The determinants of Takaful insurance financial stability: the moderating role of Shari’ah Supervisory Board

Abstract

Purpose

The purpose of this paper is to examine how the board of directors effectiveness (BODE), financial determinants, Takaful-specific determinants and the Takaful firms’ financial stability are related to the Shari’ah Supervisory Board’s quality (SCQ).

Design/methodology/approach

Using hierarchical regression analysis, the authors examine the determinants of financial stability of Takaful insurance and the authors test the moderator role of SCQ over 2016–2022 on a sample of 19 listed Takaful firms in 10 countries in the Middle East and South Asia region.

Findings

The findings reveal that SCQ negatively moderates the positive relationship between BODE, the Takaful model, diversification strategy, solvency, liquidity and Takaful financial stability. Shari’ah governance plays a crucial role in improving the financial soundness and the Shari’ah compliance of Takaful insurance.

Research limitations/implications

This paper includes two main limitations. The results are restricted to the Middle East region and South Asia and may not be generalized to other areas. The study presents data from only 19 Takaful firms.

Practical implications

This kind of investigation is of immense relevance to enhance the understanding of governance and soundness of Takaful companies. Furthermore, it serves as a guide to the recruitment of Shari’ah board members, the choice of Takaful model and appropriate strategy to increase its financial stability.

Originality/value

This research studies the financial stability of Takaful insurance and the moderating role of SCQ, unlike the majority of other works that focus on financial performance.