6207 present scenario and future potential of takaful1

8/12/2019 6207 Present Scenario and Future Potential of Takaful1

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The believers, in their affection, mercy and sympathy to each other, are like the body, if one of its organs

suffer and complains, the entire body responds with insomnia and fever (Muslim)

a!aful, generall7 means #oint guarantee. It is an understanding among a grou4 of 4eo4le (called t$e

4artici4ants) 8$o agree to reci4rocall7 guarantee eac$ ot$er financiall7 s$ould an7 e6ent (as defined in t$e

contract) occur. $e %asic o%#ecti6e of a a!aful contract is to 4a7 from a common fund, 8$ic$ is set u4 %7

t$e 4artici4ants of t$e sc$eme. $e fund t$us created ma7 %e managed %7 t$e 4artici4ants t$emsel6es ort$roug$ 4rofessionals or %7 a registered a!aful 24erator. $e fund is created %7 t$e euita%le

contri%utions of t$e 4artici4ants. $e a!aful o4erators can %e registered under t$e rele6ant Com4anies

Act or Coo4erati6e Societies Act, Societies "egistration Act or %7 a!aful Act. In order to ensure t$at a

a!aful sc$eme o4erates 8it$in t$e 4rinci4les of Islamic teac$ings, t$e transactional as4ects of t$e s7stem

is su%#ected to Islamic contractual la8s. Hence, a!aful contracts are %ased on t$e 4rinci4les of

Mudara%a$, (limited 4artners$i4s) 8$ic$ means 4rofit and loss s$aring.

$e fundamental %asis of a!aful sc$eme is t$at its o4erations do not in6ol6e an7 element 8$ic$ is not

a44ro6ed %7 t$e S$aria$ (La8s of Islam). $erefore, it is necessar7 t$at t$e a!aful o4erators s$ould

esta%lis$ and maintain a!aful fund for t$e class or eac$ of t$e a!aful sc$emes carried on %7 t$e

o4erators. $e assets com4rised in t$e fund s$all %e a44lica%le onl7 to meet suc$ 4art of t$e o4erators

lia%ilities and e94enses as is 4ro4erl7 so attri%uta%le. $e assets of t$e a!aful fund s$all %e !e4t se4arate

from all ot$er assets of t$e o4erator. $is means t$at t$e fund of t$e entre4reneurs of a a!aful com4an7

s$ould not %e amalgamated 8it$ t$e a!aful fund created %7 t$e 4artici4ants of a a!aful sc$eme.

$en a a!aful sc$eme is o4erated on t$e %asis of mutual or on t$e %asis of coo4erati6e 4rinci4les, an7

sur4lus or deficit of t$e a!aful o4eration $as to %e s$ared %7 t$e 4artici4ants, or t$e mem%ers

t$emsel6es. But 8$en a a!aful sc$eme is %eing o4erated on commercial %asis, t$e sur4lus of a!aful

o4eration $as to %e s$ared %et8een t$e o4erator and t$e 4artici4ants in accordance 8it$ t$e 4rinci4les ofMudara%a$. $e s$aring of suc$ sur4lus ma7 %e in a ratio as agreed %et8een t$e contracting 4arties. $e

4artici4ants are entitled to a s$are of sur4lus as t$e 4ro6iders of t$e fund and t$e o4erators are su44osed

to $a6e a s$are of t$e sur4lus as t$e entre4reneur and managers of t$e fund.

$en a contract is made %et8een t$e o4erator of a a!aful life sc$eme and t$e 4artici4ants of t$at

sc$eme, t$e conce4t of a%arru (donation) is incor4orated in it. $is means a 4artici4ant 8ill agree to

relinuis$ a certain amount of a!aful contri%utions to fulfil $is o%ligation of mutual $el4 and #oint

guarantee s$ould an7 of t$e fello8 4artici4ants under t$e sc$eme suffer a loss caused %7 s4ecified 4erils

and or $aards of life.

$e s$aring of sur4lus %et8een t$e o4erator and t$e 4artici4ants $as to %e made as 4er ratio fi9ed in t$e

agreement. $e o4erators are to stri6e 4rudentl7 in order to ensure t$at t$e funds 8$ic$ are %eing

managed %7 t$em are 4rotected against undue o6ere94osure and creates some sur4lus for distri%ution,

since t$e o4erators are entitled to a s$are of sur4lus out of a!aful o4erations.

$e o4eration of a!aful 4ractices is su4er6ised %7 an inde4endent %od7 called t$e S$aria$ Su4er6isor7

Board or Council. $e Board ad6ises t$e a!aful o4erators on t$e da7 to da7 o4erational matters in order

to ensure t$at t$e 24erator does not in6ol6e in its o4eration an7 element, 8$ic$ is not a44ro6ed %7 t$e

S$aria$ 4rinci4les. $e esta%lis$ment of a S$aria$ Su4er6isor7 Board is a 4rereuisite %efore t$ecommencement of t$e a!aful o4eration. $e Board 4rescri%es t$e necessar7 reuirements for

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acce4ta%ilit7 of different modes of transactions of t$e al!aful o4erators from t$e S$aria$ 4oint of 6ie8 and

4ro6ide t$e o4erators a clear 4erce4tion of t$e rele6ant rules and 4rinci4les of S$aria$.

