62
5.1.2. The Performance Level and Competitiveness
In comparison to conventional insurance, it is generally observed that the Takaful sector has not
picked up momentum like its other counterparts in the banking and capital market sectors. In
advanced jurisdictions such as Malaysia, despite political will and the efforts of the regulator to
deepen the Islamic financial services industry, the conventional insurance still outperforms the
Takaful sector. Despite a Muslim population of over 60% in Malaysia, there is still a low
percentage of this population having Takaful plans. Based on the 2018 figures, only 15.2%of the
Muslim population had Takaful plans. A penetration rate of 15.2% is not encouraging in
Malaysia, particularly when one considers the faster pace of Islamic banking in the same
country. Islamic banking is said to be expanding faster than conventional banking, where Islamic
financing comprised 32% of all funding in the country by the end of January 2019 (Islamic
Banking Insight, 2019).
The stagnation in the insurance market is not only limited to the Takaful sector. In Indonesia,
the total insurance penetration was below 3% in 2018, while Takaful penetration is still far
below 0.1%. In general, of the 265 million Indonesians, about 1.7%has an insurance policy (The
Jakarta Post, 2018).
The question remains: how to break the spell of stagnation and enhance Takaful penetration?
What value proposition should be introduced to ensure Takaful schemes are not only Shari'ah-
compliant but also conventionally competitive with added value services to penetrate markets
beyond the original frontiers of Islamic finance? Perhaps, the mutual model of Takaful entity
where the participants own the Takaful funds may appeal better to prospective participants. Can
new Takaful models be introduced where participants can have access to the surplus of their
accounts and utilise the funds anytime just like their savings accounts subject to certain limits?
Without a doubt, innovation remains the main driver in ensuring sustained financial
performance in an increasingly competitive global business landscape.
5.1.3. Financial Accounting and Reporting Obligations
There is generally a lack of standardised accounting treatment of Takaful schemes, and this has
had some implications on reporting obligations of TOs. Kader, Adams, & Hardwick (2010) found
variations in accounting and actuarial practices of various TOs. In jurisdictions where
accounting practices and reporting obligations have not been standardised, the Takaful sector
has witnessed different accounting practices among TOs within the same domain. One such
example is seen in the accounting treatment of the mudarabah model of Takaful (Mohd Puad &
Abdullah, 2014).
While some of these practices have been attributed to different Shari'ah views on certain
products, they can be resolved through standardisation of best practices. This is where the role
of international standard-setting bodies such as AAOIFI and IFSB come in to streamline best
practices. Therefore, the first point of call for any regulatory or supervisory authority seeking to