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MIR MicroTakaful

The Missing Link in Takaful

While the development of the global takaful industry has been widely reported, its focus has mainly

been on the middle to high income group, with many of the world’s poor still missing out on its beneﬁts.

MiddleEast Insurance Review examines the approach behind providing low-cost takaful to poor Muslim

communities, and what has been practised so far in this aspect.

L

arge sectors of poverty within many Muslim

countries indicate a demand for low-cost takaful There is “a noticeable lack of microinsurance in

schemes. After all, as pointed out by Mr Sabbir North Africa and Middle East. In no other region is

Patel, Senior Vice President of the International Coop- the lack of microinsurance so evident”

erative and Mutual Insurance Federation (ICMIF) at the The Landscape of Microinsurance

Asian Conference on Microinsurance last year, over half (The Microinsurance Centre) –

the world’s lowest developed countries have a majority quoted by ICMIF at the Asian Conference on Microinsurance, 2007.

Muslim population.

donor agencies to sponsor training programs and facili-

The Approach tate the transfer of know-how from developed markets to

According to Mr Patel, microtakaful schemes overcome their technical deﬁciencies and strengthen local

should involve NGOs, zakat funds and donor competence, he added.

agencies, and obtain support from the taka-

ful sector in the form of technical expertise In the Absence of Microtakaful

and financial assistance. Microtakaful can As stated by Mr Patel, “the basic fundamentals underly-

adopt the partner-agent model practised in ing the takaful concept are very similar to co-operative

microinsurance, whereby a microinsurance (or and mutual insurance principles, to the extent that the

Mr Sabbir Patel

microtakaful) provider may become an agent for co-operative and mutual insurance scheme investing in

an established insurance company to gain access Islamic compliant products is one that is accepted under

to technical expertise. Islamic Law.” Since the co-operative and takaful concepts

Under this approach, the microﬁnance institution are so similar, “there is no real obstacle for the more

(MFI), as the takaful agent, sells policies to its client established co-operative movement to assist the takaful

on behalf of the insurer in exchange for a commission. movement to provide insurance products to low-income

The MFI is also responsible for product servicing, which communities.”

involves verifying claims and submitting claim requests. The well-run or genuine co-operative is in a better posi-

The insurer “manufactures” the product and provides the tion to provide affordable and sustainable microinsurance

actuarial, ﬁnancial and claims-processing expertise, and cover, he noted. Its beneﬁts include dedicating substantial

absorbs all the insurance risks. resources to research, health promotion, and loss preven-

In an ICMIF paper, “Takaful & Poverty Alleviation,” tion; and a structure which makes it easier to win the trust

Mr Patel said: “The policyholder beneﬁts by increased ac- of the members.

cess to a wider range of products with increased coverage In addition, under the co-operative philosophy, any

and greater sustainability; and the partnering insurance surpluses from the scheme are returned to the members

company has access into a new market without taking in the form of dividends, lower premiums, loss prevention

extensive marketing, distribution, or administration costs. activities, and additional coverage.

More importantly, the partner-agent model facilitates However, he added, in order to effectively provide

the pooling of risks between the formal and informal insurance to the poor, it must strictly adhere to the fol-

sectors.” lowing:

Where a partner is not available, the microinsurance

(or microtakaful) provider may consider approaching • Good corporate governance;

• Proper form of accounting and transparency;

Partner-Agent Model • An open, voluntary and non-discriminating member-

ship;

• A high degree of autonomy and self-reliance;

Partner Agent

• Clear focus or objective to hold members together, such

Product as access to affordable insurance products;

sales • Ensuring that everybody has access to, and can afford

Product Policyholder

manufacturing to join the cooperative.

Product

Co-operatives providing microinsurance include

servicing CARD MBA in the Philippines, Sanasa Insurance Co in

Service Sri Lanka, Centre D’Innovation Financière in West Africa

provider and Columna of Guatemala.

Let us now take a look at some microtakaful and micro-

Source: Brown and Churchill (2000)

insurance initiatives for Muslims around the world.

