The Takaful Current Achievements

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The TakafulCurrent AchievementsFuture Outlook

• Zubair Mughal.
• Director AlHuda Centre of Islamic Banking and
  Islamic Economics.
• 042-5858990 - 8407850

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Introduction

• Takaful is the Sharia Compliant brand name for
  the Islamic alternative to conventional
  insurance. Its based on the principle of Taawan
  or mutual assistance. It provide provides mutual
  protection and joint risk sharing in the event of
  a loss by one of its member

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Origins of Takaful

• In the event of death caused by someone from
  another tribe, the member of the offenders tribe
  would share the blood money (Khoon Baha) to
  provide for the family of the victim.

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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 years maintenance
  and residence (2.240)

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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 dont 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) ltTirmidhigt

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Why Insurance ?

• Is Some thing wrong with Concept ?
• Risk Aversion
• Assuring others
• Risk sharing

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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)

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Gharar

• Lexically it means uncertainty and technically it
  means the uncertainty of the counteract or the
  subject matter.

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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

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The concept of Takaful

• Taburro (Contribution) from the participants
  (Policy Holders)
• Partnership among the participants.
• Need of an Operator
• Investment in Sharia Compliant modes.

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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.

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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.

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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.

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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.

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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

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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.

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Takaful Drivers

• Islamic banks and financial institutions play a
  strategic and important role in the distribution
  of Takaful products (especially Life Takaful
  Products).

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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.

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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

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Takaful Geographical Spread

• South East Asia 56
• Middle East 36
• Africa 7
• Europe, USA Others 1

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Main Markets

• Malaysia
• Indonesia
• Iran
• GCC countries
• Other Arab countries
• Other Asia Pacific
• Pakistan ( Emerging Market )

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The Challenges ahead

• Despite a remarkable breakthrough and a dynamic
  and sustained growth, there are challenges facing
  the Takaful industry.

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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

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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)

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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).

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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.

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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.

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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.