In ma#orit7 of t$e Muslim countries, a!aful $as emerged as a 4rofit s$aring %usiness 6enture %et8een

t$e 24erator and t$e indi6idual mem%ers of a grou4 of 4artici4ants 8$o desire to reci4rocall7 guarantee

eac$ ot$er against certain loss or damage t$at ma7 %e inflicted u4on an7 one of t$em. Ho8e6er t$e aims

and o4erations of a a!aful %usiness 6enture s$ould not in6ol6e an7 element 8$ic$ is contrar7 to Islamic4rinci4les and la8 of financial transactions.

S%o!e

In t$is 4a4er I $a6e descri%ed in %rief t$e %ac!ground of a!aful Insurance as 4art of Islamic Ban!ing

Mo6ement. In t$e second 4art t$e "ole of a!aful $as %een anal7sed ; focused in order to asses $o8

a!aful $el4s to de6elo4 t$e econom7 to8ards %alanced gro8t$ ; 4ros4erit7. $ile assessing t$e

4otentialit7 ; 4ros4ect of a!aful it $as %een o%ser6ed t$at t$e ma#or increase in consum4tion of a!aful

8ill result from t$e increase in su44l7 of a!aful. $ile descri%ing t$e 4resent scenario of a!aful mar!et,

t$e role of Islamic De6elo4ment Ban! (IDB) ; 2rganiation of Islamic Countr7 (2IC) $a6e %een identified.

$e role of go6ernment and need for coo4eration %et8een a!aful o4erators ; Islamic Ban!s $a6e %een

6i6idl7 descri%ed. It $as %een suggested t$at t$e o6ernment of Islamic countries s$ould $a6e strategic

4olicies to 4romote ; foster t$e gro8t$ of a!aful, for t$e de6elo4ment of S$aria$ %ased #ust ; fair

Financial S7stem for t$e ?mma$ (Muslim Communit7).

+a%,&roundit$ t$e esta%lis$ment of t$e Du%ai Islamic Ban! and t$e Islamic De6elo4ment Ban!, as t$e

starting 4oint of Islamic Ban!ing Mo6ement, H.E. Prince Mo$ammed*El*Faisal*Al*Saud of Saudi

Ara%ia too! initiati6e for t$e esta%lis$ment of a num%er of Islamic Ban!s. In one of suc$ initiati6es

in Fe%ruar7, +& $e $eld discussions 8it$ H.E. afar imeir7 (t$e t$en President of t$e

Democratic "e4u%lic of Sudan) and as!ed for 4ermission to esta%lis$ an Islamic Ban! to %e

o4erated in Sudan. E9ecuti6e and Legislati6e aut$orities in t$e Sudaness o6ernment at all le6els

ga6e e6er7 encouragement and acceded to t$e 4ro4osal.

$en Faisal Islamic Ban! 8as esta%lis$ed, t$e Ban! aut$orities initiated studies on t$e

esta%lis$ment of a co*o4erati6e insurance com4an7. In t$is res4ect t$e o4inion of t$e Ban!


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In Mala7sia, t$e Islamic Insurance Com4an7 8as esta%lis$ed as a 4ri6ate limited com4an7 (in

accordance 8it$ Com4anies Act +&-) in o6em%er +1/ and started its o4eration from August

+1- as a com4osite Islamic insurance com4an7. $is 8as made 4ossi%le %7 t$e Mala7sian

o6ernment 8$o in +1', too! a 4ositi6e ste4 %7 forming a s4ecial %od7 !no8n as t$e as!

Force< on t$e stud7 of t$e esta%lis$ment of Islamic Insurance in Mala7sia. $is tas! force 8as

formed on t$e %asis of t$e recommendation of t$e ational Steering Committee on Islamic Ban!,

8$ic$ $ig$lig$ted in its re4ort to t$e Mala7sian o6ernment of t$e need for on Islamic Insurance.

$e Committee felt t$at it 8as necessar7 in order to cater t$e insurance reuirement of t$e

Islamic Ban! 8$ic$ 8as a%out to %e launc$ed t$en.

