Islamic Insurance: Challenges and Constraints I

Islamic Insurance: Challenges and Constraints i
Islamic Insurance (Takaful): Challenges and

Constraints
Abdulrahman Dhabaan
Aseel Talal
Mohammed Imam
2021
Islamic Insurance: Challenges and Constraints ii
Islamic Insurance: Challenges and Constraints
ABDULRAHMAN DHABAAN
ASEEL TALAL
MOHAMMED IMAM
A Bachelor’s Thesis submitted in partial fulfillment of the

requirements for the degree of Bachelor of Business Administration
The Business School Of

Lebanese International University
2021
Islamic Insurance: Challenges and Constraints 3
Declaration
I declare that this thesis entitled “Islamic Insurance (Takaful): Challenges & Constraints”
is the result of my own research except as cited in the references. The thesis has not been
accepted for any degree and is not concurrently submitted in candidature of any other
degree.
Name Abdulrahman Dhabaan
Aseel Talal
Mohammed Imam
Matric Number :_____________________________
I hereby declare that this project is the result of our own work, except for quotations and
summaries which have been duly acknowledged.
Signature: _________________________
Name Of Advisor: Dr.Mohammed Al-Awlaqi
Date: ______________________
ABSTRACT
This study analyzes Islamic insurance (takaful) constraints and their effect on the
performance of takaful companies operating in Islamic countries and its challenges. It is a
quantitative analysis as it reviews a variety of literatures in a takaful industry of Islamic
countries to identify problems. The challenges were classified, which is the contribution of
this research. Market players can bring significant growth in the takaful sector by correctly
addressing the categorized constraints. These are the following constraints in the takaful
industry of Islamic countries according to content analysis: takaful awareness, lack of
education, various takaful models, lack of standardization, the shortage of human resource,
real earnings management, corporate governance, technological performance, rural market,
insufficient technology capabilities, regional differences, fewer number of sharia'h
reinsurance, risk of non-sharaih compliance, operational efficiency, human resources,
participant income level, and large-sized takaful companies. This study highlights the
constraints that can be taken into account by AAOIFI and IFSB to boost the globally
operating standards of the takaful sector. In addition, takaful operators can also get a view
of all the constraints and can work on their survival policies with the above-mentioned
constraints to provide better insurance market results.
Keywords:
Sharia, Compliance, Takaful Operators, Islamic Insurance, Mudarabah Model

ACKNOWLEDGMENTS
We would like to express our special thanks of gratitude to our teacher, mentor &
research advisor Dr. Mohammed Al-Awlaqi as well as the Lebanese International
University president Dr. Rida Hazimi who gave us the golden opportunity to do this
wonderful project on the topic Islamic Insurance (Takaful): Challenges & Constraints,
which also helped us in doing a lot of Research and we came to know about so many new
things. We are really thankful to them. Secondly, we would also like to thank our parents
and friends who helped us a lot in gathering different information, collecting data and the
guidance from time to time. Also finalizing this project despite their busy schedules within
the limited time frame. We also would like to thank all the financial institutions inside &
outside the country who provided us with the information needed.
Finally, we acknowledge the encouragement and support of course mates who have
been of great assistance to us in diverse ways for the success of this research.
Contents
Declaration ...................................................................................................................................... 3
ABSTRACT ........................................................................................................................................ 4
ACKNOWLEDGMENTS ..................................................................................................................... 5
List of Figures ................................................................................................................................... 8
1.1. Introduction ......................................................................................................................... 9
1.2. Background ....................................................................................................................... 10
1.3. Problem Statement............................................................................................................. 11
1.4. Research Questions ........................................................................................................... 11
1.5. Research Objectives .......................................................................................................... 11
1.6. Significance of the Study................................................................................................... 12
1.7. Scope of the Study ............................................................................................................. 12
1.8. Definitions of Terms.......................................................................................................... 12
1.9. Research Organizing ......................................................................................................... 13
2. LITERATURE REVIEW ...................................................................................................... 14
2.1. Introduction ................................................................................................................... 14
2.2. Islamic Insurance ........................................................................................................... 14
2.3. Takaful and Conventional Insurance ............................................................................. 18
2.4. Reasons to Operate Takaful........................................................................................... 18
2.5. The Global Takaful Market ........................................................................................... 19
2.6. Challenges and Constraints of Takaful .......................................................................... 19
2.6.1. Takaful Concept Awareness/ Lack of Education/Scarcity Of Human Resources/Human
Capital 21
2.6.2. Small Penetration Rate/ Rural Market/Low Income Level of Participants ................... 23
2.6.3. Takaful Models .............................................................................................................. 24
2.6.4. Lack Of Standardization/ Corporate Governance/ Non-Sharaih Compliance Risk....... 24
2.6.5. Inadequate Technology Capabilities/ Technical Efficiency .......................................... 25
2.6.6. Small Size of Takaful Companies/ Less Number of Sharia'h Reinsurance ................... 26
3. METHODOLOGY ................................................................................................................ 27
3.1. Introduction ................................................................................................................... 27
3.2. Research Design ............................................................................................................ 27
3.3. Population and Sampling ............................................................................................... 27

3.4. Instrumentation .............................................................................................................. 28
3.5. Data Collection .............................................................................................................. 29
3.6. Data Analysis................................................................................................................. 30
3.7. Discussion ..................................................................................................................... 39
3.8. Summary ....................................................................................................................... 40
References .................................................................................................................................... 42
APPENDIX A ............................................................................................................................... 49
APPENDIX B................................................................................................................................ 59
APPENDIX C................................................................................................................................ 63
List of Figures
Figure1. Takaful Awareness …………………………………………………………….31
Figure2. Cont. Takaful Awareness ……………………………………………………...32
Figure5. Cont. Takaful Awareness ……………………………………………………..34
Figure6. Cont. Takaful Awareness ……………………………………………………..35
Figure7. Rural Markets…….…………………………………………………………….35
Figure8. Less Number of Sharia Re-Insurance ………………………………………….36
Figure9. Non-Sharia Compliance Risk……….………………………………………….36
Figure10. Large-Sized Takaful Companies ….………………………………………….37

