Diversification of Islamic Financial Insturments
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knowledge in areas such as law, sales, and actuarial services. Most operators would
typically employ human resources, such as legal advisors and actuaries, with
conventional insurance experience who tend to undertake short courses on Shariah.
Hence the mindset of most operators tends to be driven by conventional thoughts and
solutions and, as a result, there has been limited original thinking in the industry.
 The shortage of Shariah scholars with appropriate experience: Since Takaful
companies by laws in most places require a Shariah Supervisory Board, the lack of
Shariah scholars with an understanding of insurance and takaful market are a handful
only. Also these handful of scholars inevitably, are sitting on multiple boards, which
may create conflicts of interest.
 Lack of standardization in the industry that is due to Shariah interpretations: Since the
Takaful industry is in its nascent stage, a wide range of issues are still under debate
amongst different scholars and practitioners. The main issue is the model used for
Takaful structure. There is a wide variation in practices and model preferences in
various countries, which is due to the varying interpretation by scholars. For example,
in Saudi Arabia, the regulators—Saudi Arabian Monetary Agency (SAMA)— approve a
cooperative model in which only 10% of the surplus is mandatory for distribution to
policyholders. Similarly, in Iran (where the entire legal system is Islamic-based),
Takaful remains an unknown concept as the as they do not view conventional
insurance to be non-Shariah-compliant.
However, despite these regional variations, there is a global trend elsewhere towards a
Wakala-based model without any sharing of the underwriting profits. This approach
has also been formally approved by the AAOIFI, which is a step towards
standardization. However, a global standard for Takaful models remains to be seen,
which is due to the varying opinions and interpretations of Shariah scholars around
the world.
 Diverging regulatory approaches and the lack of centralized regulations: In the
absence of standardization of a global Takaful regulatory regime, the industry is
relying heavily on the opinion of the Shariah boards of the Takaful companies, subject
to any local regulatory constraints.
 Corporate governance: The current relationship between the Shariah Supervisory
Board and the board of directors of the Takaful operator is typically one of deep trust
and integrity. However, it is still necessary to set clear, written guidelines on the
scope and the responsibilities of the Shariah board. Compliancy should cover all
aspects of the operation, including the Takaful model adopted, product offerings,
surplus sharing and fee structures, Islamic investments, contract