Critics on IFSA

1. Single Licenced Takaful Business

Section 16 of IFSA - A licensed takaful operator, other than a licensed
professional retakaful operator, shall not carry on both family takaful
business and general takaful business.

The splitting of licenses between life and general takaful will bring
about major changes to the takaful industry. Takaful operators have
a five year time frame to undertake a feasibility assessment and
convert their existing composite licensed business into a specific
takaful business of their choice. It is envisaged that the separation
of the licence will pave the way for the presence of new niche
players while widening the scope of business for the existing
general takaful players. Takaful providers may now require more
capital if they decide to maintain both businesses. Experts presume
that operators will enter tie-ups or sell their licences if they are
unable to come up with the required capital.

2. Shariahs Governance
Section 28 (2) of IFSA For the purposes of this Act, a compliance with
any ruling of the Shariah Advisory Council in respect of any particular aim
and operation, business, affair or activity shall be deemed to be a
compliance with Shariah in respect of that aims and operations, business,
affair or activity
Section 29 of IFSA - Power of bank (BNM) to specify standards on
Shariah matters: BNM will issue specific standards on Shariah matters in
respect of the carrying on of business, affair or activity with the advice or
ruling of SAC.

All operations have to comply with decisions made by Shariah

Advisory Council (SAC) of Bank Negara Malaysia (BNM) and Shariah
Committee (SC) of Islamic financial institutions (IFIs). Failure to

comply with decisions made by SAC and SC may lead to Shariah

non-compliance, possibly effecting the asset values of the IFIs and
potential loss of investment or reinvestment income. It may also
result in fund withdrawals and cancellation of investment contracts
thus causing a decline in profits and performance of the IFIs which

will further affect public confidence in Islamic finance system

These requirements will add more strain on Takaful and reTakaful
operators. All the efforts in ensuring Shariah compliance increase
the firms operational costs. Thus, in principle, Takaful and reTakaful
firm should be able to charge higher prices than their conventional
counterparts. However, in reality this is often not possible, and by
this, it makes it more difficult for the firms to achieve the same
returns as conventional insurers.

3. Establish as Public Company

Section 287 of IFSA - A registered takaful operator under the repealed
Takaful Act 1984 which is a private company and is deemed to be a
licensed takaful operator under paragraph 284(1)(b), shall be converted
into a public company in accordance with the Companies Act 1965 within
twelve months from the appointed date or such longer period as may be
specified by the Minister, on the recommendation of the Bank, by notice in
writing to the licensed takaful operator upon its written application before
the expiry of the twelve month.

However, given the nature of mutual assistance in Takaful, it will be

more appropriate for the firm to be set up as co-operatives or
mutual. By being a public company, Takaful firms will become a
wholly commercial venture. Whilst this is not prohibited under
Shariah, it will be better if the Takaful companies have also the
option to set themselves up as co-operatives or mutual.

4. New Prudential Requirement

Section 90- 96 of IFSA

The IFSA has also implemented additional prudential requirements on

Takaful operators with regards to maintenance of various funds, assets
and risk management among others. It also makes the provision of Qard
(interest-free loan) compulsory in case of a deficit in the risk fund. This is
important to Takaful and reTakaful operators because it has an effect on
their reserves requirements. In principle, Takaful is meant to be a program
of mutual assistance between participants. With the requirement of a
compulsory Qard, Takaful becomes a risk transfer mechanism between
participants and operators just like conventional insurance