Takaful for Microfinance 1st International Conference on Inclusive Islamic Financial Sector Developm

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Takaful for Microfinance 1st International
Conference on Inclusive Islamic Financial Sector
DevelopmentApril 19th 2007
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Overview of presentation

• Insurance and Poverty Alleviation
• Challenges providing microinsurance
• Opportunities and need for microtakaful
• Microtakaful in practice

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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

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• Insurance is now recognized as an important tool
  for poverty alleviation

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Microinsurance products

• Loan protection
• Disability and Sickness
• Savings
• Health
• Funeral
• Property
• Agriculture

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Providing microinsuranceThe challenges

• Coverage
• Regulation
• Moral hazard and Fraud
• Adverse selection
• Education and trust
• Technical expertise
• Affordability
• Retention
• Sustainability
• Penetration

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Key success factors for introducing microinsurance

• Organized group
• Existing financial infrastructure
• Trust
• Need
• Understanding
• External support

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Providing microinsuranceThe 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

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Providing microinsuranceThe 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

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Providing microinsuranceThe possibilities

• The donor agent model
• Access to expertise
• Financial sustainability
• Guiding hand

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Opportunities and need for microtakaful
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Principles of Takaful

• Solidarity and joint guarantee
• Self reliance and self sustaining for community
  well being
• Assist those that need assistance
• Community pooling system
• Shariah approved investments and products
• Bear ye one anothers burden

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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)

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The need for microtakaful

• Social services inadequate or unavailable
• Large sectors of poverty in many Muslim countries
  
• Over half of worlds 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

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Takaful is the second most important social
institution to counter poverty and
deprivation Omar Fischer 1999
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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

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Microtakaful in practice

• Agricultural Mutual Fund - Lebanon
• Amana Takaful Sri Lanka
• Takaful Ikhlas
• Takmin - Indonesia

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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 anothers burden.

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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
• Outstanding loan paid off by Takmin

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A Global reach for local strength

• Thank you
• www.takaful.coop