Rationalizing the Takaful organizational form with institutional theory

This article examines the organizational structure of Takaful ('Islamic' insurance) as it constitutes an interesting case study of a relatively inefficient system that has grown in popularity. This challenges the neoclassical economics view that the most efficient organizational form succeeds. We employ institutional theory to shed light on this puzzle. We realize the resolve of Muslim religious scholars and their political Islamic compatriots to regain legitimacy is the primary reason why this inefficient institution exists. Our results in this form of insurance lead us to question the ideology of blending religious values in the broad financial services sector. We conclude that it will ultimately lead to financial regression, perpetuate the further decline of the emerging Muslim economies and reinforce the spatial disparities between them and the developed world.