Weekly Updates

Sorry, I am trying to get back with latest Islamic finance industry weekly updates from this week.

Maldives Islamic Finance

Potential of Islamic finance yet to be fully explored in Maldives, suggests MMA governor Read more

(Reuters) – The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has appointed a new secretary-general, as the standard-setting body looks to keep its influence in an increasingly challenging environment.


Nigeria Islamic finance


Goldman Sachs and Islamic finance
Goldman Learns From Debut Flop in Islamic Finance Market

islamic financeIslamic finance as ethical investment options
Making the world a better place! READ MORE

Islamic Insurance – Progressing
Islamic insurance market has ‘untapped potential’ despite global growth, says report READ MORE

Conventional banks
Conventional banks plan Islamic finance expansion READ MORE

A New Paradigm for Islamic Finance READ MORE

Islamic finance Senagal
Hogan Lovells advises on inaugural Senegal Sukuk

How Can Insurance Be Islamic?

In the world of Islamic economics and finance, conventional financial instruments such as credit cards, mortgages and insurance are generally considered impermissible.  Like Judaism and Christianity, Islam prohibits usury and financial interest.  Considering credit cards and mortgages depend on financial interest to remain viable for conventional banks, both are generally considered impermissible.

In an effort to provide Muslims with the convenience and flexibility of credit cards and mortgages, Islamic banks have developed shari’ah compliant financial products that eliminate interest.  Instead, these Islamized credit cards and mortgages incorporate a profit-and-loss approach, where the lender assumes ownership risk in the goods and services financed.

However, what of insurance?  Why does insurance need to be Islamized?  Conventional insurance serves a very important function in the global economy by mitigating risk.  Insurance policies effectively transfer risk from the insured to the insurer for a monetary amount.  In the event of an insurance claim event, the insured is guaranteed a monetary payment from the insurer to make the insured whole.

The unequivocal guarantee that an insurer provides is especially problematic for family insurance products such as life insurance.  Because a life insurance policy guarantees payment in the event of death, most Muslim jurists consider this a bet against God.  In Islam, only God knows when a person will die.  Any wager or hedge against this date is theologically insoluble.

In Islam, God is considered omniscient and omnipotent.  Therefore, God’s knowledge is perfect.  More specifically, what God knows to happen must happen.  If what God knows to happen does not happen, then God is either not omniscient or not omnipotent.  However, denouncing God’s omniscience or omnipotence is anathema to Islamic theology and doctrine.

Moreover, conventional insurance typically invests the policy premiums in a variety of financial instruments that include interest.  Therefore, most Muslim jurists consider insurance and more specifically life insurance impermissible.

Instead of conventional insurance products, Islamic insurers offer mutual protection through a takaful fund.  The word “takaful” is a derivative of “kafalah” which means “surety,” “guarantee,” or “mutual care.”

Indeed, this type of a mutual care has been in use throughout Islamic history.  In addition to the myriad proscriptions mentioned above, Islam also demands that each Muslim care for members of the community.  The Qur’an says that one should “spend of your substance, out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves” (2:177).

Accordingly, takaful embodies the spirit of social solidarity and mutual care.  Instead of insurance policy premiums, a voluntary donation is made to a communal takaful fund.  Using the law of large numbers, the takaful fund operator uses statistical data and mathematical calculations–similar to conventional actuarial sciences–to ensure that the fund is sufficiently capitalized to fund any insurance claim events.

All takaful funds are invested in shari’ah compliant investments that are free from interest and impermissible investments (e.g., equities engaged in the manufacture, distribution, or sale of porcine food products, alcoholic beverages, pornography, gambling, etc.).

Unlike a conventional insurance policy, because the tabarru payment is a donation, policy “premiums” do not accumulate any cash value for the insured.  According to proponents of takaful, this prevents an insured party from profiting from an insurance policy.

While critics of takaful–and Islamic banking and finance in general–may argue that takaful is simply another example of an Islamic financial product being superficially Islamized, takaful does appear to promote social solidarity and mutual care.

 Source : thexaminar

Sharia insurance market is mounting

Sharia insurance market is mounting of the insurance industry with the more interests expressed by investors to have investment in that the sector.

Bapepam-LK considered the sharia insurance up to quarter III/2009 showed good performance. Life insurance market shares are 4.16 percent and loss insurance and reinsurance are 2.8 percent.

When combined, the total sharia insurance industry market shares are 3.79 percent of the total national insurance industry.

“This is satisfying noting that last year it remained at the level of 2 percent. So there is quite rapid increase,” said Insurance bureau chief of Bapepam-LK Isa Rachmatarwata in Jakarta recently.

In terms of asset, loss insurance has reached 2.09 percent but life insurance is 1.38 percent as the asset accumulation of life insurance industry had happened long before.

“The total sharia insurance assets in quarter III/2009 was at 1.54 percent of the total assets of the industry in quarter I/2009 of 1.32 percent,” said Isa.