CHAPTER 1
INTRODUCTION
1.1. Introduction
In this creation, jeopardy occurs in all works of human life and people are aware of
mitigating it. This need of risk mitigations looks idea of insurance is attractive as this
insurance contract is used to reduce the risk of loss arisen from all timed situation (Ahmad
et al., 2010). In contrast to conventional assurance, there is the notion of the Islamic
assurance referred to as Takaful. Takaful is derived from the Arabic word 'Kafala ' which
is defined as assurance (Ahmad et al., 2010). Takaful is the practice whereby individuals
in the society give mutually assurance themselves against loss. Takaful’s aim is to carry
fairness in all events (Ahmad et al., 2010). Takaful is founded on connotation, harmony
and joint help which delivers joint fiscal help to participants in case of need. In Takaful,
the components of riba (interest) maysir (gambling) and gharar (ambiguity) are detached
from the processes (Ahmad et al.,2010). The Takaful industry has vital prospects for
growth and further market penetration. Muslim population is growing at faster rates than
the non-Muslim population. Follower, Muslims have an outlook about prohibition of
insurance as it breaches some of the Islamic doctrines (Ahmad et al., 2010). Life in density
vended in conservative manner was proclaimed into liable in 1903 by particular renowned
Islamic intellectuals in the Arab kingdoms (Ahmad et al.,2010). Since then, search for
alternatives was started in 1979, Sudan first introduced takaful. Later on, in 1985, the
Grand Counsel of Islamic intellectuals in Makkah, Saudi Arabia, permitted takaful
structure as a substitute of insurance inscribed in conformity with Islamic Sharia (Ahmad

et al., 2010). It is a concept of defense for the good of civilization. The Grand Counsel
accepted this structure as a system of co-operation and, joint assistance but the accurate
manner regarding maneuver of takaful was not discussed as this task was delegated to
Islamic intellectuals and assurance consultants to execute the plan (Ahmad et al., 2010).
1.2. Background
25% of the world’s total population are the Muslims. Unlike other communities,
the Muslim community has increased rapidly however, the sales of insurance in the Muslim
community didn't increase as much as the population. Muslims represent a small ratio of
the total market of insurance. Historically, the nature of conventional insurance and the key
principles of Islam are incompatible. Thus, it's considered as a significant barrier to sales.
These incompatibilities made a very low penetration ratios which left many Muslims
threatened by external disaster and damage and low protection for their possessions.
The advancement of Takaful, which begins from the Arabic verb ‘kafalah,’ which
means ‘to offer assistance from one to another’ or ‘mutual guarantee,’ has been driven by
the need solve these obstacles and make insurance suggestions that's completely compliant
with Shariah (Islamic law). Takaful started in 1979 in Sudan, it only gained momentum in
early 2000 when the Malaysian government promoted it and significant growth was
witnessed thereafter. The growth of Takaful has varied significantly from country to
country and its success, or otherwise, has been largely dependent on the awareness and
affluence of the local population, as well as on the robustness of the local regulatory
framework. Hence the highest growth has been observed in places such as Malaysia (with
its considerable awareness of Takaful and robust regulatory framework), whereas growth
in the Middle East has only recently begun to take off.
1.3. Problem Statement
Takaful haven’t yet reached its full potential because of the challenges it faces.
Takaful needs to be exploited in an Islamic manner. Financial institutions haven’t seen the
full opportunities and that’s why they remain static. Therefore, this paper will study the
opportunities and challenges facing Islamic Insurance, and if there is a probability for
prosperity the Islamic Insurance industry in the future.
1.4. Research Questions
• What are the challenges & Constraints of Islamic Insurance?
• How do constraints affect the performance of Takaful companies in Islamic
countries?
1.5. Research Objectives
• To identify the constraints in Takaful industry
• To investigate the effect of constraints on the performance of Takaful operators

1.6. Significance of the Study
In this research we will find the most important challenges facing Islamis Insurance
(Takaful) and through these challenges we will find the possibility to flourish in the future
and what are the elements through which prosperity can be achieved.
1.7. Scope of the Study
This study is intended to assess the Islamic Insurance (Takaful) relating to
challenges. The findings of this study would help policy makers to support Islamic
Insurance furthermore, this study would help target institutions to have solutions to some
of the problems facing Islamic Insurance. With the concerted efforts of some Islamic
Insurance institutions and banks.
1.8. Definitions of Terms
• (Takaful)
Is a type of Islamic insurance wherein members contribute money into a
pool system to guarantee each other against loss or damage. Takaful-branded
insurance is based on sharia or Islamic religious law, which explains how
individuals are responsible to cooperate and protect one another. Takaful policies
cover health, life, and general insurance needs. Takaful insurance companies were
introduced as an alternative to those in the commercial insurance industry, which
are believed to go against Islamic restrictions on riba (interest), al-
maisir (gambling), and al-gharar (uncertainty) principles—all of which are
outlawed in sharia
• Challenges
Challenges the situation of being faced with something that needs great
mental or physical effort in order to be done successfully and therefore tests a
person's ability. challenge for cause A challenge to a prospective juror based on a
specific cause or reason, such as bias, prejudice, or a financial or other interest in
the outcome of the trial. Usually, there is no limit to the number of challenges for
cause available to each party. An objection to an entire jury panel based on the
manner that the panel was selected. Also called challenge to jury array. peremptory
challenge.
1.9. Research Organizing
After the Introduction, the second part of the research is including current
knowledge substantive findings, as well as theoretical and methodological contributions
and presents previous studies that have been done about Islamic Insurance and its
challenges on different aspects. The last part analyses the findings from the questionnaire
survey.
CHAPTER 2
2. LITERATURE REVIEW
2.1. Introduction
This chapter includes previous studies of Islamic Insurance and what are the main
challenges faced by the Islamic Insurance industry. Also it includes some studies of
Islamic Insurance , its history and its challenges. This chapter will conclude with the gap
of this research which Possibility of challenges and constraints occurrence.
2.2. Islamic Insurance
The word takaful, originates from the Arabic word kafala, which means
“guaranteeing each other” or “joint benefit” or “shared responsibility.” To conform to the
Shariah, firstly, takaful insurance must be policyholder- oriented, not shareholder-oriented.
Secondly, the length of the policy period has to be finite and the amount of exchange the
premium and the benefit is to be known as ex-ante. Thirdly, the contract must possess not
only an element of mutual cooperation among participants in dealing with losses but also
an element of sharing investment income between the insurer and its policyholders
according to a predetermined ratio.
In fact, takaful is a co-operative system of reimbursement in case of loss, paid to
people and companies concerned about hazards, compensated out of a fund to which they
agree to donate small regular contributions managed on behalf by a takaful operator.

