The Shariah board is the body of scholars that approves a takaful operator's products, monitors how they are applied and certifies their compliance. Without it, an offer labelled Islamic rests on the insurer's word alone, so its members and reports deserve scrutiny.
A body separate from the board of directors
The committee, known as the Shariah Board or Shariah supervisory board, brings together scholars specialising in the law of transactions. It does not run the company: it reviews contract structures, remuneration models and investments to determine whether they comply with Shariah.
IFSB standards on Shariah governance
In November 2009, the IFSB adopted three texts together: IFSB-8 on governance of takaful undertakings, IFSB-9 on conduct of business and IFSB-10 on Shariah governance systems. These standards serve as a reference for regulators that supervise takaful.
The Pakistani example: mandatory board and audit
In Pakistan, the SECP Takaful Rules 2005 require every operator to have a Shariah Board of recognised scholars, plus a Shariah audit each financial year on top of the financial audit. The 2012 rules later opened the market to takaful windows.
South Africa: a certified scholar behind every policy
In South Africa, COVER magazine describes policies being approved by a certified scholar working with a Shariah supervisory board. The policy launched in November 2021 by Safire Insurance and Genoa Underwriting Managers was approved in this way by Mufti Desai.
Approving the operating model
Before any launch, the board approves the choice between the wakala model, the mudaraba model or a hybrid such as Pakistan's wakala-waqf, where the fund is a waqf with legal personality and the operator acts only as agent.
Monitoring how the fund is invested
The board checks that contributions are invested in permissible assets: real estate, Islamic bank deposits, screened equities and sukuk. It also ensures that issuers whose revenue comes from alcohol, tobacco, pornography or weapons are excluded.
Ruling on the surplus and on qard
Sensitive decisions go through it: allocating the surplus among participants, or granting a qard, an interest-free loan from shareholders to a fund in deficit. Under IFSB-14, this loan can be repaid only from the fund's future surpluses.
Retakaful within the scope of oversight
Reinsurance does not escape review. IFSB-18, issued in 2016, sets out the principles of retakaful: risk sharing in a common fund, tabarru', the prohibition of riba and Shariah compliance. The board checks whether the operator reinsures through retakaful or with a conventional reinsurer.
Fatwa, certificate and annual report
The board's work results in documents: a ruling or fatwa approving each product, a compliance certificate and an annual report for participants. These records let customers know who approved their contract and on what legal basis.
Protecting participants' funds
IFSB-14 distinguishes the participants' risk fund from their investment fund, both kept apart from shareholders' resources. The board must be able to block any decision that would favour the operator at the expense of these funds, for example over the fees charged.
AAOIFI standards as reference points
Boards can rely on AAOIFI Shari'ah Standard No. 26 on Islamic insurance, approved in 2006. On the accounting side, FAS 42 and FAS 43, the latter effective since January 2025, govern how takaful accounts are presented.
Takaful windows call for extra vigilance
When a conventional insurer opens a takaful window, as Indonesia and later Pakistan, since its 2012 rules, allow, the board must ensure that takaful funds stay separate from conventional business. Customers can ask for proof of this.
Checking an operator's Shariah board
- Look on the operator's website or in its annual report for the named list of Shariah board members.
- Check that the operator itself is licensed for takaful by the country's insurance regulator.
- Ask for the ruling or fatwa approving the specific product you buy, not a general approval of the range.
- Read the latest Shariah audit report and note any reservations or instances of non-compliance it records.
- Ask customer service which model applies, wakala, mudaraba or wakala-waqf, and which surplus rule was approved.
- For a takaful window, get written confirmation that takaful and conventional funds are kept separate.
The cost of compliance within the price
| Item | Link with the Shariah board | Varies with |
|---|---|---|
| Wakala fee | Rate approved by the board | Product type and market |
| Mudaraba share | Ratio approved before launch | Returns on compliant investments |
| Tabarru' contribution | Donation status approved | Risk profile and cover |
| Shariah audit cost | Included in the operator's expenses | Operator size and legal requirements |
| Retakaful | Choice of reinsurer reviewed | Availability of retakaful capacity |
What the operator should provide
- The names and qualifications of the Shariah board members
- The approval ruling for the product you buy
- The Shariah audit report for the last financial year
- The document describing the operating model and the surplus rule
- The investment policy for the participants' fund
- Proof of the takaful licence issued by the regulator
Pitfalls involving the Shariah board
- Being satisfied with a halal logo on the brochure without being able to identify the scholars who actually approved the product.
- Taking approval of one savings product as validation of the operator's entire range.
- Ignoring reservations recorded in the Shariah audit report, which flag transactions that need correcting.
- Confusing regulatory licensing with Shariah approval: one concerns solvency, the other religious compliance.
- Believing a board guarantees savings returns or the size of the surplus, when it only rules on permissibility.
Shariah board: frequent questions
Can the Shariah board block a product?
Its role is precisely to approve or reject products according to their compliance. In Pakistan, SECP regulation makes the board mandatory and requires a Shariah audit every financial year, which gives its conclusions real weight.
Is a single scholar enough to approve a contract?
In South Africa, the practice described by COVER magazine pairs a certified scholar with a Shariah supervisory board. Elsewhere, regulation requires a collegial board, as in Pakistan. Participants can always ask who signed the approval of their product.
Does the board guarantee that my money is well invested?
It checks that investments are permissible, not how they perform. For example, it verifies that prohibited sectors are excluded and that instruments such as sukuk are used, but returns depend on markets and on the operator's management.
Which international standards govern Shariah governance in takaful?
In 2009 the IFSB adopted IFSB-8 on governance of takaful undertakings and IFSB-10 on Shariah governance systems. On substance, AAOIFI Shari'ah Standard No. 26 deals with Islamic insurance and serves as the doctrinal reference.