Description
The doc explaining on the potential of the Takaful Insurance in the Indian market along with the challenges faced in its implementation.
Takaful Insurance
An Indian Perspective This document assesses the potential of the Takaful Insurance in the Indian market along with the challenges faced in its implementation.
TABLE OF CONTENTS Takaful : An Introduction ................................................................................................................ 4 Why Takaful? .................................................................................................................................. 4 Five Pillars of Takaful Insurance...................................................................................................... 5 Mutual Guarantee....................................................................................................................... 5 Ownership of Fund...................................................................................................................... 5 Elimination of Uncertainity ......................................................................................................... 5 Management of the Takaful Fund .............................................................................................. 5 Investment Condition ................................................................................................................. 5 Takaful Models ................................................................................................................................ 5 Mudharaba Model ...................................................................................................................... 6 Wakala Model ............................................................................................................................. 6 Waqf Model ................................................................................................................................ 6 Takaful Industry Enablers................................................................................................................ 6 Other Enablers for Takaful Insurance ..................................................................................... 7 Current status of takaful insurance ............................................................................................ 7 Takaful Industry Growth ................................................................................................................. 8 Malaysia ...................................................................................................................................... 9 UK .............................................................................................................................................. 10 New re-Takaful capacity ........................................................................................................... 10 Global Takaful standard ............................................................................................................ 11 Product innovation ....................................................................................................................... 11 Consumer banking growth potential ............................................................................................ 12 Strategic product partner selection .......................................................................................... 13 2|Page
Use of IT to enhance customer service ......................................................................................... 14 Global opportunities ..................................................................................................................... 15 Bibliography .................................................................................................................................. 16
3|Page
TAKAFUL: AN INTRODUCTION Takaful is the Islamic counterpart of conventional Insurance, and exists in both life and general forms. It based on the concept of mutual solidarity. A typical takaful undertaking consists of a two tier structure that is a hybrid of a mutual and commercial form of a company. All the functions of a Takaful undertaking should confirm fully to Islamic Sharia’s law. Takaful is derived from an Arabic Word which means solidarity whereby a group of participant agree among themselves to support one another jointly against a defined loss. In a Takaful arrangement the participants contribute a sum of money as wholly or partially tabaru meaning donation into a common fund, which will be used mutually to assist the members against a defined loss or damage. Takaful has evolved into a viable alternative to conventional Insurance and is able to attract a wide range of customers Muslims and Non-Muslims alike. WHY TAKAFUL? Conventional Insurance is in conflict with basic Islamic Principles
CONVENTIONAL INSURANCE ISLAMIC Principles Gharar (Uncertainty) ? EXAMPLES OF INCOMPATIBILITY
?
Risk is transferred from Insured to Insurer against a fee( the premium) An Insurance product might offer a new for old replacement for compensation. Term life compensates for death Insurance funds are usually invested in interest bearing financial Instruments. (e.g. bonds) The Insurer might hold Investments in alcohol and /or gambling. The Insurer keeps the premium and Investment profits, irrespective of claims.
?
Maysir (Gambling)
? ?
? ? ? ? ?
Insurance Contracts contain Uncertainty, as it is not known if a claim will occur and what the compensation amount will be. The insured would make a gain by getting a new for an old item. Life contracts not set up to cover a specific obligation amounts to betting. This implicitly links the insured to a sinful (haram) activity, namely charging Interest.
Riba (interest)
?
Haram (Forbidden)
?
The Insurance Contract is not an Islamic compensation contract ? Risk is traded and not shared. ? Insured has no share in profit.
4|Page
The above mentioned shortcomings of Conventional Insurance are taken care of in Takaful Insurance Models. FIVE PILLARS OF TAKAFUL INSURANCE MUTUAL GUARANTEE The basic objective of Takaful is to pay a defined loss from a defined fund. The loss is borne by a fund created by the donation of the policyholders. The liability is spread amongst the policyholders and all loses divided between them. OWNERSHIP OF FUND Donating their contributions to the Takaful fund, policyholders are owners of the fund and entitled to its profits, this varies slightly between the adopted models which are described later. ELIMINATION OF UNCERTAINITY Donations causing transfer of ownership to the fund are voluntary to mutually help in the case of a policyholder’s loss without any predetermined monetary profit. MANAGEMENT OF THE TAKAFUL FUND Management is by the operator who depending on the adopted model utilizes either or a combination of two Sharia’s Compliance Contracts, namely Mudraba or Wakalah or a combination thereof. INVESTMENT CONDITION All investment must be Shariah Complaint, which prohibit investment in Haram Industries and the use of Instruments that are free of Riba. TAKAFUL MODELS Takaful is a system based on mutual assistance or ta’awan and voluntary contribution or tabbaru, where the risk is shared collectively and voluntarily by a group of participants. Through payment of a voluntary donation and the clear definition of the type of loss, uncertainty or gharar or excessive risk taking or masir are removed from the contract. Takaful has been practiced for centuries as a system of risk sharing. Today various Takaful models exist but the most popular models are the agency model or the Wakalah model, the profit sharing model or 5|Page