Takaful insurance is a concept which is based on Islamic muamalat , observing the rules
and regulations of Islamic Shariah (Omar & Dawood, 2000).
The primary objective of insurance companies is to generate interest-based revenue
by investing their funds in traditional investment instruments. If they fail to pay the
premium on time, the policyholders are required to pay extra charges. In addition, when
the life insurance policy reaches maturity or death claim, the amount payable is much
higher than the amount received by premium payments. The primary source of revenue for
both general and life insurance is investment in interest-based instruments (Qaiser, 2014).
The idea of insurance is very useful to us as it can offer financial support when we
face misfortune. As most responsible decision-makers, tend to pay premiums rather than
take unnecessary risks. In most nations, insurance is now incorporated into everyday life
activities in developing countries, and it becomes in most cases, it's unavoidable. Sadly,
when the insurance practice is examined, Islamically, it has Forbidden components such as
interest, uncertainty and gambling the Islamic teachings strongly condemn these things
because of the final effects of participation in these elements would not be just. Interested
parties. On the validity of insurance, there are three common parties. The first party claims
that, regardless of any circumstances, insurance is completely forbidden. The second group
believes that if insurance is required, it is appropriate. The third party supports the
alteration of traditional insurance needs in order to be in line with Shari’ah (Dikko, 2014).
Islamic insurance schemes contain aspects of the principles of sharia that are not
shared by traditional insurance schemes, namely honesty, openness and risk-sharing. The
protection of property or life for disadvantaged members would be expanded by the
concept of risk sharing owned by Islamic insurance. If the Islamic insurance company has
a surplus of funds, it can be used to pay zakat or distributed to help develop public
infrastructure projects, such as school building projects, hospitals, and other matters
allowed by Islamic legislation (Swartz and Coetzer, 2010).
Takaful is based on Tabarru's principles i.e. voluntary donation) and Ta'a wun (i.e.
mutual cooperation). These two principles are currently the basis on which contractual
relationships between participants and operators of Takaful are established. Currently,
Takaful operators are adopting a few different Takaful models and the most popular
Takaful models are the Cooperative (Taa'wuni) Model, Pure Wakalah (Agency) Model,
Modified Wakalah Model (Wakalah with Incentive Compensation), Pure Mudarabah
(Investment profit-sharing) Model, Updated Mudarabah Model, Wakalah-Mudarabah
Hybrid Model and Model Waqf. The Takaful products available are general products of
takaful and products of the takaful family. For engine, fire and marine, examples of general
Takaful products are while health, investment planned and education are those of family
Takaful products (Salman, Htay, (2013) & Nooraldin, (2014).
Examine the basic principles of takaful and then analyze the mechanics of the two
models most commonly used in the takaful industry namely, the mudarabah system that
was developed by the Malaysians and the wakala (agency) system that is now being used
by most takaful operators and has achieved tremendous popularity and acceptance in recent
years even in countries where the mudarabah model was earlier implemented. Shariah
scholars have, however, expressed some misgivings about both approaches, but because of
its wider acceptability among Shariah scholars in the case of the wakala approach, this is
more urgent. With regards to the mudarabah model for risk management, there are major
discrepancies that have been highlighted by Shariah scholars effectively rendering it
inappropriate to apply this for insurance contracts. For this reason, the authors outline a
third model, a wakala with waqffund, which seeks to remain within the wakala framework
while incorporating modifications that may render it more acceptable from a Shariah
perspective. Wahab et al. (2007).
Examine microinsurance schemes based on the Islamic law (Shariah), which is
Called Micro-takaful schemes. They conduct a field study of two Micro-takaful insurance
providers in Indonesia. One of the two companies studied is owned in majority by Muslim
shareholders, whereas the other company is owned by a large international commercial
insurance company. The authors document the forms and characteristics of their micro-
takaful credit life insurance products as well as the organizational structure of these two
companies. They then discuss the micro-takaful schemes in the light of best practices in
microinsurance and socio-cultural Islamic principles. The results suggest that both
companies have a similar product design and business operations, and that best practice
microinsurance services can be offered in a Shariah-compliant way. Their findings also
demonstrate that an international commercial insurer can successfully offer micro-takaful
schemes and, hence, participate in this untapped market. Erlbeck et al. (2011).
2.3. Takaful and Conventional Insurance
The structure of takaful companies on profit basis is totally different from conventional
commercial insurers. The central idea for all Islamic insurance models is the segregation between
participants and shareholders’ funds as the company role is only to manage participants’ funds on
their behalf. Any takaful company is usually called a “takaful operator” instead of an insurer. For
the Islamic model, contributions (premiums) should be paid on donation (tabarru) in order to
remove the element of gharar from the takaful contract. These two principles are considered
essential elements from the Shari’ah point of view, and all Islamic models have to comply with
these principles (Tolefat, 2006).
2.4. Reasons to Operate Takaful
The structure of takaful companies on profit basis is totally different from
conventional commercial insurers. The central idea for all Islamic insurance models is the
segregation between participants and shareholders’ funds as the company role is only to
manage participants’ funds on their behalf. Any takaful company is usually called a
“takaful operator” instead of an insurer. For the Islamic model, contributions (premiums)
should be paid on donation (tabarru) in order to remove the element of gharar from the
takaful contract. These two principles are considered essential elements from the Shari’ah
point of view, and all Islamic models have to comply with these principles (Tolefat, 2006).
2.5. The Global Takaful Market
There are 174 Takaful operators in the main operators when the current growth of
the global Takaful market. Takaful markets comprising of 34 in Saudi Arabia, 11 in
Malaysia, 43 in GCC countries (excluding Saudi Arabia), ASEAN 29 (excluding
Malaysia), South Asia 12, Africa 36. Amongst the key products are Takaful products,
family and medical Takaful, 8%0 in South Asia, 50% in ASEAN. Family and medical
Takaful holds 47 percent of MENA. Moreover, it is predicted that Saudi Arabia, ASEAN,
South Asia, GCC and levant will be the key takaful markets in 2014 & 2015 with the rapid
growth ( Ernst & Young, 2013).
2.6. Challenges and Constraints of Takaful
The insurance firms are faced with two kinds of risks, specific risks and non-
specific risks, Non-specific risks consist largely of liquidity risk, market risk, risk of
insolvency and risk of operations. On the other hand, the particular risk, however is an
intangible risk, linked to the activity of Insurance companies, such as the risk of
underwriting (Krenn & Oschischnig, 2003).
Four important issues for Islamic insurance namely, (1) Islamic socioeconomic
principles applied to insurance, especially regarding the concepts of uncertainty, interest
and investment arrangements; (2) described the basic structures of takaful life insurance,
non-life insurance and reinsurance; (3) investigated takaful insurer operations in selected
countries; and (4) discussed existing regulations as well as suggestions for better takaful
insurance operations through a detailed study (Maysami & Kwon, 1999).
The efficiency of risk management of life insurers and takaful operators in a
competitive environment of the insurance industry. There are very few studies concentrated
on the risk management efficiency of life insurers and combining such study on both life
insurers and takaful operators. The study utilizes the data envelopment analysis (DEA)
model to obtain the efficiency score of risk management activity for each company. The
results indicate that the efficiency score of both types of companies is moderately high and
the standard deviations show a declining trend. It is hard to confirm the interaction between
the firm size and the risk management efficiency but, yet, it reasonably seems that there is
an association between the organizational forms (stock vs mutual) and the risk management
efficiency (Yusop et al., 2011).
Losses of the investment principal due to poor investment are to be borne totally by
insureds. For instance, it is roughly estimated that about five percent of Islamic firms may
become bankrupt, merged or need to be re-capitalized in the near future. This clearly
indicates the presence of a classical principal agent conflict. For example, some takaful
insurers may invest their funds in the riskiest halal areas and some others may operate over
their capacity. Takaful non-life insurers increasingly provide liability insurance coverages
where underwriting performance can be highly unstable (Al-Rifai, 1988).

