In Malaysia the operation of Takaful is licensed and regulated by the Takaful Act 1984. The Act was specially promulgated and passed by the Malaysian Parliament with a view of ensuring that Takaful as a sector within the Islamic financial system would grow in an orderly manner. The insurance industry in Malaysia is licensed and regulated by a separate act. At present, the supervisory authority vested under the Takaful Act is the Central Bank of Malaysia (Bank Negara Malaysia) whereby the Governor of the Bank is also the Director General of Takaful.
Underlining the importance of complying with the Religion of Islam, for example the Memorandum and Articles of Association of Takaful Malaysia prefaces that "all businesses of the Company will be transacted in accordance with Islamic principles, rules and practices". In this respect Section 8, Takaful Act 1984 states that...
"...3(a)A Religious Supervisory Council, whose members would be made up of Muslim religious scholars in the country, shall be established to advise the Company on the operations of its Takaful business in order to ensure that they do not involve any element which is not approved by the Religion of Islam..."
Accordingly, in the Articles of Association of the Memorandum there is a provision which specifies that...
"...(5)The Director General shall also refuse to register an applicant unless he is satisfied--
(b)that there is in the Articles of Association of the Takaful operator concerned provision for the establishment of a Shariah Supervisory Council to advise an operator on the operations of its Takaful business in order to ensure that it does not involve in any element which is not approved by the Shariah..."
If profit of the Takaful business has to be shared with Participants how would the company or Takaful operator make money ? Normally, the shareholders or investors would wish to enjoy the return on their investments from payment of dividends. However, dividends can only be paid when the company makes profit. The principal activities of Takaful Malaysia are the provision and management of Family Takaful Business and General Takaful Business. Takaful Malaysia has established appropriate financial instruments to manage its level of investment return to be shared with its participants (Sahibul Maal).
Reflecting its principal activities, Takaful Malaysia manages the following funds :-
- Family Takaful Fund under the Family Takaful Business;
- General Takaful Fund under the General Takaful Business.
These Takaful funds are kept separate from the Shareholders' Fund which was originally funded wholly by the paid-up capital.
Generally, key sources of income are as follows :-
- profits from the investment of its Shareholders' Fund;
- its share of profits from the management of both the Family Takaful Business and the General Takaful Business in accordance with the profit-sharing agreement. Wakalah fees paid under the Wakalah contract for Takaful Malaysia act as the agent (or Wakil) to manage Takaful funds on the behalf of participants.
The respective shares of profit attributable to the company and Wakalah fee are credited into the Shareholders' Fund as the Company's total income. Profit or loss will be determined after deducting the Company's operating expenses.