The TakafulCurrent Achievements&Future Outlook Zubair Mughal. Director : AlHuda : Centre of Islamic Banking and Islamic Economics. 042-5858990 - 8407850
Introduction “Takaful” is the Sharia Compliant brand name for the Islamic alternative to conventional insurance. Its based on the principle of Ta’awan or mutual assistance. It provide provides mutual protection and joint risk sharing in the event of a loss by one of its member
Origins of Takaful In the event of death caused by someone from another tribe, the member of the offender’s tribe would share the “ blood money” (Khoon Baha) to provide for the family of the victim.
From the Holly Quran • The need for insurance is shown in the following verse of The Quran. “ Those of you who die and leave widows should bequeath for their widows a year’s maintenance and residence” (2.240)
From the Hadiths • By Anas-bin-Malik, One day Prophet Muhammad(PBUH) notced a bedouin leaving his Camel without tying it. He asked the bedouin, “Why don’t you tie down your camel”? The Bedouin answered, “ I put my trust in Allah (SWT)”. The Prophet (PBUH) then said,” Tie your camel first, then put your trust in Allah(SWT)” <Tirmidhi>
Why Insurance ? Is Some thing wrong with Concept ? • Risk Aversion • Assuring others • Risk sharing
What wrong with practice ? The contract between the insurer & the insured is technically wrong from the sharia perspective because of • Gharar (Uncertainty)) • Gambling (Qamar & Maisir) • Interest (Riba)
Gharar • Lexically it means uncertainty and technically it means the uncertainty of the counteract or the subject matter.
Riba in Insurance • Direct Riba Excess on one side in case of exchange between the amount of premium. • Indirect Riba The interest earned on interest based investments
The concept of Takaful • Taburro (Contribution) from the participants (Policy Holders) • Partnership among the participants. • Need of an Operator • Investment in Sharia Compliant modes.
Shariah Compliance • Shariah compliance is an essential element in Takaful . • It is ensured through a Shariah Supervisory/ Advisory Board at the level of each Takaful company. • The role of the Shariah Board is vital in meeting the specific demand of a public who would not insure otherwise.
Different Models of Takaful • Pure Mudarabah Model : The participants and operator enter into modarabah Contract. • Wakalah Model : An Agency Agreement is made between participants and Operators on the basis of Wakalah ( Agency agreements) • Wakalah Based on Waqf Model : The participant's donate the fund and operator charge an agency fee.
Takaful Pioneers • Takaful started some 27 years ago in the Middle East with the launching of two companies: • The Islamic Arab Insurance Co. (IAIC) in the UAE and • The Islamic Insurance Co. of Sudan • But it took some time for the movement to take shape.
Takaful Pioneers • Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act). • This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asia.
Other Islamic/ Takaful Legislations • Other markets such as the Sudan and Iran have Islamic regulatory environments and became naturally Takaful markets. • In the Gulf countries specific Takaful legislations are coming through in Bahrain and in Saudi Arabia
Takaful drivers • This movement is driven by • A strong demand from a public who would not insure otherwise (because of religious beliefs); and • The successful development of Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment.
Takaful Drivers • Islamic banks and financial institutions play a strategic and important role in the distribution of Takaful products (especially Life Takaful Products).
Takaful Operators • The number of Takaful operators worldwide is now estimated at: • 60 Takaful companies • 3 Retakaful companies • This number may reach 90 + if so-called Takaful windows are to be included.
Takaful Premium • Takaful is one of the fastest growing segments in insurance (at around 20% pa. on average) • World Takaful contributions are conservatively estimated at around US$ 3billions, of which: • 60% General Takaful • 40% Family Takaful
Takaful Geographical Spread • South& East Asia : 56% • Middle East : 36% • Africa: 7% • Europe, USA & Others: 1%
Main Markets • Malaysia • Indonesia • Iran • GCC countries • Other Arab countries • Other Asia Pacific • Pakistan ( Emerging Market )
The Challenges ahead • Despite a remarkable breakthrough and a dynamic and sustained growth, there are challenges facing the Takaful industry.
Challenges • Business Model Dilemma • Could create an uneven / unfair business environment to operate • Need to reach a consensus internationally on a common and standard Takaful business model
Takaful Best Practices • Regional Takaful institutions and organisations need to come together internationally in order to promote and standardise best practices within the industry: • Islamic Financial Services Board (IFSB) • ASEAN Takaful Group (ATG) • International Takaful Association (ITA) • Accounting and Auditing Organization of Islamic Financial institutions (AAOIFI)
Growth Outlook • World Muslim population is estimated at 1.5 billions, of which around 97% are based in Asia and Africa. • A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East).
Takaful Products to Non-Muslims • Takaful Products are not exclusive to Muslims. • Competitively priced and sold through the right channel it could attract any consumer irrespective of their origin or faith.
Conclusions • Despite the challenges facing this “new” industry, exciting times are ahead once the latent potential is unleashed. • The success of Takaful largely depends on that of Islamic Financial institutions on a global basis.
Conclusions • There is a need for • More strategic alliances and synergy between Islamic Financial institutions • More cooperation between Islamic operators at an international level • A better legal and regulatory environment • Better competencies in Islamic Finance.