Limited experience and competent human resource are the weakness of current
Takaful operators and it becomes more problematic due to the absence of a framework for
corporate governance, Shari’ah compliance, legal and regulatory, taxation and
international accounting standards which complement the Takaful industry. Although there
is some awareness of Takaful, its level of awareness is still very low in some countries,
and hence it is necessary to focus on marketing to create an awareness among people to
inform them of the differences between Takaful and insurance. Takaful industry is less
competitive compared to conventional insurance due to limited availability of Shari’ah
compliant investments (Ahmed et al., 2010).
The insurance firms are faced with two kinds of risks, specific risks and non-specific risks,
Non-specific risks consist largely of liquidity risk, market risk, risk of insolvency and risk of
operations. On the other hand, the particular risk, however is an intangible risk, linked to the activity
of Insurance companies, such as the risk of underwriting (Krenn & Oschischnig, 2003).
2.6.1. Takaful Concept Awareness/ Lack of Education/Scarcity Of Human
Resources/Human Capital
Maiyaki & Ayuba,2015 conducted a study in which regression analysis was
applied on data collected having sample size 384 respondents from Nigeria found
that alertness, insight, faith and assurance are considerably connected to the
customers' outlook toward Takaful facilities .Soualhi & Al Shammari, 2015
conducted a study in Kuwait where 14 takaful operators are working but 52% out
of a sample of 640 sample of Kuwaitis have not heard about takaful and more than
60% were uncertain about whether their contributions would be capitalized.

Hameed et al., 2017 conducted a study in Pakistan to examine the effects of.
education level, religious orientation and distribution channel (radio, internet,
television, agent, brokers) via regression analysis on sample having 300 subjects.
These three levels showed significant and positive effects on takaful awareness in
public. Religious orientation shows higher contribution towards increasing
awareness of takaful business model. Ismail, et al.,2012conducted a study in
Malaysia where it is found that there is an absence of mindfulness of takaful
products among micro businesspersons due to an absence of sympathetic. Hidayati
& Rafeea, 2014 conducted study in Bahrain and it is found that many people have
knowledge about alteration between takaful and conventional based assurance due
to having higher education level. However, they were less aware about mechanical
terms of takaful such as delivery of takaful excess and various kinds of takaful
prototypes. Level of education shows significant effect on takaful awareness as
researcher took many participants among who min which some had degree in high
school, diploma, bachelor and post graduate. However, post graduate people had
more awareness than others who had low degree of education. Ayinde & Echchabi,
2012 conducted a study by using analysis of structural equation modeling on
sample size of 200 respondents and found that Malaysian clients are eager to accept
Islamic assurance facilities, and their choice is contingent on two aspects i.e.
compatibility (the compatibility of the Islamic assurance with their communal
and spiritual values, monetary needs, as well as their standard of living) and
awareness. Ahmad et al.,2010 conducted a study and found that Takaful is facing
shortage of human resources due to unavailability of requisite expertise. However,

Malaysia is doing work in this regard through the Islamic Banking and Finance
Institute Malaysia which proposes an inclusive training program which looks at
Islamic banking, Takaful and Islamic capital markets. Bahrain's Islamic Finance
and Banking Training offers courses directed at financial industry professionals,
which cover the applications of key Islamic banking and financial instruments.
2.6.2. Small Penetration Rate/ Rural Market/Low Income Level of
Participants
Only eighty million of the world comprises on 2.5 billion deprived are
presently protected by certain method of micro-insurance. Only 3% of the
deprived in India and China are covered,and only 0.3% of the deprived in Africa
are protected. In 23 of the 100 deprived nations in the world, there is presently no
documented micro-insurance activity. The mainstream of the populace is in the
low-income bracket (Swartz & Coetzer, 2010). Mohd Salleha & Laksanab, 2018
conducted a study in Malaysia and found that the diverse level of revenue does
matter for the level of cognizance of takaful. The consequences of this study give
an input to takaful operators that they should linger augmenting community
awareness of takaful irrespective of the diverse demographic contextual as takaful
should serve the entire public, not only the ironic and cultured section, but also the
deprived and destitute. In Malaysia where 76.7% of Generation-Y believes in
takaful industry's stability through collaboration between the regulator and the
industry (Ismail&Hassan,2017).
2.6.3. Takaful Models
Isa et al., 2017 conducted research in Malaysia via qualitative method and
found that issue arises in wakala model due to sharing of surplus amount which
totally belongs to participants. Some argued that surplus is shared when takaful
operator does work efficiently which resulting in fewer claims. Issue arises when
any participant terminates the contract. As takaful operator deducts wakala fee in
advance then how can he return the unearned wakala income/fee to the participant.
Shariah advisory council and takaful operator should provide clear concept about
takaful model to participant which will reduce reputational risk and non-compliant
shariah issues. Pasha & Hussain, 2013 reviewed many literatures and found that
there are many different Takaful business models, such as
Mudarabah,Wakala,Ta'awun and Wakal-Waqf models.They found that Takaful
scheme is still being changed with a number of comments, made by diverse shariah
in tell actuals. It is, therefore, essential to inspire this development by
deliberations and substitute methods. In this method, an unchanging agreement
based system can be presented.
2.6.4. Lack Of Standardization/ Corporate Governance/ Non-Sharaih
Compliance Risk
Countries where takaful is novel also need to set the obvious values on
working of takaful enterprise and taxes policies, and to form a regulatory
system.There is also difficulty to run the takaful companies in compliance of both
the Shariah and restricted nationwide author it arian assurance guidelines. The
Accounting and Auditing Organization for Islamic Financial Institutions（
AAOIFI) has shaped a standard that is the dodging secretarial standard for takaful
companies in some Middle East republics. Takaful enterprises in other republics
are working under International Financial Reporting Standards（IFRS). Applying
IFRS to takaful is a multifaceted area (Ahmad et al.,2010).
2.6.5. Inadequate Technology Capabilities/ Technical Efficiency
Saad,2012 conducted research on secondary data on income and output of
takaful companies working in Malaysia by throughout Data Envelopment Analysis
(DEA). He found that effectiveness of the takaful companies is found lower than
conservative insurance. Malaysian takaful and insurance industry faced decrease in
Total Factor Productivity due to weakening in technical efficiency. Decrease in
Total Factor Productivity of the takaful industry working in Malaysia came owing
to the deficiency of novelty in technical mechanisms. Malaysia's takaful can
enhance TFP through development in technological constituent like enhancing the
use of info and communiqué equipment in furnishing worthy facilities to clients.
Sengupta & Dutta, 2010 examined association of rising savings on IT-
infrastructure which is resulting a scientific novelty in enterprise processes of the
personal organization which has optimistic effect on competence changes. They
used a board data set of 12 life assurance businesses over the period 2006-2009 to
assess their competence cuts by smearing Data Envelopment Analysis and
scheming the scale efficacy. Result of this study decided that cumulative stock on
IT-infrastructure has an optimistic in fluency on scale and practical efficacy
revolution.
2.6.6. Small Size of Takaful Companies/ Less Number of Sharia'h
Reinsurance
Ismail M.,2013 conducted study by applying panel data over the period of
2004 to 2007 of takaful organizations in Malaysia via using share yield as the act
measures. His findings indicated that company's scope (large business size also
empower sunder writers to professionally expand their predictable dangers and
react more quickly to deviations in market conditions), re-takaful requirement and
creditworthiness margin (credit worthiness is the amount of wealth which acts as a
smother to soak up the danger of leading assurance or takaful) are statistically
noteworthy bases of the financial presentation of the general takaful businesses in
Malaysia.Panel scope, organizations scope and product specialty have optimistic
impact on the cost efficiency of Takaful underwriters (Kader et al, 2010).

