1. Takaful Malaysia May 2, 2007
Shari’a Quality Rating
AA (SQR) Analysts:
Background
Fatima AlAlawi
Syarikat Takaful Malaysia Berhad (Takaful Malaysia) was incorporated in November 1984 and fatima.alalawi@iirating.com
commenced operations in July 1985. The establishment of Takaful Malaysia was based on the +97317211606
recommendation of a Task Force on the Study for the Establishment of an Islamic Insurance Company
in Malaysia set up by the Government of Malaysia in 1981. Ali Abdulaal
ali.abdulaal@iirating.com
Takaful Malaysia started with an authorized capital of RM500 million and a paid-up capital of RM10 +97317211606
million. It was subsequently transformed into a public limited company in July 1996, followed by
listing of its shares on the main board of Bursa Malaysia Securities Berhad. The capital was then raised
to RM55 million. The capital structure since then has been further enhanced as a result of a
restructuring exercise at the end of 2003, resulting in paid-up share capital to rise to RM156.127 million.
Takaful Malaysia’s business model is based on the requirements and practices of Shari’a as pronounced
in the report of the Task Force. In essence, it upholds the virtues of cooperation, mutuality, solidarity as
embodied in the concept of Takaful and the profit sharing principle of Mudharaba.
Bank Islam Malaysia Holdings Berhad (BIMB Holdings) is the controlling shareholder with a 69.33%
stake in Takaful Malaysia. The BIMB Holdings Group has been the catalyst in actively developing the
Islamic financial services industry. The other shareholders are Employee Provident Fund Board (5.17%)
and Islamic Development Bank (4.57%) among other small shareholders.
Takaful Malaysia’s vision and mission, which are the basis of its operations, are focused on the
principles of Shari’a with the primary objective to provide comprehensive Takaful facilities and services
to the Muslims and all Malaysians.
Takaful Malaysia’s corporate objectives include providing high quality service for both Family Takaful
and General Takaful to the participants; attaining profitability sufficient to support the growth of Takaful
Malaysia; continuously encouraging a dynamic management; uplifting and developing a motivated work
force with responsible work ethics; and striving to protect the interests of the participants and
shareholders.
Reflecting its principal activities, Takaful Malaysia manages the Family Takaful Fund under the Family
Takaful Business, and manages the General Takaful Fund under the General Takaful Business. These
Takaful funds are kept separate from the Shareholders’ Fund, which was originally funded wholly by the
paid-up capital.
Takaful Malaysia employs 1,761 staff consisting of 582 executives, 713 clerks and non-clerks and 466
special executives in its 124 branches.
Sources of income are profits from the investment of its Shareholders’ Fund and its share of profits from
the management of both the Family Takaful Business and the General Takaful Business in accordance
with the profit-sharing agreement of Mudharaba.
Takaful Malaysia’s Board of Directors (BoD) comprises of six members, all of them Malaysian citizens
having high education and many years of relevant experience in banking and insurance. A detailed
profile can be accessed in the Annex to this report.
2. The BoD holds monthly scheduled meetings with additional 1984 to 2001. He is a Research Fellow at Islamic Banking
meetings convened as necessary. The BoD delegates certain and Finance Institute Malaysia.
responsibilities to five Board Committees, namely Audit
Committee, Nomination Committee, Remuneration Committee, • Y. BHG. Prof. Madya Dr. Ahmad Shahbari @ Sobri B.
Risk Management and Compliance Committee; and Employees’ Salamon: Aged 63, Malaysian citizen, member of the Shari’a
Share Option Scheme (ESOS) Committee. The committees’ Advisory Body since July 1985. Graduated with Bachelor of
memberships are based on Directors’ focus and experience as Arts in Shari’a from the University of Al-Azhar, Egypt in
well as their ability to add value to the committee. Starting in 1970, a Master of Arts in International Studies from Fairleigh
2006, Takaful Malaysia initiated annual assessment and Dickenson University, USA in 1973 and a Doctor of
performance reviews for these committees. Philosophy in History from New York University, USA in
1979. He started his career as a Shari’a Lecturer at University
The Articles of Association provide for all Directors and the of Kebangsaan of Malaysia in 1978 and then for two years at
CEO to submit themselves for re-election at least every three Islamic University Malaysia. In 1982, he served as the
years in compliance with Bursa Malaysia Listing Requirements. Acting Head of Shari’a Department. He produced twelve
books in educational, economy, Islamic banking and Islamic
Takaful Malaysia’s Management Committee comprises of: law.