56

MIR MicroTakaful

Bangladesh the partners or clients of LKMS from debt in the event of

The birthplace of Grameen Bank, the poster boy death. Under the partner-agent model, LKMS represents

of microfinance, this Muslim-majority country traces their partners/clients or policyholders, ATK is the insur-

the beginning of its microinsurance industry as far back as ance provider and Takmin Working Group functions as

20 years, although it was pursued more vigorously about the mediator or agency between LKMS and ATK.

nine years ago. In fact, the growth in the life insurance Last year, ATK partnered with the National Alms

industry is due largely to the microinsurance schemes Board (Baznas) to develop a microtakaful scheme for

now offered by all private-sector life companies. alms receivers. The covers cost Rp50,000 (US$5) and

Bangladesh’s first microinsurance product, Grameen will consist of reciprocal assistance funds managed by

Bima or village insurance, was launched by Delta Life ATK and donation funds managed by Baznas. The latter

in 1988. Subsequently, it introduced an urban micro- distributes Rp2,500 from each policyholder’s premiums

insurance scheme, Gono Bima, which offered a similar to worthy receivers. The policies pay out Rp5 million for

endowment product. Today, microinsurance comprises death resulting from natural causes and Rp25 million for

40% of Delta Life’s portfolio. those caused by accidents.

According to Managing Director Das Deba Prashad, Mr Agus Edi Sumanto, President Director of ATK,

microinsurance schemes in Bangladesh are aimed not just said: “Only member cards, death certificates and letters

at providing risk cover but also at pooling the savings from the police proving that the deceased died due to

of the poor. Hence, such plans are modelled to provide accidents are needed to make a claim. The claim would

cash, compared to those in other countries which are then be processed within 14 days and the payout would

mostly renewable term insurance plans covering death be distributed by Baznas to the deceased’s heirs.”

and disability risks only. Jordan

Indonesia In 2007, Microfund for Women, an organisation

The world’s most populous Muslim-majority na- that funds women entrepreneurs in Jordan, launched

tion is also arguably the most developed in terms of a loan insurance product covering death, total or partial

microtakaful. The earliest beginnings can be traced to disability through a compulsory premium of 0.11% on

2006, when Germany’s Allianz introduced a microinsur- all disbursed loans. This scheme is offered in partnership

ance version of its takaful policies in the country. After with Jordan Insurance.

a 16-month-long pilot phase, a credit life programme, Lebanon

“Payung Keluarga” (meaning “Family Umbrella”) was

introduced in January this year, featuring extended op- Established in 1997, the Agricultural Mutual Fund

tions. Through this scheme, Allianz has insured over of Lebanon provides health insurance coverage for

42,000 micro-credits, covering debtors of seven partner costs not covered by the government social security fund

MFIs against natural and accidental death for an aver- (the government covers 85% of hospital fees). Said to

age premium of US$0.66. It also provides extra payout be provided in the “spirit of takaful”, the fund covers

to the family. 5,000 needy families and has preferential agreements

Under Payung Keluarga, MFI partners are able to with healthcare providers which provide discounts of up

insure the spouse of the debtor. Because many mi- to 50%. It operates in 180 villages in southern Lebanon

crobusinesses in Indonesia are jointly run by spouses, and hopes to expand membership to other parts of the

several MFI partners who finance these businesses have country.

requested such joint-life coverage. Moreover, the MFI One of the main difficulties facing the fund is the

can adapt the amount of extra payouts to the needs of possibility of the government withdrawing its health

their customers. While very poor customers with micro- subsidies. Currently, for three months each year, the

credits under US$100 may require high extra payouts, government provides no support, and the fund covers

better-off customers may be better served with lower all costs during this period. The scheme has managed to

or no extra payouts whereby they save the premium for survive on the goodwill of the community and dedication

protection they already obtain from other sources. of the employees. However, it is in need of technical sup-

To keep premiums low, Payung Keluarga is a compul- port to increase coverage, provide additional products,

sory product. To reduce complexity, the MFI centrally and access reinsurance.