Mudraba, a combination of the two or the hybrid model, Initial Contribution or the waqf model. A brief description of these models follows: MUDHARABA MODEL Mudharabah is defined as the contract between one party, known as the rasul mal (capital provider) with another party known as the Mudharabah (entrepreneur) where the Rasul mal provides the capital, and the Mudharabah provides the skills in a Business venture. When there is profit it is shared between the Mudharabah and the Rasulmal in a pre-agreed manner. In this case the Takaful Operator is the Mudharabah and the participants are the capital providers. The pure Mudharabah Model confirms to this definition and is practiced mainly in the Asia-Pacific Region. WAKALA MODEL The Wakalah Model commonly used in the Middle- East, distinguishes between the Operating Company (Wakeel) and the Takaful Fund. The Operating Company does not share in the underwriting result; rather it is compensated by a fee deducted from contributions made by participants and/or investment profits generated by the Takaful Fund. The fee rate is fixed annually in advance in consultation with the Shariah Committee of the Company. WAQF MODEL This non- profit model includes social-governmental owned enterprises and programmes operated on a non profit basis which utilizes a contribution that is 100% tabbaru donation from participants who willingly give to the less fortunate members of the community. Waqf, in contrast to Wakalah, Mudharabah, operates as a public foundation. Whereas takaful fund is owned by members in the first two models, in Waqf, it belongs to nobody in particular. While any surplus from the first two models can theoretically be distributed between members (although this rarely occurs in practice, other than in family takaful), such distribution is not possible in the Waqf Model. TAKAFUL INDUSTRY ENABLERS The Takaful Industry is poised for significant growth as demand increases and Industry enablers are further aligned
6|Page
THE GLOBAL TAKAFUL INDUSTRY DEMAND ? ? ? ? ? ? Economic Growth Increase in GDP per capita Youthful Demography Increasing awareness of Takaful Greater desire for Sharia’s complaint offerings Increase in asset based Shariah Complaint Financing
THE GLOBAL TAKAFUL INDUSTRY SUPPLY ? ? ? ? ? ? Fragmented Landscape Undercapitalised Limited Re-Takaful Capacity Problematic asset Management Local Solution Offerings Local Distribution Channels
OTHER ENABLERS FOR TAKAFUL INSURANCE ? Compulsory protection ? Licensing and Increased Competition ? Better Regulation ? Greater Role for Private Sector Participation ? Increased Market led Initiatives CURRENT STATUS OF TAKAFUL INSURANCE Takaful has become one of the leading segments of the financial sector across the Asian, Arab and African regions with growth rates of 10% to 30% over the last couple of years. There are currently around 60 Takaful operations in 30 countries worldwide. Total direct Takaful premiums are estimated at approximately US$1.7 billion in 2003. The Arab countries provide around 63% of the global Takaful business, followed by Malaysia with 27% and other Asia Pacific countries some 9%, with Europe and USA contributing only 1% to Takaful revenues. The global Takaful market is expected to grow at between 15% and 20% per annum. Total worldwide direct Takaful premiums covering both non-Life and Life are expected to reach US$7.4 billion by 2015. Of this estimated amount, nearly US$2 billion in annual premiums would be written in GCC markets, US$3.1 billion written in the Asia Pacific region and an additional US$2.6 billion in Europe, Turkey, China, India and the USA. Approximately 52% of the projected total annual Takaful premiums would be non-Life with an impressive gain with Life/Family Takaful segment increasing to US$4.9 billion. Malaysia and Indonesia will continue to be at the forefront of the Takaful business with over US$1.4 billion in premiums. The Saudi market within the GCC has attracted several new market entrants and liberalization of foreign ownership in the UAE and other markets in the insurance sector will further accelerate growth. Among the GCC states, Saudi Arabia is expected to generate close to US$900 million in premiums, followed by the UAE (US$480 million) and Egypt (US$467 million). 7|Page
TAKAFUL INDUSTRY GROWTH The Takaful industry has grown significantly as the Islamic alternative to conventional insurance and evolved from being a regional business to a global one. The renaissance in Socially Responsible Investing (SRI) and customer demand for Shariah compliant solutions has enhanced the community banking appeal of Takaful related products. Major markets currently include Malaysia, Iran, Pakistan, Saudi Arabia and other GCC countries. Annual average individual market growth rates range between 15% and 30%. In August 2005, the Securities Exchange Commission of Pakistan (SECP) published the Takaful Rules pertaining to the different classes of Takaful business. The Takaful product family spans across general, life, health and pensions business lines. Currently, the General Takaful business has a dominant market share of the overall product mix in Iran and the Middle East region. Both the USA and Europe offer considerable untapped potential for the Takaful industry. The two main business models used in the Takaful industry are the Mudharabah and the Wakalah models. The Mudharabah model is commonly used in Malaysia and involves the Takaful operator managing the operation in return for a share of the surplus on underwriting and a share of profit from investments. The Wakalah model is more prevalent in the Middle East region. In this model, the Takaful operator acts as an agent (Wakeel) for the participants, and manages the Takaful/re-Takaful fund in return for a defined fee. The global Takaful industry is relatively small in comparison to its conventional insurance counterpart and the current Takaful market size is estimated between US$2.5 billion to US$3.5 billion of annual premium. It needs to gain critical mass, build worldwide brand recognition and exceed performance standards set by the conventional insurance industry. There are only a few international Takaful suppliers. The major challenges faced by the national and cross-border Takaful suppliers include raising customer awareness and education; expanding product innovation, creative product design and marketing; gaining brand recognition; offering attractive investment choices for customers in Family Takaful linked investment plans; intelligently deploy technology to enhance customer experience and overall consumer satisfaction level; finding an AAA-rated international reinsurance company willing to accept a re-Takaful solution, offer individual risk bearing capacity and widening penetration of bank and alternative distribution channels. The Takaful industry has been successful in distributing products through its agency sales force, direct channels, e-commerce and, to a limited extent, via certain retail banks. Product customization for the different bank channels (retail, mass affluent, private banking), customer referrals and gaining brand loyalty are important critical success factors. Product packaging, 8|Page
