58
all assets and liabilities. On the other hand, a proprietorship arrangement involves a situation
where a corporate entity is issued an operating license and manages the Takaful fund with
absolute discretion. In this latter model, the shareholders of the corporate entity own the
Takaful company, including the fund and not the Takaful participants (Hussain, 2009). This may
have some implications on some of the Takaful business models discussed in chapter 3.
In different jurisdictions, Takaful companies may take different forms based on local
regulations. For example, nowadays in Turkey, the corporate structure of an insurance or
Takaful company takes the form of a joint-stock company. The Turkish insurance sector is
regulated by the following laws: Commercial Code No. 6102 (for insurance contracts), Insurance
Law No. 5684 (for corporate, regulatory and operational matters), Turkish Obligations Code No.
6098 (for general contract law provisions), and Private pension activities are regulated by the
Private Pension Savings and Investment System LawNo. 4632 and its secondary legislation. The
implication of a joint-stock company is that a Takaful scheme can be operated as a
proprietorship under Turkish law, where the shareholding structure exists independently of the
Takaful participants.
In English-styled common law jurisdictions, like Malaysia, a Takaful company is generally
regarded as a proprietorship. However, section 21(1) of the Islamic Financial Services Act (IFSA,
2013) provides explicitly that a Takaful business shall be a public company. In more specific
terms, section 287 of IFSA 2013 goes further to emphasise that a registered TO, which consists
of a private company, is to be transformed within twelve months from the appointed date, into
a public company, as per the Companies Act, Section 11(1) of the Companies Act 2016, which
states that a company limited by shares shall either be a public or private entity. This is
consistent with what is obtainable in other common law jurisdictions that recognise a company,
whether public or private, to have some shareholding. Therefore, any regulatory framework for
Takaful must first determine whether it is a mutual or proprietorship or a hybrid of both models
under its domestic laws.
4.4.2. Conflict of Laws
Another legal issue in any Takaful regulatory framework is the increasing impact of conflict of
laws in Islamic financial services and its attendant effect on the Takaful sector. It denotes that
Takaful contractual arrangements are not only required to be Shari'ah -compliant but must as a
matter of legislative prescriptions, comply with the domestic laws of the jurisdiction. Though it
is often said that the English law has its origins in Islamic law (Makdisi, 1998), there exist
numerous conflicts between the Shari'ah principles and the domestic laws since the former are
general principles that are uncodified, while the latter is often not originally enacted to cater to
Shari'ah-complaints contracts. Consequently, there are always disputes relating to the conflict
of both laws, particularly those relating to the interpretation of specific clauses in the contracts
(Colón, 2011).
While some cases involving Islamic finance contracts have claimed Shari'ah non-compliance of