Mem%ers of t$e tas! force 8ere dra8n from 4ersonalities and grou4s re4resenting religious

sc$olars, legal e94erts, economic and insurance 4ractitioners. $e mem%ers of t$e tas!force 6isited

a num%er of Islamic countries and also discussed 8it$ t$ree Islamic Insurance com4anies

alread7 esta%lis$ed or a%out to t$e esta%lis$ed. Finall7, in its re4ort to t$e o6ernment, t$e tas!

force suggested t$at an Islamic Insurance com4an7 s$ould %e esta%lis$ed in Mala7sia as soon as

4ossi%le. $e Mala7sian o6ernment t$en 4romulgated legislation entitled as t$e a!aful Act +1/,

8$ic$ regulates t$e Islamic Insurance (a!aful) of Mala7sia. It ma7 %e of interest to note t$at in

Mala7sia t$e Islamic Insurance Com4an7 (!no8n as t$e S7ari!at a!aful Mala7sia) is 4racticall7 a

su%sidiar7 of Ban! Islami Mala7sia Ber$ad, 8$ic$ o8ns -+: of t$e 4aid u4 ca4ital of t$e a!aful

com4an7. $e %alance of /: of t$e s$ares are o8ned %7 t$e 6arious State "eligious Councils

and State "eligious Foundations 8it$in Mala7sia.

Role o Ta,aul in I#lami% E%onomi% #'#tem-

In t$e recent 4ast, t$e Muslim 8orld is %eing stirred 8it$ an endless ent$usiasm and im4etus to

occu47 its real 4lace among t$e communit7 of nations and contri%ute its due s$are and to its

duties to $umanit7. a!aful is a ser6ice to Muslim ?mma$ (communit7) as a 8elfare sc$eme.

Introduction of a!ful is an e9am4le as to $o8 t$e 4rinci4les of Islamic S$aria$ can $el4 to

create ne8 socio*economic mec$anism %ased on euit7, #ustice and fair 4la7.

$e o%#ecti6e of Islamic Econom7 is to create an e94loitation free societ7 and u4liftment of t$e

entire societ7 as a 8$ole. $e a!aful s7stem, 8$ic$ $as %een 8or!ing for t$e 8elfare of t$e

man!ind is not in contradiction 8it$ Islam. $e o%#ecti6e of Islamic Economic s7stem is t$e

4romotion of 8elfare of 4eo4le 8$ic$ lies in safeguarding t$eir fait$, t$eir life, t$eir 4osterit7 and

t$eir 4ro4ert7. B7 ensuring and safeguarding t$ese elements of t$e 4eo4le, a!aful ser6es 4u%lic

interest and, t$erefore, can 4la7 t$e most im4ortant role.An e94loitation free societ7 as Islam en6isaged $a6e 4ro6isions for adeuate ca4ital formation.

$e Pro4$et of Islam disa44ro6ed %egging and encouraged ca4ital formation. He ad6ised a 4oor

com4anion to sell all $is %elongings for 4urc$asing an a9e for collecting fire8ood and sell t$ose in

t$e mar!et. $e a!aful s7stem 8ill facilitate ca4ital formation of indi6idual $ouse$olds. $is 8ill

moti6ate e6er7 indi6idual for sa6ings under Famil7 a!aful (Islamic Life Insurance) and t$e collecti6e

sur4lus funds 8ill %e in6ested in t$e ca4ital mar!et. $is 8ill facilitate furt$er utiliation of

resource and greater em4lo7ments.

Islam is t$e second largest religion in t$e 8orld 8it$ one and uarter %illion follo8ers. In all,

Muslims form a ma#orit7 of t$e 4o4ulation in o6er fort7 countries. Muslims li6e in +1/ countries

com4rising a%out ': of 8orld 4o4ulation. Islamic countries and ot$er countries 8it$ a significant5


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Countr7 Po4ulation(million)

Per ca4ita Premium otalLife on*Life

?AE '.& K -1 K '-' K 0+@atar .& *** K '& K '&

Le%anon /.0 K + K 0 K ++'u8ait '.+ K +& K K 02man '.- K +/ K -' K &&

Saudi Ara%ia '.- K .& K 0.- K 01.+S7ria +-.1 K .+ K +&.- K +&.&

If 8e com4are insurance densit7 of t$e Islamic countries 8it$ t$at of ot$er countries of t$e 8orld,

8e can understand 8$ere do 8e reall7 stand. For e9am4le, in Sout$ Africa s$are of insurance

4remium to DP is more t$an ': in com4arison to 0.-: in igeria. In Banglades$ insurance

4enetration is less t$an +:. In Ga4an 4remium 4er ca4ita is a44ro9 ?S K 0 and in Mala7sia it

is a44ro9 ?S K +/ and in Banglades$ it is less t$an K '. (t8o) onl7. $is means, t$ere are

am4le sco4es of gro8t$ of Insurance 6is**6is a!aful in Islamic countries.

a!aful mar!et is %ound to gro8 8it$ t$e 4ace of t$e econom7. $e gro8t$ of t$e a!aful

industr7 and economic de6elo4ment of t$ese countries are interde4endent. Alt$oug$ t$e demand for

a!aful is a reflection of income and 8ealt$, it is to %e noted 8ell t$at ris! consciousness is

