Takaful investment portfolios abdulrahman khalil tolefat

Takaful Investment Portfolios Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more For a list of available titles, visit our Web site at www.WileyFinance.com Takaful Investment Portfolios A Study of the Composition of Takaful Funds in the GCC and Malaysia ABDULRAHMAN KHALIL TOLEFAT MEHMET ASUTAY Cover image: ©Ranjan Chari/iStockphoto Cover design: Leiva-Sposato Copyright ©2013 by John Wiley & Sons Singapore Pte Ltd Published by John Wiley & Sons Singapore Pte Ltd Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte Ltd., Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: 65–6643–8000, fax: 65–6643–8008, e-mail: enquiry@wiley.com Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or 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978–1–118–38549–4 (ePub) Typeset in 10/12 pt SabonLTStd by MPS Limited, Chennai, India Printed in Singapore by Ho Printing Pte Ltd., Singapore 10 Contents Preface ix Acknowledgments xiii List of Abbreviations xv CHAPTER Introduction Rationale for Researching Investment Portfolio Composition of Takaful Companies Aims and Objectives Scope and Delimitation Research Methodology Overview of the Book CHAPTER Insurance and Islamic Law: An Introduction to Takaful The Concept of Insurance in Islamic Sources Views of Contemporary Jurists on the Insurance Contract Arguments Regarding the Validity or Invalidity of Commercial Insurance Conclusion Notes CHAPTER Takaful Models and Implementations, Trends, and Developments Takaful Undertaking Principles Islamic Insurance Operational Models Differences Between Takaful and Other Forms of Insurance Trends and Developments in the Takaful Industry Conclusion Notes 1 6 9 13 15 27 28 31 31 32 44 45 52 53 v CONTENTS vi CHAPTER Research Methodology Methodological Shortcomings of the Literature Research Strategy Research Questions, Objectives, and Hypotheses Research Design Sampling Strategy Research Methods Quantitative Data Analysis Qualitative Data Analysis Conclusion Notes CHAPTER Exploring Investment Behaviours and Investment Portfolios of Takaful Operating Companies in the GCC and Malaysia Total Investment Portfolio of Takaful Operating Companies for All Funds Investments in Shareholders’ Fund General Fund Family Funds Conclusion CHAPTER Locating the Differences Between Actual and Desired Investment Portfolios Shareholders’ Fund General Fund Family Funds Conclusion CHAPTER Contextualising the Findings Overall Portfolio Compositions Investment Accounts Investment in Sukuks 55 56 56 57 58 59 61 68 70 70 71 73 74 75 86 94 97 99 101 106 111 114 117 117 125 129 Contents Investment in Equities Return on Investment (ROI) Mutual Funds/Unit Trusts Real Estate Investments Conclusion Notes CHAPTER Conclusion and Recommendations vii 134 138 140 141 142 143 145 Main Findings of the Study Recommendations of the Study Research Limitations Recommendations for Future Research Conclusion Note 145 149 153 153 154 155 Appendix A 157 Appendix B 163 Appendix C 215 Bibliography 217 About the Authors 223 Index 225 220 BIBLIOGRAPHY Fisher, O., and Taylor, D (2000) Prospects for Evolution of Takaful in the 21st Century Retrieved April 22, 2005, from http://www.baj.com.sa Fupuy, C., Katsipis, V., and Kwan, B (2007) Takaful (Shari’ah-Compliant) Insurance Companies: Best's Rating Methodology A M Best Company Government of Malaysia (1985) Law of Malaysia, Act 312: Takaful Act 1984 Retrieved June 2, 2008, from http://www.bnm.gov.my/index php?ch=14&pg=17&ac=18&full=1 Grewal, B (2008) “Islamic Finance Industry: Trends, Opportunities and Future Direction.” Islamic Finance Industry and IIFM Briefing Session (Series II), Bahrain, May Retrieved June 11, 2008, from http://www iifm.net Haron, A (2005) “Risk-based Capital: A General Overview of the Application for Takaful.” International Convention on Takaful and Retakaful, November 24–25, Kuala Lumpur, Malaysia Hassan, H H (1979) “Hukm Al-Shariah