CHAPTER 3
3. METHODOLOGY
3.1. Introduction
Regarding chapter 3, it mainly focuses on the way the research is obtained or in
other words the methodology of the research. The methodology approach that is used in
this research is a quantitative study. Here are the points that will be discussed in details
through this report; research design, population and sampling, instrumentation, data
collection tools and data analysis techniques.
3.2. Research Design
We have done quantitative questionnaire design which will help us to know what
are the main challenges and constraints for Islamic Insurance (Takaful) . We will figure
out that by giving Islamic Insurances' providers, banks and business students clear an
unbiased questionnaire. The type of our investigation is correlation study since it will
determine the challenges and constraints faces the Islamic Insurance institutions, and if so,
to what degree of each occurs using questionnaire survey method.
3.3. Population and Sampling
The main source of data in this study comes from a survey distributed to Islamic
institutions and the students of business. The targeted population of our study are Islamic
institutions and our sample consist of four selective institutions. Our plan for distributing
and collecting the questioners through Google Form for exponentially more accurate
information.
3.4. Instrumentation
A survey or questionnaire is a tool used to collect the data to conduct this research. The
questionnaire is divided into two parts. The first part was general questions whereas the
second part is about the challenges and constraints about Islamic insurance. After
reviewing literature, challenges are derived which are mentioned into categorized form so
that practitioners and researchers can take an overview of the challenges that are faced in
takaful industry. Then design the policies to overcome these identified challenges for better
performance in takaful industry. Additionally, these challenges are linked to previous
studies to show the importance of the mentioned challenges and evidence in
literature/previous studies.
Table1: Challenges and Constraints of Takaful.
Challenges Reference
1. Takaful Awareness (Qaiser, 2014), (Dikko, 2014).

Questions: What are the most serious problems that you are afraid of?
What type of insurance do you have?

Which type of Takaful or insurance policy do you have?
Do you know that Takaful products comply with Shari’ah?
Do you know that Takaful practice is ethical?
Do you know that Takaful is suitable for anyone regardless of
Their religion?
Do you know that Takaful does not involve in any prohibited

business activities?
Do you know that policies and strategies are being applied to
increase Takaful awareness and Halal investments?
2. Rural Market (Ernst & Young, 2013).
Erlbeck et al. (2011)
Question: How have micro-Takaful affected the society?
3. Less number of Sharia Re-insurance (Noordin et al., 2014),

(Tolefat, 2006), (Swartz and
Coetzer, 2010) & Z. A. Ansari
Question: Do you agree that the unavailability of sharia re-insurance has
(2011)
impacted Takaful and conventional insurance?
4. Non-Sharia Compliance Risk (Yusop et al., 2011), (Al-Rifai,
1988), (Salman, Htay, (2013)
& Al-Amri et al. 2014.
Question: Do think that investors have a lot of confusion about Sharia
compliant Takaful business?
5. Small size of Takaful companies (Tolefat, 2006) & (Dikko, 2014).
Question: How large Sized Takaful companies affected the economic

sector?
3.5. Data Collection
Our plan for distributing and collecting the questioners through Google Form
distributed to the First-Line managers, employees of financial institustions that provide
Islamic insurance (Takaful) and students majored in business. We insured to distribute the
questioners to four institutions for more accurate information that would be very beneficial
for our research. The following institutions are the ones who provided us with this accurate
information.
• The General Authority for Insurances and Pensions.
• Sheba Islamic Bank.
• Islamic Cac Bank.
• Shamil Bank of Yemen and Bahrain.
3.6. Data Analysis
Charts are one of the most common way of data visualization especially pie charts.
With them, you can quickly and easily highlight differences between categories, clearly
show trends and outliers. Pie charts are useful for displaying data that are classified into
nominal or ordinal categories. Nominal data are categorized according to descriptive or
qualitative information such as county of birth or type of pet owned. Ordinal data are
similar but the different categories can also be ranked, for example in a survey people may
be asked to say whether they classed something as very poor, poor, fair, good, very good.
The percentage of the Yeses and the Noes. Furthermore, they are generally used for
displaying proportional data and usually for the percentage represented by each category
(Rodgers,2011).
We took our chances in asking people about what they acknowledge of Takaful.
Their responses were as shown below in figures 1,2,3,4,5&6. Figure1 is the statistics of
what people fear most.

What People Fear.
10%
10% Health
Accidents
Fire
18%
62%
Others
Figure1. Takaful Awareness
This figure shows what people fear the most and whither they know about
something called Islamic insurance or not. Because if they do know about takaful they
wouldn’t be this frightened. Statically speaking, 62% of the people were asked do fear if
they have health issues.

Figure2. shows statistics of people who acknowledgment of Takaful being compliant with
Sharia.
Complince With Sharia
33%
NO
Yes
67%
Figure2. Cont. Takaful Awareness.

The following figure represents whither or whither not people know that Takaful can be
for anyone from any religion.
Takaful Is for Everyone Despite Their Religion
20%
Yes
No
80%

This Figure shows Islamic Insurance (Takaful) doesn’t involve any prohibited
business activities or Riba, Gharar (Uncertainity) & Gambling.
Takaful Free involvment in Prohibited

Activities
2%
26% Yes
No
Maybe
72%

This Figure represents that Islamic Insurance holders mutually share their risks.
Risk Sharing
Yes
47%
53% No

The following Statistics show the effective strategies and policies that are being
applied to increase awareness of Takaful & Halal investments.
Halal Investment In Takaful
1%
2%
Yes
45% No
52% We Wish
Limited
Figure7. is about the effectiveness of micro-Takaful on society.
Effective Of Micro-Takaful On Society
1% 9%
High
Medium
47%
Low
43%
Don't Know
Figure7. Rural Market.