decides on the product benefits on behalf of their cus- Malaysia

tomers. However, the customers receive detailed product

explanations from the loan officers of the MFI. Microtakaful schemes are slowly increasing in one

Domestic insurance providers have also jumped onto of the world’s most advanced takaful markets. In

the microtakaful bandwagon. In late 2006, PT Asuransi April 2007, Takaful Ikhlas launched a microtakaful

Takaful Keluarga (ATK), Takmin Working Group and scheme in conjunction with the Farmers Welfare Fed-

Shariah microfinance institutions (LKMS) collabo- eration of Malaysia, an NGO looking after the needs of

rated under the partner-agent model to launch Takaful destitute farmers. The compulsory scheme, funded by

Micro Sakinah, a Shariah-compliant credit insurance the government, provides immediate death expenses of

programme for micro businesses and poor families in RM500 (US$140) for a premium of RM1.80, covering

Bogor. 100,000 members. A voluntary personal accident death

Claiming to be “different from most credit life insur- and disability scheme provides a capital protection of

ance”, Takaful Micro Sakinah was designed mainly to free RM 10,000.

57

MIR MicroTakaful

Morocco Sri Lanka

Microﬁnance activities emerged in Morocco at the Amana Takaful Insurance (ATI), the ﬁrst taka-

beginning of 1990s to ﬁnance micro enterprises and ful provider in the country, has added microtakaful

serve those who have been excluded from the traditional products to its portfolio, in collaboration with NGOs and

banking system. Al Amana is the largest MFI in the coun- MFIs. Last year, it introduced Navodaya (meaning “dawn

try in terms of the portfolio of outstanding loans and is of a new era”), aimed at providing death and disabilities

aiming, by next year, to serve half a million clients in urban covers for factory workers, at a cost of LKR1 (US$ 0.01)

and rural areas by providing access to an array of ﬁnancial (see article on “Helping the Poor in Sri Lanka”). According

services and products, including insurance. to ATI, Navodaya is a stepping stone in microtakaful and

more such products are being developed.

Helping the Poor in Sri Lanka

As a developing country, Sri Lanka has its fair share of the under privileged who live

far below the poverty line. Mr Ehsan Zaheed, CEO of Amana Takaful Insurance

(ATI), explains the scheme it introduced to help alleviate the burdens of this group.

A s a microtakaful provider, ATI faces many challenges

in its quest to eliminate poverty in Sri Lanka. These

include:

disaster. Through the cover, ATI secured

the recipient’s liability to the MFI or the NGO.

In addition, ATI also grants the recipient or his/her

family with an amount of money to help them overcome

• The concept of insurance is misunderstood by the

the setback they have faced.

general public. This is due to lack of awareness on how

In a different approach, ATI engaged various garment

an insurance cover could help them at a time of loss or

manufacturing companies to promote microtakaful to

calamity. For microtakaful especially, recipients view the

factory workers who fall into the lower income bracket.

insurance as a scam to take their money.

Under the “Navodaya” product, covers include:

• Welfare is seen as a source of income and dependency

on it has increased. • Death covers due to accidental or natural causes;

• Inculcating the message of microtakaful as a cushion to • Hospitalisation cover;

fall back on during a time of need and is not a excuse to • Marriage and child birth covers.

claim fraudulently (moral hazards).

The microtakaful covers offered by ATI have been

• The insurance cover is taken with the intention of

successful because beneﬁciaries are able to enjoy the

making a proﬁt by claiming more than what has been

beneﬁts of insurance without the burden of high investment.

contributed.

ATI’s role of a silent partner working together with the

• Establishing the trust and credibility of the microtakaful

employer, the MFI and the NGO has also worked.

provider.

