* Takaful originates from the Arabic word kafalah, which means guaranteeing each other. Takaful system is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members. In addition, the Takaful system is perceived as cooperative or mutual insurance, where members contribute a certain sum of money to a common pool. The Takaful system is based on the principles of mutual co-operation and responsibility between participants in a group. It is defined as an Islamic insurance concept which is grounded in Islamic muamalat (Islamic banking), observing the rules and regulations of Islamic law.
* There are two criteria which the Takaful consumers’ depend on to gain the confidence on the product. First, the operations of the business must fully comply with Shariah principles and second, the consequential wealth and financial progress of the takaful operators need to be disclosed. Information on Shariah compliance is very important in influencing the buying decisions amongst Muslims, increasing their understanding of their religion, improving transparency for enhancing governance, and protecting the Islamic identity of takaful operators. Furthermore, Shariah compliance can be used as a weapon by takaful operators to expand their market base and compete against their counterparts.
* Since Shariah compliance is very important, this paper explores the disclosure of Shariah compliance as reported by the Shariah Committee (SC) in the annual reports of takaful companies in Malaysia. It aims to provide insights as to whether current Shariah-compliant disclosure practices by the takaful operators are able to meet the demands of relevant parties to help them make religious and economic decisions. It also examines whether the advisory role entrusted by Bank Negara Malaysia (BNM) to SC members is adequate to enable them to provide Shariah compliance disclosure that is useful and relevant.
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