Al-Islamiyah fi Uqud Al-Tamin (The Shari’ah Law Opinion Regarding Insurance).” Al-Qahirah, Dar Al-I’tisam, Egypt IAIS and IFSB (2006) Issues in Regulation and Supervision of Takaful (Islamic Insurance) Retrieved June 11, 2008, from http://www.ifsb.org/ index.php?ch=4&pg=140 Ibn Abidin, M (1966) Hashiat Raad Al-Muhtar’ala Al-Durr Al-Mukhtar, 2nd ed Al-Bolagy Print, Cairo, Egypt Ibn Taymiyyah (1994) “Al-Qawa’ad Al-Nuraniyah Al-Fiqhiyah” Bayrut, Dar Al-kotob Al-Elmiyah Iqbal, M., and Ahmad, A (2005) Islamic Finance and Economic Development New York: Palgrave Macmillan, USA Iqbal, Z., and Mirakhor, A (2007) An Introduction to Islamic Finance: Theory and Practice Singapore: John Wiley & Sons (Asia) Pte Ltd Ismail, A (n.d.) Shari'ah Framework of Takaful Retrieved April 26, 2005, from http://www.icmif.org Jaffer, S (2004) Islamic Asset Management: Forming the Future for Shari’ahCompliant Investment Strategies London: Euromoney Books, UK Jaffer, S (2008) Islamic Insurance: Trends, Opportunities and the Future of Takaful Euromoney Institutional Investor Plc, London, UK Janahi, A (1993) “Life Insurance and Islamic Takaful.” American Journal of Islamic Finance, Vol 6, No 2, pp 3–5, CA, USA Jassim, A (1982) “A Study of Life Insurance Companies Investment Policies and the Factors Influencing Their Investment Decisions.” University of Georgia, 188 Kaleem, H (2008) “Takaful Based on Waqf: A Pakistani Experience.” International Conference on Cooperative Insurance in the Framework of Waqf, March 4–6, International Islamic University Malaysia Bibliography 221 Kamali, M H (2000) Islamic Commercial Law Cambridge: The Islamic Texts Society Kassim, Zainal (2005) “The Importance of Effective Pricing in General Takaful.” International Convention on Takaful and Retakaful, November 24–25, Kuala Lumpur, Malaysia Khorshid, A (2004) Islamic Insurance: A Modern Approach to Islamic Banking London: Routledge Curzon, UK Mawlawi, F (1996) “Nizam Al-Taim Wa-Mawqaf Al-Shariah Minh (Insurance System and Shari’ah Position from This Contract).” Beurit, Mu’assas’at Al-Rayan, Labanon Maysami, R., and Kown, W (n.d.) “An Analysis of Islamic Takaful Insurance: A Cooperative Insurance Mechanism.” Melhim, A (2002) “Al-Tamin Al-Islami (Islamic Insurance).” Amman, Dar Al-A’alam, Jordan Melhim, Ahmed (2004) “Ieadat Al-Tamin (Reinsurance).” Amman, Dar Al-Nafaes, Jordan Mervyn, K (2005) “Wealth Creation Through Takaful (Islamic Insurance).” International Conference on Islamic Wealth Management Organized by School of Government and International Affairs, University of Durham and IRTI-Islamic Development Bank, UK Moghaizel, F (1991) Insurance in Light of Islamic Legal Principles Department of Law, University of London, p 364 Moody’s (2008) 2007 Review & 2008 Outlook: Islamic Finance London: Moody’s Rating Agency Mudkor, M S (1975) “Uq’ad Al-Tamin Wa-ma Hikmoha fi Al-Fiqh Al-Islami (Insurance Contract and the Opinion of Shari’ah from this Contract).” Al-Arabi, Vol 195, pp 20–24 Muslehuddin, M (1969) Insurance and Islamic Law Islamic Publication Limited, Lahore, Pakistan Patel, S (2005) Takaful and Poverty Alleviation Retrieved April 26, 2005, from http://www.icmif.org Patel, S (2004) “Takaful and Poverty Alleviation” European Economic Review, Vol 48, No 5, pp 1–21 Rahman, A (1979) Banking and Insurance: Economic Doctrines of Islam, Vol London: The Muslim Schools Trust, UK Sadiq, C (1995) “Islamic Insurance (Takaful): Concept and Practice,” Encyclopedia of Islamic Banking and Insurance Institute of Islamic Banking and Insurance, London, UK, pp 197–208 Sah’ih Muslim (1998), ed L Al-Qushay’ri (Lebanon: Dar Al-Kutub Al-Ilmiyag) Siddiqi, M N (1985) Insurance in an Islamic Economy Leicester: The Islamic Foundation, UK 222 BIBLIOGRAPHY Swiss Reinsurance Company, (1999) “Are Mutuals an Endangered Species?” sigma No 4/1999, Zurich, Switzerland Swiss Reinsurance Company, Sigma (2000) “Asset-Liability Management for Insurers,” No 6/2000, Zurich, Switzerland