customer convenience, customer care and transparency of product terms, conditions and pricing are also important catalysts to increase the share of the Takaful business across multiple distribution channels. For Family Takaful linked investment plans, an open investment architecture platform is important for the retail banking channel. Clearly the ability to tailor suitably diversified risk reward investment portfolios, select top quartile performing funds from major international brands and control defined portfolio risk levels are powerful drivers for the retail value proposition. Furthermore, the product certification by an independent Shariah Board of experts and ongoing compliance monitoring with high ethical standards has favourably impacted transparency, disclosure of different terms and conditions, charges and frequency of reporting. Several enterprising banks have included bancassurance in their product offerings, and some of the new Takaful operators are offering certain General Takaful products online. The distribution of Takaful life and savings products through bank channels is relatively new, but the sales process through the branch banking network has been facilitated by the advent of web-based point of sale and online administration systems offered by groups such as the FWU Group in Germany. In addition to the benefits of customer convenience, the “white label” advantage of using own brand equity, transparency of product terms and conditions, open investment architecture and efficient online processing has all proved attractive to major bank distribution partners. Future challenges and opportunities include the development and harmonization of the regulatory framework for the Takaful industry, creating suitable Shariah compliant investment securities, raising consumer education and awareness, building brand loyalty, optimizing the use of technology for customer after-care and creating strongly capitalized global re-Takaful and multiline Takaful providers. MALAYSIA In Malaysia, the current market penetration for Takaful is relatively low. According to Islamic Finance News on the 5th December2005: “Takaful is expected to constitute 20% of the total insurance market by 2010 (currently 6.5%). At that time, Takaful’s share of the Malaysian insurance industry is estimated to be worth US$1.85 billion (RM7 billion).” In Family Takaful the products sold were individual and group term and savings products, mortgage policies and pension plans. In General Takaful all classes of business were sold. Bank Negara Malaysia (the Central Bank in Malaysia) issued four new Takaful licenses in January 2006. Bank Negara wanted to attract new players of strong capacity in product development and risk management for the four licenses, and interested parties included conventional financial institutions and players in Australia, Japan, Europe and the Middle East. 9|Page
The successful applicants were HSBC Insurance (Asia Pacific) Holdings, Jerner Asia and Wang Simpanan Pekerja; Hong Leong Bank, Millea Asia, Japan and Hong Leong Assurance; Bank Simpanan Nasional and Prudential Holdings; and MAA Holdings and Solidarity. Takaful Malaysia, which started its business operations in 1985, has expanded its international activities fast. It has previously invested in and assisted to set up Takaful operators in several OIC member states including Brunei, Bahrain, Bangladesh, Qatar, Kuwait, Indonesia, Sri Lanka and Saudi Arabia. The company is also exploring cooperation opportunities in Kuwait, Pakistan and Thailand. UK According to Islamic Finance News on the 5th December 2005: “a Shariah compliant home insurance product has been made available to UK bank customers for the first time, thanks to the new HSBC Home Takaful insurance policy. Several features of the conventional home insurance product have been altered to make the policy conform to the Shariah law. This is the latest Islamic product from HSBC, which already provides Shariah compliant home finance, current accounts and pension funds.” NEW RE-TAKAFUL CAPACITY The Arab Insurance Group (ARIG) in Bahrain established Takaful Re, the first reinsurance company to be organized and operated in a fully Shariah compliant manner in the Middle East and North Africa region. Takaful Re has been incorporated in the Dubai International Financial Centre (DIFC) with an authorized capital of US$500 million and an issued and paid up capital of US$125 million. Takaful Re will offer Shariah compliant re-Takaful products and capacity to direct Takaful operators. Takaful Re will be operational in all major lines of property and family Takaful business and expects to commence underwriting activities well in advance of business renewals for the year 2006. Major shareholders include ARIG, the Saudi based Islamic Development Bank, Dubai Investments, Emirates Industrial Bank, Emirates Funds (of the Emirates Bank Group), Qatar Islamic Insurance Company and Wethaq Takaful Insurance Company of Kuwait (source: ARIG press release of the 19th September 2005). Millea Asia, a wholly owned subsidiary of Millea Holdings Inc, established Tokio Marine Nichido Re-Takaful (TMN) in Singapore towards the end of 2004. TMN is the first ever re-Takaful
10 | P a g e
specialist company established by a major international insurance group (source: Millea press release of the 1st December 2004). Other Islamic reinsurance companies include Best Re in Tunisia (established in 1985) and ASEAN Re-Takaful International in Labuan, Malaysia. For export credit and investment insurance risks, cover is provided by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), headquartered in Jeddah. ICIEC was established in August 1994 with a capital base of US$140 million and is 50% owned by the Islamic Development Bank (IDB) and the balance by 34 Islamic states (16 Arab, 10 African and 8 Asian). GLOBAL TAKAFUL STANDARD According to the BMA Insurance Review of October 2005: “Work on a global standard on Takaful has reached an advanced stage. The International Financial Services Board (IFSB) and the International Association of Insurance Supervisors (IAIS) are developing the standard jointly. The issues paper on Takaful, presented by the Joint Working Group, provides a detailed insight into the background to Takaful, the need for a standard, the relevance of IAIS Core Principles to Takaful, governance issues (such as the role of Shariah boards), financial and prudential issues, market conduct issues and supervisory skills and training. The BMA has recently pioneered a comprehensive regulatory framework specific for the Takaful business. The framework, issued in May 2005, takes into consideration the unique characteristics of Islamic insurance.” PRODUCT INNOVATION Due to the ethical guidelines underpinning Islamic banking, investment and finance products; the increasing transparency of customer terms and conditions; the pricing structure; regular monitoring for compliance by the relevant Shariah boards; and adequate disclosure of material aspects, such offerings have tended to attract both Muslim and non-Muslim customers. Acceptance of Islamic savings, education, marriage and retirement plans is gradually growing among the affluent customer base, but significant investment in customer education and training of financial planners and investment advisors is needed. A successful distribution model needs to develop a thorough understanding of customer needs, deliver on its promise, offer product and process innovation, eliminate flaws in product terms and cost structures and enhance customer service delivery.
