Offering Takaful products via the Islamic windows of conventional insurance companies has become a never-ending debate among scholars. Some countries, such as Pakistan for example, have recently opened the way for Islamic windows; while other countries such as the UAE prohibited the practice following the introduction of its Takaful regulations in 2010. These different approaches taken by Muslim countries with regards to Takaful windows are inevitably due to the advantages and disadvantages of offering Takaful products via Islamic windows.
Those countries which allow the practice of Takaful windows believe in the advantages more than the disadvantages. Among the advantages are: (1) windows allow Takaful products to be sold using the already established distribution channels of conventional insurance products since the same company is offering both products; (2) establishing Takaful business via Islamic window requires less time to achieve break-even point than via a separate Islamic subsidiary since a Takaful window does not require a lot of separate new infrastructure to be acquired. In other words it allows the company to capitalize on its existing infrastructure to develop Takaful business. This situation is favorable, especially when the Takaful market is newly established.
On the other hand, the countries which prohibit the practice believe in the disadvantages more than the advantages. Among the disadvantages are: (1) a Takaful window can create public misunderstanding with regards to the differences between Takaful and conventional insurance since public may view Takaful as just another type of product from conventional insurance. In addition, (2) there is also a possibility of the comingling of funds between conventional insurance and Takaful in the sense that the Takaful funds might be used for non-Shariah compliant investments by the insurance company. In other words, an agency problem with regards to Shariah compliance exists with a Takaful window. Therefore, allowing Takaful windows is considered by its opponents to open the possibility of Shariah violation. In summary, the author believes that even if Takaful windows are allowed, it should only be on a temporary basis as a catalyst for the development of the overall Takaful market. Once the market has accepted Takaful, ‘spin-off’ should be encouraged.
Dr Sutan Emir Hidayat is the director of the MBA program at University College of Bahrain. He can be contacted at
[email protected]
.