SOLVENCY OF TAKAFUL FUND: A CASE OF SUBORDINATED QARD

Abstract

There are two elements important in formulating the solvency requirements of a Takaful undertaking namely the Takaful fund and Qard facility. It has been seen in some regulatory frameworks that the regulator puts a requirement on the Takaful operators to show that they are providing some financial support towards the solvency of the Takaful funds. This paper attempts to explain the measures involve the Takaful operator using their shareholders’ funds to provide financial back\ing to support the solvency of Takaful funds through the practices of Qard facility, injection of assets into the Takaful funds and assignment or allocation of assets in the shareholders in the Takaful funds. The paper will focus on the nature of Qard and its basis in the primary sources of Shariah. Is it acceptable legally to subordinate Qard in the case of deficit, deficiency or drawn down of Takaful fund? Finally, the paper will analyze the legal ruling related to Qard and how it is different to conventional insurance practicesTakaful fund, Qard facility, Takaful participants, Solvency, Subordinated Qard