Islamic Finance

132 Islamic Finance in Practice

contract, depending on the percentage of their contributions to the total

contributions;

• It can be distributed to all the participants, but in the case that a
  policyholder made a claim then the policyholder will get a share of the
  surplus if the claim amount isless than the contributions; and


• It can be distributed through another methodology approved by the
  Shari’a board and the company’s board of directors.

The surplus distribution can either be paid directly to the policyholder or

be deducted from the policyholders next contribution (ie. if they renew their

takafulcontract). Commonly both the shareholders fund and the policyhol-

ders fund are within thetakafulbusiness.

Shareholders

The shareholders set up thetakafulcompany for the purpose of managing

the insurance risk of policyholders. They are paid explicit fees by the

policyholders to operate thetakafulbusiness on behalf of the policyholders.

These explicit fees cover the expenses of running the company, plus an

allowance for profit for the shareholders. Examples of expenses include the

costs of recruiting and employing staff, the costsof providing information

technology systems, rent for buildingsfor the staff to work in, and so on.

There are three major models for the shareholders to be paid by these

fees, and they are described in more detail below.

Shari’a board

The Shari’a board ensures thatthe operationofthetakafulbusinesscomplies

with Shari’a− the board opines on whether the business istakaful,or

whether it is acting in a way that would not be permissible within the

Shari’a rules. The Shari’a board consists of a minimum of three Shari’a

scholars educated in economics. Their mainduties are to:

• ensure that all thetakafulproducts are compliant with Shari’a rules;


• approve the Shari’a compliance of technical operations of the company;


• approve that the structure of thetakafulbusiness is compliant with
  Shari’a;


• advise the company on Shari’a compliance and provide anyfatwa,if
  needed;


• check the company’s files on anad-hocbasis to ensure Shari’acompliance;
  and


• publish a report at the end of each financial year to confirm the Shari’a
  compliance of the company’s activities.