Goal vs. gold? Unveiling the business performance of Malaysian family takaful operators

Authors

  • Mohd Faizuddin Muhammad Zuki IIUM Institute of Islamic Banking & Finance, International Islamic University Malaysia
  • Muhammad Arif Fadilah Ishak Department of Islamic Finance, Faculty of Muamalat & Islamic Finance, Universiti Islam Antarabangsa Tuanku Syed Sirajuddin
  • Muhammad Izzuddin Halim Roja Department of Islamic Finance, Faculty of Muamalat & Islamic Finance, Universiti Islam Antarabangsa Tuanku Syed Sirajuddin

DOI:

https://doi.org/10.24191/jeeir.v13i1.4463

Keywords:

Business performance, Return on asset, Zakat paid, Commission & fee income, Family takaful operator

Abstract

This paper aims to assess the business performance of family takaful operators in Malaysia. The study examines the impacts of the operator’s specifics and economic predictors on the relationship with the operator’s performance captured by Return on Asset (ROA). The operator’s specifics include fee and commission income, zakat payments, underwriting risk, liquidity, and firm size, while the economic predictors include Gross Domestic Products (GDP) and inflation rate. Using four regression estimations, which are the Ordinary Least Squares (OLS) model, the Robust OLS model, the Cluster Robust OLS model and the Feasible Generalised Least Squares (GLS) model, this study employed a balanced panel data approach to nine Malaysian family takaful operators for ten years, 2013-2022. The findings for the four estimation models affirmed that fee and commission income, underwriting risk, and liquidity significantly impact the ROA but not firm size and GDP. The findings also exhibit a significant relationship between zakat payment and the inflation rate on ROA in the different estimation models. Several works of literature are very interested in Malaysian takaful business performance without specifying the scope of family takaful business. Thus, this study aims to unveil the performance of family takaful businesses on Malaysian family takaful operators. This paper brought its novelty by conceptualising the fee and commission income and zakat payment as new proxies for measuring performance. The study’s implications admonish the family takaful operators’ recommendation to increase the operators’ performance.

References

Abaidoo, R., & Anyigba, H. (2020). Bank performance variability and strands of inflationary conditions. European Journal of Management and Business Economics, 29(3), 235–253. https://doi.org/10.1108/EJMBE-09-2018-0100

Abd Samad, K., Said, R., Kamarulzaman, M. H., Mahshar, M., & Mohd Nasir, I. N. (2017). Exploring the zakat payment and firm’s performance of Islamic banks in Malaysia. The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015. https://www.researchgate.net/publication/317558833

Abd Samad, K., Said, R., Mohd Nasir, I. N., Mahshar, M., & Kamarulzaman, M. H. (2018). Analysis of the Role of Zakat on Islamic Banking Performance. In R. Said, N, Z. Mohd Sidek, Z. Azhar & K. A. Kamarudin (Eds.), State-of-the-Art Theories and Empirical Evidence (pp. 275–281). Springer Singapore. https://doi.org/10.1007/978-981-10-6926-0_18

Akaike, H. (1974). A new look at the statistical model identification. In E. Parzen, K. Tanabe & G. Kitagawa (Eds.), Selected Papers of Hirotugu Akaike (pp. 215–222). Springer. https://doi.org/10.1007/978-1-4612-1694-0_16

Akotey, J. O., Aawaar, G., & Boamah, N. A. (2023). What accounts for the high underwriting losses in the Ghanaian insurance industry? African Journal of Economic and Management Studies, 14(1), 34–52. https://doi.org/10.1108/AJEMS-12-2021-0546

Al-Qaradawi, Y. (2011). Fiqh al-zakah: A comprehensive study of zakah regulations and philosophy in the light of the Qur’an and Sunnah. Islamic Book Trust.

