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Islamic Insurance Takaful

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... confirming to principles of Islamic dealings is the contract of cooperative ... is founded on the basis of charitable donation and Shariah compliant dealings ... – PowerPoint PPT presentation

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Title: Islamic Insurance Takaful


1
Islamic Insurance(Takaful)
  • Institute of Islamic Banking and Insurance London
  • April 27th 2005

2
Overview of presentation
  • Why conventional insurance is not allowed
  • Principles of Takaful/ReTakaful
  • Models of Takaful
  • The global sector
  • Challenges for the future
  • About ICMIF
  • Poverty Alleviation
  • Takaful in Non-Muslim countries

3
Why is conventional insurance not permissible?
  • Uncertainty (Gharar)
  • Gambling (Maisir)
  • Interest (Riba)

4
Earlier forms of Islamic insurance
  • Dawania Mutual indemnification amongst officers
    during the rule of Umar Ibn Al Khattab (2nd
    Caliph)
  • Diyyah and Aquilah Blood money and concept of
    removing hardship from victims family by payment
    of Diyyah, on a mutual basis, by relatives of
    offender
  • Marine Insurance Early second century mutual
    fund to cover robberies and mishaps

5
Fiqh Academy Resolution 1985
  • Commerical insurance is prohibited
  • Alternative contract confirming to principles of
    Islamic dealings is the contract of cooperative
    insurance, which is founded on the basis of
    charitable donation and Shariah compliant dealings

6
Principles of Takaful
  • Solidarity and joint guarantee
  • Self reliance and self sustaining for community
    well being
  • Assist those that need assistance
  • Community pooling system
  • Halal investments

7
Retakaful
  • Preferred reinsurance is proportional (quota
    share or surplus)
  • Non proportional permissible on a strict profit
    commission
  • If takaful reinsurance is unavailable then it is
    permissible to use a conventional reinsurer

8
Takaful models in practice
  • Not for profit model
  • Taawuni model
  • Al Mudharabah model
  • Al Wakala model

9
The Global Takaful sector
  • 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)

10
The Global Takaful sector

Source Bhatty (2001)
11
Challenges for the future
  • Dynamic Growth
  • Harmonization
  • Best practices
  • Awareness
  • Reinsurance
  • Governance
  • Low-income sector
  • Non-Muslim countries

12
About ICMIF
  • Established in 1922
  • Not-for-profit voluntary trade association
  • Represents 142 members from 67 countries
  • Member driven
  • Strengthen and promote the cooperative and
    mutual insurance sector

13
The Federations position
  • Our purpose is to enhance and accelerate
    development of a distinct, unified, strong and
    influential cooperative and mutual insurance
    sector of the global financial services industry.
  • We promote international collaboration to help
    strengthen cooperative and mutual insurers in
    different countries and regions that operate on
    the basis of shared principles.
  • We help our members identify with, remain
    committed to and contribute significantly to the
    cooperative movement and democratic mutuality
    nationally, regionally and globally.

14
The Federations position
  • ICMIF Board of Directors meeting, Chicago Oct 02
  • Principles of Takaful in line with cooperative
    and mutual philosophy
  • Tawuni and not-for-profit Takaful models
    eligible for membership
  • Al Mudharabah and Al Wakala models assessed case
    by case
  • ICMIF should support the development of the
    Takaful sector and increase awareness of
    cooperative and mutual form
  • ICMIF Board of Directors meeting, Tokyo Oct 04
  • Reaffirmed commitment to work with sector
  • Associate membership for Al Mudharabah and Al
    Wakala model
  • How membership benefits ICMIF strategy and
    activities in the region
  • Encourage member to become more policyholder
    orientated

15
Closer ties between the two movements
  • Mutuality, Cultural Diversity and Sustainable
    Development Seminar - May 2004, Tunisia
  • The best form of Takaful would ideally be an
    existing mutual or
  • cooperative insurer which invested its premiums
    compliant with
  • Islamic principles.
  • Dawood Taylor, Takaful Tawunni
  • It is now important for ICMIF to build on the
    findings of this seminar
  • and extend the hand of cooperation to the
    Takaful movement and
  • support the principles of mutuality in all its
    various forms
  • Hans Dahlberg, ICMIF

16
Avenues for collaboration
  • Reinsurance
  • Information
  • Training
  • Establishing Takaful windows within member
    companies
  • Microtakaful schemes

17
ICMIF Takaful Members
  • Takaful Operators
  • Sudan (three)
  • Saudi Arabia (two)
  • Trinidad and Tobago
  • Malaysia
  • ReTakaful Operator
  • Tunisia
  • Cooperative with Takaful window
  • Indonesia
  • Takaful Training Institute
  • United Kingdom
  • Pending Applications
  • Bangladesh
  • Sri Lanka
  • Malaysia
  • Qatar

18
Reinsurance capacity
  • If there is a need to turn to the conventional
  • reinsurance market then the Takaful operator
    should
  • first try and obtain coverage from the
    cooperative and
  • mutual reinsurance sector.