Syarikat Takaful Malaysia (2002a) Profit Sharing for General Takaful Retrieved from http://www.takaful-malaysia.com Syarikat Takaful Malaysia (2002b) Takaful Provide Profit Sharing Retrieved from http://www.takaful-malaysia.com Syarikat Takaful Malaysia (2002c) Takaful: Basis of Islamic Insurance Retrieved from http://www.takaful-malaysia.com Takaful Re (2006) Takaful Annual Report Retrieved June 15, 2006, from http://www.takaful-re.ae/en/TRL_annual_report_06.pdf Taylor, Dawood (2005) “Bank Assurance in Takaful.” The 2nd Middle East Insurance Forum, March 8–9, Manama, Kingdom of Bahrain Vogel, F., and Hayes, S (1998) Islamic Law and Finance Religion: Risk and Return Boston: Klumer Law International, USA Warde, E (2000) Islamic Finance in the Global Economy Edinburgh: Edinburgh University Press, UK Wilson, R (1984) Islamic Business: Theory and Practice London: The Economist Intelligence Unit, UK, p 75 About the Authors DR ABDULRAHMAN KHALIL TOLEFAT Dr Abdulrahman Khalil Tolefat began his career in the fast-growing financial services field in Bahrain with the Central Bank of Bahrain (CBB), formally known as the Bahrain Monetary Agency He held various positions in the CBB and had extensive exposure to Islamic finance and takaful In 2008, Dr Tolefat became the chief executive officer of Allianz Takaful in Bahrain, the global hub for Islamic Insurance (Takaful) of Allianz Group In 2010, he was promoted to the chairman of Allianz Takaful In May 2011, Dr Tolefat started an investment firm called ITQAN Financial Services (regulated by the CBB) with some high-net-worth investors and became the chairman and managing director of the company Dr Tolefat is a distinguished scholar in the field of takaful and has delivered lectures and workshops in many international professional and academic conferences As a member of various committees and boards in the financial field, he has played an instrumental role in imparting international standards to Islamic banking and takaful companies He was a member of the CBB Committee that developed the Insurance Rulebook in coordination with PricewaterhouseCooper and a member of the working group between the International Association for Insurance Supervisors (IAIS) and the Islamic Financial Services Board (IFSB) His articles on takaful-related topics have appeared in various publications Dr Tolefat pursued higher education after his graduation from the University of Bahrain He received his MBA from the prestigious DePaul University (US) with flying colours, and he graduated from the renowned Durham University (UK) with a PhD in Islamic finance DR MEHMET ASUTAY Dr Asutay is a Reader in Middle Eastern and Islamic Political Economy and Finance at the School of Government and International Affairs, Durham University He is the director of the Durham Doctoral Training Centre for Islamic Economics and Finance; the course director of the MSc in Islamic Finance and MSc in Islamic Finance and Management programmes at the 223 224 ABOUT THE AUTHORS Durham University Business School; and the director of the Durham Islamic Finance Summer School He mainly teaches the subjects of Islamic political economy; Islamic finance, and Middle Eastern political economy, and supervises masters and doctoral research on various aspects of Islamic moral economy; Islamic finance; political economy of the Middle East, Turkey, and the Kurds; and economic development–related subjects His articles on his research interests have appeared in various journals; and his books on political economy and Islamic economics and finance will appear next year from various publishers He is the managing editor of the Review of Islamic Economics, and is the associate editor of the American Journal of Islamic Social Sciences, and in the editorial advisory board of the International Journal of Islamic and Middle Eastern Finance and Management He is the honorary treasurer of the BRISMES; the treasurer