Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia

Takaful and insurance have been compared long ago by many scholars around the world. Prior literatures of Takaful are mainly focusing on the concept and theoretical nature of takaful and its differences from insurance. Malaysian Takaful industry has been given flexibility in terms of the operational...

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Main Authors:	Htay, Sheila Nu Nu, Zaharin, Hanna Rabittah
Format:	Article
Language:	English
Published:	World Business Institute 2012
Subjects:	HG8011 Insurance
Online Access:	http://irep.iium.edu.my/26259/ http://irep.iium.edu.my/26259/ http://irep.iium.edu.my/26259/1/5._Critical_analysis_on_the_choice_of_takaful_operating_models_in_malaysia.pdf

id	iium-26259
recordtype	eprints
spelling	iium-262592012-11-19T01:38:39Z http://irep.iium.edu.my/26259/ Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia Htay, Sheila Nu Nu Zaharin, Hanna Rabittah HG8011 Insurance Takaful and insurance have been compared long ago by many scholars around the world. Prior literatures of Takaful are mainly focusing on the concept and theoretical nature of takaful and its differences from insurance. Malaysian Takaful industry has been given flexibility in terms of the operational models adopted and to the researchers’ knowledge; no research has been conducted in Malaysia regarding the choice of Takaful operational models by Takaful operators. It is important to study the motives behind choosing among different Takaful models since different models have different impacts on the surplus distribution of Takaful funds, especially for Family Takaful funds. Therefore, this research is conducted to examine on reasons behind choosing Takaful models and to propose the most suitable model to be adopted by Takaful operators to be fair and equitable for both Takaful operators and participants. The representatives from Takaful operators are interviewed and it has been found out that most of Takaful operators prefer the Hybrid Wakalah or Modified Wakalah (principal-agent) model. The main reason is that Central Bank of Malaysia clearly sets the rule that in the Wakalah contract; Takaful operators can charge Wakalah fess (agent fees and administrative expenses) upfront to the participants (certificate holders). Moreover, an upper limit Wakalah fees is 40% and hence, it is favorable to Takaful operators. The mudarabah (profit and loss sharing) model is not much favored in the Malaysian Takaful industry due to its profit sharing nature which strains the Takaful Operators to purely claim the profit out of the actual performance of the profit. Interview results further find out that most of the practitioners also think that the Wakalah fees imposed on the participants are too much and the Hybrid Wakalah/ Modified Wakalah model has too many layers of charging profits from the funds and consequently, the currently adopted models are at the disadvantages of participants. Since this research provides a clear picture of the current practice of the Family Takaful operating models adopted by the Malaysian Takaful operators, these findings will be useful for regulators and shari’ah advisors to look into this issue again to be fair and justice to involved parties. World Business Institute 2012-03 Article PeerReviewed application/pdf en http://irep.iium.edu.my/26259/1/5._Critical_analysis_on_the_choice_of_takaful_operating_models_in_malaysia.pdf Htay, Sheila Nu Nu and Zaharin, Hanna Rabittah (2012) Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia. World Journal of Social Sciences, 2 (2). pp. 112-127. ISSN 1839-1184 http://www.wbiaus.org/10.%20Sheila.pdf
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG8011 Insurance
spellingShingle	HG8011 Insurance Htay, Sheila Nu Nu Zaharin, Hanna Rabittah Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia
description	Takaful and insurance have been compared long ago by many scholars around the world. Prior literatures of Takaful are mainly focusing on the concept and theoretical nature of takaful and its differences from insurance. Malaysian Takaful industry has been given flexibility in terms of the operational models adopted and to the researchers’ knowledge; no research has been conducted in Malaysia regarding the choice of Takaful operational models by Takaful operators. It is important to study the motives behind choosing among different Takaful models since different models have different impacts on the surplus distribution of Takaful funds, especially for Family Takaful funds. Therefore, this research is conducted to examine on reasons behind choosing Takaful models and to propose the most suitable model to be adopted by Takaful operators to be fair and equitable for both Takaful operators and participants. The representatives from Takaful operators are interviewed and it has been found out that most of Takaful operators prefer the Hybrid Wakalah or Modified Wakalah (principal-agent) model. The main reason is that Central Bank of Malaysia clearly sets the rule that in the Wakalah contract; Takaful operators can charge Wakalah fess (agent fees and administrative expenses) upfront to the participants (certificate holders). Moreover, an upper limit Wakalah fees is 40% and hence, it is favorable to Takaful operators. The mudarabah (profit and loss sharing) model is not much favored in the Malaysian Takaful industry due to its profit sharing nature which strains the Takaful Operators to purely claim the profit out of the actual performance of the profit. Interview results further find out that most of the practitioners also think that the Wakalah fees imposed on the participants are too much and the Hybrid Wakalah/ Modified Wakalah model has too many layers of charging profits from the funds and consequently, the currently adopted models are at the disadvantages of participants. Since this research provides a clear picture of the current practice of the Family Takaful operating models adopted by the Malaysian Takaful operators, these findings will be useful for regulators and shari’ah advisors to look into this issue again to be fair and justice to involved parties.
format	Article
author	Htay, Sheila Nu Nu Zaharin, Hanna Rabittah
author_facet	Htay, Sheila Nu Nu Zaharin, Hanna Rabittah
author_sort	Htay, Sheila Nu Nu
title	Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia
title_short	Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia
title_full	Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia
title_fullStr	Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia
title_full_unstemmed	Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia
title_sort	critical analysis on the choice of takaful (islamic insurance) operating models in malaysia
publisher	World Business Institute
publishDate	2012
url	http://irep.iium.edu.my/26259/ http://irep.iium.edu.my/26259/ http://irep.iium.edu.my/26259/1/5._Critical_analysis_on_the_choice_of_takaful_operating_models_in_malaysia.pdf
first_indexed	2023-09-18T20:39:08Z
last_indexed	2023-09-18T20:39:08Z
_version_	1777409247185731584

Critical analysis on the choice of Takaful (Islamic insurance) operating models in Malaysia

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