Takaful (Islamic insurance) has grown significantly in recent decades with over 60 operators worldwide and $3 billion in contributions annually. While it faces some business model challenges, the outlook is positive given the large Muslim population and strong growth in core markets. Standardizing best practices through international organizations and developing strategic partnerships between Islamic financial institutions can help Takaful realize its substantial potential in coming years.

1. The Takaful
Current Achievements
&
Future Outlook
Zubair Mughal.
Director : AlHuda : Centre of Islamic Banking and Islamic
Economics.
042-5858990 - 8407850

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

3. Origins of Takaful
In the event of death caused by
someone from another tribe, the
member of the offender’s tribe would
share the “ blood money” (Khoon Baha)
to provide for the family of the victim.

4. 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
year’s maintenance and residence”
(2.240)

5. 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 don’t 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)” <Tirmidhi>

6. Why Insurance ?
Is Some thing wrong with Concept ?
 Risk Aversion
 Assuring others
 Risk sharing

7. 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)

8. Gharar
 Lexically it means uncertainty and
technically it means the uncertainty of
the counteract or the subject matter.

9. 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

10. The concept of Takaful
 Taburro (Contribution) from the
participants (Policy Holders)
 Partnership among the participants.
 Need of an Operator
 Investment in Sharia Compliant modes.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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

16. 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.

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

18. 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.

19. 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

20. Takaful Geographical Spread
 South& East Asia : 56%
 Middle East : 36%
 Africa: 7%
 Europe, USA & Others: 1%

21. Main Markets
 Malaysia
 Indonesia
 Iran
 GCC countries
 Other Arab countries
 Other Asia Pacific
 Pakistan ( Emerging Market )

22. The Challenges ahead
 Despite a remarkable breakthrough and
a dynamic and sustained growth, there
are challenges facing the Takaful
industry.

23. 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

24. 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)

25. 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).

26. 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.

27. 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.

28. 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.