of the International Association for Islamic Economics (IAIE); and the executive member of the Association of Muslim Social Scientists (AMSS) London, UK E-mail: mehmet.asutay@durham.ac.uk Index AAOIFI, 38, 71n1 Abdu, Sheikh Mohamed, 14, 28n4 Africa, growth trends in, 50 Agent (wakeel), in wakalah model, 33 Ahadeeth: gharar and, 16 and validity of insurance concept, 10 Ajar daman al-wadiah (fee on guarantee of deposit), and validity of insurance concept, 13–14, 24–25 Al-aqilah (blood money), and validity of insurance concept, 11, 25, 27 Al-Attar (professor), 22 Al-Dariar (professor), 22, 43–44 Al-kafalah (bailment), and validity of insurance concept, 12, 13–14, 25, 27 Al-Khafif, Sheikh Ali, 12, 20, 29n16 Allah, scholarly opinions about insurance, Shari’ah law, and, 10–11, 12, 18, 26 Allianz SE, 2, 52, 154 Al-muwalah (clientage with friendly cooperation), and validity of insurance concept, 12, 24–25, 27 Al-Sanusi, Ahmed, 12 Al-wa’ad al-mulzim ind al-malikiyah (promise according to the Malaki school), and validity of insurance concept, 12, 25 Al-wasyah principle, 26 Al-Zarqa, Mustafa, 12, 19, 20–21, 28, 29n18 American Insurance Group, 2, 52, 154 Asaria, Iqbal, x Asset bases See Investment portfolio entries Bahrain, 60, 64 regulations and, 143, 143n3, 144n9, 146, 150, 154 Bailment (al-kafalah), and validity of insurance concept, 12, 13–14, 25, 27 Bank Negara Malaysia (BNM), regulations and, 131, 132, 143n3, 146, 148, 150–151 Banker, The, ix Bin Malik, Anas, 11 Blood money (al-aqilah), and validity of insurance concept, 11, 25, 27 Bukhit, Sheikh Mohamed, 14 Capital, role of, GCC and Malaysia compared, 120–121, 147 Car insurance, 15 Central Bank of Bahrain, rulebook of, 35, 143n3, 144n9, 146 Charitable funds, and validity of insurance concept, 24 225 226 Clientage with friendly cooperation (al-muwalah), and validity of insurance concept, 12, 24–25, 27 Commercial insurance, differs from takaful, 45, 46–48 Commercial insurance, Shari’ah and, 15–27 gharar and, 16–19 ibaha and, 22, 29n17 maysir and, 21–22 other insurance contract analogies, 22–26 riba and, 19–21 Commutative (muawadah) contract, 25 gharar and, 16–17 Consensus (ijma), and validity of insurance concept, 11, 27 Contemporary jurists, on validity of insurance concept, 13 individual judgment basis, 13–15 unanimous decision basis, 15 Currency pegs: exchange rate trends, 215 General funds and, 122, 129 investment accounts and, 146, 152 Shareholders’ funds and, 139 Daru’rah (necessity), and validity of insurance concept, 26 Debt, sale of debt for, and validity of insurance concept, 24, 28 Deferred payments, riba and, 19, 21 Deficits: in mixed models, 39 in mudarabah model, 38, 42 in Sudanese model, 44 in wakalah model, 35–36 INDEX Dhaman khatar altariq (risk on the highway), and validity of insurance concept, 12 Dhaman khatat al-tariq (risk on the highway), and validity of insurance concept, 13–14, 25 Donation, takaful and concept of, 31–32 Education, takaful growth and cost of, 51 Equities: Family funds, 95, 96, 212 Family funds, actual versus desired investments, 112–113 Family funds, GCC and Malaysia compared, 124, 138 General funds, 86, 89–91, 198–199, 202–203 General funds, actual versus desired investments, 107–108 General funds, GCC and Malaysia compared, 122–124, 136–138, 143, 147 Shareholders’ funds, 75, 76, 79–80, 179, 180, 183–184 Shareholders’ funds, actual versus desired investments, 102–103 Shareholders’ funds, GCC and Malaysia compared, 118–119, 120, 134–136, 143 Ernst & Young ‘s World Takaful Industry Report (2012), ix, 51 Exchange rate trends, 215 Family funds: expected growth in, research study aims and objectives, 4–5 underwriting of risk by, 3–4 Family funds, investment portfolios, 73–75, 94–97, 208–209 Index equities, 95, 96, 212 investment accounts, 95–96, 210 mutual funds/unit trusts, 97 other investments, 97, 212, 213 real estate investments, 96–97 return on investment, 97 subsidiaries, 97 sukuk, 95–96, 211 Family