gif Editor letter


The future of Takaful will largely depend on how its potential is exploited by the Takaful operating system in order to cater to the need of the economy


As many markets have stumbled over the last few years, many others have suggested that there should be a new way of approaching business. New re- search backed by statistics shows that


there is huge potential in the global market for Takaful products. The term Takaful refers to Islamic insurance, al- though those wishing to promote it to a wider global audi- ence prefer to call it co-operative insurance.


It covers the full spectrum of insurance products, from life insurance to home, business and automotive poli- cies. What distinguishes this body of insurance products from more conventional policies is its adherence to fun- damental principles governing risk and reward, enshrined in Shari’ah law. These principles include the avoidance of uncertainty, gambling and the charging or receiving of interest.


The world Takaful market is growing at a phenomenal rate and, it seems, will continue to do so. The Takaful and Re- takaful sector have experienced both highs and lows, but throughout 2010 real progress has made Takaful a sector which is globally recognised amongst many financial insti- tutions around the world. It was predicted that in 2010 alone the Takaful industry will surpass over US $8.8 bil- lion in contributions; global Takaful contributions grew by 29 per cent in 2008 to reach US $5.3 billion, and remain on course to surpass US $8.9 billion by 2010.


Takaful has a vast potential for growth, and this potential- ity is certain to increase in the years to come. However, the future of Takaful will largely depend on how its poten- tial is exploited by the Takaful operating system in order to cater to the need of the economy.


The growth of both family Takaful and general Takaful will depend on good marketing strategies, distribution networks, and the adoption of improved information technology. Last but not least the supply of Takaful will depend largely upon the support and sympathy of the policy makers. If the concept of Takaful is not properly understood, legislators may not subscribe to the idea of promoting Takaful; for that matter, the operation of Taka- ful companies under the Conventional Insurance Act and


6 Global Islamic Finance February 2011


or other rules/regulations may mislead consumers. Since an effective regulatory system plays a great role in the dy- namics of supply, it is the responsibility of the regulatory authorities of respective countries to frame appropriate laws, rules and regulations for the growth of Takaful.


The Takaful market is still in a formative stage in 2010; however, it is reported that market projections estimate growth rates between 15 and 20 per cent over the next 10 years – the market is set to reach US $7.4 billion in premi- ums by 2015. With challenges around customer service and productivity, technology can enable this industry to grow through its formative stage.


There are many challenges ahead as well, including the problem that life Takaful products are more expensive than traditional products, and so are economically inef- ficient. Existing Takaful products are often regarded as a mere blend of conventional insurance and mere Takaful products. Lack of product flexibility in terms and condi- tions, hidden agenda issues such as the forbidden ele- ments of Gharar, and the unattractive investment pro- gramme of family Takaful are all part of the challenges faced by the sector. One important problem is that only a small percentage of people among the market’s potential customers and distributors understand either the concept or its product offering.


There have been many highs and lows in the progress of the global Takaful sector, and in our February issue Global Islamic Finance Magazine aims to review some of these volatile elements. In order to really appreciate its suc- cesses and milestones throughout the years, it is impor- tant for industry players to firstly re familiarise themselves with the Takaful industry and its operations. We strongly believe there is enormous potential for opportunity to be grabbed by investors in the Takaful field.


Farhad Reyazat


PhD in Risk Management Editor in Chief


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