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| − | Islamic Insurance
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| − | Challenges & Opportunities
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| − | Financial Services Research
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| − | Forum June 28th 2005
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| − | Overview of presentation
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| − | • Why conventional insurance is not allowed
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| − | • Principles of Takaful
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| − | • Models of Takaful
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| − | • The global sector
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| − | • Challenges for the future
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| − | • Insurance for the low-income sector
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| − | • Takaful in Non-Muslim countries
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| − | Why is conventional insurance
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| − | not permissible?
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| − | • Uncertainty (Gharar)
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| − | • Gambling (Maisir)
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| − | • Interest (Riba)
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| − | Earlier forms of Islamic insurance
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| − | • Dawania – Mutual indemnification amongst officers during
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| − | the rule of Umar Ibn Al Khattab (2nd Caliph)
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| − | • Diyyah and Aquilah – Blood money and concept of
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| − | removing hardship from victims family by payment of
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| − | Diyyah, on a mutual basis, by relatives of offender
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| − | • Marine Insurance – Early second century – mutual fund to
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| − | cover robberies and mishaps
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| − | Fiqh Academy Resolution 1985
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| − | • Commerical insurance is prohibited
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| − | • Alternative contract confirming to principles of Islamic
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| − | dealings is the contract of cooperative insurance, which is
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| − | founded on the basis of charitable donation and Shariah
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| − | compliant dealings
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| − | Principles of Takaful
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| − | • Solidarity and joint guarantee
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| − | • Self reliance and self sustaining for community well being
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| − | • Assist those that need assistance
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| − | • Community pooling system
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| − | • Shari’ah approved investments and products
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| − | “Bear ye one another’s burden”
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| − | Takaful models in practice
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| − | • Not for profit model
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| − | • Ta’awuni model – “cooperative insurance”
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| − | • Al Mudharabah model – profit sharing
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| − | • Al Wakala model – agency agreement
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| − | The Global Takaful sector
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| − | • 1979 First Takaful Company established
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| − | • 1996 – 30 Institutions transacting Takaful
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| − | • 2002 – 50 Takaful operators and four Retakaful providers
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| − | • 2004 – 80 Takaful operators, 200 Takaful windows and 12
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| − | Retakaful providers
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| − | Source: IBB Solicitors, UK – (2005)
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| − | The Global Takaful sector
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| − | Source: Bhatty (2001)
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| − | Challenges for the future
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| − | • Dynamic Growth
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| − | • Harmonization
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| − | • Best practices
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| − | • Awareness
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| − | • Reinsurance
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| − | • Governance
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| − | • Low-income sector
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| − | • Non-Muslim countries
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| − | Insurance for the low-
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| − | income sector
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| − | Can insurance assist poverty
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| − | alleviation?
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| − | • The poor are the most vulnerable
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| − | • The impact of losses are more severe
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| − | • They have minimum means of recovery
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| − | • Success of microfinance schemes show the poor can and
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| − | want to save
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| − | • Savings and credit are used unproductively
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| − | • The poor need a safety net to escape poverty
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| − | “Insurance is being recognized
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| − | as an important tool for
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| − | poverty alleviation”
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| − |
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| − | Providing microinsurance
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| − | The challenges
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| − | • Coverage
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| − | • Regulation
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| − | • Moral hazard and Fraud
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| − | • Adverse selection
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| − | • Education and trust
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| − | • Technical expertise
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| − | • Affordability
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| − | • Retention
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| − | • Sustainability
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| − |
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| − | Providing microinsurance
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| − | The possibilities
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| − | • The cooperative microinsurance model
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| − | History of organising the poor
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| − | Operate for the interest of members by
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| − | members
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| − | Trust
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| − | Ownership and loyalty
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| − | Peer pressure
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| − | Surplus reinvested or redistributed
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| − |
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| − | Providing microinsurance
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| − | The possibilities
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| − | • The partner agent model
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| − | No-risk fee for microinsurance provider
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| − | Better coverage for policyholder
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| − | Access to new market
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| − | Pooling of risks between informal and formal
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| − | sector
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| − |
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| − | Providing microinsurance
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| − | The possibilities
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| − | • The donor agent model
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| − | Access to expertise
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| − | Financial sustainability
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| − | Guiding hand
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| − | The need in Muslim countries
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| − | • Social services inadequate or unavailable
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| − | • Large sectors of poverty in many Muslim countries
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| − | • Over half of world’s lowest developed countries have a
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| − | majority Muslim population
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| − | • Increasing inequality in Middle East and Gulf countries
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| − | “Takaful is the second most
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| − | important social institution to
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| − | counter poverty and
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| − | deprivation”
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| − | Omar Fisher,1999
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| − |
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| − | How can microtakaful be
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| − | provided?