funds, investment portfolios, actual versus desired, 100, 111–115 equities, 112–113 mutual funds/unit trusts, 113 real estate investments, 113 short-term investments, 113–114 sukuk, 111–112 Family funds, investment portfolios, GCC and Malaysia compared equities, 124, 138 investment accounts, 124, 129 mutual funds/unit trusts, 124, 141 real estate investments, 124, 142 research findings, 145–146 return on investment, 140 subsidiaries, 124 sukuk, 124, 133–134, 142–143, 148 Family takaful models, 39–42 mudarabah contract, mixed, 42, 43 mudarabah contract, pure, 41–42 wakalah model, mixed, 42, 43 wakalah model, pure, 40–41 Fatwa (decree), life insurance and, 14, 28n4 Fee on guarantee of deposit (ajar daman al-wadiah), and validity of insurance concept, 13–14, 24–25 Fiqh Council of the World Muslim League, 11 227 First Conference on Islamic Economics (1976), 15 First International Conference for the Islamic Economy, 11 First Symposium on Islamic Jurisprudence (1972), 15 Free arrangement (ibaha), and validity of insurance concept, 22, 29n17 Gambling (maysir), and validity of insurance concept, 21–22, 28 GCC See Gulf Cooperation Council General funds: expected growth in, research study aims and objectives and, 4–5 underwriting of risk by, 3–4 General funds, investment portfolios, 73–75, 86–94, 189–193 equities, 86, 89–91, 198–199, 202–203 investment accounts, 86–87, 89, 194, 195, 202–203 mutual funds/unit trusts, 93 other investments, 93 real estate investments, 92–93 return on investment, 93–94 subsidiaries, 93 sukuk, 86–87, 91–92, 196, 197 General funds, investment portfolios, actual versus desired, 100, 106–110, 114–115 equities, 107–108 mutual funds/unit trusts, 108–109 real estate investments, 109–110 short-term investments, 110 sukuk, 106–107 228 General funds, investment portfolios, GCC and Malaysia compared, 121–124, 143 equities, 122–124, 136–138, 143, 147 investment accounts, 122–124, 127–129 mutual funds/unit trusts, 141 real estate investments, 122–124, 141–142, 147 research findings, 145 return on equity, 123, 147 return on investment, 139–140 sukuk, 121–124, 128, 131–133, 147–149 General takaful models, 33–39 mudarabah contract, mixed, 38–39 mudarabah contract, pure, 36–38 wakalah contract, mixed, 38–39 wakalah contract, pure, 33–36 Gharar (uncertainty): concept of donation and, 32 four types of, 17–18 juala and, 25, 26 salam contract and, 23–24 segregation of funds and, 31, 32 and validity of insurance concept, 13, 16–19, 28 Governance, study recommendations, 150 Gulf Cooperation Council (GCC) region See also Family funds, GCC and Malaysia compared; General funds, GCC and Malaysia compared; Shareholders’ funds, GCC and Malaysia compared growth trends, ix, 1, 2, 50–51 research study scope and, 5–6 INDEX Hadith of the Prophet, riba and, 19, 20, 29n15 Hannover Re, 2, 52, 154 Health insurance, made mandatory in Saudi Arabia, 51 Higher Council of Saudi Ulemas, 11, 13, 15 Higher Shari’ah Supervisory Council (HSSC), in Sudan, 43 IAIS (International Association of Insurance Supervisors), 52, 150 Ibaha (free arrangement), and validity of insurance concept, 22, 29n17 Ibn Abidin, 13 Ibn Taymiyyah, 16, 29n17 Ijarah (leasing), and validity of insurance concept, 29n18 Ijma (consensus), and validity of insurance concept, 11, 27 Incentive (performance) fee, in wakalah model, 34–35, 36 Indian sub-continent, growth trends in, 50 Individual judgments, and validity of insurance concepts and, 13–14 summary of positions, 14–15 Individual reasoning based on analogy (quyais), and validity of insurance concept, 10 International Association of Insurance Supervisors (IAIS), 52, 150 Investment accounts: Family funds, 95–96, 210 Family funds, GCC and Malaysia compared, 124, 129 General funds, 86–87, 89, 194, 195, 202–203 229 Index General funds, GCC and Malaysia compared, 122–124, 127–129 research findings, 146–147 riba in, 19 Shareholders’ funds, 75, 76, 78, 176 Shareholders’ funds, GCC and Malaysia