• Mohamed Hassan Md Kamil, Group Managing Director • Y. Bhg. Datuk Abdul Hamid B. Said: Aged 67, Malaysian
• Mawardy Edi, Chief Operations Officer citizen and a member of the Shari’a Advisory Body since
• Azian Kassim, Chief Investment Officer August 2005. He obtained a Barrister-At-Law from the
• Muhammad Anjar Kuncoro, Chief Information Officer Council of Legal Education, England in 1980. After
• Ahmad Kassim, Chief Marketing Officer completing Malacaa High School in 1957, he underwent
• Nazrul Hisham Abdul Hamid, Chief Internal Auditor training at Malayan Teachers College in England for one
• Afidah Mohd Ghazali, Chief Financial Officer year. In 1961 he started as a Lecturer in Teachers Training
• Balilah Hassan, General Manager-Human Resources College, Brunei. In 1973 he joined Kementerian Kebudayaan
as Sports Officer. He then was appointed as the Federal
Council of Attorney General Office and then became a Law
Practitioner in High Court of Malaya for fourteen years. Then
Shari’a Evaluation in 1998, he was appointed as Judicial Commissioner in
Malacca High Court and he was transferred in 2000 to Kuala
Lumpur High Court as a Judge in Malaya High Court. He
Shari’a Committee retired in 2003. He was the Academic Senior Fellow of Civil
Underlining the importance of complying with the Religion of Procedure in Intentional Islamic University Malaysia from
Islam, the Memorandum and Articles of Association of Takaful 2003 until July 2006.
Malaysia preface that all businesses of the company will be
transacted in accordance with Islamic principles, rules and • Y. Bhg. Prof. Madya Dr. Ashraf B. Md Hashim: Aged 37,
practices. For this, Takaful Malaysia has set up a religious Malaysian citizen and a member of the Shari’a Advisory
supervisory council called the Shari’a Advisory Body (SAB), Body since August 2005. He graduated with a Bachelor of
consisting of Muslim religious scholars from Malaysia, to Arts in Shari’a from Islamic University Madinah, KSA in
advise the company on the operations of its Takaful business in 1991 and a Master of Arts in Fiqh and Usul Fiqh from
order to ensure that they do not involve any element which is University of Jordan in 1995. He then obtained PhD in
not approved by the religion of Islam. The SAB was established Shari’a from University of Birmingham, UK in 1999. He
at inception in 1984 as required by the Takaful Act of 1984. started his career at the International Islamic University in
1991 as an Assistant Lecturer and then became a Lecturer of
The SAB is appointed by Takaful Malaysia’s BoD with Islamic Revealed Knowledge Department and then Assistant
approval from Bank Negara Malaysia, the Central Bank of Professor at Fiqh and Usul Department in 1999. In 2003, he
Malaysia, as required by its guidelines on the governance of was appointed as Associate Professor in Fiqh and Usul
Shari’a Committee for Islamic financial institutions. In its Department until today.
guidelines, Bank Negara Malaysia requires the Shari’a Body to
have a minimum of three members. The SAB is appointed for a period of two years. However, there
is no restriction on the number of times a member can be
The SAB consists of four members with diverse and advanced nominated to the SAB. The Chairman of the SAB is elected for
experience and background in Shari’a studies and work. The one year.
members of this SAB are the following:
The main duties and responsibilities of SAB include ensuring
operations are Shari’a compliant; advising the board and related
• Y. Bhg. Ustaz Mohd. Bakir B. Haji Mansor: Aged 69, parties on Shari’a matters of operations; endorsing Shari’a
Malaysian citizen, Chairman of the Shari’a Advisory Body.
compliance manuals and documentation; and providing written
and a member of the Shari’a Advisory Body since July 2002.
Shari’a opinion.
He obtained the Shahadah Ulya from Kolej Islam Malaya in
1965. He started as a teacher at Madrasah Mashhoor
According the Takaful Malaysia’s Shari’a Compliance Manual,
Islamiyah in 1967 and worked there for three years. He then
the SAB must have at least six meetings in a year. It spends
served as information officer at National Council for Islamic
about three to five hours in each meeting. The agenda of the
Religious Affairs from 1971 to 1973 and then at Prime
SAB meetings are detailed, comprehensive and extensive. The
Minister’s Department for more than 10 years. He then
agenda papers are circulated to the members of the SAB in
served at Bank Islam Malaysia as Shari’a Coordinator from
Shari’a Quality Rating: Takaful Malaysia 2 Islamic International Rating Agency, May 2007
3. advance. All matters requiring Shari’a opinion are presented to Shari’a aspects during their audit program or on case-by-case
the SAB for discussion and decision. Decisions taken by the basis as issues are identified.
management in between the meetings of SAB are also presented
to the SAB for endorsement of the decisions. The main recipients of the internal Shari’a control reports are
management and audit committee of the BoD. The department
The minutes of the meetings are prepared in highly professional also carries out a follow-up on the report with respective
manner incorporating a thorough discussion on the issues departments. The department works closely with the investment
presented and the logic/judgment and reasons for the decision department, the underwriting department and Retakaful
taken by the SAB. department to ensure that all activities of the company are
Shari’a compliant.