6er7 lo8 in t$e Islamic countries. $ere is an urgent need to create a dee4er understanding and

a8areness among t$e 4olic7 ma!ers, 8$at role a!aful can 4la7 to im4ro6e t$e 8ell %eing and

ualit7 of life of t$e ?mma$.

a!aful $as %een designed to $el4 and sta%ilie t$e financial situation of indi6iduals, families and

organiations. At t$e same time a!afu!l o4erators can meet t$e financing needs of large

4ro#ects, t$ere%7 $el4ing t$e national economies %7 enlarging t$e set of feasi%le in6estment

4ro#ects and encouraging economic efficienc7. a!aful 8ill definitel7 $el4 to foster a more efficient

allocation of ca4ital and resources of Islamic countries, %7 8a7 of 4romoting trade, commerce

and entre4reneurial acti6ities. A gro8ing a!aful and "eta!aful mar!et is an instrument for

economic gro8t$ of t$e Islamic countries. In fact, t$e de6elo4ment of a!aful as an alternati6e of

con6entional insurance 8ill contri%ute to economic 4ros4erit7 of t$e Islamic countries. 2n t$e ot$er

$and, 8it$ t$e gro8t$ and de6elo4ment of t$e econom7, t$e a!aful Industr7 8ill gro8.

It is o%6ious t$at a!aful is a suita%le alternati6e of con6entional insurance for t$e Muslims. But, t$e

4ertinent uestion is $o8 %est it can ser6e t$e needs of t$e communit7 N

$ere is no dou%t t$at a!aful $as a 6ast 4otentional for gro8t$ and t$is 4otentionalit7 8ill

definitel7 increase in t$e coming 7ears. Ho8e6er, t$e future of a!aful 8ill largel7 de4end on $o8

t$e increasing 4otentials are %eing e94loited %7 a!aful o4erating s7stem, !ee4ing in 6ie8 t$e

need of t$e Islamic econom7 and state of affairs in Islamic countries.

"eligion and culture of t$e Muslims are 4lus 4oints for a!aful 24erators. But, t$at is not all.

Political and economic sta%ilit7 of t$e Islamic States, 4rofessional maturit7 of t$e a!aful 24erators,

a%ilit7 of designing a44ro4riate 4roducts and reducing management e94enses including distri%ution

cost are some of t$e im4ortant factors for influencing t$e demand of Famil7 a!aful. $e factors

8$ic$ 8ill influence t$e demand of eneral (non*life) a!aful are gro8t$ of trade, commerce ;

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industr7 as 8ell as ris! 4otentials and t$eir se6erit7 and freuenc7. 2f course, ris! a8areness is

anot$er im4ortant factor.

$e gro8t$ of %ot$ Famil7 a!aful ; eneral a!aful 8ill de4end on t$e mar!eting strategies,

distri%ution net 8or! and ado4tion of im4ro6ed information tec$nolog7. Last, %ut not t$e least, t$e

su44l7 of a!aful in t$e Islamic countries 8ill de4end mostl7 u4on t$e su44ort and s7m4at$7 of t$e

4olic7 ma!ers. If t$e conce4t of a!aful is not 4ro4erl7 understood, t$e legislators ma7 not

su%scri%e t$e idea of 4romoting a!aful and for t$at matter floating of Islamic com4anies under

t$e Con6entional Insurance Act 8ill sim4l7 mislead t$e consumers. Since an effecti6e regulator7

s7stem 4la7 a great role in t$e d7namics of su44l7, it %ecomes t$e res4onsi%ilit7 of t$e "egulator7

Aut$orit7 of Islamic Countries to frame a44ro4riate la8s ; rules for facilitating t$e gro8t$ of

a!aful for t$e %enefit of t$e communit7 and of course for t$e gro8t$ of t$e econom7 as a

8$ole.

It is o%6ious t$at interaction of demand and su44l7 8ill determine t$e consum4tion of a!aful. $e

s$ift in demand for a!aful 8ill occur as it is an inno6ati6e 4roduct and suits to socio*economic

; religious teac$ings of Islam. Moreo6er, t$e Islamic countries are li!el7 to $a6e economic gro8t$

%ot$ in t$e micro and macro le6el. Ho8e6er, t$e ma#or increase in t$e consum4tion of a!aful 8ill

result from t$e increase in t$e su44l7 of a!aful. $e demand alread7 e9its. $e e9tent to 8$ic$

it is ta44ed 8ould de4end on t$e e9tent to 8$ic$ t$e su44l7 cur6e mo6es to t$e rig$t.