Sharia insurance industry, particularly life insurance, is more lucrative with the incoming giant player like AIA Financial and Manulife. Formerly Prudential has entered the market and booked significant returns.

In quarter III/2009, Prudential has booked IDR254.6 billion premium income or rose 22.1 percent as from quarter II/2009.

But President Director of PT Asuransi Bintang Tbk Zafar Dinesh Idham said the government has relaxed the regulation of sharia unit capital fulfillment at least it is the same as the conventional capital gradual fulfillment as stipulated by Government Regulation (PP) No. 81/2009. “For us, the regulation is burdensome,” he said.

On the other side, regulator called for stern measures from old player to take necessary measure to opt whether to continue its business by complying with the minimum capital regulation or to return the license.

“Sharia insurance in quarter III/2009 has showed good performance. Those with less capital should improve themselves and have time to think fast and make rapid decision to stay in the industry, while the new one is not reluctant to join,” he said.

PP No. 39/2008 on insurance business requires insurance company minimum capital with sharia unit is IDR5 billion in 2008, IDR12.5 billion in 2009, and IDR25 billion next year.

Up to quarter III/2009 there are companies with under IDR5 billion fund. One of them, life insurance firm, has returned its sharia business license.

source : bisnis

Islamic finance should help takaful firms outperform

The investment firm based at the Dubai International Financial Centre says in a report that takaful firms will benefit from favorable demographics and the growing availability of Islamic financial products. Takaful is similar to conventional insurance but investments are held to Sharia-compliant assets.

A quarter of the world’s population is Muslim but takaful contributions account for only half a per cent of premiums globally.

However, from 2006 to the third quarter of 2009, Islamic insurers registered a compound annual growth rate of 26.5 per cent, compared with 19.2 per cent for conventional insurance.

The bank said it expected the industry to grow faster than local economies. In a report released last Thursday, the World Bank said it expected the GDP of the MENA region to grow by 3.7 per cent this year and 4.4 per cent in 2011.

By comparison, Alpen expects the takaful industry to grow 16.1 per cent a year through 2012, said Tommy Trask, the executive director and head of research at Alpen.

But Mr Trask noted the predicted growth is far from assured. Because they are limited to Sharia-compliant assets, most takaful firms are heavily invested in regional equities and property.

As Islamic finance becomes more mainstream, takaful firms will be able to reduce risk, he said.

The report noted the takaful industry has about 72 per cent exposure to property and equities, compared with 54 per cent for conventional insurance companies in the region.

“Such holdings would normally be capped at 10 to 20 per cent of total assets under more sophisticated regulatory regimes,” it said.

The Bank of Malaysia in Nov 2009,  said the value of Sharia-compliant assets under management could top $1 trillion globally by the end of 2010.

Source : the nation

Decision-makers Seek New Growth Map for Islamic Insurance

944458_s_PRLog (Press Release) – Mar 01, 2009 – United Arab Emirates- Dubai: A record number of industry leaders have already confirmed their partnership with The 4th Annual World Takaful Conference (WTC 2009), testimony of the overall significance of the forum in shaping the future of the global Takaful industry.

The 4th Annual World Takaful Conference (WTC 2009), the world’s largest gathering of Islamic insurance leaders, builds on 4 years of successfully meeting industry needs. At this critical juncture in the international financial markets, WTC 2009 is bringing together more than 300 global industry leaders representing key international Takaful operators, insurance institutions, Re-Takaful and Re-Insurance players, Captive insurance firms, underwriters, major brokers, and leading legal and advisory firms to debate how business models will change in the Shari’ah-compliant insurance industry in the context of the global economic crisis.

The World Takaful Conference (WTC 2009) is again held in strategic partnership with DIFC (Dubai International Financial Centre). HSBC Amanah, SALAMA Islamic Arab Insurance, Noor Takaful, and Takaful Re have already confirmed their participation in the conference as platinum sponsors. With new record level participation being achieved, WTC 2009 has set the stage for its most important industry gathering since its inception 4 years ago. Other leading sponsors at WTC 2009 include: ACR Re Takaful, Allianz Takaful Co., MNRB Takaful, Abu Dhabi National Takaful Co, t’azur, Munich Re Retakaful, enaya AIG Takaful, Ernst & Young, A.M. Best, Norton Rose, Hannover Re, and GIC Re.

Speaking ahead of the conference Parvaiz Siddiq, Chief Executive Officer, Noor Takaful stated that:

“Shari’ah compliant insurance solutions are fast gaining wide-spread popularity and acceptance across diverse customer profile. Noor Takaful comes at a strategic time when we are positioned to harvest the manifold possibilities existing in the financial environment in the UAE, the GCC and the wider world. The phenomenal growth of the Takaful industry signals the need for a service-focused provider that will raise the bar on international best practices in this sector.”