11 | P a g e
Against this backdrop, major Takaful providers need to enhance their capacity to innovate, carefully review and understand evolving customer and market specific needs, carefully reengineer their product design and customer benefits package, strengthen customer interaction and communications and expand customer reach across multiple distribution channels. One case study where innovation has taken place is in Family Takaful linked investment plans. The FWU Group has pioneered innovation and developed technology to create “white label” savings, education and retirement plans offering, customized for the bank’s mass affluent customer segment. The Islamic savings, marriage, education and retirement plans offer bank customers an attractive investment and protection benefits package. The product design is creative and incorporates some unique features focused on providing customer convenience and a high degree of flexibility. The FWU’s web-based point of sale and online administration system used by the bank’s financial planners offers a seamless interface with the customer, online access to customer application form, illustrative calculations, printing of the Family Takaful plan certificate, managing routine changes over the lifecycle of the Family Takaful plan and providing sales management and customer information on a timely basis. The different modules are well integrated to offer a one-stop service solution to the bank’s customer and enhance the overall customer experience and satisfaction. The FWU Group’s product development approach was a modular one and focused on thinking “outside the box.” It gave priority to first understanding the individual customer needs and concerns by conducting customer focus groups and surveys with its bank distribution partners. Efficient product design, open investment architecture, customer convenience and transparency were some of the salient points, which were reviewed carefully. CONSUMER BANKING GROWTH POTENTIAL The Islamic retail financial services industry has grown significantly. Important developments include the creation of dedicated Islamic banking subsidiaries in Malaysia, new Islamic banks such as the Emirates Islamic Bank, several new Islamic finance companies in the UAE, nascent Islamic banks in Pakistan, many new Takaful companies in Saudi Arabia, Kuwait, Pakistan and Malaysia and the recent establishment of the Islamic Bank of Britain in the UK. The latter is a milestone development and is the first Islamic bank in Europe. Several of these new Islamic retail banks are employing call centers, a direct sales force and interactive technology to enhance the quality of service provided to individual customers. Other commercial banks are evaluating the best market entry strategy into this fast-growing retail banking segment. 12 | P a g e
According to McKinsey’s 2005/06 World Islamic Banking Conference (WIBC) Competitiveness report: “Consumer banking will be the main source of steady profits. Capturing the consumer banking opportunity and appealing to a broader consumer base is key for Islamic banks. So far Islamic banks have managed to capture customers who have a strong preference for Shariah compliant products. Going forward, they will have to broaden their appeal to customers who are interested in Shariah compliant products but are not ready to sacrifice returns, service or convenience. To do so, Islamic banks need to improve their service levels, network convenience and staff knowledge while developing critical enablers (i.e. operations, risk management and people management).” The report findings include: “Successfully delivering against customers’ expectations requires a complete rethink of the bank’s approach. Islamic banks will strongly need to improve their quality of service and distribution network. Islamic product offering presents major gaps and customers want to see some of these gaps closed. Customers would like to see an improvement in price/returns of banking products.” According to the WIBC Competitiveness report: “Islamic banks will need to make substantial efforts to meet expectations. To capture the growth thrust in consumer banking, Islamic banks will have to: ? ? ? ? Focus the offering and develop wider product range. Expand network and use branch channels. Step up service quality and knowledge. Ensure competitive pricing.”
Current retail banking product offerings include Islamic mutual funds, commodities, real estate investments, local IPOs and individual stock portfolios, structured products, and private equity and venture capital funds. The wealth management divisions of banks are now increasingly starting to include a suite of Family Takaful-linked lump sum investment programs for their private customer base. Hence, Islamic savings, education, marriage and retirement plans that combine investments with protection benefits are starting to become attractive. The average maturity of such capital accumulation plans is between 15 and 20 years and the customer retention period in well performing programs is much longer than direct investments in mutual funds. STRATEGIC PRODUCT PARTNER SELECTION 13 | P a g e
Banks are keen to work with strategic product partners who offer a bespoke Family Takaful investment-linked program, the opportunity to “white label” such a program and open investment architecture. The latter enables banks to create a best-of-breed investment offering by blending their own brand funds with top quartile third-party performing Shariah compliant funds. It also offers an attractive array of protection benefits and a transparent but equitable charging structure for the customer and the relevant suppliers. A number of banks have created their own brand funds, but have outsourced asset management to quality international and specialist managers. Recent product innovation includes the embedding of risk calibrated multi-manager portfolios in Islamic retail banking investment linked programs where each investment strategy offered to the individual customer is composed of more than one underlying fund. This permits the investment advisor to remain in control of asset allocation, manager selection and portfolio rebalancing. The bank distribution partners generally prefer a “white label” Family Takaful linked investment plan due to the following reasons: ? ? ? Customers are more comfortable with bank’s “own brand” equity. Banks can blend their own Islamic mutual funds with quality third party Shariah compliant funds. All customer assets of the Family Takaful linked investment business are in the bank’s custody and it also gains the corporate bank account of the life insurance company supplying the product. The bank has access to the web-based point of sale and online administration system without having to integrate new systems or build new interfaces. Due to the lifecycle nature of the product, the bank enhances customer relationship and retention rate.