Pre#ent S%enario-

Currentl7, t$ere are a%out se6ent7 =ta!aful> o4erators 8orld*8ide. During last t8ent7 se6en 7ears Islamic

Insurance (ta!aful) $as de6elo4ed mainl7 in Sudan, Eg74t, Saudi Ara%ia, Iran, u8ait, Le%anon,

Mala7sia, Brunei, Indonesia, Singa4ore, ?.A.E., Ba$rain, Banglades$, igeria, unisia, Ba$amas,

Belgium, Sout$ Africa, S8iterland, Australia and in t$e ?SA. Interestingl7 ta!aful is seen in t$e non*

Muslim 8orld as 8ell. For e9am4le, in Singa4ore t$ere are less t$an $alf a million (+-: of total

4o4ulation) Muslims %ut at least t8o o4erators are no8 4ro6iding ta!aful sc$eme in Singa4ore. In

non*Muslim countries, t$e sc$eme is also li!el7 to gro8 if t$e o4erators can 4ro6e t$eir 8ort$ in

com4arison to con6entional insurance 4roducts. In Muslim countries, Mala7sia seems to %e t$e

single most successful countr7 in terms of ta!aful. In Singa4ore, a%out '': of t$e 4resent ta!aful

4olic7 $olders are non*Muslims.

Most of t$e Islamic countries suffer from t$e common attitude t$at insurance is undesira%le. $ere

are mass non*a8areness among t$e Muslims a%out ris! management and insurance not to s4ea!

a%out ta!aful. In most of t$e Muslim dominated countries of t$e 8orld insurance still accounts for less

t$an onl7 one 4ercent of t$e countr7


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a!aful (Islamic Insurance) $as %rig$t 4ros4ects and 4otentialities as a financiall7 6ia%le and

com4etiti6e alternati6e insurance for t$e Muslim Countries, %ecause most of t$e Muslim Countries

$a6ing Islamic Ban!s $a6e also 8elcomed ta!aful as a necessar7 com4lementar7 to Islamic

Ban!ing. Islamic Ban!ing can not %e full7 S$aria$ %ased unless t$ere is a!aful to ta!e t$eir

insurance %usiness. $erefore, a!aful li!e Islamic Ban!s $a6e 4ro6ed its 6ia%le realit7 and

$a6ing its strides of e94ansion in almost all t$e Muslim Countries.

$e confidence and fait$ of Muslim Countries in Islamic economic s7stem is gaining solid ground.

"ecentl7 t$e Heads of States and o6ernments of Banglades$, Eg74t, Indonesia, Iran, Mala7sia, igeria,

Pa!istan and ur!e7 met in D$a!a on +*' Marc$, + for t$e Second De6elo4ing*1 (D*1)

Summit 8it$ t$e o%#ecti6es of im4lementing 4ro#ects and 4rogrammes of co*o4eration t$at are of

6ital interest to t$eir 4eo4les. Among ot$er issues, t$e $eads of t$e State endorsed t$e 4ro4osal

to en$ance t$e ca4acit7 of e9isting reta!aful com4an7 of Mala7sia to meet t$e needs of mem%er

countries of De6elo4ing*1 (D*1). It 8as furt$er agreed t$at t$e e94erts of t$ese countries 8ill

meet to dra8*u4 t$e modus*o4erandi and formulate t$e a44ro4riate strategies to 4romote ta!aful

and reta!aful. It is $eartening to note t$at ta!aful o4erators are organising seminars and

conferences on a regular %asis and e9c$anging ideas and information


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Due to in$erent S$aria$ 4rinci4les 8$ic$ are uni6ersal in c$aracter, t$e Islamic Ban!ing and

a!aful %usiness 8ould %e more a44ealing in t$e coming 7ears for %ot$ t$e Muslim and non*

Muslim communities. $ere is tremendous 4ossi%ilit7 for t$e gro8t$ of Islamic Ban!ing and Islamic

Insurance. But, t$ere is still lot of 4ro%lems and $indrances to run t$e Islamic Ban! and Islamic

Insurance, some of 8$ic$ are as under3

+. A%sence of a44ro4riate legal frame8or! for carr7ing out Islamic Ban!ing and Insurance

o4erations in most of t$e Islamic countries.

'. S$ortage of trained man4o8er to conduct %usiness com4l7ing 8it$ S$aria$ "ules.

0. A%sence of S$aria$ %ased securities.

/. S$ortage of su44ort institutions.

-. A%sence of good relations$i4 among t$e Management, entre4reneur and t$e Controlling ;

Legislati6e Aut$orit7.

&. Lac! of 4u%lic a8areness.

. Ignorance of t$e mass 4eo4le a%out S$aria$ 4rinci4les and 4ractices in %usiness ;

commerce.

1. Predominance of Secular estern Ca4italistic Economic S7stem.

. Lac! of su44ort from o6ernment mec$anism.