Chakib Abouzaid, Chief Executive Officer , Takaful Re noted that “The fourth annual edition of the World Takaful Conference is a great opportunity for Takaful and insurance professionals to discuss the current status of the nascent Takaful industry, which has witnessed a tremendous development in the past few years. Should this momentum continue during the current crisis?

Islamic finance should be in principle less impacted by the current crisis, as it doesn’t allow non backed investments and speculation. As part of the Islamic Finance industry, Takaful should be less affected; however, as players within the global insurance industry, Takaful players must revisit their strategies, and come back to the basics.

The WTC 2009 should be a forum to discuss the achievements, with enough self criticism, and explore the ways to take advantage of the current situation to market the essence of Takaful i.e. the values of solidarity among the community, which are needed by all”.

The 4th Annual World Takaful Conference is the world’s largest gathering of Takaful industry leaders and will this year focus on renewing growth in a challenging global market.

UAE Islamic insurance sector growing rapidly

dubai1_s_The Islamic insurance (takaful) industry in the UAE and Qatar enjoy higher average premium per capita than the global average of $554.8 (Dh27.33), according to a report by Dubai Chamber.

Malaysia and Kuwait both have premium per capita below the world average by 47 per cent and 59 per cent respectively.

The UAE Islamic insurance industry is the second fastest growing market in the Gulf after Bahrain, the report said yesterday.

Capitalising on their robust economic growth, GCC takaful model market share is rapidly growing.

Bahrain takaful market grew 64 per cent during 2005-2006, while the UAE has an average growth rate of about 46.1 per cent.

Nevertheless the market size is still small when compared with the conventional insurance market.

The percentage of takaful premiums to total insurance premiums is still low yet increasing, ranging on average between 0.5 per cent in Bahrain and 1.8 per cent in Kuwait. The exception is, the Saudi Arabia which scores the highest average percentage share of about 17.9 per cent.

In the UAE, the estimated takaful premium share to total insurance premiums for 2006 is 1.5 per cent, second after Kuwait.

The UAE and the Muslim countries insurance penetration ratios (IPR) are very low. IPR is defined as the percentage of premiums to nominal GDP. Malaysia scores the highest insurance penetration ratio among the Muslim countries of about 4.9 per cent, followed by Lebanon with 3.9 per cent, Morocco 2.99 per cent and UAE 1.83 per cent.

IPR scores of the Muslim courtiers are below the world average penetration ratio of 7.5 per cent.

UAE takaful market is rapidly growing and becoming competitive as the number of takaful insurance providers is increasing, the report said. As of September, there are four UAE Islamic compliant insurance companies listed at Dubai Financial Market.

Source : emirates business news


Gauging the Global Takaful Market

takaful_microchipBy Bill Kenealy


What happens when you apply modern technology to an ancient practice? A new report from Boston-based Celent concludes that insurers and the vendors that supply them need to answer some fundamental questions before they can reap the rewards of the fast-growing market for takaful, a form of mutual insurance popular in the Muslim world.

According to the report, takaful, once a niche product sold largely by small local operators, is rapidly being embraced by multi-national financial services firms with sophisticated product differentiation and distribution capabilities.

The report, Policy Administration Systems for Takaful: A Global Solution Spectrum, was authored by Celent analysts Catherine Magg-Stacey and Ashley Evans, and examines the issues that are shaping the market worldwide. A lack of economies of scale and comparatively lower use of technology, means takaful companies are operating with inflated expense rations, according to the authors.

“Takaful companies, particularly in the Middle East, have shown higher expense ratios than their conventional counterparts,” the report states. “Over time, volumes will rise, and higher customer persistence is expected to offset the expense ratios to some extent. The

final key to managing the expense ratios lies in the use of technology.”

The report provides detailed profiles of the core systems available to takaful companies, especially policy administration systems.

“Policy administration systems are the beating technological heart of any insurance company and this is equally true for takaful companies,” it states. “Given the specificities of a takaful company, a critical element to a successful policy administration system is a flexible architecture. Fortunately, for those entering into this market, many of the modern policy administration systems offer this with user-friendly interfaces and tools allowing configuration of products, workflow, and reports.”

Yet, the report finds many barriers to widespread technological adoption in the takaful market, including a lack of standardization.

“In the short term, it is unlikely that national or international takaful standards will emerge,” the authors state. “Even though many industry players acknowledge the benefits to be gained by harmonization, the reconciliation of the varied approaches espoused by competing associations and standards boards will be a formidable challenge.”

Challenges notwithstanding, the rapid growth of the takaful marketplace will entice insurers and vendors alike to target it. Celent predicts the global takaful market will grow to $7.39 billion by 2015, with the greatest growth in the Middle East and Southeast Asia. “For the moment, the growing takaful market presents a niche opportunity, and the small number of vendors with takaful experience reflects this. However, the sustained double-digit increase in premium in this market will see a commensurate increase in takaful operators/windows in the next few years.”

Source: Celent