Figure8. represents the impact of the unavailability of re-insurance on Islamic and
conventional banks.
Unavailablity Of Re-Insurance
1%
2%
22% Agree
Disagree
Strongly Agree
Strongly Disagree
75%
Figure8. Less Number of Sharia re-insurance.

Figure9’s statistics represent that Investors have confusion about sharia compliant
Takaful.
Confusion About Sharia Compilant Business
5%2%
Agree
25% Disagree
Strongly Agree
68% Strongly Disagree
Figure9. Non-Sharia Compliance Risk.

Figure10. shows The Impact of large-sized Takaful Companies on the economy.
Large-Sized Takaful Companies Impact on

Economy.
1% 14%
High
34%
Medium
Low
Don't Know
51%
Figure10. Large-sized Takaful companies.

3.7. Discussion
There are many challenges which are found through literatures: lack of takaful
awareness, lack of education, takaful models, lack of standardization, scarcity of human
resource, corporate governance, technical efficiency, rural market, small penetration rate,
inadequate technology capabilities, cultural differences, non-shariah compliance risk,
human capital, and low level of income of participant. The answer of second question is as
follow: Customers are uncertain about the ways of investment of their contributions in
takaful industry and employees have lack of training and knowledge inadequacy in takaful
industry. Takaful is facing shortage of human resources due to unavailability of requisite
expertise. There is also difficulty to run the takaful companies in compliance of both the
Shariah and restricted nationwide authoritarian insurance rules. Insurance industry faced
decrease in Total Factor Productivity due to weakening in technical efficiency. Panel
scope, organization scope and invention specialty have optimistic impacts on the budget
efficacy of Takaful underwriters. These challenges are obstacles for takaful industry which
can be resolved bringing improvement in performance of takaful industry. Many solutions
regarding said issues are mentioned. Firstly, Differences in adoption of takaful models and
issues in takaful industry can be resolved by discussions, deliberations and substitute
methods(Pasha & Hussain, 2013).Secondly, increased share on IT-infrastructure has an
optimistic influence on scale and practical efficacy revolution in takaful industry(Sengupta
& Dutta, 2010). Thirdly, takaful operator should linger augmenting community awareness
of takaful irrespective of the diverse demographic circumstantial as takaful should assist
the entire public, not only the ironic and cultured section, but also the deprived and destitute
(Mohd Salleha & Laksanab, 2018). Fourthly, regulatory body should work on laws
implementation on eligibility requirements of operational staff (Dikko & Hj AbdulGhani,
2015). Fifthly, religious orientation can play its higher contribution towards increasing
awareness of takaful business model (Hameed et al, 2017). Finally, shariah advisory
council and takaful operator should provide a clear concept about takaful model to the
participant which will reduce reputational risk and non- compliant shariah issues (lsa et al.,
2017).
3.8. Summary
Takaful industry is incorporated against conventional insurance system. Non-
Islamic assurance is prohibited by sharia owing to participation of gharar, maysir and riba.
Takaful is introducing as alternative insurance system in which concept is taking care of
other needs. Under this concept, many participants mutually give guarantee to help each
other in case of disaster. There are many diverse takaful business replicas which are being
practiced all over the sphere. For example, Pakistan and Saudi Arabia are using wakla-
waqf model and Malaysia is using Modaraba model. Takaful industry is rising. However,
there are many challenges which are being faced by takaful operators in running their
business models. The goal of this study is to identify the challenges in Islamic assurance
and its consequence on act of takaful industry. By reviewing extant literature the following
challenges are identified: takaful concept awareness, lack of education, different takaful
models, lack of standardization, scarcity of human resources, real earnings management,
poor corporate governance, poor technical efficiency, rural market, small penetration rate,
inadequate technology capabilities, differences in culture, less number of sharia'h re-
insurance, non-sharia'h compliance risk, poor operating efficiency, human capital, income
level of participants, and large size of takaful companies. In this research paper, detail is
mentioned about how these identified challenges affect the performance of takaful
operators and industry. Such as, misconception about Islamic takaful product is owing to
absence of cognizance and educational background in takaful study. Poor corporate
governance is due to less support from legal framework of Islamic countries where takaful
operators operate, poor quality of staff, inefficient usage of resources and poor sharia'h and
it which has also created a non-compliance risk. Recommendations are given for solving
these challenges. After solving these challenges, takaful operator/industry can give better
performance in insurance industry.

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APPENDIX A: The English and Arabic Versions Questionnaires

Questionnaire
2021
Islamic Insurance: Challenges and Constraints

Introduction
Dear Respondent,
We are Students of Lebanese International University majored in Banking and Finance.

We are conducting an academic research on the challenges of Islamic Insurance
(Takaful). Clarifying constraints of Islamic Insurance. We very humbly request you to
spend your precious five minutes in filling the questionnaire as per your perception about
the Islamic Insurance Industry (Takaful). Your contribution in this regard will be highly
appreciated and will be acknowledged at the time of submission of thesis.
Section 1 Demographic Information
The following questions are about your personal information.
Demographic information
1- Gender: 2- Age: 3- Education: 4- Major: 5- Occupation:
❑ Male ❑ Under 30 ❑ Diploma ❑ Banking and Finance ❑ Self-Employed

❑ Female ❑ 30 - 40 ❑ Bachelor ❑ Accounting ❑ Public Sector
❑ 41 - 50 ❑ Master ❑ International Business ❑ Private Sector
❑ 51 + ❑ PhD Management ❑ Other
Section 2 The Challenges
1. What are the most serious problems that you are afraid of?
Health Fire Accident Other
2. What type of insurance do you have?
Islamic Insurace Conventional I don’t Have Other

Insurance
3. Which type of Takaful or insurance policy do you have?
Family Takaful General Takaful Life Takaful Other
4. Do you know that Takaful Insurance comply with sharia ‘a?
Yes No
5. Do you know that Takaful practice is ethical?
Yes No
6. Do you that Takaful is suitable for everyone regardless of their religion?
Yes No
7. Do you know that Takaful doesn’t involve any prohibited business activities?
Yes No
8. Do you know that Takaful Policy holders mutually share the risk?
Yes No
9. Do you think that affective policies and strategies are being applied to increase
takaful awareness and Halal investments?
Yes No
10. How have Micro-Takaful affected the society?
High Medium Low
11. How large-sized Takaful companies affected the economic sector?
High Medium Low

12. Do you agree that the unavailability of sharia’a re-insurance has impacted Takaful
and conventional insurance?
Strongly Agree Agree Disagree Strongly Disagree
13. Do you think that investors have a lot of confusion about sharia’a compliant Takaful
business?
Strongly Agree Agree Disagree Strongly Disagree