The decisions made by SAB are based on the principle of
Shari’a and in accordance with the Shafie School of law. But in The underwriting department refers all proposals to the Shari’a
certain issue, SAB refers to opinions in other Schools of Islamic Internal Control Department reporting the principal’s activity,
Law which is more applicable. source of income and image of the company. If the activities of
the principal consist of both prohibited and non-prohibited
These decisions are taken by Syura, consensus or by majority. income, currently a ratio of 60:40 is applied. The references of
If the SAB cannot come to an agreement, the issue must be the Shari’a Control Department are always made in writing and
referred to Bank Negara Malaysia. However, there has been no the response of the Department is always made in writing.
need to refer anything to Bank Negara Malaysia up to now. The
decisions of the SAB are considered to be that of the SAB and The quality of control based on reports of the SAB is excellent.
not of the individual members. No dissenting opinions are The reports are detailed and descriptive and the SAB’s input and
recorded. its discussions are profound and complemented with reason and
evidence.
The SAB does not interact directly nor meet formally with the
members of the BoD. However, they meet informally. They
have not encountered any differences with the BoD so far. The HR Training and Promotion of Takaful
minutes of Shari’a Committee meetings are presented to the Takaful Malaysia carries sufficient training programs on
BoD. Takaful within the organization, conducted by the subject matter
expert from Takaful Malaysia. The programs include the
The SAB is not involved in daily operations. It interacts with formation of Takaful companies, Takaful Act 1984, SAB,
the management to give advice and Shari’a decisions regarding definition and concept of Takaful, principles of Takaful
Shari’a issues. According to Chairman of the SAB, the operations, Takaful business models, differences between
relationship between management and SAB is very close. All Takaful and conventional insurance, and types of Takaful
product development is with consultation of the Shari’a business. The staffs are also sent to training programs on
Department. A comprehensive presentation is made to SAB of Takaful conducted by the various reputable training
each product for their approval. institutes/providers locally and internationally.
The SAB’s annual report and review endorses and confirms that New training approaches and methodologies such as video-
the operations of Takaful Malaysia are in accordance with based training and e-learning have been introduced.
Shari’a requirements and it is included in the Annual Report.
The SAB’s members are also sent to very high level training
Shari’a Internal Control programs such as the international Shari’a scholar dialogue and
2nd international Shari’a scholar dialogue (Banking and Takaful)
The Shari’a Department issued a “Shari’a Compliance Manual organized by the Bank Negara Malaysia, Shari’a expert dialogue
and Shari’a Audit Checklist” in February 2007, incorporating (Takaful) organized by Malaysia Takaful Association,
guidelines and procedures for resolving any mistakes and international convention on Takaful and Retakaful and the 2nd
noncompliance discovered in all products/schemes/investments. international convention on Takaful and Retakaful.
Before issuance of the manual, resolutions and/or decisions
made by the SAB were considered as approved Shari’a control All Directors have attended the Mandatory Accreditation
procedures to be followed by Takaful Malaysia. It is important Program conducted by Bursa Malaysia Training as required by
to note that no violations of Shari’a principle have been reported Bursa Malaysia. The Directors continue to attend their training
to date. programs and seminars to enhance their skills and knowledge.
Newly appointed Directors are also trained internally on
The Shari’a Department together with the Compliance corporate governance, leadership, anti-money laundering and
Department acts as Shari’a Control Department. The Shari’a assessment of the effectiveness of the BoD.
Department also acts as the secretariat for the SAB.
To promote Takaful business, Takaful Malaysia organized
There are four employees in the Shari’a Control Department. It training courses in Takaful operations for interested parties,
is headed by a manager, who reports directly to the Group where senior personnel actively participated as trainers.
Managing Director of Takaful Malaysia; in addition it has one
deputy manager, an assistant manager and one clerk. All of
them are well qualified with relevant Shari’a work experience
and educational background.
The internal Shari’a control reports are issued on monthly basis.
The Shari’a Control Department carries out an assessment on
Shari’a Quality Rating: Takaful Malaysia 3 Islamic International Rating Agency, May 2007
4. Zakat annual results and information about products and operations. It
also has prayer times, being updated on daily basis.