? ?
Overall, the bank’s distribution partner and their customers gain in the value added chain. The bank has access to the web-based point of sale and online administration system without having to integrate new systems or build new interfaces. USE OF IT TO ENHANCE CUSTOMER SERVICE The skilful design and manufacture of Shariah compliant investment and financial planning programs is, however, just the beginning of the process. Packaging and delivering such programs into customers’ hands by providing an efficient and positive experience is one of the keys to initial and longer term customer satisfaction. The traditional techniques, involving high
14 | P a g e
levels of face-to-face customer contact, are still valid, but are now able to be supported by and complemented with modern distribution IT-based methods. Many financial institutions in the Islamic world have made significant investments in 24 x 7 “virtual channels,” often called “alternative distribution,” but have primarily viewed these as methods to reduce transaction and enquiry costs, thereby hoping for improved utilization of customer contact staff. The winners of the future, however, will wish to further capitalize on their investments by enabling value creation in all areas of sales support and customer care through thoughtful use of these new channels. Successful models in a number of Islamic countries have rapidly identified that call centers, internet and mobile phone services can offer distinct advantages to elements of the sales process compared to a personal contact only strategy. This is particularly apparent as the needs of individual financial planning become more widespread throughout all customer segments. One of the challenges encountered by banks wishing to distribute such investment-linked plans is the cost in technology and service infrastructure required by such programs. Banks prefer a seamless processing environment where customer risk profiling, application processing, illustrative calculations and printing the plan certificate are completed in an efficient manner designed to enhance customer satisfaction levels. The use of a web-based point of sale and online administration system developed by the FWU Group has made the sales process convenient and has introduced economies of scale in both front and back offices. It has enabled banks to track the quality of their sales management and fulfillment processes and the overall quality of their business portfolio. GLOBAL OPPORTUNITIES There is significant untapped expansion potential for Islamic banking, investment and insurance products into the USA, Europe and Asia. The major Takaful operators are well positioned to expand their cross-border distribution reach across multiple distribution channels including, but not limited to, international bank distribution chapters and corporate group plan sponsors. Creative product design, customer convenience and attractive packaging are the key to gaining a competitive advantage across General, Life, Health and Pensions business. Use of web-based point of sale and online administration systems and the enlightened deployment of ecommerce can optimize customer interface, relationship management and effective after-sales customer service. The Takaful industry needs to cater to the growing needs of Muslim and nonMuslim customers around the world. Interestingly, several global insurance brands are currently reviewing their entry into the Takaful shelf space. There is also scope for GCC and international cross-border players to package premier products and services for their middle income and affluent customers and process these through major 15 | P a g e
bank distribution and other financial intermediaries. Business skills and successful distribution models need to be crafted and redeployed intelligently in the development of new markets. Primary markets within Europe that have a sizeable Muslim population include the UK, France and Germany. Asia, China, India and Indonesia also offer opportunities. Islamic centers of product excellence include Malaysia, Bahrain and the UAE, but Indonesia, Saudi Arabia and Pakistan are fast evolving and building their product expertise in this important business segment. The major regional and international players such as Dubai Islamic Bank, National Commercial Bank, Kuwait Finance House, HSBC, Citigroup, Maybank and Bank Mandiri are well positioned to export and adapt their distribution capabilities and customer-centric value proposition to the mature regulatory, tax and accounting regimes of the major OECD jurisdictions. BIBLIOGRAPHY Jaffer, S. (2005). 2005 Global Takaful Review: Evolving Trends, Opportunities and Challenges. Retrieved September 13, 2009, from www.islamicfinance.com. Wilson, R. (2007). Islamic Finance in Europe. RSCAS Policy Papers , pp. 25-28.
16 | P a g e
doc_792099471.docx
The doc explaining on the potential of the Takaful Insurance in the Indian market along with the challenges faced in its implementation.
Takaful Insurance
An Indian Perspective This document assesses the potential of the Takaful Insurance in the Indian market along with the challenges faced in its implementation.