Islamic Ban!s $a6e alread7 attained considera%le success in t$e Ban!ing sector. It is #ust %eginning

of a!aful %usiness and it is li!el7 to flouris$ in t$e Insurance sector in coming da7s. o attain t$e

desired le6el %7 %ot$ t$e Islamic Ban! and t$e Islamic Insurance, a strong relations$i4 need to

%e %uilt u4 %et8een t$e Islamic Ban! and t$e Islamic Insurance t$roug$out t$e 8orld. The

ollo0in& a%tion# ma' (e ta,en 1ointl' (' the I#lami% +an,# and I#lami% In#uran%e

Com!anie# or their mutual &ro0th and e)!an#ion and to a%e the %hallen&e# 2

+. Efforts s$ould %e made to c$ange t$e legal frame8or! for conducting %an!ing and

insurance o4erations according to Islamic S$aria$.

'. Sufficient training and researc$ institute $a6ing logistics of modern tec$nolog7 ma7 %e

esta%lis$ed to train u4 t$e man4o8er.

0. o create 4u%lic a8arenessO seminar, s7m4osium etc. %ot$ national and international le6el

ma7 %e organised.

/. Islamic Mone7 ; Ca4ital Mar!et s$ould %e de6elo4ed.

-. Central S$aria$ Council s$ould %e set u4 %ot$ for Islamic Ban!s and Islamic Insurances.

&. Li!e Mala7sia, %ot$ t$e Islamic Ban!s and Islamic Insurance Com4anies s$ould %eregulated %7 t$e same "egulator7 Aut$orit7.

. Cordial and $armonious relations$i4 %et8een Islamic Ban!s and Islamic Insurance

Com4anies s$ould %e de6elo4ed.

1. Efforts s$ould %e made to esta%lis$ more Islamic Insurance Com4anies and Islamic Ban!s.

Islamic Ban!ing and Islamic Insurance s7stem $a6e tremendous 4otentialit7 and 4ros4ect. $e

successful launc$ing and o4eration of Islamic %an!s and insurance $as esta%lis$ed t$e fact t$at

%an!ing and insurance 8it$out interest is feasi%le, 6ia%le, com4etiti6e and sustaina%le on t$e face

of com4etition from t$e con6entional interest %ased s7stem. $e gradual and successful

glo%alisation of Islamic Ban!ing and Islamic Insurance cou4led 8it$ gro8ing a8areness of t$e

4eo4le a%out its financial and social %enefits ma!es it clear t$at t$e current centur7 is going to12


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%e t$e centur7 of Islamic %an!ing and insurance 6is*a*6is com4lementation of Islamic ideals for t$e

%etterment of t$e 4eo4le at large and esta%lis$ing euit7 ; #ustice for all.

B7 no8 a!aful li!e Islamic Ban!ing $as %ecome a 6ia%le realit7. Due to in$erent S$aria$

4rinci4les 8$ic$ are uni6ersal in c$aracter, t$e a!aful %usiness 8ould %e more a44ealing in t$e

coming 7ears for %ot$ t$e Muslim and non*Muslim communities.

It is no den7ing of t$e fact t$at a!aful (Islamic Insurance) $as %rig$t 4ros4ects and 4otentialities

as a financiall7 6ia%le and com4etiti6e alternati6e insurance for t$e Muslim countries. Most of t$e

Muslim countries $a6ing Islamic Ban!s $a6e also $el4ed to create ta!aful as a necessar7

com4lementar7 to Islamic Ban!ing %ecause Islamic %an!ing can not %e full7 S$aria$ %ased unless

t$ere are a!afuls to ta!e t$eir insurance %usiness. a!aful li!e Islamic Ban!s $a6e 4ro6ed its

6ia%le realit7 and $a6ing its strides of e94ansion in almost all t$e Muslim countries. $e

o6ernments of t$ese countries oug$t to $a6e strategic 4olicies to 4romote and foster t$e gro8t$

of a!aful.

Su&&e#ted mea#ure#-

a!aful or Islamic Insurance is onl7 a su%set of t$e glo%al insurance industr7 of K '.- trillionO 8$ere t$e

glo%al a!aful %usiness is a44ro9imatel7 K 0 %illion onl7. Ho8e6er, a!aful is t$e fastest gro8ing areas of

8orld insurance mar!et. At 4resent, a!aful is gro8ing 5 ': to '-: 4er annum com4ared to 8orld

a6erage gro8t$ of con6entional insurance 5 -: to &: 4er annum. $e im4etus to t$is gro8t$ 8ould not

$a6e %een t$ere, if t$ere 8as lac! of demand, and if t$ere 8as no 4ros4ects of 4otential re8ards %ot$ for

t$e customers and entre4reneurs of Islamic Insurance. $e o44ortunities and 4otentials of a!aful are

glaring at us. $at is needed is %etter a8areness a%out t$e goodness of a!aful s7stem. For t$is, t$e

a!aful Industr7 needs to $a6e strong mar!eting and tec$nical e94ertise in %ot$ insurance matters and

S$aria$ matters. It needs to $ig$lig$t goodness of t$e Islamic financial S7stem and its a44lication 8it$ina!aful 4ractices.