The distribution of Zakat by Takaful Malaysia is carried out by
Zakat Payment Committee according to Shari’a on yearly basis Through its commitment to sustain and improve its competitive
with a clear and intense procedure in approving of Zakat advantage in the Takaful market, Takaful Malaysia is always
payment for deserving parties as part of a manual of Zakat upholds and promotes the values such as integrity, customer
payment committee. All the allocation and payment of Zakat focus, accountability, respect and entrepreneurship throughout
are done with the supervision and monitored by the Zakat day-to-day practices, behaviors, communication and
Payment Committee chaired by the SAB chairman and all relationships to translate to a good corporate image and
decisions made are based on Shari’a. The current rate being operational excellence.
applied is 2.5775 according to 365 days. As of end of 2006, the
amount of Zakat to be paid by Takaful Malaysia is
RM2,514,445. Non-Shari’a Compliant Income
Takaful Malaysia is following clear guidelines and procedures
Identity and Corporate Image related to non-Shari’a gains/income. In principle, whenever any
non-Shari’a compliant income arises, it is immediately set aside
Takaful Malaysia ensures that all activities reflect the Shari’a and not mixed with income from Shari’a compliant investment.
principles. Among the examples are dress code as prescribed by There was a case with respect to shares in Highlands and
Shari’a, recitation of “Quran”, “Hadith” and “Doa” every day Lowlands Berhad, listed on the main board of Kuala Lumpur
and providing proper place for praying. The advertising and Stock Exchange The counter of it was originally Shari’a-
promotions activities are carried out with the advice and approved as classified by Shari’a Advisory Council of Security
supervision of SAB. All promotional materials such as Commission, but was later reclassified as non-Shari’a approved
television, newspaper, outdoor and magazine need to have the counter. Under this circumstance, as guided by the guidelines
SAB approval before going for public. issued by Shari’a Advisory Council of Security Commission the
fund manager immediately disposed off the counter and the gain
As Takaful Malaysia strives to be the leading Takaful operator, from disposal was seat aside and placed in Qardul Hasan
it has committed itself to continuous research and development accounts to be channeled to charitable bodies.
of its products to become the role model followed by many
aspiring Takaful operators as demonstrated in the formation of
As mentioned in portfolio management agreement between
other Takaful and Retakaful entities.
Takaful Malaysia and the fund managers, if the securities which
have been approved by the Securities Commission’s Shari’a
To be in line with the Government’s objectives to promote
Advisory Council (SAC) and bought by the manager for the
Islamic Banking and Takaful, thus making the Islamic products
portfolio are later classified as non-approved securities, the
and services an integral part of the Malaysian financial system,
manager shall dispose of the securities in the manner as advised
Takaful Malaysia and Bank Islam Malaysia Berhad lately
by the SAC. The manager shall also ensure that any profit
launched a joint marketing program of Takaful Motor Scheme
obtained from the disposal of the non-approved securities,
under the concept of Bancatakaful. The program enables
including capital gain, is immediately set aside and not mixed
existing and prospective customers of both companies to
with profit from approved securities.
participate or to renew their Motor Takaful Scheme. Under the
Scheme, the customers get to enjoy the same coverage as
offered by conventional insurers but at the same time they will Investments
also get a cash rebate based on the profit-sharing principle of The insurance base funds are invested through modes approved
Mudharaba. by SAB. For investment products, which are available in the
market, Takaful Malaysia relies on the approval granted by the
The management is strongly committed to upholding the financial institutions’ Shari’a Committees and/or Securities
principles of corporate governance and providing the highest Commission’s Shari’a Committee.
quality service, for this, Takaful Malaysia achieved certification
of ISO 9001:2000 Quality. Takaful Malaysia follows identical procedures for investment of
shareholder’s fund, Family Takaful Fund and General Takaful
In 2004, Takaful Malaysia was awarded “The Best Provider of Fund, such as:
Takaful Services” by Euromoney, an international financial
publication based in London. In 2005, Takaful Malaysia was
• Quoted listed shares and unit trust – only in shares approved
awarded Superbrand Status 2005 by Superbrands Malaysia. In
by SAC of Securities Commission, Malaysia;
2005, Takaful Malaysia also received Best Takaful Provider in
• Fixed income securities – Investment is made (in Islamic
2005 from Islamic Business and Finance Magazine, Dubai.
