COMCEC Coordination Office Ankara, Turkey Presented by: Dr.Yusuf Dinç IMPROVING THE TAKAFUL SECTOR IN ISLAMIC COUNTRIES Session 1 : Overview of Takaful Sector in the World and OIC 17th October, 2019
2 17th October, 2019
• To assess the theoretical and legal natures of Takaful, including the 1 interpretation of various schools of thought, the comparison of conventional insurance with Takaful; Objectives of the Study • To conduct the detailed analysis on the current size and trends, 2 structures, modes, and instruments of Takaful; • To review the operational aspects of Takaful business, analyze the types 3 of Takaful structures, and evaluate the structural, regulatory and technical challenges facing Takaful sector; • To perform country-level analysis of the selected countries on Takaful 4 market; and • To provide the policy recommendations on Improving the Takaful Sector 5 in the Islamic Countries. 3 17th October, 2019
Background Information 17th October, 2019
Financial System Banking & Non- • Islamic Banks Ijarah Companies Banking Sectors • Wealth creation Equities • Capital Market Sukuk • Funds • Wealth protection Insurance Sector • Takaful Operators 5 17th October, 2019
Global Islamic Finance Industry IB Total Assets In Billions Funds As of 2018 Share of Takaful Industry Sukuk 6 17th October, 2019
Definition of Takaful AAOIFI: IFSB: BNM: - Takaful is “a process of agreement - Takaful is "a mutual - Takaful is “an among a group of persons to handle guarantee in return for arrangement based on the injuries resulting from specific risks the commitment to mutual assistance to which all of them are vulnerable”. donate an amount in under which Takaful the form of a specified participants agree to contribution to the contribute to a participants’ risk fund, common fund whereby a group of providing for mutual participants agree financial benefits among themselves to payable to the Takaful No Gharar support one another participants or their No Qimar/Maysir No Riba jointly for the losses beneficiaries on the arising from specified occurrence of pre- risks”. agreed events ” . 7 17th October, 2019
TAKAFUL BUSINESS MODELS: The models define the following aspects: • Relationship between the Participants and TO, • Rights and obligations of the Participants and TO, Who pays the expenses incurred • during the contract period? • How is surplus distributed between the parties? and Who is liable for the losses arising • from the Takaful business? BUSINESS MODELS PRACTICES: Wakalah model: Bahrain, Malaysia • Mudarabah model : Brunei • Hybrid model : Turkey • • Waqf model : Pakistan, South Africa • Cooperative model : Saudi Arabia, Sudan 8 17th October, 2019
Size of Global Takaful vs Conventional Insurance Growth Potential? As of 2018 In Billions 9 17th October, 2019
Distribution of Takaful Contributions by Region GCC * Excluding GCC ** Excluding North As of 2018 In Billions Asia MENA 10 17th October, 2019
Comparison Global Global Takaful Conventional Sector Insurance As of 2018 As of 2017 In Billions 11 17th October, 2019
Number of Institutions offering Takaful Services Globally General Composite RTO As of 2018 Family Windows 12 17th October, 2019
Malaysia, Saudi Arabia, Turkey, and the United Kingdom 17th October, 2019
The level of Takaful Industry 1. development ( by TR’s IFDI Score ), The Quality of Institutions ( by 2. Heritage’s Economic Freedom Index ). 14 17th October, 2019
The UK Turkey Sample Countries: 3 OIC member countries Saudi Arabia - Malaysia : Dual System - Saudi Arabia : Full-Fledged Malaysia - Turkey : Consolidated 1 Non-OIC member country - The United Kingdom 15 17th October, 2019
Insurance Sector • Regulatory Body: BNM Takaful Players: 19 • 27.6% Islamic Insurance As of 2018 In Billion MYR Conventional Insurance Takaful 16 17th October, 2019
Insurance Sector • Regulatory Body: SAMA Takaful Players: 33 • 100% Islamic Insurance As of 2018 In Billion SAR 17 17th October, 2019
Insurance Sector • Regulatory Body: MTF • Takaful Players: 12 4.31% Islamic Insurance As of 2018 In Billion TRY Conventional Insurance Takaful 18 17th October, 2019
Based on literature review and surveys 17th October, 2019
