Takaful and Islamic Cooperative Finance
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Takaful and Islamic Cooperative Finance

Challenges and Opportunities

Edited by S. Nazim Ali and Shariq Nisar

Islamic finance distinguishes itself from conventional finance with its strong emphasis on the moral consequences of financial transactions; prohibiting interest, excessive uncertainty, and finance of harmful business. When it comes to risk mitigation, it is unique in its risk sharing approach.
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Chapter 6: New horizons: the potential for shari’ah-compliant cooperative and mutual financial services

Sara E.B. Carmody


The chapter focuses on the regulatory challenges and potential for the future growth of takaful products within the Gulf Cooperation Council (GCC) states. Takaful is a contract that creates risk sharing obligations between participants, with monies pooled between participants in order to provide coverage for specified events. Cooperative and mutual entities are very similar in terms of their underlying principles; they have all grown within the fields of ethical investment and microfinance. One of the barriers to the growth of takaful within the GCC is the regulatory environment for shari’ah-compliant mutual and cooperative organizations that has been put in place. The challenge is to provide competitive products on commercial terms within the marketplace that meet regional financial service regulatory standards whilst adhering to principles of sharing and mutuality. There are significant barriers within the legal framework currently in place, most notably the lack of developed laws for cooperative and mutual structures and for trusts within the GCC states. The chapter (1) defines a cooperative and a mutual, as a point of comparison and analyses the compatibility of the same principles to shari’ah-compliant financial institutions; (2) studies the companies that may offer various regulated financial services products within the GCC states, with reference to capital requirements and corporate vehicles required by law; (3) considers various issues arising from a mutual model that is to be compatible with shari’ah-compliant principles and meet regulatory requirements; and (4) reflects the overall trends in terms of financial services legislation and practice within the GCC states and whether a move to encourage a mutual model within the financial services industry is feasible for the GCC states.

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