private debt securities) after making a reference to the Shari’a
advisor of the originating bank, which have been endorsed by
As required under the Listing Requirements of Bursa Malaysia
SAC of Securities Commission;
Securities Berhad, the BoD of Takaful Malaysia subscribes and
supports the Malaysian Code of Corporate Governance and Best • For investments in high rise commercial buildings, tenants are
Practices and ensures that they are practiced and observed screened to see if they are Shari’a Compliant. Tenants’
throughout the group. activities, sources of income and their image are obtained and
if non-Shari’a compliant portion does not exceed 25%, the
Takaful Malaysia’s web page is very interactive. Queries proposal may be accepted. The guidelines on Islamic
regarding business operation are answered by the Customer investment in buildings have been obtained;
Service Unit. It includes the quarterly, semi-annual returns and • Deposits are made only in Islamic banks, licensed Islamic
finance companies and Islamic Financial Institutions; and
Shari’a Quality Rating: Takaful Malaysia 4 Islamic International Rating Agency, May 2007
6. Annex 1 – Board of Directors
• Y. Bhg. Tan Sri Dr. Hadenan A. Jalil: Dr. Jalil graduated with a Bachelor of Economics
(Honors) from the University of Malaysia in 1970 and continued his education until he
completed his Doctor of Philosophy from The Management College at Henley in the United
Kingdom. He held several secretarial and managerial positions at government and non-
government departments throughout his career. He is presently the President
Commisioner/Chairman of Bank Bumiputera Indonesia; Board member and Chairman of
Audit Committee of Islamd and Peninsular Berhad; Advisor of Maunsell Malaysia Sdn Bhd;
and Group Business Advisor at Sinar Jernih Sdn Bhd.
• Y. Bhg. Dato’ Noorazman A. Aziz: Mr. Aziz graduated with a Bachelor of Science (Honors)
from Louisiana University in 1982 and is an associate of the Institute of Bankers in the United
Kingdom. He started his career in 1982 as a senior executive at Pernas International Berhad
and held several executive positions in Malaysia ever since. In 2005, he joined Bank Islam
Malaysia Berhad as Managing Director and was subsequently appointed as Group Managing
Director, BIMB Holdings Berhad in June 2006. He is a member in Takaful Board of Directors
since December 2005.
• Y. DH. Dato’ Sri Wan Abdul Wahid Wan Hassan: Mr. Hassan graduated with a Bachelor of
Arts (Honors) degree of the University of Malaya in 1971 and has obtained several
educational certificates during the following years from international universities, including
Cambridge, in Public Administration, Management and Land Resource Management. He was
appointed to the Board of Directors of Takaful Malaysia on 1 March 2003. He is also the
Chairman of Risk Management and Compliance Committee, a member of the Audit and
Nomination Committees of the company. He is also the Deputy President of Majlis Uama
Islam dan Adat Resam Melayu Pahang and has held the position since December 2000.
• Y. Bhg. Dato’ Alwi Muhamad: Mr. Muhamad started his career in 1973 as an Assistant
District Officer at Besut and later moved to different government state positions in
Terengganu in agriculture, R&D and other areas. He also served as Director of Water Supply
Department of Terengganu until 2001. He is currently the Chief Executive Officer of Majlis
Agama Islam Dan Adat Melayu Terengganu since 11 January 2004 and a Board of Dierctors
Member at Takaful since December 2005.
• Encik Mohamed Hassan Md Kamil: Mr. Kamil graduated with a Bachelor of Science degree
in Actuarial Science and later a Master in Business Administration from The University of
Iowa, USA. He is a Fellow of the Society of Actuaries, USA, a member of the American
Academy of Actuaries and a Chartered Life Underwriter. He worked in the United States as an
Actuary from 1987 to 1994 prior to returning to Malaysia as Deputy General Manager at
Malaysia National Insurance. In 1996, he joined ING Insurance Berhad (previously known as
Aetna Universal Insurance) as Senior Vice President and Chief Actuary. In 2004, he became
the Deputy General Manager for P.T. AIA Indonesia and subsequently transferred to AIA
Regional Office in Hong Kong as Vice President of Actuarial/ Finance in December 2005. He
is currently the Executive Director of BIMB Holdings Berhad since April 2006 and Group
Manager of Takaful Malaysia.
• Y.A.M. Tengku Azman Ibni Almarhum Sultan Abu Bakar: Mr. Sultan was appointed Chief
Executive Officer of Takaful Malaysia in September 2005. He obtained his Master of Science
from the University of Iowa in 1988 and soon joined Takaful Malaysia in 1989, before
climbing through the ranks until he reached this level. He started as an Executive Assistant in
the Family Takaful Department in 1989, and then moved to the Marketing Department as an
Executive in 1990.
Shari’a Quality Rating: Takaful Malaysia 6 Islamic International Rating Agency, May 2007