compared, 118, 119, 120, 125–127 Investment portfolios, 73–98, 164–165, 214 Family funds, 73–75, 94–97, 208–209 General funds, 73–75, 86–94, 189–193 Shareholders’ funds, 73–86, 167–176 Investment portfolios, actual versus desired, x, 1, 99–115 Family funds, 100, 111–115 General Funds, 100, 106–110, 114–115 hypothesis of study, 100–101 Shareholders’ funds, 100, 101–105, 114–115 Investment portfolios, GCC and Malaysia compared Family funds, 124 General funds, 121–124 overall composition, 117–124 Shareholders’ funds, 117–121 Islamic banking and finance (IBF), ix, study recommendations, 152 Islamic bonds See Sukuk Islamic Financial Services Board (IFSB), 52 Islamic Fiqh Academy, 11, 13, 15 Islamic jurisprudence schools, and validity of insurance concept, 11, 29n15 Islamic Research Institution, 1965 conference, 15 Juala, and validity of insurance concept, 25–26 Jurisprudential analogy (qiyas), and validity of insurance concept, 11–12 Kuwait, 60 Law of large numbers, and validity of insurance concept, 11, 25, 27 Leasing (ijarah), and validity of insurance concept, 29n18 Levant, growth trends in, 50 Liability insurance, 15 Life insurance, and validity of insurance concept, 14, 15, 26 Lloyd’s, 2, 52 Malaysia See also Family funds, GCC and Malaysia compared; General funds, GCC and Malaysia compared; Shareholders’ funds, GCC and Malaysia compared growth and development of takaful in, ix, 2, 50–51, 52 research study scope and, 5–6 Management expenses, in mudarabah model, 37 Mann-Whitney U Test: for 2002, 185, 204 for 2003, 186, 205 for 2004, 187, 206 for 2005, 188, 207 General funds, 90–91, 93 research methodology and, 6, 69–70, 74 Shareholder’s funds, 78, 80, 81, 83, 84, 85 INDEX 230 Margin requirements, study recommendations, 150 Marine insurance (suwkrah), 13–14, 15 Maslahah mursalah (public interest), and validity of insurance concept, 10, 12, 26 Maysir (gambling), and validity of insurance concept, 21–22, 28 Mirath principle, 26 Mith Ghamr Bank, ix Moghaizel, F J., 21, 26 Money insurance, 15 Moody’s Report, Muawadah (commutative) contract, 25 gharar and, 16–17 Mudarabah (profit-loss-sharing) contract: Family funds, 41–42, 42, 43 General funds, 36–38, 36–39 life insurance and, 14, 28n4 and validity of insurance concept, 23 Muhammad, and validity of insurance concept, 10 Munich Re, 52, 154 Murabaha model: General funds, 93 Shareholders’ funds, 85 Mutual funds/unit trusts: Family funds, 97 Family funds, actual versus desired investments, 113 Family funds, GCC and Malaysia compared, 124, 141 General funds, 93 General funds, actual versus desired investments, 108–109 General funds, GCC and Malaysia compared, 141 Shareholders’ funds, 76, 82–83 Shareholders’ funds, actual versus desired investments, 103–104 Shareholders’ funds, GCC and Malaysia compared, 119, 120, 140–141 Mutual insurance, differs from takaful, 45, 48 National Takaful Company, 36, 52 Necessity (daru’rah), and validity of insurance concept, 26 Nonchalance and negligence (taw’akul), 10–11 Noncommutative (tarbraat) contract, 18 Non-Muslim customers, 52 Oman, Omar (second caliph), 11 Organization of Islamic Conferences (OIC), 11 Partial donation, takaful and concept of, 32 Participant’s fund (PF), 39–42 Participant’s risk fund (PRF), 39–42 Performance (incentive) fee, in wakalah model, 34–35, 36 Profit: distinguished from surplus, 38 in mixed models, 39 Profit-loss-sharing (mudarabah) contract: Family funds, 41–42, 43 General funds, 36–39 life insurance and, 14, 28n4 and validity of insurance concept, 23 Promise according to the Malaki school (al-wa’ad al-mulzim ind al-malikiyah), and validity of insurance concept, 12, 25 Index Public interest (maslahah mursalah), and validity of insurance concept, 10, 12, 26 Qard hassan, 45, 121, 126 in mudarabah model, 38, 42 in Sudanese model, 44 in wakalah model, 35 in waqf model, 44 Qatar, 60, 63–64 Qatar Islamic Insurance Company, 52 Qiyas (jurisprudential analogy), and validity of insurance