Journal of Islamic Business and Management



Motor Takaful in Banks’ Ijarah based Financing: The Issue of Undercoverage

Adnan Malik, Muhammad Mohsin Khan & Ali Abdullah
Published Online: December 2018
Abstract

This narrative study shows how and why a vehicle leased under ijarah should be covered at its market value with a takaful company, otherwise compensation would only be on partial or proportionate basis if a defined loss occurs. An Islamic bank when gives a vehicle on ijarah basis, it takes comprehensive takaful coverage for mitigation of the physical aspects of risk like accidental damage, third party loss, theft and snatching. While renewing the coverage on yearly basis, bank covers the vehicle on book value which is always less than their market value. Therefore, when a loss occurs, the takaful company provides proportionate compensation which is always far less than actual loss.


Keywords

Depreciation, Indemnity, Ijarah, Takaful, Under-Coverage