Shari'ah Supervisory Board (SSB) Requirements
Per: "A Shari'ah Supervisory Board shall be formulated for issuance of Fatawa (plural: Fatwa, i.e. juristic opinion) that are binding to the company, and establishment of an internal unit for Shari'ah monitoring and auditing."
Board Composition: Typically 3-5 qualified Islamic scholars. Scholars should have: (a) Deep knowledge of Islamic jurisprudence; (b) Understanding of contemporary financial instruments; (c) No material financial interest in the operator (independence requirement).
Board Authority: The SSB's Fatawa are BINDING on the operator. The operator cannot: (a) Reject a Shari'ah opinion of the SSB; (b) Take action contrary to an SSB ruling; (c) Implement a product without SSB approval.
Product Approval Process
Step 1 — Operator Design: Takaful operator proposes a new product (e.g., Cyber Takaful, Construction Takaful) with: (a) Product structure and terms; (b) Underwriting guidelines; (c) Claims procedures; (d) Surplus distribution method.
Step 2 — Shari'ah Review: SSB reviews the proposed product against: (a) the Islamic Insurance standard principles (Tabarru', separate accounts, donation commitment); (b) Shari'ah prohibitions (is covered risk Haram?); (c) Overall structure (is it genuinely cooperative or disguised interest-based insurance?)
Step 3 — SSB Approval/Rejection: SSB issues a Fatwa approving or rejecting the product. If rejected, operator must revise. If approved, operator can offer to customers.
Step 4 — Ongoing Monitoring: SSB monitors: (a) Investment portfolio of policyholders' fund (confirm Shari'ah compliance); (b) Claims processing (confirm indemnity calculations are just and per policy); (c) Surplus distribution (confirm compliance with the Islamic Insurance standard methods).
Key Governance Questions for SSB
| Question | Shari'ah Consideration |
|---|---|
| Is the proposed coverage Shari'ah-compliant? | Operator cannot offer Takaful for Haram items (alcohol products, pork, gambling, weapons). the Islamic Insurance standard prohibits "provision of insurance coverage for Shari'ah-banned items, activities or purposes." |
| Are contributions truly donations? | Policy documents must explicitly state that contributions are donations (Tabarru') to the fund, not premiums to operator. Per, this MUST be stipulated in policy terms. |
| Is investment Shari'ah-compliant? | Fund assets must be invested in Shari'ah-compliant instruments (Sukuk, stocks of compliant companies, real estate, Murabahah). NO interest-bearing bonds, NO equities of Haram sectors. |
| Is surplus distribution fair? | the Islamic Insurance standard permits four methods (distribution by contribution %; to non-claimants only; net of claims; SSB-approved alternatives). Operator must choose ONE transparent method and disclose upfront. |
| Does operator have proper incentive controls? | Operator compensation must NOT incentivize claim denial. Wakalah fee should be reasonable, not excessive. If Mudarabah, operator's share of investment returns must be disclosed and capped. |
| Are separated accounts maintained? | the Islamic Insurance standard requires two accounts. Operator account and policyholders' account must be genuinely separate, with independent accounting and reporting. |
Compliance Monitoring Unit
Per, every Takaful operator must establish an "internal unit for Shari'ah monitoring and auditing." This unit: (1) Reviews transactions for Shari'ah compliance; (2) Monitors investment portfolio; (3) Audits compliance with SSB Fatawa; (4) Reports non-compliance to operator management and SSB; (5) Prepares annual Shari'ah compliance report for management and SSB review.