Linking governance qualities and stewardship attributes: findings from Malaysian takaful operators

Abstract

PurposeAs custodians of takaful contributors’ tabarru’ (donation) funds, takaful operators are expected to fulfil a stewardship role propagated under the precepts of Islam. The purpose of this paper is to analyse takaful operators’ stewardship, focusing on investment practices.Design/methodology/approachStructured interviews were conducted with senior investment staff from all of Malaysia’s takaful operators. Questions, developed using Delphi-style techniques, allowed a five-point Likert scale response addressing specific issues revolving around seven dimensions of governance quality – using the Malaysian Rating Corporation’s (MARC’s) governance rating guidelines for Islamic financial institutions (IFIs). Interviewees’ responses were assigned composite scores.FindingsMalaysia’s takaful operators score well on most prescribed governance quality dimensions, although performance varies between operators and across dimensions. Areas for improvement are identified, especially regarding disclosure of information and contributor involvement in takaful operators’ management.Research limitations/implicationsPredetermined questions restrict flexibility in obtaining takaful operators’ information; however, end-of-interview, open-ended questions were asked to tap interviewee opinions on pertinent issues. A focus on takaful operators’ governance quality and stewardship of investments means findings may not be representative of all operational aspects of their businesses.Practical implicationsThis study identifies governance quality guidelines which takaful operators may benchmark against and identifies where best to focus attempts to improve performance. These guidelines will also assist regulators assessing takaful operators’ stewardship performance.Originality/valueThis study uses governance quality as an indicator of stewardship, a concept aligned with the precepts of Shariah. It covers the opinion of the takaful industry in a country with a comprehensive Islamic financial system, Malaysia, extending understanding of takaful operators’ governance quality.