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ISSUE 1:With whom does ultimate responsibility to comply with Islamic Shari’ah rules lie? Management/the Shari'ah Board or Shareholders?
SOLUTION:
• All 3 (the Management, the Shariah Board and the Shareholders) are equally but respectively responsible for the Shari’ah compliance of all aspects of the company of Shari’ah products and services. Hence, a further illustration to the effect is as follows:
(i) It has been an ongoing confusion among the i-eco-legal environment that, whether the Shari’ah Board is an employee of the management or anindependent authority?
To resolve such a puzzle among the
corporate Ummah it is submitted that, in no situation the
Shari’ah Board shall be treated as an employee (to follow, fear, favor
and please the management or the shareholders or whosoever may be other than to
comply the total Shari’ah spirit), but an independent authority to
uphold, promote and decide the true Shari’ah standard.
Thus, in their
capacity as the independent authority the Shari’ah board is,
accountable (to themselves, to the Management, to Public and ultimately to
ALLAH (swt) for the accurate Shari’ah views and Solutions with no
fear or favor per se.
(ii) Management shall shoulder an AMANAH (trust) in the total operation / management as per the Shari’ah decisions made by the Shari’ah Board. Thus, the Management is accountable based on the holistic Principles of TRUST (to themselves, to the Board of Directors and ultimately to ALLAH (swt) for the accurate operation of Activities in accordance with the Shari’ah Solutions provided by the Shari’ah Board.
(iii) Shareholders are accountable (to themselves, to Public and to ultimately ALLAH (swt), the almighty GOD) for the accurate observation and decision over the total Policies, products, mechanisms and operation of Activities complying with the Shari’ah rules and spirit.
ISSUE 2:
Should shareholders put Shari’ah compliance processes in place? is this more important if Management or Key Personnel is non-Muslim?
SOLUTION:
• Shareholders should concern over the total Shari’ah Compliance of the Policies and Activities in their capacity as the supreme technical and corporate decision makers.
• As far as the corporate operations are concerned, Shari’ah does not concern on the person, race, background, color or even one’s religion of the operator nor the shareholders, but Shari’ah concern is on POLICIES, SYSTEM, ACTION and ACHIEVEMENT, which shall be in total compliance with the Shari’ah Principles and Divine ethics. Therefore, if any personnel of the Management, BOD or Shareholders is a non-Muslim, which may not prevent one to offer Islamic Products so long one is with justifiably compliance with Shari’ah.
ISSUE 3:
As a Takaful or Re-takaful operator do you publish the activities (fatwa, rulings and guidelines) of the Shari’ah Board?
SOLUTION:
• As for the FATWA / rulings/ guidelines of the Shari’ah board in to day’s Islamic Financial environment, Some are published and some are not depending on the respective company / person / Mufti/ Scholar’s Policy.
• Thus, there is no Shari’ah restriction on Publication or non-publication of any fatwa.
• But, my personal understanding, it is better to publish the Fatwas / Shari’ah decisions for public interest with an objective of Ummatic Skill development with Shari’ah rulings (Fatwa). Such attempt may contribute to better understanding of Shari’ah standard, operations, unity, mutual respect and dynamic growth in the Islamic financial industry with right Maqasid al-Shari’ah.
ISSUE 4:
A practical market raised a personal question to me that, Do you undertake a Shari’ah Review? if so can you provide details on how extensive and often in it?
SOLUTION:
• Yes …. I undertake both Shari’ah Review and Shari’ah Audit as well while some occasions am assigned to be the leader of the Shari’ah Review / Shari’ah Audit team on different products and operations in different jurisdictions.
• Details Mechanisms on Shari’ah Review or Audit exercise with authorities and authenticities may be provided in writing or on face to face dialogue on only by official arrangement so that the professional standard is observed.
ISSUE 5:
Should the Shari’ah board have a say in the moral functioning and activities of the organization to reflect the principles of Takaful?
SOLUTION:
• Shari’ah and ethics are interrelated or rather complement to each other. Thus, a Shari’ah board is not responsible to provide Shari’ah rulings only, but also the Moral as well as spiritual aspects affecting the operators, participants, shareholders, decision makers and the operations.
• But, Shari’ah Board’s responsibility with Shari’ah Rulings is mandatory by contract while the spiritual and moral concern and contributions to Takaful operators or operations is a directory task in general.