It is an e9cellent o44ortunit7 to e94and t$e sie of a!aful mar!et %7 addressing t$e need of t$e customers

8$o $a6e 4reference for t$is 4roduct. In a mar!et 4lace, t$e attraction of a!aful %usiness %e 4ercei6ed

not #ust for t$e fact t$at it is %ased on Islamic S$aria$ %ut %ecause it is %etter and fair s7stem. $is as4ect

s$ould %e attracti6e to e6er7one, irres4ect of an7 religious %asis u4on 8$ic$ t$e s7stem stands initiall7.

Considering t$ese as4ects, a!aful 4la7ers in t$e mar!et s$ould ta!e a44ro4riate measures on urgent

%asis, in order t$at t$e o44ortunities are not missed %7 one or ot$er reasons. Some of t$e suggested

measures are narrated as follo8s3

+. In 6ie8 of t$e im4ortance of customer a8areness, a com4re$ensi6e customer education

4rogramme need to %e de6elo4ed, 8$ic$ 8ill 4romote 4roduct trans4arenc7, ensure accounta%ilit7

and t$e a6aila%ilit7 of a6enues for customers to see! redress.

'. o8ards 4romoting t$e sound a!aful Industr7, formation of national and international a!aful

Association aimed at 4ro6iding a common 4latform for t$e a!aful o4erators to address t$e issues

and interests of t$e a!aful industr7 is an urgent necessit7.

0. $e c$allenge confronting t$e a!aful industr7 in t$e 4ursuit to8ards intensif7ing mar!et

4enetration to furt$er entrenc$ its de6elo4ment underscore t$e im4ortance of en$ancing t$e

4roducti6it7 and efficienc7 of distri%ution ca4a%ilities, to %etter com4lement and su44ort sound%usiness e94ansion. $e a!aful o4erators need to strengt$en t$e necessar7 institutional

ca4a%ilities 6ia in6estment in information and communication tec$nolog7.13


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/. In t$e ra4idl7 e6ol6ing financial en6ironment, t$e a!aful industr7 needs to $a6e t$e a%ilit7 to s$ift

to ne8 areas of com4arati6e ad6antage in res4onse to c$anging conditions and t$ere%7 s8iftl7

ca4italie on t$e ne8 c$anging o44ortunities. Em%racing smart colla%oration or strategic alliance

8it$ Islamic Ban!s and financial institutions and %uilding stronger customer allegiance and

retention 8ould reinforce t$e efforts to ac$ie6e t$is o%#ecti6e.

-. Polic7 initiati6es of t$e "egulator7 Aut$orit7 oug$t to %e essentiall7 de6oted to8ards en$ancing t$e

effecti6eness of t$e internal control structure 8it$in t$e a!aful 24erators, s4ecificall7 in t$e areas

of cor4orate go6ernance and ris! management 4ractices. $e "egulator7 Aut$orit7 s$ould also

ta!e measures to im4ro6e t$e o4erational efficiencies of t$e a!aful o4erators to en$ance t$e

4otential 4erformance of t$e industr7.

Alt$oug$ t$e a!aful industr7 continues to demonstrate resilience and ro%ust 4erformance, in t$e recent

7ears com4etiti6e elements confronting t$e industr7 arising from mar!et li%eraliation, tec$nological

ad6ancement and greater customer e94ectations are t$e catal7sts to8ards furt$er de6elo4ment of

inno6ati6e 4roducts, effecti6e ser6ices and im4ro6ed efficiencies in o4erational 4rocess.

$e effecti6e use of distri%ution c$annels, d7namic in6estment strateg7 and increased 4u%lic a8areness on

a!aful 8ill definitel7 4ro6ide an im4utes for furt$er gro8t$ of t$e a!aful industr7. $e endea6our to

de6elo4 t$e a!aful industr7 t$at is com4etiti6e, d7namic and more resilient 8ill %e t$e result of t$e

com%ined commitment and colla%orati6e effort of t$e regulators, industr7 and mar!et 4artners i.e. Islamic

Ban!s and non*%an!ing financial institutions. $e aim s$all %e to create 4rogressi6e 8orld class a!aful

24erators for 4romoting t$e de6elo4ment of S$aria$ %ased #ust and fare financial s7stem for t$e ?mma$.

Con%ludin& Remar,#-

A dramatic rise in t$e demand for a!aful Insurance is %eing 4redicted %7 mar!et o%ser6ers, as t$e

4o4ulation of Islamic countries %ecomes more financiall7 so4$isticated and more determined to in6est in

S$aria$ com4liant 4roducts. Moreo6er, due to t$e et$ical nature of t$e 4roducts a!aful oug$t to %e

attracti6e to %ot$ muslim and non*muslims. It is o%6ious t$at t$e 4otential demand for a!aful 4roducts is

6er7 large and t$e a!aful Industr7 is no8 4oised for a lo%al ta!e off.