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| − | • Establish informal microtakaful schemes
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| − | • Encouragement of pro-poor organisations
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| − | • Education of government and donor
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| − | agencies
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| − | • Involvement of Takaful sector
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| − | Technical expertise
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| − | Financial assistance
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| − | Partner-agent model
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| − | Islamic Insurance in Non-
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| − | Muslim countries
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| − | Takaful in Non-Muslim Countries
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| − | Is there a need?
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| − | Country Est. Muslim Country Est. Muslim
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| − | population population
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| − | Argentina 800,000 Italy 600,000
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| − | Brazil 1 million Japan 1.3 million
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| − | Canada 500,000 Kenya 8.4 million
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| − | France 4.8 million Netherlands 500,000
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| − | Germany 3 million UK 2 million
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| − | Takaful in Non-Muslim countries
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| − | Is there a need?
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| − | • Fasting growing immigrant population
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| − | • Belief in will of God
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| − | • Acceptance that insurance is not allowed
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| − | • First and second generations are
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| − | purchasing insurance
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| − | • Increased availability of information
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| − | • Development of Islamic financial sector
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| − | Takaful in Non-Muslim countries
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| − | The challenges
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| − | • Dispersed population
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| − | • Capital requirements
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| − | • Regulation
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| − | • Awareness
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| − | • Credibility
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| − | • Technical expertise
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| − |
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| − | Ruling by the European Council of Fatwa
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| − | and Research
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| − | “… It is well known that in most non-Islamic countries there
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| − | are cooperative and mutual insurance companies. There is
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| − | no harm from the Shari`ah point of view to participate in
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| − | these services. So, it is unlawful for a Muslim living in a
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| − | country where there is such a cooperative insurance
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| − | company to make an agreement with a commercial
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| − | insurance company…..”
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| − |
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| − | Ruling by the European Council of Fatwa
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| − | and Research
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| − | Muslims are obliged to purchase their statutory
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| − | insurance requirements from the cooperative and
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| − | mutual insurer if there is no Takaful company in the
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| − | country
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| − | The case of Folksam - Sweden
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| − | • 350,000 Muslim population
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| − | • Fastest growing immigrant community
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| − | • Collaboration with Swedish Muslim Council
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| − | • Marketing of Folksam products through
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| − | representatives of Council in communities and
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| − | mosques
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| − | • Insurance committee has been established
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| − | The Possibilities in Non-Muslim countries
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| − | There is a growing awareness and demand for Islamic
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| − | financial instruments including insurance in non-Muslim
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| − | countries. There is a great potential for established
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| − | financial institutes to set up Takaful windows. In particular
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| − | the Shari’ah ruling presents an opportunity for cooperative
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| − | and mutual insurers to penetrate this niche market with
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| − | minimal costs.
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| − | Conclusions
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| − | • Takaful sector is firmly established
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| − | • Growing rapidly
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| − | • Micronsurance/takaful is an important tool for poverty
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| − | alleviation
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| − | • Increasing awareness of Takaful in Non-Muslim countries
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| − | • Development of Takaful in Non-Muslim countries can
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| − | encourage greater participation into insurance market
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| − | Thank you
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| − | www.icmif.org/takaful
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