Shari'ah Supervisory Board (SSB) Requirements
A Shari'ah Supervisory Board (SSB) issues Fatawa (juristic opinions) that are binding on the company and oversees an internal unit for Shari'ah monitoring and auditing.
Board Composition: Typically 3-5 qualified Islamic scholars. Scholars should have:
- Deep knowledge of Islamic jurisprudence.
- Understanding of contemporary financial instruments.
- No material financial interest in the operator.
Board Authority: The SSB's Fatawa are binding on the operator. The operator cannot:
- Reject a Shari'ah opinion of the SSB.
- Take action contrary to an SSB ruling.
- Implement a product without SSB approval.
Product Approval Process
The product approval process should be documented before launch:
- Operator design: the Takaful operator proposes product structure, underwriting guidelines, claims procedures, and surplus distribution method.
- Shari'ah review: the SSB reviews Tabarru', separate accounts, donation commitment, prohibited coverage risks, and whether the structure is genuinely cooperative.
- SSB approval or rejection: the SSB issues a Fatwa approving or rejecting the product. If rejected, the operator must revise before offering it.
- Ongoing monitoring: the SSB monitors the policyholders' investment portfolio, claims processing, and surplus distribution against the approved structure.
Key Governance Questions for SSB
| Question | Shari'ah Consideration |
|---|---|
| Is the proposed coverage Shari'ah-compliant? | The operator cannot offer Takaful for haram items such as alcohol products, pork, gambling, or weapons. Coverage for Shari'ah-banned items, activities, or purposes is prohibited. |
| Are contributions truly donations? | Policy documents must explicitly state that contributions are donations (Tabarru') to the fund, not premiums to the operator. This must be stipulated in the 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? | Takaful rules permit distribution by contribution percentage, to non-claimants only, net of claims, or by another SSB-approved method. The operator must choose one transparent method and disclose it 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 operator account and policyholders' account must be genuinely separate, with independent accounting and reporting. |
Compliance Monitoring Unit
Every Takaful operator must establish an internal unit for Shari'ah monitoring and auditing. This unit:
- Reviews transactions for Shari'ah compliance.
- Monitors the investment portfolio.
- Audits compliance with SSB Fatawa.
- Reports non-compliance to operator management and the SSB.
- Prepares an annual Shari'ah compliance report for management and SSB review.