The Treatment of qarḍ (qarḍ facility) for Solvency of Takāful Fund in A Takāful Undertaking

Abstract

Abstract

Solvency of takāful fund and mechanism for providing financial support towards the solvency of the takāful funds are two important elements in formulating the solvency requirements of a takāful undertaking (TU). The supervisor may require a takāful operator to extend qarḍ and earmarked qarḍ facilities, to takāful fund in deficit or shortfall giving rise to issues regarding the measurement of qarḍ for general purpose and prudential reporting. This paper reviews different views on the nature and measurement basis for qarḍ, including qarḍ facility assigned or allocation of assets in the shareholding to the takāful funds. This paper explores the recent Sharī’ah rulings on the supervisory requirement of the takāful operator obligations to financially support the solvency of takāful funds extend qarḍ and earmarked qarḍ facilities. In addition, qualitative method is applied as the paper provides a review of the nature of qarḍ (i.e. subordination) and Sharīʽah rulings and its position on the requirement to financially support the solvency of takāful funds. As the result, this paper is expected to provide useful insights to the supervisors with regard to the selection of measurement models and treatment of various funds over the interpretation and application of IFRS 17 to takāful industry.