The primary cause for these issues is the lack of Overcoming Challenges

education or knowledge on how to overcome poverty. The biggest hurdle ATI faced was in the collection of

premiums or contributions, particularly during the initial

The Approach stages as the consumers of microtakaful products were in

ATI took the opportunity to bring microtakaful to the rural areas, spread over wide areas and difﬁcult to locate.

market by tying up with NGOs, microﬁnance institutions Using the network already established by NGOs, MFIs

(MFIs) and its own internal sales force. and companies, ATI incorporated premiums to the grants

In microtakaful, success depends on the credibility and which the recipient received. This was the ideal collection

trust you build up within the community. This is a sensitive method which did not hassle the recipient as the NGO or

issue as most communities are not receptive to those they the MFI was paying on behalf of them. Meanwhile, private

are not familiar with. companies were encouraged to use microinsurance as an

ATI overcame this by tying up with NGOs who were employee retention scheme.

already present in the country and operating microﬁnance The next hurdle was in claims and claims management.

projects. Most of these projects dealt with training in basic The effective handling of claims requires a system which is

cash management and managing small businesses such as easy to access. The distribution channels were sought to

manufacturing of soap and yogurt, weaving, and making of provide settlement services. Now, once relevant documents

garments and hand bags; and thereafter providing necessary are submitted to the NGO, the MFI or the employer will

capital to the trainees to start their own ventures. dispense the beneﬁts immediately.

ATI was the risk management or investment protection Microtakaful is a lifeline for the under-privileged and,

specialist who covered recipients of the grants through the at the same time, a proﬁtable proposition for insurance

NGO. The cover is able to secure the ﬁnancial obligation companies. Insurers can also look at the opportunity to

of the recipient and family in the event of a tragedy or a create new markets for existing products.

58

← Older revision		Revision as of 07:03, 11 November 2017
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−	[~~http~~://45.40.~~136.134~~/~~~hodhood~~/HodHoodDocuments/IslamicFinance/Takaful/Micro%20Takaful%20by%20Shabir%20Patal.pdf Read the Full Document]	+	[https://www.hodhood.com/en/HodHoodDocuments/IslamicFinance/Takaful/Micro%20Takaful%20by%20Shabir%20Patal.pdf Read the Full Document]