Research Methodology Literature Review (i) Primary data: Structured questionnaires: all stakeholders • Data Semi-structured interviews: regulators & executives • (ii ) Secondary data Synthesis Databases • Official statistics • 20 17th October, 2019
Survey Questions Challenges Facing the Takaful Industry Political & Macro Regulatory Business Technology Environment Framework Operations 1 2 3 4 Political Legislation Business FinTech/ • • • • Uncertainty Models InsurTech • Transparency Macro & Disclosure Quality of Cybersecurity • • • Conditions Operations Market • • Market Confidence • Product Confidence Development Capital & Innovation • Requirement & Solvency Margin 21 17th October, 2019
Survey Questions Challenges Facing the Takaful Industry Infrastructure Market Shari’ah Human Capital Framework 5 6 7 8 Shari’ah • • Distribution • Competition • Business Governance Channels with Takaful Models Operators • Shari’ah Availability of Quality of • • Standards Re-Takaful • Competition Operations Services with Insurers Shari’ah Board • Product • Availability of Weak Development • • • Shari’ah Audit Shari’ah - Customer & Innovation compliant Base Instruments for Investment Low Consumer • Awareness 22 17th October, 2019
Survey Questions Company-Level SWOT Analysis Use of Technology to Sustain the Quality of Services • Successful Product Development and Innovation • Internal Factors WEAKNESSES • High Attrition Rate in Workforce STRENGTHS High Level of Customer Satisfaction • Lack of Efficient Financial Planning • • Well-developed Distribution Networks Rigid Organization Structure to Accommodate New • • Strong Free Cash Flow for Further Expansion of Business Models Projects • Poor Marketing Strategies High Rate of Return on Shari'ah-compliant • • Lack of Investment into R&D - Below Industry Investments Average • Having High-Skilled Workforce • Diversification Across Countries OPPORTUNITIES External Factors Strong Support from the Government for • Intense Competition from TOs and Insurers • Development of the Industry • New Restrictive Regulations THREATS Irregular Development and Supply of New Products • New Customers via Online Channels • Access to New InsurTech Vulnerable Cybersecurity • • Future Growth due to Political and Economic High Bureaucracy Level as an Impediment to • • Stability Growth • Expansion in Other Countries 23 17th October, 2019
17th October, 2019
COMCEC Coordination Office Ankara, Turkey Presented by: Dr.Mohamed Cherif El-Amri Dr.Adam (Ruslan Nagayev) IMPROVING THE TAKAFUL SECTOR IN ISLAMIC COUNTRIES Session 2 : Lessons Learnt from the Selected Case Studies and the Policy Options 17th October, 2019
Discussion of survey results 17th October, 2019
STRENGTHS (A) Use of Technology to Sustain the (C) High Level of Customer (D) Well-developed Distribution (B) Successful Product Development Quality of Services Satisfaction Networks and Innovation (E) Strong Free Cash Flow for Further (F) High Rate of Return on Shari'ah- (G) Having High-Skilled Workforce (H) Diversification Across Countries Expansion of Projects compliant Investments 27 17th October, 2019
WEAKNESSES (A) High Attrition Rate in Workforce (C) Rigid Organization Structure to (B) Lack of Efficient Financial Accommodate New Business Models Planning (D) Poor Marketing Strategies (E) Lack of Investment into R&D - Below Industry Average 28 17th October, 2019
OPPORTUNITIES (A) Strong Support from the (C) Access to New Insurance (B) New Customers via Online Government for Development of the Technology Channels Industry (D) Future Growth due to Political and (E) Expansion in Other Countries Economic Stability 29 17th October, 2019
THREATS (A) Intense Competition from Takaful (C) Irregular Development and Supply (B) New Restrictive Regulations Operators and Conventional Insurers of New Products (D) Vulnerable Cybersecurity (E) High Bureaucracy Level as an Impediment to Growth 30 17th October, 2019
Based for the countries under study 17th October, 2019
Issues and Recommendations 1) Legal and Regulatory Framework SA, TR, UK Developing the Takaful Act Absence of a comprehensive MY Takaful legal Developing specific Takaful laws and regulatory framework Standardization of financial accounting and MY, SA, TR, UK reporting, and tax laws related to Takaful 32 17th October, 2019
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