ISSUE 6:
In conventional insurance if there is a deficit, the shareholders provide an injection. In Takaful if there is a deficit the operator provides a Qard al-Hasan loan. As a loan it is an asset of the operator's fund, however in the Takaful fund it is accounted for as an injection. Is this the correct treatment?
SOLUTION:
• If the deficit takes place in the risk management (Tabarru’ / Waqf / Hibah / PSA) account of the Takaful Fund, the injection therein by the shareholders shall be a mandatory, which shall be treated as a Qardh al-Hasan (benevolent loan) refundable from the subsequent surplus of the risk management (Tabarru’ / Waqf / Hibah / PSA) account itself with no extra charge.
• But, if the deficit takes place in the investment account of the Takaful Fund, the injection therein by the shareholders shall be an option thus, once the inject takes place, which may either be with an arrangement of a package of Qardh al-Hasan (benevolent loan) refundable from the investment account itself with no extra charge, or as an Equity participation in the fund to enrich it with mutual terms and conditions between the shareholders and the operator for Participants.
ISSUE 7:
In some cases the Takaful operator pays out more in commissions to the direct agent than it has from the received from the Re-takaful operator (and Re-takaful is a high percentage of the risk). Is it fair that other participants pays for this deficit? what is the alternative?
SOLUTION:
• Participants in takaful practices pay the agreed contribution (Premium) but not liable to pay the commission to the agents appointed by the Takaful operator per se.
• Because of the contractual relation (Privity) between the Takaful operator and the Agents the Takaful operator shall be the one liable to pay the commission out of the received contributions to its agents in accordance with the commission payment policy of the operator.
• Meanwhile, the Re-takaful operator pays the commission to the Takaful operator is in fact the internal corporate policy of the Re-takaful operator. It is thus, irrelevant whether the amount of commission paid by the Re-takaful operator is lesser than the practices of Takaful operator. Because, they are two separate legal entities with their own respective policies.
• Furthermore, the commission paid by the Takaful Operator is generated from the agreed Contributions (Premiums) of the Participant. In this arrangement the privity of contract is between the Operator and the Participants over the Contributions (Premium) and, a separate Privity is between the Takaful Operator and the Agents over the Commission. Thus, no legal relationship exists between the Participants and the Agents per se.
• Therefore, if the Participants are required to pay more contributions, which is based on the underwriting policy, but this does not mean to top up the deficit of the fund caused by the extra payment of commission.
ISSUE 8:
For long tailed coverage, is it proper corporate governance for the operator to share in this surplus, when if the reserves are later increased causing losses, the operator will not share in these losses?
SOLUTION:
• There should not be any wrong if the operator share in the surplus as a form of service charge for managing the risk management fund.
• If in the event the contribution / premium rate is increased due to deficit in the risk management account caused by more claims, the operator shall not be liable to top up in the fund despite earlier sharing in the surplus.
• Despite the above phenomena, it is advisable for the operator not to share in the surplus in order to contribute to a sustainable existence of the risk management account while avoiding unexpected future deficit in the fund.
ISSUE 9:
Should the management / shareholders and Shari’ah board be more accountable? could this be done via an annual participants meeting?
SOLUTION:
• Since all three components of the corporate governance namely; the Shari’ah Board, the Management and the Shareholders are equally, but respectively accountable with Shari’ah compliance in all aspects of policies, procedures, technicalities, products, business, operation and management thus, it is utmost important for all to exchange mechanisms and share views in regular dialogues with day to day’s decisions , actions and achievement so to establish an atmosphere of harmonization, compliance, standardization while avoiding confusion and overlapping.
• It is therefore suggested here that,
(i) All three components namely; the Shari’ah Board, the Management and the Shareholders shall respectively on monthly basis hold corporate review or postmortem (muhasabah) session on three fundamental aspects :
(a) What have been planned?
(b) What have been performed? and
(c) What shall be done further?
(ii) Shari’ah board shall hold monthly session on decision making / Shari’ah solution to provide decisions / Shari’ah Solutions on all relevant aspect of the company. The decision shall be made with proper understanding (on relevant Dive Rulings, Shari’ah standard, Fiqh and other relevant policies) in accordance with applied Shari’ah principles and Divine spirit, which shall neither be in fear or in favor per se.
(iii) Shari’ah board shall not only to function in decision making but shall also undertake a monthly audit exercise to ensure the decided solutions have been carried out by the management in accordance with the Shari’ah spirit.
