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CHAPTER 5: ISSUES, CHALLENGES AND FUTURE OF THE TAKAFUL
INDUSTRY
Takaful is an important emerging sector in the Islamic financial services industry that has
exhibited persistent, exciting growth globally. It offers an alternative to conventional insurance,
since its introduction. Nevertheless, there are some issues and challenges that have been
identified and addressed in the literature relating to Takaful. This chapter illustrates the
structural, regulatory and technical challenges facing the Takaful market specifically on
standardisation, taxation, competitiveness and bankruptcy. The key points are discussed here
to find regulatory solutions to themwhile seeking to improve the overall architecture of Takaful
undertakings in a jurisdiction. Further, we discuss the expectations about the future
development of the Takaful industry. While these issues are generally discussed here, the next
chapter will provide specific case studies in selected jurisdictions where more issues and
challenges are identified with a view to finding policy solutions to them.
5.1. Issues
The major issues identified in the modern Takaful industry relate to operational, regulatory, and
legal and Shari'ah matters, as well as market competitiveness. Most of the issues discussed here
are meant to raise probing questions that should intrigue all policymakers and spur further
developments of the Takaful industry. The issues are derived fromexisting literature with a view
to identifying areas where policymakers should focus on in their efforts towards improving the
Takaful sector.
5.1.1. Nature of Takaful Entity
As earlier discussed, it appears there are still some ambiguities regarding the nomenclature of
a Takaful scheme even though concepts such as tabarru’ and ta’awun have been relied on in the
modern evolution of Takaful. A fundamental question that is still relevant in the contemporary
discourse is the very nature of the Takaful entity, which is important in determining the
regulatory and prudential framework for offering Takaful products in a jurisdiction (Altuntas,
Berry-Stölzle, & Erlbeck Anja, 2011). Though virtually all Takaful schemes are profit-oriented,
one would wonder whether a charity based Takaful arrangement can better serve the unbanked
population to enhance financial inclusion through micro-Takaful initiatives. Can a concept such
as a waqf be utilised for such an innovative product through a professional management
company? There could be a dedicated waqf model for Takaful specifically meant to serve public
good within a particular society or industry to address some economic injustice (Haneef,
Pramanik, Mohammed, Bin Amin, & Muhammad, 2015).