‫‪Islamic Insurance: Challenges and Constraints‬‬ ‫‪55‬‬
‫إستبيان‬
‫‪2021‬‬
‫التأمين اإلسالمي‪ :‬المخاطر والصعوبـــات‬

‫مقدمة‪:‬‬
‫عزيزي‪،‬‬
‫نحن طالب الجامعة اللبنانية الدولية متخصصون في العلوم المالية والمصرفية‪ .‬نجري بحثًا أكاديميًا حول تحديات‬
‫التأمين اإلسالمي (التكافل)‪ .‬لتوضيح القيود التأمين اإلسالمي‪ .‬نطلب منك بكل تواضع أن تقضي خمس دقائق ثمينة في‬
‫ملء االستبيان حسب تصورك عن التأمين اإلسالمي (التكافل)‪ .‬ستكون مساهمتك في هذا الصدد محل تقدير كبير‬
‫وسيتم االعتراف بها في وقت تقديم البحث‪.‬‬
‫القسم ‪1‬‬
‫المعلومات الشخصية‪:‬‬
‫األسئلة ادناه عن المعلومات الشخصية‪:‬‬
‫ألمعلومات الشخصيه‬
‫الجنس‪:‬‬ ‫العمر‪:‬‬ ‫التعليم‪:‬‬ ‫التخصص‪:‬‬ ‫الوظيفه‪:‬‬
‫ذكر ❑‬ ‫‪ 30‬تحت ❑‬ ‫دبلوم ❑‬ ‫علوم ماليه ومصرفيه ❑‬ ‫عمل شخصي ❑‬

‫أنثى ❑‬ ‫‪❑ 30 - 40‬‬ ‫بكالريوس ❑‬ ‫محاسبه ❑‬ ‫موظف حكومي ❑‬
‫‪❑ 41 - 50‬‬ ‫ماجستير ❑‬ ‫أدارة اعمال دوليه ❑‬ ‫موظف خصوصي ❑‬
‫‪❑ 51 +‬‬ ‫دكتوراة ❑‬ ‫اخرى ❑‬
‫القسم ‪2‬‬
‫المخاطر والصعوبات‪:‬‬
‫‪-1‬ماهي أخطر لمشاكل التي تخشاها؟‬

‫أخرى‬ ‫الحرائق‬ ‫الحوادث‬ ‫الصحة‬
‫‪ -2‬ماهو نوع التأمين الذي تمتلكه؟‬
‫أخرى‬ ‫ال أمتلك تأمين‬ ‫تأمين تقليدي‬ ‫تأمين إسالمي‬
‫‪ -3‬أي نوع من أنواع التأمين اإلسالمي لديك؟‬
‫أخرى‬ ‫الـتأمين على الحياة‬ ‫التأمين العام‬ ‫التأمين العائلي‬
‫‪ -4‬هل تعلم أن التأمين اإلسالمي يطبق مع الشريعة؟‬
‫ال‬ ‫نعم‬
‫‪ -5‬هل تعلم أن ممارسات التأمين الإلسالمي أخالقية؟‬
‫‪ -6‬هل تعلم أن التكافل يصلح ألي شخص بغض النظر عن الدين؟‬
‫‪ -7‬هل تعلم أن التكافل ال يتدخل في أي أنشطة تجارية محرمة؟‬
‫ال‬ ‫نع م‬
‫‪ -8‬هل تعلم أن حاملي وثائق التكافل يتقاسمون المخاطر بشكل متساوي؟‬
‫‪ -9‬هل تعلم أنه يتم تطبيق إستراتيجيات وسياسات فعالة لزيادة الوعي بالتكافل واإلستثمار الحالل؟‬
‫‪ -10‬كيف أثر التكافل األصغر على المجتمع؟‬
‫منخفض‬ ‫متوسط‬ ‫عالي‬
‫‪ -11‬كيف أثرت شركات التكافل كبيرة الحجم على القطاع اإلقتصادي؟‬
‫منخفض‬ ‫متوسط‬ ‫عالي‬
‫‪ -12‬هل توافق على أن عدم توفر إعادة التأمين الشرعي قد أثر على الـتأمين التكافلي و لتأمين التقليدي؟‬
‫ال أوافق بشدة‬ ‫ال أوافق‬ ‫أوافق‬ ‫أوافق بشدة‬
‫‪ -13‬هل تعتقد أن المستثمرين لديهم الكثير من اإللتباس حول أعمال التكافل المتوافقة مع الشريعة؟‬
‫ال أوافق بشدة‬ ‫ال أوافق‬ ‫أوافق‬ ‫أوافق بشدة‬

APPENDIX B: Islamic Insurance Glossary
Group family Takaful: Family Takaful (usually without medical examination) on a group
of people under a master certificate. It is typically issued to an employer for the benefit of
employees, or to members of an association.
General Takaful :Protection to participant for losses arising from perils such as accident,
fire, flood, liability and burglary.
Gharar :Uncertainty. It is used to denote any element of absolute or excessive uncertainty n
any business or about the subject of a contract or its price, or mere speculative risk. It has
potential to lead to undue loss to one part of a contract and unjustified enrichment of another,
which is prohibited.
Halal: lawful, permissible.
Haram: unlawful, forbidden.
Householders takaful & Houseowners takaful: Takaful coverage for residential property
against loss or damage caused by perils such as flood or earthquake. It does not only covers
house, but also the garage, outbuildings, walls, gates, fences, as well as permanent fixtures
and fittings. It does not cover buildings used for commercial purposes, such as restaurant,
factory or place for storing merchandise.
Kafalah: Guarantee or surety. It is also known as daman.

Maysir: Gambling. It refers to any activities which involve betting, whereby the winner will
take the entire bet and the loser will lose his bet. It is also known as Qimar.
Medical and Health: A contract that provides specified medical treatment benefits such as
the cost of hospitalization, Takaful surgical and physician consultation fees against risks of a
person being diagnosed with certain illnesses or suffering injury as the result of an accident.
Mu’amalat: Dealings between humans including economic transactions related to exchange
of goods and services and financial transactions.
Mudarabah: An agreement between the entrepreneur and the capital provider in a business
venture to share profit based on an agreed profit sharing ratio. Losses are borne by the capital
provider. An investment partnership with profit loss sharing implications. One or more
partners as investors (rabb al-mal) provide all the capital to an entrepreneur (mudarib) to
undertake a business activity. Profit is shared between the partners on a pre-agreed ratio; any
loss is borne only by the rabb al-mal.
Retakaful: A contractual arrangement under which the retakaful operator will be liable for
part or all of the risks which the takaful operator has covered. The takaful participants' legal
right will not be affected by the retakaful arrangement and the takaful operator is required to
pay the claims to the participants as per takaful certificate's terms and conditions.
Riba: Interest / usury. Technically, it refers to any excess compensation without any
corresponding counter-value recognized by the Shari'ah.
Shariah: Literally means a way or path. It commonly refers to Islamic laws.

