The lack of a national sharia board is hindering the development of the takaful (Islamic insurance) industry in the UAE, operators said during the eighth annual World Takaful Conference on 15 April.

They claimed conflicting advice from sharia committees of different operators is confusing consumers and leading to frustration among operators who lack clarity on what business they are and are not permitted to take on.

Islamic scholars generally agree on the basic framework of takaful, but sometimes disagree on the finer details, as those are subject to interpretation.

In 2010, the UAE Insurance Authority issued a set of regulations for the takaful industry, including the planned creation of the Supreme Committee for Fatwa (legal opinion) and Sharia Supervision. Among other responsibilities, the committee would be able to issue binding legal opinions on insurance and investment issues for the takaful industry.

The intention to establish a supreme committee, however, has yet to be realised.

“We definitely see the lack of consensus among Islamic scholars as a problem,” said Ghassan Marrouche, chief executive officer (CEO) of Dubai-headquartered sharia insurer Takaful Emarat.

“It has become one of the main challenges we’re facing in terms of operations and business strategy. What if I want to insure a conventional bank and my board says it’s not allowed as there’s interest involved, while another takaful operator will have a board that says ‘yes’? This is not fair.”

Bassel Hindawi, an independent insurance adviser and former insurance commissioner of Jordan, said the lack of national boards in the Middle East continues to “undermine” the development of the takaful industry, and suggested the establishment of sharia boards at a national level, or a sharia judicial authority at a more regional level to provide uniform decisions.

“A certified [national] authority that gives a seal of approval can definitely give advantages in terms of customer confidence,” added Parvaiz Siddiq, CEO of Dubai-based sharia insurer Noor Takaful.

Global takaful growth was about 20 per cent in 2011. The sector may not be able to sustain this level of growth over the following years, however, given the stuttering global economy and the relative maturity of some of the larger takaful markets, according to a report published by financial services company Standard & Poor’s (S&P) in 2012.

Takaful is most prevalent in the GCC and Southeast Asia regions, however “we remain concerned by widespread use of high-risk investment strategies by takaful providers, and by the sector’s lack of global standards in areas such as accounting standards and sharia compliance. In our view, it is unclear how many of the companies involved will sustain their profitability over the longer term, particularly in the GCC region,” said the report.