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| − | MIR MicroTakaful
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| − | The Missing Link in Takaful
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| − | While the development of the global takaful industry has been widely reported, its focus has mainly
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| − | been on the middle to high income group, with many of the world’s poor still missing out on its benefits.
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| − | MiddleEast Insurance Review examines the approach behind providing low-cost takaful to poor Muslim
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| − | communities, and what has been practised so far in this aspect.
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| − | L
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| − | arge sectors of poverty within many Muslim
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| − | countries indicate a demand for low-cost takaful There is “a noticeable lack of microinsurance in
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| − | schemes. After all, as pointed out by Mr Sabbir North Africa and Middle East. In no other region is
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| − | Patel, Senior Vice President of the International Coop- the lack of microinsurance so evident”
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| − | erative and Mutual Insurance Federation (ICMIF) at the The Landscape of Microinsurance
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| − | Asian Conference on Microinsurance last year, over half (The Microinsurance Centre) –
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| − | the world’s lowest developed countries have a majority quoted by ICMIF at the Asian Conference on Microinsurance, 2007.
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| − | Muslim population.
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| − | donor agencies to sponsor training programs and facili-
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| − | The Approach tate the transfer of know-how from developed markets to
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| − | According to Mr Patel, microtakaful schemes overcome their technical deficiencies and strengthen local
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| − | should involve NGOs, zakat funds and donor competence, he added.
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| − | agencies, and obtain support from the taka-
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| − | ful sector in the form of technical expertise In the Absence of Microtakaful
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| − | and financial assistance. Microtakaful can As stated by Mr Patel, “the basic fundamentals underly-
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| − | adopt the partner-agent model practised in ing the takaful concept are very similar to co-operative
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| − | microinsurance, whereby a microinsurance (or and mutual insurance principles, to the extent that the
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| − | Mr Sabbir Patel
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| − | microtakaful) provider may become an agent for co-operative and mutual insurance scheme investing in
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| − | an established insurance company to gain access Islamic compliant products is one that is accepted under
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| − | to technical expertise. Islamic Law.” Since the co-operative and takaful concepts
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| − | Under this approach, the microfinance institution are so similar, “there is no real obstacle for the more
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| − | (MFI), as the takaful agent, sells policies to its client established co-operative movement to assist the takaful
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| − | on behalf of the insurer in exchange for a commission. movement to provide insurance products to low-income
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| − | The MFI is also responsible for product servicing, which communities.”
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| − | involves verifying claims and submitting claim requests. The well-run or genuine co-operative is in a better posi-
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| − | The insurer “manufactures” the product and provides the tion to provide affordable and sustainable microinsurance
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| − | actuarial, financial and claims-processing expertise, and cover, he noted. Its benefits include dedicating substantial
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| − | absorbs all the insurance risks. resources to research, health promotion, and loss preven-
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| − | In an ICMIF paper, “Takaful & Poverty Alleviation,” tion; and a structure which makes it easier to win the trust
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| − | Mr Patel said: “The policyholder benefits by increased ac- of the members.
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| − | cess to a wider range of products with increased coverage In addition, under the co-operative philosophy, any
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| − | and greater sustainability; and the partnering insurance surpluses from the scheme are returned to the members
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| − | company has access into a new market without taking in the form of dividends, lower premiums, loss prevention
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| − | extensive marketing, distribution, or administration costs. activities, and additional coverage.
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| − | More importantly, the partner-agent model facilitates However, he added, in order to effectively provide
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| − | the pooling of risks between the formal and informal insurance to the poor, it must strictly adhere to the fol-
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| − | sectors.” lowing:
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| − | Where a partner is not available, the microinsurance
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| − | (or microtakaful) provider may consider approaching • Good corporate governance;
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| − | • Proper form of accounting and transparency;
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| − | Partner-Agent Model • An open, voluntary and non-discriminating member-
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| − | ship;
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| − | • A high degree of autonomy and self-reliance;
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| − | Partner Agent
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| − | • Clear focus or objective to hold members together, such
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| − | Product as access to affordable insurance products;
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| − | sales • Ensuring that everybody has access to, and can afford
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| − | Product Policyholder
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| − | manufacturing to join the cooperative.
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| − | Product
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| − | Co-operatives providing microinsurance include
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| − | servicing CARD MBA in the Philippines, Sanasa Insurance Co in
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| − | Service Sri Lanka, Centre D’Innovation Financière in West Africa
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| − | provider and Columna of Guatemala.
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| − | Let us now take a look at some microtakaful and micro-
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| − | Source: Brown and Churchill (2000)
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| − | insurance initiatives for Muslims around the world.
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| − | 56
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| − | MIR MicroTakaful
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| − | Bangladesh the partners or clients of LKMS from debt in the event of
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| − | The birthplace of Grameen Bank, the poster boy death. Under the partner-agent model, LKMS represents
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| − | of microfinance, this Muslim-majority country traces their partners/clients or policyholders, ATK is the insur-
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| − | the beginning of its microinsurance industry as far back as ance provider and Takmin Working Group functions as
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| − | 20 years, although it was pursued more vigorously about the mediator or agency between LKMS and ATK.