$e lo%al a!aful Industr7 is small in com4arison to Con6entional Insurance counter4art. $erefore, t$e

mar!et needs to gain 8orld8ide %rand recognition and e9ceed 4erformance standard set %7 t$e

Con6entional Insurance Industr7. It is nice to note t$at ta!aful o4erators are increasingl7 starting to realie

t$at t$e et$ical guidelines and trans4arenc7 of t$eir 4roducts under4in t$eir offering a44eal to %ot$ t$e

muslims and more im4ortantl7 t$e larger non*muslims communities.

$e a!aful Industr7 is fast e6ol6ing and entering a sta%le de6elo4ment 4$ase. Ho8e6er, onl7 a fe8ational "egulators $a6e enacted a a!aful frame8or! for t$e industr7. Mala7sia ; Ba$rain are leading

e9am4les of $a6ing 4rogressi6e a!aful "egulation. "ecentl7, Saudi Ara%ia ; Pa!istan $a6e also

esta%lis$ed "egulator7 Frame8or! for a!aful %usiness. It is $eartening to note t$at t$e o6t. of

Banglades$ is acti6el7 considering to enact a se4arate a!aful Act. $is 8ill certainl7 $el4 to gro8 nascent

a!aful Industr7 of Banglades$.

+i(lio&ra!h'

+. A$med $urs$id Elimination of "i%a3 Conce4t and Pro%lems* Elimination of "i%a from t$eEconom7 Institute of Polic7 Studies. Islama%ad, Pa!istan*+-.

'. Ali . M. Introduction to Islamic Insurance. Islamic Foundation Banglades$* Ma7*'&.14


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0. Ali . M. Mortua. Islamic Gi%an Bima3 Bartoman Pre!$$a4ot. Banglades$ Institute of Islamic

$oug$t Ma7*'&.

/. Ali, .M. Mortua. Insurance in Islam Some as4ects of Islamic Insurance. Islamic Economic

"esearc$ Bureau, D$a!a, ++.

-. Ban! egara Mala7sia (Central Ban! of Mala7sia). a!aful '- Annual re4ort, A4ril '&.

&. Billa$ Mo$ammad Masum. Conce4tual frame8or! ; ro8ing Princi4les of a!aful * Seminar

4a4er in Sang$ai $eld in '+.

. Billa$ Mo$ammad Masum Islamic Insurance3 Its origins and De6elo4ment. Ara% La8

uarterl7 +1.

1. Billa$ Mo$ammad Masum =Comment on Al*A$ar. e8

Horion Dec. +&.

. Billa$ Mo$ammad Masum. Princi4les and Practices of a!aful and Insurance Com4ared.

International Islamic ?ni6ersit7. Mala7sia*'+.

+. C$aud$ur7, Mo$amad Sadi. =Islamic Insurance3 Conce4t ; Practice> e8 Harion A4ril,

+.

++. C$aud$ur7, Mo$amad Sadi. Enc7clo4edia of Islamic Ban!ing +-.

+'. Coo4er Ma7sami "amin and o8n . Gean. =An Anal7sis of Islamic a!aful Insurance>

Gournal of Insurance "egulation. Qol*+1, o*+, Fall +.

+0. Eddin, $arfa Ala. Interest and ?suar7 in Islamic ; Positi6e La8> Pa4er 4resented in

International Conference on a!aful, Gune*' uala Lum4ur.

+/. Gaffer, So$ail. =lo%al a!aful "e6ie83 E6ol6ing trends o44ortunities and c$allenges> Islamic

Finance "e6ie8, '& Euro mone7 7ear %oo!, ?..

+-. lingmuller, Earnest. =$e Conce4t and De6elo4ment of Insurance in Islamic Countries>

Islamic Culture, Qol. /0, Ganuar7, +&.

+&. Mu$ammad, Musle$uddin Insurance and Islamic La8 (e8 Del$i) +1'.

+. "a$man, Afalur, =Ban!ing ; Insurance> (Doctrines of Islam) Qol*+/ (London +).

+1. "as$id, $alid. =Islamisation of Insurance3 a great religio*legal e94eriment in Mala7sia>.

"eligion ; La8 "e6ie8, e8 Del$i, Qol*' +0.

+. "as$id, $alid. Muslim La8. Eastern Boo! Com4an7, Luc!no8, India.

'. Siddiui, Mu$ammad e#atulla$. Insurance in an Islamic Econom7. $e Islamic Foundation

?.

'+. Siddiui, Mo$ammad e#atulla$. Islamic Pers4ecti6e. $e Islamic Foundation ?..''. ?smani, Mu$ammad ai. An Introduction to Islamic finance *Idaratual Maarif, arac$i,

Pa!istan*+.

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6207 present scenario and future potential of takaful1

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