concept, 11–12 Qur’an: riba and, 19 and validity of insurance concept, 10, 11, 13, 16, 27 Quyais (individual reasoning based on analogy), and validity of insurance concept, 10 Rab al-mal, in mudarabah model, 36, 38 Rab al-mall, 23 Real estate investments: Family funds, 96–97 Family funds, actual versus desired investments, 113 Family funds, GCC and Malaysia compared, 124, 142 General funds, 92–93 General funds, actual versus desired investments, 109–110 General funds, GCC and Malaysia compared, 122–124, 141–142, 147 Shareholders’ funds, 75, 84 Shareholders’ funds, actual versus desired investments, 104–105 231 Shareholders’ funds, GCC and Malaysia compared, 119, 120, 142 Regulatory issues: Bank Negara Malaysia and, 131, 132, 143n3, 146, 148, 150–151 Central Bank of Bahrain and, 35, 143n3, 144n9, 146 research findings, 146, 148 research methodology, 63–64 study recommendations, 149–151 trends in, 52 Reinsurance, 52, 154 Repurchase agreement (REPO) contract, 150, 152 Research study: findings, 145–149 future research directions, 153–154 Research study methodology: data collection difficulties, 67 investment aims and objectives, 4–5, 55 investment rationale, 1–4 limitations, 153 longitudinal and cross-sectional design of research, 55, 58–59 qualitative data analysis, 70 quantitative data analysis, 68–70 questionnaire, 64–66, 157–162 questions, objectives, hypotheses, 57–58 regulatory issues and, 63–64 sampling strategy, 59–63 scope and delimitation and, 5–6 shortcomings of existing research, 55, 56 triangulation strategy, 6, 55, 56–57, 61, 63–67 232 Research study recommendations: Islamic banks and windows, 152 regulatory issues, 149–151 takaful operating companies, 151–152 Re-takaful, 52, 154 Return on equity (ROE), GCC and Malaysia compared, 123, 147 Return on investment (ROI): Family funds, 97 Family funds, GCC and Malaysia compared, 140 General funds, 93–94 General funds, GCC and Malaysia compared, 138–140 Shareholders’ funds, 85–86 Riba (usury): sarf contract and, 24 and validity of insurance concept, 11, 13, 16, 19–21, 27, 28 Riba al-fadel, 19, 20 Riba al-jahiliya, 19, 29n15 Riba al-nasi’ah, 19, 20, 29n15 Risk on the highway (dhaman khatar altariq), and validity of insurance concept, 12 Risk on the highway (dhaman khatat al-tariq), and validity of insurance concept, 13–14, 25 ROE (return on equity), GCC and Malaysia compared, 123, 147 ROI (return on investment): Family funds, 97 Family funds, GCC and Malaysia compared, 140 General funds, 93–94 General funds, GCC and Malaysia compared, 138–140 Shareholders’ funds, 85–86 Salam contract, 23–24 Sarf contract, 24, 28 INDEX Saudi Arabia: growth trends in, 50, 51 regulatory issues, 150 scope of study and, 5, 59–60 Saudi Arabian Monetary Agency (SAMA), 154 Second Islamic Jurisprudence week (1961), 15 Segregation of funds, as takaful principle, 31, 32 Shareholders’ funds, investment portfolios: equities, 75, 76, 79–80, 179, 180, 183–184 investment accounts, 75, 76, 78, 176 investment portfolios, 73–86, 167–176 mutual funds/unit trusts, 76, 82–83 other investments, 85, 181–182 real estate investments, 75, 84 research study aims and objectives and, 4–5 return on investment, 85–86 subsidiaries, 75, 83–84 sukuk, 76, 80–81, 177, 178 Shareholders’ funds, investment portfolios, actual versus desired, 100, 101–105, 114–115 equities, 102–103 mutual funds/unit trusts, 103–104 real estate investments, 104–105 short-term investments, 105 sukuk, 101–102 Shareholders’ funds, investment portfolios, GCC and Malaysia compared, 117–121, 143 equities, 118–119, 120, 134–136, 143 Index investment accounts, 118, 119, 120, 125–127 mutual funds/unit trusts, 119, 120, 140–141 real estate investments, 119, 120, 142 research findings, 145, 146 return on investment, 138–139 subsidiaries, 119, 120 sukuk, 119, 120, 126–127, 129–131, 148 Shari’ah (Islamic law) principles, takaful and, 9–30 commercial insurance prohibited see Commercial insurance, Shari’ah and contemporary