Alam, T., Hussain, I., & Saqib, A. (2023). Net stable funding and liquidity coverage influence on Islāmic bank financial stability evidence from Malaysian Islāmic banking. International Journal of Economics, Management and Accounting, 31(1), 153–176.

Ali, N. A., Sarif, S., Abd, M., Fatoni, W., Balwi, M., & Kamri, A. (2020). Assessment of zakat: A case study of selected Islamic banks in Malaysia. International Journal of Economics, Management and Accounting, 28(2), 431–456.

Ana-Maria, B., & Ghiorghe, B. (2014). The determinants of financial performance in the Romanian insurance market. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1). https://doi.org/10.6007/ijarafms/v4-i1/637

Angrist, J. D., & Pischke, J.-S. (2009). Mostly harmless econometrics: An empiricist’s companion. Princeton University Press. https://doi.org/10.2307/j.ctvcm4j72

Ashraf, M., Ameen, A., & Shahzadi, K. (2017). The impact of capital structure on firm’s profitability: A case of cement industry of Pakistan. International Journal of Business and Social Science, 8(4). www.ijbssnet.com

Asiamah, M., Ofori, D., & Afful, J. (2019). Analysis of the determinants of foreign direct investment in Ghana. Journal of Asian Business and Economic Studies, 26(1), 56–75. https://doi.org/10.1108/JABES-08-2018-0057

Bank Negara Malaysia. (2005). Bank Negara Malaysia Annual Report 2004. https://doi.org/10.4135/9781071800706.n6

Bank Negara Malaysia. (2019). Takaful Operational Framework. Bank Negara Malaysia.

https://www.bnm.gov.my/documents/20124/948107/PD+TOF+26+June+2019.pdf/4ab1b034-3ea5-3ef2-d5aa-6f5b5d682fca?t=1594083517627

Bank Negara Malaysia. (2023). Financial Sector Participants Directory. https://www.bnm.gov.my/regulations/fsp-directory

Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20, 325–332.

Che Arshad, N., Abdul Halim, N. A., & Irijanto, T. T. (2020). Measuring sustainability of takaful performance in Malaysia. International Journal of Islamic Economics and Finance Research, 3(1).

Damankah, B. S., Anku-Tsede, O., & Amankwaa, A. (2014). Analysis of non-interest income of commercial banks in Ghana. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(4). https://doi.org/10.6007/ijarafms/v4-i4/1343

Dang, C., Li, Z. (Frank), & Yang, C. (2018). Measuring firm size in empirical corporate finance. Journal of Banking & Finance, 86, 159–176. https://doi.org/https://doi.org/10.1016/j.jbankfin.2017.09.006

Davidson, R., & MacKinnon, J. G. (1993). Estimation and inference in econometrics. Oxford University Press.

Dynan, K., & Sheiner, L. (2018, August). GDP as a Measure of Economic Well-being (Hutchins Center Working Paper No. 43). https://www.brookings.edu/wp-content/uploads/2018/08/WP43-8.23.18.pdf

Eldaia, M., Mohd Hanefah, M., Marzuki, A., & Shatnawi, S. A. (2021). Impact of COVID-19 on Malaysian takaful business. In B. Alareeni, A. Hamdan & I. Elgedawy (Eds.), The importance of new technologies and entrepreneurship in business development: In the context of economic diversity in developing countries: International Conference on Business and Technology (pp.304–316). Springer. https://doi.org/10.1007/978-3-030-69221-6_22

Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw Hill Inc.

