Islamic Insurance (Takaful) Models and Their Accounting Dichotomy

By Mohd Ma’Sum Billah, PhD and Yousef Abdullah Basodan, PhD

Abstract

Islamic Insurance (Takaful) which is similar to the conventional insurance has its own specific procedures and business discipline. It is governed in Malaysia by the Takaful Act 1984[1] and conventional Insurance Act 1963[2]. The Islamic Insurance (Takaful) and Insurance business are supervised by Bank Negara Malaysia. In Saudi Arabia, it is supervised by Saudi Arabian Monetary Agency (SAMA) and governed by the Law on Supervision of Cooperative Insurance Companies that was issued by the Royal Decree number (32/m) in 2003, in addition to a number of rules and regulations.3^. To meet the specific rules and requirements in accordance with Islamic business concept, Islamic Insurance (Takaful) has developed its own specialized accounting system. Islamic Insurance (Takaful) Accounting System complies generally with the existing International Accounting Standard (IAS)64. But most importantly, the system applied is in accordance with Islamic requirements as mentioned in the holy Qur’an: “So establish weight with justice and fall not short in the balance” 5

[1]         The Takaful Act (Malaysia) 1984 (Replaced by the Islamic Financial Services Act 2013).

[2]         The Insurance Act (Malaysia) 1996 (Replaced by the Financial Services Act 2013).

3         Law on Supervision of Cooperative Insurance Companies (SAMA, Saudi Arabia) 1424H – 2003G.

4         International Accounting Standard (IAS).

5         Surah al-Rahman: 9.