TABLE OF CONTENTS Takaful : An Introduction ................................................................................................................ 4 Why Takaful? .................................................................................................................................. 4 Five Pillars of Takaful Insurance...................................................................................................... 5 Mutual Guarantee....................................................................................................................... 5 Ownership of Fund...................................................................................................................... 5 Elimination of Uncertainity ......................................................................................................... 5 Management of the Takaful Fund .............................................................................................. 5 Investment Condition ................................................................................................................. 5 Takaful Models ................................................................................................................................ 5 Mudharaba Model ...................................................................................................................... 6 Wakala Model ............................................................................................................................. 6 Waqf Model ................................................................................................................................ 6 Takaful Industry Enablers................................................................................................................ 6 Other Enablers for Takaful Insurance ..................................................................................... 7 Current status of takaful insurance ............................................................................................ 7 Takaful Industry Growth ................................................................................................................. 8 Malaysia ...................................................................................................................................... 9 UK .............................................................................................................................................. 10 New re-Takaful capacity ........................................................................................................... 10 Global Takaful standard ............................................................................................................ 11 Product innovation ....................................................................................................................... 11 Consumer banking growth potential ............................................................................................ 12 Strategic product partner selection .......................................................................................... 13 2|Page
Use of IT to enhance customer service ......................................................................................... 14 Global opportunities ..................................................................................................................... 15 Bibliography .................................................................................................................................. 16
3|Page
TAKAFUL: AN INTRODUCTION Takaful is the Islamic counterpart of conventional Insurance, and exists in both life and general forms. It based on the concept of mutual solidarity. A typical takaful undertaking consists of a two tier structure that is a hybrid of a mutual and commercial form of a company. All the functions of a Takaful undertaking should confirm fully to Islamic Sharia’s law. Takaful is derived from an Arabic Word which means solidarity whereby a group of participant agree among themselves to support one another jointly against a defined loss. In a Takaful arrangement the participants contribute a sum of money as wholly or partially tabaru meaning donation into a common fund, which will be used mutually to assist the members against a defined loss or damage. Takaful has evolved into a viable alternative to conventional Insurance and is able to attract a wide range of customers Muslims and Non-Muslims alike. WHY TAKAFUL? Conventional Insurance is in conflict with basic Islamic Principles
CONVENTIONAL INSURANCE ISLAMIC Principles Gharar (Uncertainty) ? EXAMPLES OF INCOMPATIBILITY
?
Risk is transferred from Insured to Insurer against a fee( the premium) An Insurance product might offer a new for old replacement for compensation. Term life compensates for death Insurance funds are usually invested in interest bearing financial Instruments. (e.g. bonds) The Insurer might hold Investments in alcohol and /or gambling. The Insurer keeps the premium and Investment profits, irrespective of claims.
?
Maysir (Gambling)
? ?
? ? ? ? ?
Insurance Contracts contain Uncertainty, as it is not known if a claim will occur and what the compensation amount will be. The insured would make a gain by getting a new for an old item. Life contracts not set up to cover a specific obligation amounts to betting. This implicitly links the insured to a sinful (haram) activity, namely charging Interest.
Riba (interest)
?
Haram (Forbidden)
?
The Insurance Contract is not an Islamic compensation contract ? Risk is traded and not shared. ? Insured has no share in profit.
4|Page
The above mentioned shortcomings of Conventional Insurance are taken care of in Takaful Insurance Models. FIVE PILLARS OF TAKAFUL INSURANCE MUTUAL GUARANTEE The basic objective of Takaful is to pay a defined loss from a defined fund. The loss is borne by a fund created by the donation of the policyholders. The liability is spread amongst the policyholders and all loses divided between them. OWNERSHIP OF FUND Donating their contributions to the Takaful fund, policyholders are owners of the fund and entitled to its profits, this varies slightly between the adopted models which are described later. ELIMINATION OF UNCERTAINITY Donations causing transfer of ownership to the fund are voluntary to mutually help in the case of a policyholder’s loss without any predetermined monetary profit. MANAGEMENT OF THE TAKAFUL FUND Management is by the operator who depending on the adopted model utilizes either or a combination of two Sharia’s Compliance Contracts, namely Mudraba or Wakalah or a combination thereof. INVESTMENT CONDITION All investment must be Shariah Complaint, which prohibit investment in Haram Industries and the use of Instruments that are free of Riba. TAKAFUL MODELS Takaful is a system based on mutual assistance or ta’awan and voluntary contribution or tabbaru, where the risk is shared collectively and voluntarily by a group of participants. Through payment of a voluntary donation and the clear definition of the type of loss, uncertainty or gharar or excessive risk taking or masir are removed from the contract. Takaful has been practiced for centuries as a system of risk sharing. Today various Takaful models exist but the most popular models are the agency model or the Wakalah model, the profit sharing model or 5|Page