Gustina, & Abdullah, N. I. (2012). Analysis of demand for family takaful and life insurance: A comparative study in Malaysia. Journal of Islamic Economics, Banking and Finance, 8(4), 67–86. https://ibtra.com/pdf/journal/v8_n4_article5.pdf

Hagel, J., Browm, J. S., Samoylova, T., & Lui, M. (2013). Success or struggle: ROA as a true measure of business performance. Deloitte Center for the Edge. www.deloitte.com/us/shiftindex

Hashmi, S. D., Gulzar, S., Ghafoor, Z., & Naz, I. (2020). Sensitivity of firm size measures to practices of corporate finance: Evidence from BRICS. Future Business Journal, 6(1). https://doi.org/10.1186/s43093-020-00015-y

Hasnizam., S. (2024, March 27). Uptick in takaful disbursement in 2023. The Star. https://www.thestar.com.my/business/business-news/2024/03/27/uptick-in-takaful-disbursement-in-2023#:~:text=On%20a%20brighter%20note%2C%20the,%2C%20with%2077.69%25%20or%20RM6.

Hemrit, W. (2020). Determinants driving takaful and cooperative insurance financial performance in Saudi Arabia. Journal of Accounting and Organizational Change, 16(1), 123–143. https://doi.org/10.1108/JAOC-03-2019-0039

Hunter, W. C., & Timme, S. G. (1986). Technical change, organizational form, and the structure of bank production. Journal of Money, Credit and Banking, 18(2), 152–166. https://doi.org/10.2307/1992199

Javaid, S., & Al-Malkawi, H. A. N. (2018). Corporate social responsibility and financial performance in Saudi Arabia: Evidence from Zakat contribution. Managerial Finance, 44(6), 648–664. https://doi.org/10.1108/MF-12-2016-0366

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 4, 305–360. http://hupress.harvard.edu/catalog/JENTHF.html

Levin, A., Lin, C.-F., & James Chu, C.-S. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108, 1–24. www.elsevier.com/locate/econbase

Li, W. (2022). The impact of internet finance on interest income and non-interest income of commercial banks: Empirical Evidence from China. Panyapiwat Journal, 14(3), 14–25. https://doi.org/10.2991/aebmr.k.220603.063

Luqman, N., Asri, H. N., Fairuz, S., Mohamad, S., & Ismail, S. (2022). The factors affecting the financial performance in takaful operators using return on asset, and Maqasid shariah index in Malaysia. 4th International Islamic Business Management Conference 2022 (pp.62–73). http://dx.doi.org/10.15405/epsbs.2018.07.02.47

Mahadi, N. F., & Ismail, A. (2021). Pandemic crisis: Malaysian takāful market. Turkish Journal of Islamic Economics, 8(Special Issue), 387–400. https://doi.org/10.26414/a2378

Malaysian Accounting Standards Board. (2006). Accounting for Zakat on Business. Malaysian Accounting Standards Board.

Malaysian Takaful Association. (2022). Malaysian Takaful Association Annual Report 2022.

Malhotra, S. K., Sarabhai, S., & Malhotra, P. (2019). Impact of fee-based services on the financial performance of the banks: An empirical study. Journal of Entrepreneurship and Management, 8(3), 45–54. http://publishingindia.com/jem/

Muhammad Zuki, M. F. (2020, September 24-30). The determinants of non-financing income: An analysis on Islamic banks in Malaysia [Paper presentation]. 3rd UUM International Islamic Business Management Conference 2020.

Nomran, N. M., & Haron, R. (2022). Validity of zakat ratios as Islamic performance indicators in Islamic banking: A congeneric model and confirmatory factor analysis. ISRA International Journal of Islamic Finance, 14(1), 41–62. https://doi.org/10.1108/IJIF-08-2018-0088

Nugroho, L., Maryanti, T., Ismal, R., & Affandi Mahfudz, A. (2022). Determinants of Islamic performance ratio in Islamic banks with return on assets as moderating factor. International Journal of Commerce and Finance, 8(2), 21-56. https://ijcf.ticaret.edu.tr/index.php/ijcf/article/view/266/pdf_175

O’Connell, M. (2023). Bank-specific, industry-specific and macroeconomic determinants of bank profitability: Evidence from the UK. Studies in Economics and Finance, 40(1), 155–174. https://doi.org/10.1108/SEF-10-2021-0413

Remli, N., Muda, M., & Rosman, R. (2018). Firms’ characteristics: A preliminary study of family takaful demand in Malaysia. International Journal of Accounting, Finance and Business, 3(14), 01–14.