Sunnah: It refers to whatever was reported that Prophet Muhammad (peace be upon him)
said, did or gave his tacit approval.
Tabarru’: Contract of charity or donation, the purpose of which is not commercial but to
seek the pleasure of Allah.
Takaful; An arrangement based on mutual assistance under which takaful participants agree
to contribute to a common fund providing for mutual financial benefits payable to the takaful
participants or their beneficiaries on the occurrence of pre-agreed events (Section 2, Islamic
Financial Services Act 2013).
Takaful annuity: A contract that provides a stream of periodic income upon retirement for a
term dependent upon human life. Takaful benefits- Includes any benefit, whether pecuniary
or not, which is payable under a takaful certificate (Section 2, Islamic Financial Services Act
2013).
Takaful claim: A demand for payment of an amount due under a takaful certificate (Section
2, Islamic Financial Services Act 2013).
Takaful contribution: The amount payable by a takaful participant to a takaful operator
under a takaful certificate and includes any remuneration for the functions and duties assumed
by the takaful operator (Section 2, Islamic Financial Services Act 2013).
Takaful fund :A common fund contributed by takaful participants and maintained by a
licensed takaful operator which is separate from takaful operator's shareholders' fund.
Ta‘min :Insurance contract. Usually it refers to the conventional insurance whereas 'ta‘min
Islami' refers to takaful.
Wakalah; Contract of agency.
Zakat: Compulsory alms. It is a particular amount of property that must be paid to particular
recipients (asnaf) every year.

APPENDIX C: Self-Regulating Bodies And Takaful Groups
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI):
Is a Bahrain based not-for-profit organization that was established to maintain and
promote Shariah standards for Islamic financial institutions, participants and the overall
industry. The commission also organizes a number of professional development programs
(especially the Islamic legal accountant program and the observer program and forensic
auditor) in their effort to upgrade the human resources working in the industry and the
development of governance structures controls the institutions.
Global Takaful Group (GTG):
This is a network of the Takaful operators with over 40 members From Asia and the Middle
East. It is forum where operators exchange ideas and coverage on solution for the
betterment of the industry. It is headquartered in Labuan- Malaysia. This group was
formally ASEAN in the Takaful Group.
International Islamic Fiqh Academy:
Is an international Islamic institution for the advanced study of Islamic jurisprudence
located in Jeddah, Saudi Arabia. It was founded following a resolution by the Third Islamic
Summit Conference of the Organization of Islamic Cooperation, held in Mecca and Ta'if,
that called for the establishment of an Islamic Fiqh Academy. The International Islamic
Fiqh Academy was established in June 1983 as a subsidiary organ of the Organization of
Islamic Cooperation. It consists of 57 member states and representatives.
The Islamic Financial Services Board (IFSB):
Is an international standard-setting body of regulatory and supervisory agencies that
promotes the soundness and stability of the Islamic financial services industry, covering
banking, capital market and insurance.
The Organization of Islamic Cooperation (OIC):
Is an international organization founded in 1969, consisting of 57 member states,
with a collective population of over 1.8 billion as of 2015 with 49 countries being Muslim-
majority countries.

Islamic Insurance: Challenges and Constraints I

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Islamic Insurance: Challenges and Constraints I

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Islamic Insurance: Challenges and Constraints i

Islamic Insurance (Takaful): Challenges and

Islamic Insurance: Challenges and Constraints

A Bachelor’s Thesis submitted in partial fulfillment of the

The Business School Of

Name Abdulrahman Dhabaan

Matric Number :_____________________________

summaries which have been duly acknowledged.

Name Of Advisor: Dr.Mohammed Al-Awlaqi

performance of takaful companies operating in Islamic countries and its challenges. It is a

quantitative analysis as it reviews a variety of literatures in a takaful industry of Islamic

industry of Islamic countries according to content analysis: takaful awareness, lack of

real earnings management, corporate governance, technological performance, rural market,

insufficient technology capabilities, regional differences, fewer number of sharia'h

reinsurance, risk of non-sharaih compliance, operational efficiency, human resources,

constraints to provide better insurance market results.

Sharia, Compliance, Takaful Operators, Islamic Insurance, Mudarabah Model

research advisor Dr. Mohammed Al-Awlaqi as well as the Lebanese International

outside the country who provided us with the information needed.

3.3. Population and Sampling ............................................................................................... 27

Figure1. Takaful Awareness …………………………………………………………….31

Figure2. Cont. Takaful Awareness ……………………………………………………...32

Figure3. Cont. Takaful Awareness ……………………………………………………...33

Figure4. Cont. Takaful Awareness ……………………………………………………...33

Figure5. Cont. Takaful Awareness ……………………………………………………..34

Figure6. Cont. Takaful Awareness ……………………………………………………..35

Figure7. Rural Markets…….…………………………………………………………….35

Figure8. Less Number of Sharia Re-Insurance ………………………………………….36

Figure9. Non-Sharia Compliance Risk……….………………………………………….36

Figure10. Large-Sized Takaful Companies ….………………………………………….37

the non-Muslim population. Follower, Muslims have an outlook about prohibition of

Grand Counsel of Islamic intellectuals in Makkah, Saudi Arabia, permitted takaful

structure as a substitute of insurance inscribed in conformity with Islamic Sharia (Ahmad

in the Middle East has only recently begun to take off.

1.3. Problem Statement

prosperity the Islamic Insurance industry in the future.

1.4. Research Questions

• What are the challenges & Constraints of Islamic Insurance?

• How do constraints affect the performance of Takaful companies in Islamic

1.5. Research Objectives

• To identify the constraints in Takaful industry

• To investigate the effect of constraints on the performance of Takaful operators

1.6. Significance of the Study

1.7. Scope of the Study

This study is intended to assess the Islamic Insurance (Takaful) relating to

Insurance institutions and banks.

1.8. Definitions of Terms

Is a type of Islamic insurance wherein members contribute money into a

pool system to guarantee each other against loss or damage. Takaful-branded

insurance is based on sharia or Islamic religious law, which explains how

introduced as an alternative to those in the commercial insurance industry, which

are believed to go against Islamic restrictions on riba (interest), al-

maisir (gambling), and al-gharar (uncertainty) principles—all of which are

mental or physical effort in order to be done successfully and therefore tests a

person's ability. challenge for cause A challenge to a prospective juror based on a

specific cause or reason, such as bias, prejudice, or a financial or other interest in

1.9. Research Organizing

knowledge substantive findings, as well as theoretical and methodological contributions

of this research which Possibility of challenges and constraints occurrence.

2.2. Islamic Insurance

“guaranteeing each other” or “joint benefit” or “shared responsibility.” To conform to the

Shariah, firstly, takaful insurance must be policyholder- oriented, not shareholder-oriented.