Abstract:

Shari’ah compliance is the main pushing factor to revitalize the concept of Islamic teaching in the commercial world by emerging Islamic finance industries. This unique compliance is the fundamental distinguish factor between Islamic finance and conventional counterpart. The vision of the Islamic finance is to avoid involving in the Shari’ah prohibited elements such as interest, uncertainty, gambling and prohibited investments which are currently practiced by the conventional finance industry. These elements are prohibited clearly in the primary sources of Shari’ah, i.e. in the Quran and Sunnah. Renowned international organizations such as AAOIFI and IFSB and a few countries like Malaysia have come out with the frameworks for Shari’ah audit and governance for Takaful industry. However, these prevailing frameworks are too general and there is no detailed guideline on Shari’ah audit and governance in order to closely monitor and mold the Takaful industry. Researchers believe that the current frameworks on Shari’ah audit and Shari’ah governance are not providing the steps that should be taken by Takaful operators and referred by the auditors to audit them in order to ensure that they comply with Shari’ah. Due to the inadequate compliance of Takaful operators, the researchers in Takaful find out Shari’ah issues and ethical issues in Takaful industry. Some of issues are related to competency of Shari’ah advisors, unethical issues in Takaful marketing and transparency and disclosure of practices. This inadequate compliance with Shari’ah is the failure of the industry to meet its mission, i.e. Shari’ah compliance which is the root of the originating the concept of Takaful. It is expected that if Takaful operators have the detailed steps to abide the Shari’ah requirement, most of the unhealthy issues in Takaful industry will be reduced. It can be achieved only if the Takaful operators have the comprehensive and detailed procedures and specific requirements for Shari’ah governance and auditing.