Takaful gif Tariq Masood, Chairman, Islamic Finance Council UK


What are your views on Islamic finance progression in 2010? 2010 has continued to be a difficult time for the global financial markets and sovereign states, with mixed signals of recovery. However the Islamic finance market has continued to demonstrate strong growth with much of the sector being shielded from the more severe elements of the recent crisis.


This relative protection the Islamic finance industry has enjoyed has been due to the underlying ethical principles which govern the sector. Nonethe- less the industry has faced challenges, particularly within the Sukuk and real estate related markets. These challenges have forced the sector to ad- dress issues of defaults and restructuring which ultimately serve to provide more legal precedence that is vital in providing solid underpinnings for the future growth of the sector.


What do you personally feel are the future challenges for the Islamic finance and how do you think they can be overcome? Two key issues that the global Islamic Finance Industry has been facing for quite a while now are; an acute shortage of properly trained Shariah scholars and the lack of harmonized, binding global standards and govern- ance structures.


The availability of Shariah Scholars well versed in Fiqh-ul-Maumulat, con- temporary Islamic finance structures and conventional finance is para- mount for the Islamic Financial industry to evolve and better compete with its conventional counterpart. I believe that programs for the development of Shariah Scholars, such as the Islamic Finance Council’s Shariah Scholar Continuous Professional Development Program (CPD); training scholars on conventional finance, are an important move towards this direction. The CPD Program which is endorsed by the UK Trade and Investment (UKTI) is currently being conducted in the UK, in Malaysia and Bahrain in collabora- tions with their respective Central Banks.


Standardisation in product structure, Shariah assurance and indeed under- lying legal contracts which facilitate transactions are critical to increasing efficiency and acceptability of Islamic products. I believe that for a global governance structure a sense of thought leadership needs to be promoted, and organizations such as AAOIFI should work with government jurisdic- tions to formulate an effective binding Shariah Governance structure, to standardize the global workings of Islamic Financial Institutions.


Where do you see the Islamic financial sector in the UK heading in the next few years? The government has stated its desire to see the UK as a global gateway for Islamic finance. London as a key global conventional financial centre will always have a lot to add to the Islamic finance sector be that through the talent pool, thought leadership or the liquid capital markets within the City. There have been many positive steps taken by the government, but I be- lieve that there is still more work to be done in this regard, which includes realising potential in the sovereign and corporate Sukuk market, trade fi- nance and the PPP/PFI sector.


Collectively this presents vast potential for Islamic Finance in the UK within the mainstream arena. Even though Islamic retail banking has been on the rise in the UK, challenges remain and part of the UK Muslim population continues to view Islamic Finance with scepticism. This is due partly to the over engineering of certain products coupled with a lack of proper under- standing and education in Islamic Financial products.


Moving forward Islamic Banks, or conventional banks operating Islamic windows, need to make certain changes to their strategies and also offer more innovative and diversified Islamic Financial products. The opportunity lies for Islamic product providers to align themselves better with ethical providers and adapt their marketing strategies to target the mainstream, but based on products which are genuinely differentiating on their underly- ing ethical principles. Not only will this open up a greater target market, it can also present an alternative to the wider UK population, whose confi- dence in conventional financial institutions is at an all-time low.


per cent in 2005, and 7.5 per cent in 2008. Total Takaful funds, how- ever, have more than doubled in this same period, from RM5, 878.4 million in 2005 to RM 1,569.4 in 2008 and RM1 2,445.4 million in 2009. Similarly, Takaful net contributions income has increased from RM1 333.7 million in 2005 to RM 3,025.1 million in 2008 to RM 3,521.8 million in 2009.


The measures are also in line with the provisions and timetable set out in the Financial Sector Master Plan (FSMP) announced in 2001. Bank Negara stressed that the new measures are aimed at enhanc- ing “interlinkages to leverage on global developments in Islamic fi- nance and reinforce Malaysia’s position as an international Islamic financial hub.”


Malaysia is giving priority to those market players “who have the ca- pacity to contribute in areas where there are gaps in our financial system and in which there are new areas of growth in the financial system, as well as that which will reinforce Malaysia’s position as an international Islamic financial hub.”


The Malaysian Takaful industry received a further boost recently when the Shariah Advisory Council (SAC) of Bank Negara Malaysia resolved that the payment of Takaful benefits from Participants’ Risk Fund (which pools participants’ Tabarru (donations) contributions in order to honour claims by participants), can be made contingent upon specific events beyond those arising from a defined financial loss or a misfortune.


This, says the SAC, is allowed subject to the agreement by the con- tracting parties i.e. the participants. The decision is made in line with the feature of the established Takaful contract which is based on concept of Tabarru’ and Ta’awuni amongst the participants. These two concepts, according to the ruling, allow participants to agree on the events leading to payment of the Takaful benefits.


The terms and conditions outlining the respective events must be made transparent to all the contracting parties in the Takaful con- tract. Thus, with the agreement from the participants, the scope of events prompting payment of Takaful benefits from the Participants’ Risk Fund is not only limited to death, disability or calamity, but can also be extended to cover attainment of the contracted mandate ( Zawya).


Nasser Al Shaali, CEO of the DIFC Authority said: “As Islamic Finance enters a new phase of development, Takaful is one of the sectors within the industry that holds considerable potential for growth. Over the last few years, Takaful has grown in profile as an alternative to conventional insurance and transformed itself from a regional to a global industry.


DIFC’s regulatory environment and business-enabling infrastructure makes it one of the best platforms in the world for Takaful service providers to tap new opportunities and grow their business. Our support for the 4th Annual World Takaful Conference is part of our commitment to support the rapid growth of the Takaful industry.” (Property Wire).


Takaful and Retakaful: Looking Towards the Future Currently, the global Takaful and Retakaful industry is relatively small compared to its conventional counterpart, with a current market size estimated between US $2.5 billion to US $3.5 billion of total annual premium.


It needs to gain critical mass, build worldwide brand recognition and exceed the performance standards set by the conventional insur- ance industry. The priority of Takaful operators should be to strive to increase the market share. With well over one billion Muslims


2011 February Global Islamic Finance 17


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