Mudraba, a combination of the two or the hybrid model, Initial Contribution or the waqf model. A brief description of these models follows: MUDHARABA MODEL Mudharabah is defined as the contract between one party, known as the rasul mal (capital provider) with another party known as the Mudharabah (entrepreneur) where the Rasul mal provides the capital, and the Mudharabah provides the skills in a Business venture. When there is profit it is shared between the Mudharabah and the Rasulmal in a pre-agreed manner. In this case the Takaful Operator is the Mudharabah and the participants are the capital providers. The pure Mudharabah Model confirms to this definition and is practiced mainly in the Asia-Pacific Region. WAKALA MODEL The Wakalah Model commonly used in the Middle- East, distinguishes between the Operating Company (Wakeel) and the Takaful Fund. The Operating Company does not share in the underwriting result; rather it is compensated by a fee deducted from contributions made by participants and/or investment profits generated by the Takaful Fund. The fee rate is fixed annually in advance in consultation with the Shariah Committee of the Company. WAQF MODEL This non- profit model includes social-governmental owned enterprises and programmes operated on a non profit basis which utilizes a contribution that is 100% tabbaru donation from participants who willingly give to the less fortunate members of the community. Waqf, in contrast to Wakalah, Mudharabah, operates as a public foundation. Whereas takaful fund is owned by members in the first two models, in Waqf, it belongs to nobody in particular. While any surplus from the first two models can theoretically be distributed between members (although this rarely occurs in practice, other than in family takaful), such distribution is not possible in the Waqf Model. TAKAFUL INDUSTRY ENABLERS The Takaful Industry is poised for significant growth as demand increases and Industry enablers are further aligned
6|Page
THE GLOBAL TAKAFUL INDUSTRY DEMAND ? ? ? ? ? ? Economic Growth Increase in GDP per capita Youthful Demography Increasing awareness of Takaful Greater desire for Sharia’s complaint offerings Increase in asset based Shariah Complaint Financing
THE GLOBAL TAKAFUL INDUSTRY SUPPLY ? ? ? ? ? ? Fragmented Landscape Undercapitalised Limited Re-Takaful Capacity Problematic asset Management Local Solution Offerings Local Distribution Channels
OTHER ENABLERS FOR TAKAFUL INSURANCE ? Compulsory protection ? Licensing and Increased Competition ? Better Regulation ? Greater Role for Private Sector Participation ? Increased Market led Initiatives CURRENT STATUS OF TAKAFUL INSURANCE Takaful has become one of the leading segments of the financial sector across the Asian, Arab and African regions with growth rates of 10% to 30% over the last couple of years. There are currently around 60 Takaful operations in 30 countries worldwide. Total direct Takaful premiums are estimated at approximately US$1.7 billion in 2003. The Arab countries provide around 63% of the global Takaful business, followed by Malaysia with 27% and other Asia Pacific countries some 9%, with Europe and USA contributing only 1% to Takaful revenues. The global Takaful market is expected to grow at between 15% and 20% per annum. Total worldwide direct Takaful premiums covering both non-Life and Life are expected to reach US$7.4 billion by 2015. Of this estimated amount, nearly US$2 billion in annual premiums would be written in GCC markets, US$3.1 billion written in the Asia Pacific region and an additional US$2.6 billion in Europe, Turkey, China, India and the USA. Approximately 52% of the projected total annual Takaful premiums would be non-Life with an impressive gain with Life/Family Takaful segment increasing to US$4.9 billion. Malaysia and Indonesia will continue to be at the forefront of the Takaful business with over US$1.4 billion in premiums. The Saudi market within the GCC has attracted several new market entrants and liberalization of foreign ownership in the UAE and other markets in the insurance sector will further accelerate growth. Among the GCC states, Saudi Arabia is expected to generate close to US$900 million in premiums, followed by the UAE (US$480 million) and Egypt (US$467 million). 7|Page
TAKAFUL INDUSTRY GROWTH The Takaful industry has grown significantly as the Islamic alternative to conventional insurance and evolved from being a regional business to a global one. The renaissance in Socially Responsible Investing (SRI) and customer demand for Shariah compliant solutions has enhanced the community banking appeal of Takaful related products. Major markets currently include Malaysia, Iran, Pakistan, Saudi Arabia and other GCC countries. Annual average individual market growth rates range between 15% and 30%. In August 2005, the Securities Exchange Commission of Pakistan (SECP) published the Takaful Rules pertaining to the different classes of Takaful business. The Takaful product family spans across general, life, health and pensions business lines. Currently, the General Takaful business has a dominant market share of the overall product mix in Iran and the Middle East region. Both the USA and Europe offer considerable untapped potential for the Takaful industry. The two main business models used in the Takaful industry are the Mudharabah and the Wakalah models. The Mudharabah model is commonly used in Malaysia and involves the Takaful operator managing the operation in return for a share of the surplus on underwriting and a share of profit from investments. The Wakalah model is more prevalent in the Middle East region. In this model, the Takaful operator acts as an agent (Wakeel) for the participants, and manages the Takaful/re-Takaful fund in return for a defined fee. The global Takaful industry is relatively small in comparison to its conventional insurance counterpart and the current Takaful market size is estimated between US$2.5 billion to US$3.5 billion of annual premium. It needs to gain critical mass, build worldwide brand recognition and exceed performance standards set by the conventional insurance industry. There are only a few international Takaful suppliers. The major challenges faced by the national and cross-border Takaful suppliers include raising customer awareness and education; expanding product innovation, creative product design and marketing; gaining brand recognition; offering attractive investment choices for customers in Family Takaful linked investment plans; intelligently deploy technology to enhance customer experience and overall consumer satisfaction level; finding an AAA-rated international reinsurance company willing to accept a re-Takaful solution, offer individual risk bearing capacity and widening penetration of bank and alternative distribution channels. The Takaful industry has been successful in distributing products through its agency sales force, direct channels, e-commerce and, to a limited extent, via certain retail banks. Product customization for the different bank channels (retail, mass affluent, private banking), customer referrals and gaining brand loyalty are important critical success factors. Product packaging, 8|Page