jurists on, 13–15 operational models and, 32–33 and validity of insurance concept, primary sources, 9–12 and validity of insurance concept, secondary sources, 12 Shari’ah Supervisory Board (SSB), 33, 42 Short-term investments: Family funds, actual versus desired investments, 113–114 General funds, actual versus desired investments, 110 Shareholders’ funds, actual versus desired investments, 105 Siddiqi: riba and, 20 and validity of insurance concept, 18 South East Asia, growth trends in, 50 Sri Lanka, 52 Statistical Package for Social Science (SPSS) software, Subsidiaries: Family funds, 97 233 Family funds, GCC and Malaysia compared, 124 General funds, 93 Shareholders’ funds, 75, 83–84 Shareholders’ funds, GCC and Malaysia compared, 119, 120 Sudan, 5, 31, 69 Sudanese takaful model, 42–44 Sukuk: Family funds, 95–96, 211 Family funds, actual versus desired investments, 111–112 Family funds, GCC and Malaysia compared, 124, 133–134, 142–143, 148 future research directions, 154 General funds, 86–87, 91–92, 196, 197 General funds, actual versus desired investments, 106–107 General funds, GCC and Malaysia compared, 121–-124, 128, 131–133, 147–149 growth trends in, 50–51 regulatory recommendations, 150–152 Shareholders’ funds, 76, 80–81, 177, 178 Shareholders’ funds, actual versus desired investments, 101–102 Shareholders’ funds, GCC and Malaysia compared, 119, 120, 126–127, 129–131, 148 Sunnah: gharar and, 16 riba and, 19 and validity of insurance concept, 10, 11, 13, 27 Surplus: profit distinguished from, 38 in wakalah model, 35 INDEX 234 Suwkrah (marine insurance), and validity of insurance concept, 13–14, 15 Swiss Re, 2, 52, 154 Syarikat Takaful Malaysia, 36 Tabarru (mutual assistance), as takaful principle, 31–32 Takaful: challenges facing, conventional insurance differences, 44–45 definitions of, 31 Family takaful models, 39–42 General takaful models, 33–39 growth and development of, ix–x, industry trends and developments, 45, 49–52 number of operating companies, 1–2 principles of, 31–32 recommendations of study, 151–152 Sudanese model, 42–44 waqf model, 44 Takaful Act 1984 of Malaysia, 31 Takaful Ikhlas, 33 Tarbraat (noncommutative) contract, 18 Tawakkel principle, 11 Taw’akul (nonchalance and negligence), 10–11 Theft insurance, 15 Triangulation strategy, in research methodology, 6, 55, 56–57, 61, 63–67 Unanimous decision, and validity of insurance concept and, 15 Uncertainty (gharar): concept of donation and, 32 four types of, 17–18 juala and, 25, 26 salam contract and, 23–24 segregation of funds and, 31, 32 and validity of insurance concept, 13, 16–19, 28 Uruf (custom): general takaful, 10 and validity of insurance concept, 26 U.S dollar, currency pegs and: exchange rate trends, 215 General funds, 122, 129 investment accounts and, 146, 152 Shareholders’ funds and, 139 Usury See Riba entries Wakalah fee: in mudarabah model, 37–38 in Sudanese model, 43 in wakalah model, 33–36, 40–41 Wakalah model: Family funds, 40–41, 42, 43 General funds, 33–36, 38–39 Wakeel (agent), in wakalah model, 33 Waqf model, 24, 44 Wilcoxon Signed-Rank Test, 6, 70 actual versus desired portfolios and hypothesis of study, 100, 114–115 General funds, actual versus desired investments, 108, 110 Shareholders’ funds, actual versus desired investments, 104 Yousuf (prophet), 10 Zakah, and validity of insurance concept, 24 ~StormRG~ ... our Web site at www.WileyFinance.com Takaful Investment Portfolios A Study of the Composition of Takaful Funds in the GCC and Malaysia ABDULRAHMAN KHALIL TOLEFAT MEHMET ASUTAY Cover image: ©Ranjan... Exploring Investment Behaviours and Investment Portfolios of Takaful Operating Companies in the GCC and Malaysia Total Investment Portfolio of Takaful Operating Companies for All Funds Investments... were 133 takaful operating companies in the world, of which 59 were located in the GCC market, which is the largest market for the takaful industry and represented TAKAFUL INVESTMENT PORTFOLIOS