Takaful market poised for growth but lacks Shariah compliant investments, talent

SINGAPORE: The Islamic insurance or takaful market is expected to see strong growth this year.

Still, challenges remain including low market penetration and a lack of Shariah-compliant investment opportunities for takaful players.

Industry executives said they want to see more Islamic bond, or sukuk, issuances in order to help them balance their portfolios away from equities and reduce risk.

The multi-billion dollar purchase of AIA last week was a massive vote of confidence in Asia’s insurance sector and Prudential is not alone in being bullish about the outlook.

At a conference on Islamic insurance or takaful, industry executives said they were optimistic about growth prospects.

Total takaful contributions only account for just one percent of the global insurance market.

But this is expected to increase significantly, thanks to growing interest among Muslims and non-Muslims alike in shariah-compliant investment and insurance products.

Daud Vicary Abdullah, global leader, Global Islamic Finance Group, Deloitte, said: “We’ll see more growth in the Gulf. I think it’s occurring here in Singapore, Malaysia and Indoneisa. I think the growth is positive. But to put a figure on it on a global basis, the numbers of 10 to 15 per cent in terms of growth of market are not unrealistic.”

According to an estimate by Ernst & Young, total takaful contributions can reach US$7.7 billion by 2012.

That’s compared with just US$1.4 billion in 2004.

Despite the growth prospects, there appears to be a lack of shariah-compliant bonds or sukuks.

And some central bankers say they are working to address the shortage.

Azleena Idris, Deputy Director, Islamic Banking & Takaful Dept, Bank Negara Malaysia, said: “Malaysia regularly issues shariah-compliant money market instruments so that it will facilitate the liquidity aspect of things. Now when it comes to the takaful space, the longer term instruments are something we’re aggressively promoting under the MIFC banner.”

Industry players also said they’re severely lacking in talent and the industry will likely see more consolidation as the smaller takaful players strive to become more competitive.

source : channel news asia

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