A robust Shariah governance framework is another important element to assist the takaful industry in achieving full Shariah compliance in the development and application of their products and services. Given that Islamic finance has its roots in Shariah, it is an overarching requirement for an Islamic financial institution to ensure that its objectives and operations are in accordance with Shariah principles. Recent enhancements to the Shariah governance framework are aimed to assist Islamic financial institutions in meeting this overarching requirement, through further strengthening of the existing Shariah governance process, decision making, accountability and independence. Reinforcements of the Shariah compliance functions include introduction of internal Shariah review and audit requirements, supported by an appropriate risk management process and research capability. The new framework is envisaged to contribute towards evolving a more robust and sound Shariah  2  BIS central bankers’ speeches  governance framework within Islamic financial institutions, with the establishments of end-toend Shariah compliant control mechanism that promotes greater Shariah observance throughout an organisation. Effective implementation of the new Shariah governance framework will further promote stakeholders’ confidence and enhance the integrity of the Islamic financial industry, and for the takaful industry, by reducing the risk of Shariah noncompliance, takaful products would be at a more competitive edge in comparison with conventional insurance products, as discerning customers would opt for takaful as their ethical financial solutions. In respond to the ever changing business environment, it is imperative for takaful operators to enhance their institutional capabilities and operational efficiency with the aim to strengthen their competitive position.
Whilst sustaining the current pace of development, growth prospect remains strong for the takaful sector, in view of the large untapped potential, where out of the 53.5 percent market penetration rate for both takaful and insurance, the market penetration rate for takaful was merely 10.9 percent in September 2010. The takaful industry indeed represents an important component in the overall Islamic financial system. Given its role in providing risk protection, the takaful industry offers a suite of financial products and services that complement the existing range available for consumers. In recognising its importance, focus has been given in developing a dynamic and vibrant takaful industry within our Islamic financial system. Where the industry is today has been an outcome of an accumulation of efforts in instituting a comprehensive Islamic financial landscape in Malaysia’s financial system. A strong institutional infrastructure and effective legal, regulatory and Shariah framework are the underpinnings of our Islamic  BIS central bankers’ speeches  1  financial industry. In our pursuit to develop Islamic finance, the recent enhancement to the Central Banking Act has accorded formal recognition to the existence of Islamic finance as an arm of the dual financial system, thereby giving significance and due prominence to Islamic finance. Moving forward, a number of initiatives are planned to further enhance the competitiveness and growth momentum of the takaful industry, emphasising on enhancement of the regulatory and supervisory framework and the Shariah governance framework.