19
Update of ICMIF activities Training
  • Simulations have been run in Algeria, Lebanon,
    Morocco, Tunisia, Malaysia, Indonesia by Best Re
  • MOROTANIA is available in Arabic
  • Agreement in process to introduce Takaful model
    into MOROTANIA and ATLAS simulations
  • Initial discussions on a Takaful management course

20
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21
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22
Other activities
  • ICMIF Endorsement of Takaful Conferences and
    seminars
  • Establishment of AMENA
  • Creating a Takaful network
  • Takaful Directory

23
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

24
  • Insurance is being recognized as an important
    tool for poverty alleviation

25
Providing microinsuranceThe challenges
  • Coverage
  • Regulation
  • Moral hazard and Fraud
  • Adverse selection
  • Education and trust
  • Technical expertise
  • Affordability
  • Retention
  • Sustainability

26
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

27
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

28
Providing microinsuranceThe possibilities
  • The donor agent model
  • Access to expertise
  • Financial sustainability
  • Guiding hand

29
The need in Muslim countries
  • 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

30
  • Takaful is the second most important social
    institution to counter poverty and
    deprivation Omar Fisher,1999

31
How can we provide microtakaful products?
  • Establish informal microtakaful schemes
  • Encouragement of pro-poor organisations
  • Education of government and donor agencies
  • Involvement of Takaful sector
  • Technical expertise
  • Financial assistance
  • Partner-agent model
  • Bear ye one anothers burden

32
ICMIF development function
  • Methodology
  • ICMIF Fees
  • Technical expertise provided by members
  • Development projects led by members
  • Partnerships with national and international
  • donor agencies

33
ICMIF development activities
  • Established 25 people-orientated insurance
  • organisations
  • Unique Insurance Company Ghana
  • Financial support received for Latin America
  • Contract to write guidelines on microinsurance
  • Turkmenistan State Insurance Organisation
  • Health Mutual scheme Mali
  • Currently involved in 22 countries

34
ICMIF development Takaful projects
  • Paper on poverty alleviation
  • Takaful Trinidad and Tobago
  • Takaful Health Mutual Fund in South Africa
  • Mutual Health Fund and Takaful scheme in Jordan
  • Health Mutual Funds in Lebanon and ILO Case study
  • Takaful in Bosnia Herzegovina and Russia
  • Microinsurance/microtakaful pilot scheme Tunisia
  • Proposed Poverty Seminar in UK

35
Takaful in Non-Muslim countries
  • Challenges
  • Dispersed population
  • Capital requirements
  • Regulation
  • Awareness
  • Credibility
  • Technical expertise

36
Ruling by the European Council of Fatwa and
Research
  • It is well known that in most non-Islamic
    countries there are cooperative and mutual
    insurance companies. There is no harm from the
    Shariah point of view to participate in these
    services. So, it is unlawful for a Muslim living
    in a country where there is such a cooperative
    insurance company to make an agreement with a
    commercial insurance company..

37
Ruling by the European Council of Fatwa and
Research
  • Muslims are obliged to purchase their statutory
  • insurance requirements from the cooperative and
  • mutual insurer if there is no Takaful company in
    the
  • country

38
ICMIF Member countries where there are no Takaful
companies available
39
Is this a real business opportunity for ICMIF
members? The case of Folksam
  • 350,000 Muslim population
  • Fastest growing immigrant community
  • Collaboration with Swedish Muslim Council
  • Marketing of Folksam products through
    representatives of Council in communities and
    mosques
  • Insurance committee has been established

40
The Possibilities in Non-Muslim countries
  • There is a growing awareness and demand for
    Islamic financial instruments including insurance
    in non-Muslim countries. There is a great
    potential for established financial institutes to
    set up Takaful windows. In particular the
    Shariah ruling presents an opportunity for
    cooperative and mutual insurers to penetrate this
    niche market with minimal costs.

41
Conclusions
  • Takaful sector is firmly established
  • Growing investment and retakaful sector
  • Increasing awareness
  • Greater collaboration needed
  • Maintain links to Takaful basic philosophy
  • Opportunity for conventional banks and insurers

42
Thank youwww.icmif.org/takaful
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