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introduce or improve the Takaful sector is to adopt and adapt standards and guidelines on
Takaful by the international standard-setting bodies. For instance, AAOIFI has its Financial
Accounting Standard (FAS) on Takaful, and this comprises FAS 12, 13, 15, and 19. The FAS on
Takaful are currently being reviewed comprehensively, and, it is expected that the revised draft
of FAS on Takaful will take effect on or before the year 2022 (AAOIFI, 2019). In the absence of
an industry-tailored Shari'ah -compliant FAS, Takaful companies will be left without any choice
and must apply the new International Financial Reporting Standard 17 (IFRS 17).
It is pertinent to note that IFRS 17 would significantly change the way Takaful companies
recognise revenue and profits in the Takaful scheme. The new IFRS 17 focuses more on one of
the controversial Takaful models – life insurance of Family Takaful . The impact of IFRS 17 will
be felt more in Family Takaful since it is based on long-term contracts compared to General
Takaful even though both forms now have increased disclosure requirements. It will be
interesting to see the revised AAOIFI FAS on this issue for TOs.
5.1.4. Shari'ah and Legal Issues
There are numerous Shari'ah and legal issues that are still subject to controversy. Some of the
legal issues have been addressed earlier in this study; and not until they are carefully addressed,
there will always be legal risks associated with Takaful schemes (Hussain, 2009). Also, Shari'ah
issues include the distribution of surpluses and the ownership of such surpluses, Shari'ah
models used in structuring the Takaful contracts, underwriting practices and the Shari'ah
position on such practices. One main issue in Family Takaful remains nomination and the
applicable Islamic law of inheritance. Though this issue has been briefly discussed earlier, it has
a far-reaching implication under the Shari'ah and could lead to legal risks where heirs of a
deceased person may resort to the courts to determine their legal shares when there is just a
nominee under a Family Takaful plan as against all legal heirs.
Another Shari'ah issue that is yet to be settled is whether the Takaful’s benefit portion of the
participant risk fund can be part of the estate of the participant upon death. It will depend on
the determination of the ownership of the fund during the lifetime of the participant. Since the
fund in question is the participant risk fund, one may argue that upon the demise of the
participant, such funds do not belong to him or her; so how can the funds be considered as part
of his or her estate?
5.2. Challenges
There are various reasons that have been cited as the challenges faced by the Takaful industry.
These include the low rate of penetration, shortage of human capital, inadequate technology
capabilities, ineffective governance practices, and lack of innovation in the business model for
newmarket niches (Deloitte, 2015). The Takaful sector in the Islamic financial services industry
is facing many challenges due to legacy issues relating to product innovation and acceptance of
the Muslim populace of Takaful products during the early stage about four decades ago. Those