(iv) Shari’ah Board shall prepare a comprehensive annual report on total decisions with relevant facts and phenomena of the year, the Audit report on performance and future suggested plan affecting Shari’ah compliance.
(v) All three components (the Shari’ah Board, the Management and the Shareholders) shall hold an annual review session before the annual report is prepared.
(vi) Two components (the Shari’ah Board and the Shareholders) shall hold a combined annual General Meeting (AGM) with comprehensive postmortem, report presentation and future plan for the company. This shall be witnessed by the selected key Management team.
ISSUE 10:
Should policyholders have a say in the election of the Shari’ah Board? or should it be just a shareholders' decision?
SOLUTION:
• Policy holders may (if so wish) share their views on the selection of the Shari’ah board on a non-binding capacity.
• Shareholders shall have the capacity to decide on the nomination / selection of the Shari’ah Board facilitated by the Management, which shall be finally approved by the Central Bank or the Ministry of Finance or the Insurance Commission depending on the authority with locas standi in respective countries.
• This is because, the Shari’ah Board is not an employee but an independent authority, who is nominated by the company to an ultimate approval by the Regulatory authority of the country concern, to ensure the total Shari’ah compliance of the policies, technicalities, products, business, operations and all other relevant aspects and activities of the company.
• Furthermore, the decision, Shari’ah solution or opinion provided by the Shari’ah Board shall not be meant for the private interest, but for Public interest (Ummatic benefits) without fear or favor per se.
• Thus, neither the policy holders or the shareholders nor the management have the locas standi to elect any Shari’ah Board on their own comfort, but can only recommend, nominate and facilitate to the submission of the selected names to the right authority (Central Bank or alike) for the final approval to create an independent Shari’ah Authority for advising and facilitating the company’s activities in accordance with the Shari’ah Principles and the Divine standard.
ISSUE 11:
Is there a need to have a "participants' advocate" independent of the Takaful operator?
SOLUTION:
• It is not a mandatory but recommended to establish a “Participants’ Advocate” for furtherance facilities not only to participants but also to Takaful operator to enjoy over the Takaful scheme by holistic cooperative spirit.
• To have such a “Participants’ Advocate” may contribute to the followings:
(i) To have a sustainable transparence relationship between the Takaful Operator and the Participants;
(ii) Rights and obligations of all parties involved in the Takaful operations will be correctly observed in reality;
(iii) No unfair advantage nor unlawful gain will be expected over one another;
(iv) Underwritings, management, claims and distributions shall take place accurately (by complying the right Shari’ah spirit) without unjust enrichment;
(v) Contribute to a sustainable growth in the Takaful industry with holistic phenomena;
(vi) The true spirit of Takaful with brotherhood, solidarity and mutual cooperation will be honored in action and achievement.
(ii) Management shall shoulder an AMANAH (trust) in the total operation / management as per the Shari’ah decisions made by the Shari’ah Board. Thus, the Management is accountable based on the holistic Principles of TRUST (to themselves, to the Board of Directors and ultimately to ALLAH (swt) for the accurate operation of Activities in accordance with the Shari’ah Solutions provided by the Shari’ah Board.
(iii) Shareholders are accountable (to themselves, to Public and to ultimately ALLAH (swt), the almighty GOD) for the accurate observation and decision over the total Policies, products, mechanisms and operation of Activities complying with the Shari’ah rules and spirit.
ISSUE 2:
Should shareholders put Shari’ah compliance processes in place? is this more important if Management or Key Personnel is non-Muslim?
SOLUTION:
• Shareholders should concern over the total Shari’ah Compliance of the Policies and Activities in their capacity as the supreme technical and corporate decision makers.
• As far as the corporate operations are concerned, Shari’ah does not concern on the person, race, background, color or even one’s religion of the operator nor the shareholders, but Shari’ah concern is on POLICIES, SYSTEM, ACTION and ACHIEVEMENT, which shall be in total compliance with the Shari’ah Principles and Divine ethics. Therefore, if any personnel of the Management, BOD or Shareholders is a non-Muslim, which may not prevent one to offer Islamic Products so long one is with justifiably compliance with Shari’ah.
ISSUE 3:
As a Takaful or Re-takaful operator do you publish the activities (fatwa, rulings and guidelines) of the Shari’ah Board?
SOLUTION:
• As for the FATWA / rulings/ guidelines of the Shari’ah board in to day’s Islamic Financial environment, Some are published and some are not depending on the respective company / person / Mufti/ Scholar’s Policy.