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| − | nine years ago. In fact, the growth in the life insurance Last year, ATK partnered with the National Alms
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| − | industry is due largely to the microinsurance schemes Board (Baznas) to develop a microtakaful scheme for
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| − | now offered by all private-sector life companies. alms receivers. The covers cost Rp50,000 (US$5) and
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| − | Bangladesh’s first microinsurance product, Grameen will consist of reciprocal assistance funds managed by
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| − | Bima or village insurance, was launched by Delta Life ATK and donation funds managed by Baznas. The latter
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| − | in 1988. Subsequently, it introduced an urban micro- distributes Rp2,500 from each policyholder’s premiums
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| − | insurance scheme, Gono Bima, which offered a similar to worthy receivers. The policies pay out Rp5 million for
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| − | endowment product. Today, microinsurance comprises death resulting from natural causes and Rp25 million for
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| − | 40% of Delta Life’s portfolio. those caused by accidents.
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| − | According to Managing Director Das Deba Prashad, Mr Agus Edi Sumanto, President Director of ATK,
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| − | microinsurance schemes in Bangladesh are aimed not just said: “Only member cards, death certificates and letters
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| − | at providing risk cover but also at pooling the savings from the police proving that the deceased died due to
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| − | of the poor. Hence, such plans are modelled to provide accidents are needed to make a claim. The claim would
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| − | cash, compared to those in other countries which are then be processed within 14 days and the payout would
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| − | mostly renewable term insurance plans covering death be distributed by Baznas to the deceased’s heirs.”
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| − | and disability risks only. Jordan
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| − | Indonesia In 2007, Microfund for Women, an organisation
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| − | The world’s most populous Muslim-majority na- that funds women entrepreneurs in Jordan, launched
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| − | tion is also arguably the most developed in terms of a loan insurance product covering death, total or partial
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| − | microtakaful. The earliest beginnings can be traced to disability through a compulsory premium of 0.11% on
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| − | 2006, when Germany’s Allianz introduced a microinsur- all disbursed loans. This scheme is offered in partnership
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| − | ance version of its takaful policies in the country. After with Jordan Insurance.
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| − | a 16-month-long pilot phase, a credit life programme, Lebanon
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| − | “Payung Keluarga” (meaning “Family Umbrella”) was
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| − | introduced in January this year, featuring extended op- Established in 1997, the Agricultural Mutual Fund
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| − | tions. Through this scheme, Allianz has insured over of Lebanon provides health insurance coverage for
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| − | 42,000 micro-credits, covering debtors of seven partner costs not covered by the government social security fund
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| − | MFIs against natural and accidental death for an aver- (the government covers 85% of hospital fees). Said to
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| − | age premium of US$0.66. It also provides extra payout be provided in the “spirit of takaful”, the fund covers
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| − | to the family. 5,000 needy families and has preferential agreements
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| − | Under Payung Keluarga, MFI partners are able to with healthcare providers which provide discounts of up
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| − | insure the spouse of the debtor. Because many mi- to 50%. It operates in 180 villages in southern Lebanon
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| − | crobusinesses in Indonesia are jointly run by spouses, and hopes to expand membership to other parts of the
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| − | several MFI partners who finance these businesses have country.
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| − | requested such joint-life coverage. Moreover, the MFI One of the main difficulties facing the fund is the
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| − | can adapt the amount of extra payouts to the needs of possibility of the government withdrawing its health
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| − | their customers. While very poor customers with micro- subsidies. Currently, for three months each year, the
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| − | credits under US$100 may require high extra payouts, government provides no support, and the fund covers
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| − | better-off customers may be better served with lower all costs during this period. The scheme has managed to
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| − | or no extra payouts whereby they save the premium for survive on the goodwill of the community and dedication
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| − | protection they already obtain from other sources. of the employees. However, it is in need of technical sup-
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| − | To keep premiums low, Payung Keluarga is a compul- port to increase coverage, provide additional products,
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| − | sory product. To reduce complexity, the MFI centrally and access reinsurance.
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| − | decides on the product benefits on behalf of their cus- Malaysia
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| − | tomers. However, the customers receive detailed product
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| − | explanations from the loan officers of the MFI. Microtakaful schemes are slowly increasing in one
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| − | Domestic insurance providers have also jumped onto of the world’s most advanced takaful markets. In
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| − | the microtakaful bandwagon. In late 2006, PT Asuransi April 2007, Takaful Ikhlas launched a microtakaful
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| − | Takaful Keluarga (ATK), Takmin Working Group and scheme in conjunction with the Farmers Welfare Fed-
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| − | Shariah microfinance institutions (LKMS) collabo- eration of Malaysia, an NGO looking after the needs of
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| − | rated under the partner-agent model to launch Takaful destitute farmers. The compulsory scheme, funded by
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| − | Micro Sakinah, a Shariah-compliant credit insurance the government, provides immediate death expenses of
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| − | programme for micro businesses and poor families in RM500 (US$140) for a premium of RM1.80, covering
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| − | Bogor. 100,000 members. A voluntary personal accident death
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| − | Claiming to be “different from most credit life insur- and disability scheme provides a capital protection of
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| − | ance”, Takaful Micro Sakinah was designed mainly to free RM 10,000.
