Takaful and the UK market: regulatory and commercial issues

In contrast to conventional insurance policies, takaful operators are prohibited under shari`a from investing in interest-earning investments and certain haram equity investments (including companies producing haram goods). The wakala model of takaful consists of an operator that acts as an agent of the participants and collects a fee. Profits and surplus are split between the participants. The mudaraba model allows the operator to collect a fixed percentage (though not guaranteed) of investment profits and surplus that are paid into a shareholders fund. In UK, the Financial Services Authority (FSA) requires applicants to meet “threshold” conditions such as maintaining sufficient financial and management resources with an appropriate solvency margin, and undergo a risk-assessment process. Restrictions on the allowable takaful investments could prevent takaful products from being competitively priced. Takaful will be offered in the UK shortly, but its success depends upon a stronger