Takaful for Microfinance
Takaful for
Microfinance
1st International Conference on
Inclusive Islamic Financial Sector
Development
Overview of presentation
Insurance and Poverty Alleviation
Challenges providing microinsurance
Opportunities and need for microtakaful
Microtakaful in practice
Can insurance assist poverty
alleviation?
The poor are the most vulnerable
The impact of losses are more severe
They have minimum means of recovery
Success of microfinance schemes show
the poor can and want to save
Savings and credit are used
unproductively
The poor need a safety net to escape
poverty
“Insurance is now
recognized as an
important tool for
poverty alleviation”
Microinsurance products
Loan protection
Disability and Sickness
Savings
Health
Funeral
Property
Agriculture
Providing microinsurance
The challenges
Coverage
Regulation
Moral hazard and Fraud
Adverse selection
Education and trust
Technical expertise
Affordability
Retention
Sustainability
Penetration
Key success factors for
introducing microinsurance
Organized group
Existing financial infrastructure
Trust
Need
Understanding
External support
Providing microinsurance
The possibilities
The cooperative microinsurance model
History of organising the poor
Operate for the interest of members by
members
Trust
Ownership and loyalty
Peer pressure
Surplus reinvested or redistributed
Providing microinsurance
The possibilities
The partner agent model
No-risk fee for microinsurance provider
Better coverage for policyholder
Access to new market
Pooling of risks between informal and formal
sector
Providing microinsurance
The possibilities
The donor agent model
Access to expertise
Financial sustainability
Guiding hand
Opportunities and need
for microtakaful
Principles of Takaful
Solidarity and joint guarantee
Self reliance and self sustaining for community
well being
Assist those that need assistance
Community pooling system
Shari’ah approved investments and products
“Bear ye one another’s burden”
The Global Takaful sector
1979 First Takaful Company established
1996 – 30 Institutions transacting Takaful
2002 – 50 Takaful operators and four Retakaful
providers
2004 – 80 Takaful operators, 200 Takaful windows
and 12 Retakaful providers
Source: IBB Solicitors, UK – (2005)
The need for microtakaful
Social services inadequate or unavailable
Large sectors of poverty in many Muslim
countries
Over half of world’s lowest developed countries
have a majority Muslim population
Increasing inequality in Middle East and Gulf
countries
Religious considerations are important in villages
and small communities
Established Takaful sector neglecting low
income sector
“Takaful is the
second most
important social
institution to
counter poverty
and deprivation”
Omar Fischer
1999
Possibilities for microtakaful
Establish community based microtakaful
schemes
Involvement of NGOs, zakat funds, donor
agencies
Support from Takaful sector
Technical expertise
Financial assistance
Partner-agent model
Microtakaful in practice
Agricultural Mutual Fund - Lebanon
Amana Takaful – Sri Lanka
Takaful Ikhlas
Takmin - Indonesia
Summary
Microtakaful can succeed
Microtakaful can compliment microfinance
Microtakaful is imperative to ensure productive
use of assets for the poor.
It is key to ensuring the long-term self
sustainability of the individual and his family to
stay above the poverty line.
Existing Takaful operators have a responsibility
to take a lead in this area in accordance with
the basic principles and philosophy of takaful
which is to “bear one another’s burden”.
The case of a microtakaful
policyholder
Ibu Iwit, 50 years, farmworker, earning
one dollar a day.
Took out a 6 month loan of 55 USD from
local Baitul mal Wat Tamwil
Insurance premium was taken out with
Takmin at 0.16 USD
Ibu Iwit passed away a couple months
later
Her husband, Amad, age 60 years, no
income
A Global reach for
local strength
Thank you
www.takaful.coop