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| − | 57
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| − | MIR MicroTakaful
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| − | Morocco Sri Lanka
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| − | Microfinance activities emerged in Morocco at the Amana Takaful Insurance (ATI), the first taka-
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| − | beginning of 1990s to finance micro enterprises and ful provider in the country, has added microtakaful
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| − | serve those who have been excluded from the traditional products to its portfolio, in collaboration with NGOs and
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| − | banking system. Al Amana is the largest MFI in the coun- MFIs. Last year, it introduced Navodaya (meaning “dawn
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| − | try in terms of the portfolio of outstanding loans and is of a new era”), aimed at providing death and disabilities
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| − | aiming, by next year, to serve half a million clients in urban covers for factory workers, at a cost of LKR1 (US$ 0.01)
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| − | and rural areas by providing access to an array of financial (see article on “Helping the Poor in Sri Lanka”). According
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| − | services and products, including insurance. to ATI, Navodaya is a stepping stone in microtakaful and
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| − | more such products are being developed.
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| − | Helping the Poor in Sri Lanka
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| − | As a developing country, Sri Lanka has its fair share of the under privileged who live
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| − | far below the poverty line. Mr Ehsan Zaheed, CEO of Amana Takaful Insurance
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| − | (ATI), explains the scheme it introduced to help alleviate the burdens of this group.
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| − | A s a microtakaful provider, ATI faces many challenges
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| − | in its quest to eliminate poverty in Sri Lanka. These
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| − | include:
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| − | disaster. Through the cover, ATI secured
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| − | the recipient’s liability to the MFI or the NGO.
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| − | In addition, ATI also grants the recipient or his/her
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| − | family with an amount of money to help them overcome
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| − | • The concept of insurance is misunderstood by the
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| − | the setback they have faced.
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| − | general public. This is due to lack of awareness on how
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| − | In a different approach, ATI engaged various garment
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| − | an insurance cover could help them at a time of loss or
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| − | manufacturing companies to promote microtakaful to
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| − | calamity. For microtakaful especially, recipients view the
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| − | factory workers who fall into the lower income bracket.
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| − | insurance as a scam to take their money.
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| − | Under the “Navodaya” product, covers include:
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| − | • Welfare is seen as a source of income and dependency
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| − | on it has increased. • Death covers due to accidental or natural causes;
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| − | • Inculcating the message of microtakaful as a cushion to • Hospitalisation cover;
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| − | fall back on during a time of need and is not a excuse to • Marriage and child birth covers.
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| − | claim fraudulently (moral hazards).
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| − | The microtakaful covers offered by ATI have been
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| − | • The insurance cover is taken with the intention of
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| − | successful because beneficiaries are able to enjoy the
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| − | making a profit by claiming more than what has been
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| − | benefits of insurance without the burden of high investment.
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| − | contributed.
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| − | ATI’s role of a silent partner working together with the
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| − | • Establishing the trust and credibility of the microtakaful
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| − | employer, the MFI and the NGO has also worked.
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| − | provider.
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| − | The primary cause for these issues is the lack of Overcoming Challenges
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| − | education or knowledge on how to overcome poverty. The biggest hurdle ATI faced was in the collection of
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| − | premiums or contributions, particularly during the initial
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| − | The Approach stages as the consumers of microtakaful products were in
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| − | ATI took the opportunity to bring microtakaful to the rural areas, spread over wide areas and difficult to locate.
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| − | market by tying up with NGOs, microfinance institutions Using the network already established by NGOs, MFIs
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| − | (MFIs) and its own internal sales force. and companies, ATI incorporated premiums to the grants
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| − | In microtakaful, success depends on the credibility and which the recipient received. This was the ideal collection
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| − | trust you build up within the community. This is a sensitive method which did not hassle the recipient as the NGO or
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| − | issue as most communities are not receptive to those they the MFI was paying on behalf of them. Meanwhile, private
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| − | are not familiar with. companies were encouraged to use microinsurance as an
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| − | ATI overcame this by tying up with NGOs who were employee retention scheme.
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| − | already present in the country and operating microfinance The next hurdle was in claims and claims management.
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| − | projects. Most of these projects dealt with training in basic The effective handling of claims requires a system which is
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| − | cash management and managing small businesses such as easy to access. The distribution channels were sought to
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| − | manufacturing of soap and yogurt, weaving, and making of provide settlement services. Now, once relevant documents
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| − | garments and hand bags; and thereafter providing necessary are submitted to the NGO, the MFI or the employer will
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| − | capital to the trainees to start their own ventures. dispense the benefits immediately.
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| − | ATI was the risk management or investment protection Microtakaful is a lifeline for the under-privileged and,
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| − | specialist who covered recipients of the grants through the at the same time, a profitable proposition for insurance
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| − | NGO. The cover is able to secure the financial obligation companies. Insurers can also look at the opportunity to
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| − | of the recipient and family in the event of a tragedy or a create new markets for existing products.
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| − | 58
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