Sahudin, Z., Abdullah, H., Abdul Rahim, H., Bahrudin, N. Z., & Pardi, F. (2022). Determinants of takaful performance in Malaysia. Journal of Entrepreneurship, Business and Economics, 10(2S2), 1–17. www.scientificia.com

Shahimi, S., Ismail, A. G., & Ahmad, S. (2006). A panel data analysis of fee income activities in Islamic Banks. Journal of King Abdulaziz University: Islamic Economics, 19(2), 23–35. https://doi.org/https://ssrn.com/abstract=3072485

Shiu, Y. (2004). Determinants of United Kingdom general insurance company performance. British Actuarial Journal, 10(5), 1079–1110. https://doi.org/10.1017/s1357321700002968

Sibindi, A. B., & Godi, J. (2014). Insurance sector development and economic growth: Evidence from South Africa. Corporate Ownership & Control, 11(4).

Stone, M. (1979). Comments on model selection criteria of Akaike and Schwarz. Journal of the Royal Statistical Society, 41(2), 276-278. https://doi.org/10.1111/j.2517-6161.1979.tb01084.x

Sudrajat, J., & Mat Daud, Z. (2020). The effect of firm’s size on corporate performance. International Journal of Advanced Computer Science and Applications, 11(5). www.idx.co.id

Sulaeman, S., Adam, M., & Supriani, I. (2022). The nexus between zakat performance, COVID-19 crisis and Islamic banks’ profitability: Empirical evidence from Indonesia. International Journal of Zakat, 7(2), 1–18. https://doi.org/10.37706/ijaz.v7i2.427

Surya, B., Menne, F., Sabhan, H., Suriani, S., Abubakar, H., & Idris, M. (2021). Economic growth, increasing productivity of SMEs, and open innovation. Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 1–37. https://doi.org/10.3390/joitmc7010020

Tetep, T., Hermansyah, H., Supriyanto, D., & Hamdani, N. A. (2022). Analysis of mudharabah, musyarakah and ijarah partially to return on assets (ROA) in Islamic banks. In Advances in Economics, Business and Management Research, 220: 6th Global Conference on Business, Management, and Entrepreneurship (pp.26-29). Atlantis Press. https://www.atlantis-press.com/proceedings/gcbme-21/125976068

Ur Rehman, A., Aslam, E., & Iqbal, A. (2022). Intellectual capital efficiency and bank performance: Evidence from Islamic banks. Borsa Istanbul Review, 22(1), 113–121. https://doi.org/10.1016/j.bir.2021.02.004

White, H. (1982). Maximum likelihood estimation of misspecified models. Econometrica, 50(1), 1–25. https://doi.org/10.2307/1912526

Williams, B., & Prather, L. (2010). Bank risk and return: The impact of bank non-interest income. International Journal of Managerial Finance, 6(3), 220–244. https://doi.org/10.1108/17439131011056233

Yobero, C. (2016, June 6). Methods for detecting and resolving heteroskedasticity. RPubs. https://rpubs.com/cyobero/187387

Zainudin, R., Ahmad Mahdzan, N. S., & Leong, E. S. (2018). Firm-specific internal determinants of profitability performance: An exploratory study of selected life insurance firms in Asia. Journal of Asia Business Studies, 12(4), 533–550. https://doi.org/10.1108/JABS-09-2016-0129

Downloads

Published

2025-02-21

How to Cite

Muhammad Zuki, M. F., Ishak, M. A. F., & Roja, M. I. H. (2025). Goal vs. gold? Unveiling the business performance of Malaysian family takaful operators. Journal of Emerging Economies and Islamic Research, 13(1), 4463. https://doi.org/10.24191/jeeir.v13i1.4463