Diversification of Islamic Financial Insturments
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a 'Central Shariah Council for Islamic insurance companies of Bangladesh' to co-ordinate and
co-operate amongst the Shariah Councils.
There are 62 insurance companies operating in the country and as said earlier out of that 3
general and 8 life insurance companies are operating in line with Islamic Shariah. 14
Conventional Life Insurance Companies have opened their Islamic insurance windows
alongside the conventional ones. Due to the uneven level playing field, Islamic insurance or
Takaful companies have been facing different types of difficulties as they have to function
under the conventional insurance Act and environment. The desired Takaful Act was not
considered for promulgation by the government till date. As a result, Takaful operators cannot
operate on an equal footing. For example, in the stock market, Islamic insurance companies are
obliged to invest funds with Shariah-compliant companies, which are few, restricting
investments avenues and returns. The Insurance Act 2010 provides for the appointment of
Shariah consultants for the proposed Insurance Development and Regulatory Authority (IDRA)
to function properly. Unfortunately, the government has not yet formed the 5-member board
for devising Islamic insurance guidelines though the Act required that in March 2010.
However, Insurance Act 2010 was formulated to meet demand of concurrent time for shifting
the insurance industry in a better shape. Apart from that, several initiatives have been
undertaken by IDRA for prohibiting the malpractices in the insurance industry regarding
insurance commission, agent, premium etc. and address corporate governance issues.
In the last few decades Takaful (Islamic Insurance) has become very popular in Bangladesh as
well as other Muslim countries. But the business of Takaful did not flourish up to the mark in
Bangladesh. The Takaful industry was started its journey in Bangladesh in 1999. Now there are
11 full-fledged Takaful operators (3 General and 8 Life) and 14 conventional insurance
companies of Bangladesh offer Takaful products through their Islamic insurance windows or
projects alongside the conventional products.
Development of Islamic insurance (Takaful) in Bangladesh the basic concept of Islamic
insurance (Takaful) is derived from ancient Arab tribal custom whereby if anybody was
murdered by a member of a different tribe the closest relative of the killer would have to
compensate with blood money. This type of financial help is a protection for the heir of the
deceased against the unexpected death. Similarly, the practice of insurance was in existence
since Islam’s earliest appearance.
Model used by Family Takaful Companies in Bangladesh
Presently, the takaful companies of Bangladesh follow three kinds of models. They are:
Mudaraba, Wakalah and Mudarabah-Wakalah (hybrid) model. Insurance companies issue their
own products. As such different companies have different kinds of products which are certified
by the Actuary in consultation with the Shariah Council. It is noted that approval for product
from Insurance Development and Regulatory Authority (IDRA) is mandatory for all insurance
companies.
The concept of ta’awun (cooperation) originated in Sudan and Saudi Arabia. It was first
established in 1979, when scholars realized that there is a need for cooperation in insurance.
From this came the idea that members should donate their contribution to the fund. Both the
operators and the contributors acknowledge their rights and responsibilities to the fund. The
profit surplus is to be distributed entirely to the participants. Under the Mudaraba principle
employed, the takaful company and the participants share the direct investment income, in