Models of Takaful in Bangladesh Perspective

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Milliman Research Report
Prepared by:
Safder Jaffer
Farzana Ismail
Jabran Noor
Lindsay Unwin
Reviewed by:
Debo Ajayi
November 2010

Takaful (Islamic Insurance):
Concept, Challenges, and Opportunities

Takaful (Islamic Insurance): Concept, Challenges, and Opportunities Safder Jaffer, Farzana Ismail, Jabran Noor, Lindsay Unwin
November 2010

Takaful (Islamic Insurance): Concept, Challenges, and Opportunities Safder Jaffer, Farzana Ismail, Jabran Noor, Lindsay Unwin
November 2010

Milliman
Research Report

Contents
EXECUTIVE SUMMARY

2

BACkgROUND AND MARkET OUTLOOk

3

PRINCIPLES AND PRACTICES UNDERLYINg TAkAFUL

5

TAkAFUL OPERATINg MODELS

11

ISSUES AND ChALLENgES FACINg ThE TAkAFUL INDUSTRY

15

CONCLUSION

25

APPENDIX I: gLOSSARY

26

APPENDIX II: BIBLIOgRAPhIC REFERENCES

28

APPENDIX III: SELF REgULATINg BODIES & TAkAFUL gROUPS

29

Takaful (Islamic Insurance): Concept, Challenges, and Opportunities Safder Jaffer, Farzana Ismail, Jabran Noor, Lindsay Unwin
November 2010

1

Milliman
Research Report

exeCutive summary
Through desktop research, one can get a plethora of materials and papers on Takaful, but most tend to focus either on the fundamentals of Takaful or on Takaful models. In contrast, the objective of this report is to highlight the key issues and challenges facing the world of Takaful and suggested areas where work is required to find solutions.

Therefore this report is intended to provide useful reference material for practioners by summarising the following key items:
An overview of Takaful and the intricacies of the models • Insights into the issues and challenges facing the Takaful industry • Finding sustainable solutions to some of these challenges

Takaful (Islamic Insurance): Concept, Challenges, and Opportunities Safder Jaffer, Farzana Ismail, Jabran Noor, Lindsay Unwin
November 2010

2

Milliman
Research Report

BaCkground and market outlook
Muslims account for around 25% of the world’s total population, but despite rapid growth in recent years, insurance sales within the Muslim population remain a small fraction of the total insurance market. Historically, the incompatibility between conventional insurance and key tenets of the Islamic faith has acted as a significant barrier to sales. These differences have led to very low penetration rates and have left many Muslims with little external protection for their dependents or possessions. The development of Takaful, which originates from the Arabic verb ‘kafalah,’ which means ‘to help one another’ or ‘mutual guarantee,’ has been driven by a need to overcome these obstacles and create an insurance proposition that is fully compliant with Shariah (Islamic law). It offers Muslims a valuable risk management tool and the first true alternative to conventional insurance in both the life and nonlife sectors that is acceptable to the Muslim faith. For non-Muslims, Takaful products potentially offer an alternative source of insurance protection—with different investment objectives, an approach to surplus distribution, and an oversight system with an ethical dimension. Hence in Malaysia, for example, non-Muslims account for more than 60% of the total Takaful premiums.

Takaful offers Muslims a
valuable risk management tool
and the first true alternative to
conventional insurance in both
the life and non-life sectors
that is acceptable to the
Muslim faith.

Figure 1: geographiCal spread oF muslims as a % oF total population

No data
0-5%
5-10%
10-50%
50-75%
75-100%

Sources: U.S. State Department, CIA WORLD FACTBOOK, Swiss Re Economic Research & Consulting

Market Size and Outlook
Whilst Takaful started in 1979 in Sudan, it only gained momentum in early 2000 when the Malaysian government promoted it and significant growth was witnessed thereafter. The growth of Takaful has varied significantly from country to country and its success, or otherwise, has...
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