← Older revision	Revision as of 02:27, 21 September 2016
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	+
	+
	+	== Top 20 FREQUENT WORDS ==
	+	insurance 30
	+	microtakaful 26
	+	takaful 19
	+	microinsurance 17
	+	ati 14
	+	mfi 12
	+	scheme 12
	+	products 10
	+	covers 9
	+	partner 9
	+	agent 8
	+	access 7
	+	provider 7
	+	atk 6
	+	lanka 6
	+	ngo 6
	+	operative 6
	+	providing 6
	+	sri 6
	+	approach 5
	+	bene<U+FB01>ts 5
	+	claims 5
	+	companies 5
	+	coverage 5
	+	fund 5
	+	government 5
	+	introduced 5
	+	micro 5
	+	model 5
	+	muslim 5
	+	ngos 5
	+	patel 5
	+	poverty 5
	+	premiums 5
	+	recipient 5
	+	schemes 5
	+
	+
	+
	+	== DOCUMENT KEY POINTS ==
	+	*microtakaful can as stated by mr patel the basic fundamentals underlyadopt the partner agent model practised in ing the takaful concept are very similar to co operative microinsurance whereby a microinsurance or and mutual insurance principles to the extent that the mr sabbir patel microtakaful provider may become an agent for co operative and mutual insurance scheme investing in an established insurance company to gain access islamic compliant products is one that is accepted under to technical expertise
	+	*lowing where a partner is not available the microinsurance or microtakaful provider may consider approaching a c good corporate governance a c proper form of accounting and transparency partner agent model a c an open voluntary and non discriminating membership a c a high degree of autonomy and self reliance partner agent a c clear focus or objective to hold members together such product as access to affordable insurance products sales a c ensuring that everybody has access to and can afford product policyholder manufacturing to join the cooperative
	+
	+	*moreover the mfi one of the main difficulties facing the fund is the can adapt the amount of extra payouts to the needs of possibility of the government withdrawing its health their customers
	+	*under the partner agent model lkms represents of microfinance this muslim majority country traces their partners clients or policyholders atk is the insurthe beginning of its microinsurance industry as far back as ance provider and takmin working group functions as years although it was pursued more vigorously about the mediator or agency between lkms and atk
	+
	+	*the biggest hurdle ati faced was in the collection of premiums or contributions particularly during the initial the approach stages as the consumers of microtakaful products were in ati took the opportunity to bring microtakaful to the rural areas spread over wide areas and difi cult to locate
	+	*last year it introduced navodaya meaning dawn try in terms of the portfolio of outstanding loans and is of a new era aimed at providing death and disabilities aiming by next year to serve half a million clients in urban covers for factory workers at a cost of lkr us
	+
	+
	+	''Please note, This is an auto generated summary based on sentances position in the document and other factors''
	+	== DOCUMENT WORD ANALYSIS ==
	+	=== Main Category ===
	+	: AlHuda Material\takaful
	+
	+
	+	=== KeyWords ===
	+	taka islam insur malaysia productdeferred shariah countries muslim financial retakaful model growth custom partner developed service mutual bankable provided scheme
	+
	+
	+
	+	== RELATED DOCUMENTS ==
	+	:[[A Review of Takaful by Prof. Khawaja Ahmed Saeed]]
	+	:[[Agency Management,Training and Incentive Programme]]
	+	:[[Audit Issue of Islamic Banking]]
	+	:[[Banca Takaful by Faisal Shahzad Abbassi]]
	+	:[[Best Practices from e- Insurance to e-Takaful by Sami Guello]]
	+	:[[Calculated Risks, Measurable Results]]
	+	:[[Challenges & Issues Faced by Takaful Industry by Mr. Imtiaz ]]
	+	:[[Co-Operative Insurance and Takaful]]
	+	:[[Current Achievements of Takaful by Dr. S. J Malaikah]]
	+	:[[International Cooperative & Mutual Insurance Federation]]
	+	:[[Islamic Banking And Finance Malaysia’s Experience And Achiev]]
	+	:[[Islamic Finance & Investment Symposium by Sohail Jaffar]]
	+	:[[Islamic Insurance in 21st Century by Ahmad Feizal]]
	+	:[[Islamic Insurance Opertunities and Challenges]]
	+	:[[Issues and Challenges in Retakaful by Azman Ismail]]
	+	:[[Leveraging BancaTakaful as a Key Growth Channel by Mr. Rohai]]
	+	:[[Life Family Takaful by Mr. P Ahmed]]
	+	:[[Micro Insurance Co-Operative and Takaful]]
	+	:[[Micro Takaful by Shabir Patal]]
	+	:[[Microinsurance and Takaful]]
	+	:[[Microinsurance, cooperatives and Takaful]]
	+	:[[MicroTakaful – the way forward by Capt. M. Jamil Akhtar]]
	+	:[[Opertunities in Islamic Insurance]]
	+	:[[Present Scenario and Future Potentials of Takaful by Kazi Md]]
	+	:[[ReTakaful by Rohail Ali Khan]]
	+	:[[Syariah Compliant General Takaful Products by Sami Guellouz]]
	+	:[[Takaful and Mutuality by Mohd. Masua Billah]]
	+	:[[Takaful by Abdul Rahim]]
	+	:[[Takaful for Microfinance]]
	+	:[[Takaful Opperunities and Challenges By Azeem Pirani]]
	+	:[[Takaful Products Family Takaful Linked Investment Plans by S]]
	+	:[[Takaful World Prospective Middle East & North Africa]]
	+	:[[Takaful]]
	+	:[[Takful - Zubair Mughal]]
	+	:[[Takful Report]]
	+	:[[The Islamic Vision Presentation]]
	+	:[[The Success of Retakaful by Farid Benbouzid]]
	+
	+
	+
	+	== DOCUMENT REFERENCES ==
	+
	+
	+	=== Number of Pages ===
	+	3
	+
	+
	+	=== Published Date ===
	+	2008-08-12 04:17:55
	+
	+
	+	== Full Document ==
	+
	+
	+	[http://45.40.136.134/~hodhood/HodHoodDocuments/IslamicFinance/Takaful/Micro%20Takaful%20by%20Shabir%20Patal.pdf Read the Full Document]
	+
	+
	+	[[Category:Islamic Finance]]
	+
	+	[[Category: Takaful]]