Most of Islamic finance products and services, particularly financing transactions, necessitate procuring an insurance cover (Takaful). This is to mitigate certain inherent risks in underlying contracts or structures that cannot otherwise be excluded or mitigated in a Sharia compliant manner. The Takaful model for insurance is based on the principle of mutual cooperation and indemnification. Therefore, Takaful cover can easily be used to mitigate market and credit risks in many Sharia nominate financing contracts, without breaching the mandatory Sharia principles which prohibit exclusion or mitigation of certain risks in such contracts. In some commonly used structures for sukuk and investment products, the proceeds of Takaful cover are the only source of payment for the investors in the event of total loss of the underlying assets.
|Mian Muhammad Nazir
Takaful has a critical role in the growth and success of the Islamic banking and finance industry. Therefore, it is very important that the Takaful industry is capable of satiating the increasing demand for Takaful products that are compatible with the profile of risks intended to be mitigated under various Sharia nominate contracts.
In addition, the industry must develop a fully-fledged re-Takaful industry to ensure a sustainable organic growth of Takaful industry in the Gulf Co-operation Council.
While encouraging the Takaful industry to have a proactive approach to product development, to keep pace with the ever-growing need for Takaful, the Takaful industry should also consider aligning their products and services with the industry best practices and consumer protection. This is particularly important, as the basis of Takaful model suggests that the consumer interest is the cornerstone of the Takaful model.
To be distinct and more competitive, the Takaful industry in the UAE has to adapt itself to the objectives of Sharia principles underlying the Takaful concept and the Insurance Authority's Resolution No 4 of 2010 relating to Takaful Insurance Regulations. This will ensure a meaningful and distinctive improvement in areas such as corporate and Sharia governance, product development and consumer protection.
Mian Mohammed Nazir