• Thus, there is no Shari’ah restriction on Publication or non-publication of any fatwa.
• But, my personal understanding, it is better to publish the Fatwas / Shari’ah decisions for public interest with an objective of Ummatic Skill development with Shari’ah rulings (Fatwa). Such attempt may contribute to better understanding of Shari’ah standard, operations, unity, mutual respect and dynamic growth in the Islamic financial industry with right Maqasid al-Shari’ah.
ISSUE 4:
A practical market raised a personal question to me that, Do you undertake a Shari’ah Review? if so can you provide details on how extensive and often in it?
SOLUTION:
• Yes …. I undertake both Shari’ah Review and Shari’ah Audit as well while some occasions am assigned to be the leader of the Shari’ah Review / Shari’ah Audit team on different products and operations in different jurisdictions.
• Details Mechanisms on Shari’ah Review or Audit exercise with authorities and authenticities may be provided in writing or on face to face dialogue on only by official arrangement so that the professional standard is observed.
ISSUE 5:
Should the Shari’ah board have a say in the moral functioning and activities of the organization to reflect the principles of Takaful?
SOLUTION:
• Shari’ah and ethics are interrelated or rather complement to each other. Thus, a Shari’ah board is not responsible to provide Shari’ah rulings only, but also the Moral as well as spiritual aspects affecting the operators, participants, shareholders, decision makers and the operations.
• But, Shari’ah Board’s responsibility with Shari’ah Rulings is mandatory by contract while the spiritual and moral concern and contributions to Takaful operators or operations is a directory task in general.
ISSUE 6:
In conventional insurance if there is a deficit, the shareholders provide an injection. In Takaful if there is a deficit the operator provides a Qard al-Hasan loan. As a loan it is an asset of the operator's fund, however in the Takaful fund it is accounted for as an injection. Is this the correct treatment?
SOLUTION:
• If the deficit takes place in the risk management (Tabarru’ / Waqf / Hibah / PSA) account of the Takaful Fund, the injection therein by the shareholders shall be a mandatory, which shall be treated as a Qardh al-Hasan (benevolent loan) refundable from the subsequent surplus of the risk management (Tabarru’ / Waqf / Hibah / PSA) account itself with no extra charge.
• But, if the deficit takes place in the investment account of the Takaful Fund, the injection therein by the shareholders shall be an option thus, once the inject takes place, which may either be with an arrangement of a package of Qardh al-Hasan (benevolent loan) refundable from the investment account itself with no extra charge, or as an Equity participation in the fund to enrich it with mutual terms and conditions between the shareholders and the operator for Participants.
ISSUE 7:
In some cases the Takaful operator pays out more in commissions to the direct agent than it has from the received from the Re-takaful operator (and Re-takaful is a high percentage of the risk). Is it fair that other participants pays for this deficit? what is the alternative?
SOLUTION:
• Participants in takaful practices pay the agreed contribution (Premium) but not liable to pay the commission to the agents appointed by the Takaful operator per se.
• Because of the contractual relation (Privity) between the Takaful operator and the Agents the Takaful operator shall be the one liable to pay the commission out of the received contributions to its agents in accordance with the commission payment policy of the operator.
• Meanwhile, the Re-takaful operator pays the commission to the Takaful operator is in fact the internal corporate policy of the Re-takaful operator. It is thus, irrelevant whether the amount of commission paid by the Re-takaful operator is lesser than the practices of Takaful operator. Because, they are two separate legal entities with their own respective policies.
• Furthermore, the commission paid by the Takaful Operator is generated from the agreed Contributions (Premiums) of the Participant. In this arrangement the privity of contract is between the Operator and the Participants over the Contributions (Premium) and, a separate Privity is between the Takaful Operator and the Agents over the Commission. Thus, no legal relationship exists between the Participants and the Agents per se.
• Therefore, if the Participants are required to pay more contributions, which is based on the underwriting policy, but this does not mean to top up the deficit of the fund caused by the extra payment of commission.
ISSUE 8:
For long tailed coverage, is it proper corporate governance for the operator to share in this surplus, when if the reserves are later increased causing losses, the operator will not share in these losses?
SOLUTION:
• There should not be any wrong if the operator share in the surplus as a form of service charge for managing the risk management fund.
• If in the event the contribution / premium rate is increased due to deficit in the risk management account caused by more claims, the operator shall not be liable to top up in the fund despite earlier sharing in the surplus.
