrain. He can be contacted at
[email protected]
.