• Despite the above phenomena, it is advisable for the operator not to share in the surplus in order to contribute to a sustainable existence of the risk management account while avoiding unexpected future deficit in the fund.
ISSUE 9:
Should the management / shareholders and Shari’ah board be more accountable? could this be done via an annual participants meeting?
SOLUTION:
• Since all three components of the corporate governance namely; the Shari’ah Board, the Management and the Shareholders are equally, but respectively accountable with Shari’ah compliance in all aspects of policies, procedures, technicalities, products, business, operation and management thus, it is utmost important for all to exchange mechanisms and share views in regular dialogues with day to day’s decisions , actions and achievement so to establish an atmosphere of harmonization, compliance, standardization while avoiding confusion and overlapping.
• It is therefore suggested here that,
(i) All three components namely; the Shari’ah Board, the Management and the Shareholders shall respectively on monthly basis hold corporate review or postmortem (muhasabah) session on three fundamental aspects :
(a) What have been planned?
(b) What have been performed? and
(c) What shall be done further?
(ii) Shari’ah board shall hold monthly session on decision making / Shari’ah solution to provide decisions / Shari’ah Solutions on all relevant aspect of the company. The decision shall be made with proper understanding (on relevant Dive Rulings, Shari’ah standard, Fiqh and other relevant policies) in accordance with applied Shari’ah principles and Divine spirit, which shall neither be in fear or in favor per se.
(iii) Shari’ah board shall not only to function in decision making but shall also undertake a monthly audit exercise to ensure the decided solutions have been carried out by the management in accordance with the Shari’ah spirit.
(iv) Shari’ah Board shall prepare a comprehensive annual report on total decisions with relevant facts and phenomena of the year, the Audit report on performance and future suggested plan affecting Shari’ah compliance.
(v) All three components (the Shari’ah Board, the Management and the Shareholders) shall hold an annual review session before the annual report is prepared.
(vi) Two components (the Shari’ah Board and the Shareholders) shall hold a combined annual General Meeting (AGM) with comprehensive postmortem, report presentation and future plan for the company. This shall be witnessed by the selected key Management team.
ISSUE 10:
Should policyholders have a say in the election of the Shari’ah Board? or should it be just a shareholders' decision?
SOLUTION:
• Policy holders may (if so wish) share their views on the selection of the Shari’ah board on a non-binding capacity.
• Shareholders shall have the capacity to decide on the nomination / selection of the Shari’ah Board facilitated by the Management, which shall be finally approved by the Central Bank or the Ministry of Finance or the Insurance Commission depending on the authority with locas standi in respective countries.
• This is because, the Shari’ah Board is not an employee but an independent authority, who is nominated by the company to an ultimate approval by the Regulatory authority of the country concern, to ensure the total Shari’ah compliance of the policies, technicalities, products, business, operations and all other relevant aspects and activities of the company.
• Furthermore, the decision, Shari’ah solution or opinion provided by the Shari’ah Board shall not be meant for the private interest, but for Public interest (Ummatic benefits) without fear or favor per se.
• Thus, neither the policy holders or the shareholders nor the management have the locas standi to elect any Shari’ah Board on their own comfort, but can only recommend, nominate and facilitate to the submission of the selected names to the right authority (Central Bank or alike) for the final approval to create an independent Shari’ah Authority for advising and facilitating the company’s activities in accordance with the Shari’ah Principles and the Divine standard.
ISSUE 11:
Is there a need to have a "participants' advocate" independent of the Takaful operator?
SOLUTION:
• It is not a mandatory but recommended to establish a “Participants’ Advocate” for furtherance facilities not only to participants but also to Takaful operator to enjoy over the Takaful scheme by holistic cooperative spirit.
• To have such a “Participants’ Advocate” may contribute to the followings:
(i) To have a sustainable transparence relationship between the Takaful Operator and the Participants;
(ii) Rights and obligations of all parties involved in the Takaful operations will be correctly observed in reality;
(iii) No unfair advantage nor unlawful gain will be expected over one another;
(iv) Underwritings, management, claims and distributions shall take place accurately (by complying the right Shari’ah spirit) without unjust enrichment;
(v) Contribute to a sustainable growth in the Takaful industry with holistic phenomena;
(vi) The true spirit of Takaful with brotherhood, solidarity and mutual cooperation will be honored in action and achievement.
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