customer convenience, customer care and transparency of product terms, conditions and pricing are also important catalysts to increase the share of the Takaful business across multiple distribution channels. For Family Takaful linked investment plans, an open investment architecture platform is important for the retail banking channel. Clearly the ability to tailor suitably diversified risk reward investment portfolios, select top quartile performing funds from major international brands and control defined portfolio risk levels are powerful drivers for the retail value proposition. Furthermore, the product certification by an independent Shariah Board of experts and ongoing compliance monitoring with high ethical standards has favourably impacted transparency, disclosure of different terms and conditions, charges and frequency of reporting. Several enterprising banks have included bancassurance in their product offerings, and some of the new Takaful operators are offering certain General Takaful products online. The distribution of Takaful life and savings products through bank channels is relatively new, but the sales process through the branch banking network has been facilitated by the advent of web-based point of sale and online administration systems offered by groups such as the FWU Group in Germany. In addition to the benefits of customer convenience, the “white label” advantage of using own brand equity, transparency of product terms and conditions, open investment architecture and efficient online processing has all proved attractive to major bank distribution partners. Future challenges and opportunities include the development and harmonization of the regulatory framework for the Takaful industry, creating suitable Shariah compliant investment securities, raising consumer education and awareness, building brand loyalty, optimizing the use of technology for customer after-care and creating strongly capitalized global re-Takaful and multiline Takaful providers. MALAYSIA In Malaysia, the current market penetration for Takaful is relatively low. According to Islamic Finance News on the 5th December2005: “Takaful is expected to constitute 20% of the total insurance market by 2010 (currently 6.5%). At that time, Takaful’s share of the Malaysian insurance industry is estimated to be worth US$1.85 billion (RM7 billion).” In Family Takaful the products sold were individual and group term and savings products, mortgage policies and pension plans. In General Takaful all classes of business were sold. Bank Negara Malaysia (the Central Bank in Malaysia) issued four new Takaful licenses in January 2006. Bank Negara wanted to attract new players of strong capacity in product development and risk management for the four licenses, and interested parties included conventional financial institutions and players in Australia, Japan, Europe and the Middle East. 9|Page
The successful applicants were HSBC Insurance (Asia Pacific) Holdings, Jerner Asia and Wang Simpanan Pekerja; Hong Leong Bank, Millea Asia, Japan and Hong Leong Assurance; Bank Simpanan Nasional and Prudential Holdings; and MAA Holdings and Solidarity. Takaful Malaysia, which started its business operations in 1985, has expanded its international activities fast. It has previously invested in and assisted to set up Takaful operators in several OIC member states including Brunei, Bahrain, Bangladesh, Qatar, Kuwait, Indonesia, Sri Lanka and Saudi Arabia. The company is also exploring cooperation opportunities in Kuwait, Pakistan and Thailand. UK According to Islamic Finance News on the 5th December 2005: “a Shariah compliant home insurance product has been made available to UK bank customers for the first time, thanks to the new HSBC Home Takaful insurance policy. Several features of the conventional home insurance product have been altered to make the policy conform to the Shariah law. This is the latest Islamic product from HSBC, which already provides Shariah compliant home finance, current accounts and pension funds.” NEW RE-TAKAFUL CAPACITY The Arab Insurance Group (ARIG) in Bahrain established Takaful Re, the first reinsurance company to be organized and operated in a fully Shariah compliant manner in the Middle East and North Africa region. Takaful Re has been incorporated in the Dubai International Financial Centre (DIFC) with an authorized capital of US$500 million and an issued and paid up capital of US$125 million. Takaful Re will offer Shariah compliant re-Takaful products and capacity to direct Takaful operators. Takaful Re will be operational in all major lines of property and family Takaful business and expects to commence underwriting activities well in advance of business renewals for the year 2006. Major shareholders include ARIG, the Saudi based Islamic Development Bank, Dubai Investments, Emirates Industrial Bank, Emirates Funds (of the Emirates Bank Group), Qatar Islamic Insurance Company and Wethaq Takaful Insurance Company of Kuwait (source: ARIG press release of the 19th September 2005). Millea Asia, a wholly owned subsidiary of Millea Holdings Inc, established Tokio Marine Nichido Re-Takaful (TMN) in Singapore towards the end of 2004. TMN is the first ever re-Takaful
10 | P a g e
specialist company established by a major international insurance group (source: Millea press release of the 1st December 2004). Other Islamic reinsurance companies include Best Re in Tunisia (established in 1985) and ASEAN Re-Takaful International in Labuan, Malaysia. For export credit and investment insurance risks, cover is provided by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), headquartered in Jeddah. ICIEC was established in August 1994 with a capital base of US$140 million and is 50% owned by the Islamic Development Bank (IDB) and the balance by 34 Islamic states (16 Arab, 10 African and 8 Asian). GLOBAL TAKAFUL STANDARD According to the BMA Insurance Review of October 2005: “Work on a global standard on Takaful has reached an advanced stage. The International Financial Services Board (IFSB) and the International Association of Insurance Supervisors (IAIS) are developing the standard jointly. The issues paper on Takaful, presented by the Joint Working Group, provides a detailed insight into the background to Takaful, the need for a standard, the relevance of IAIS Core Principles to Takaful, governance issues (such as the role of Shariah boards), financial and prudential issues, market conduct issues and supervisory skills and training. The BMA has recently pioneered a comprehensive regulatory framework specific for the Takaful business. The framework, issued in May 2005, takes into consideration the unique characteristics of Islamic insurance.” PRODUCT INNOVATION Due to the ethical guidelines underpinning Islamic banking, investment and finance products; the increasing transparency of customer terms and conditions; the pricing structure; regular monitoring for compliance by the relevant Shariah boards; and adequate disclosure of material aspects, such offerings have tended to attract both Muslim and non-Muslim customers. Acceptance of Islamic savings, education, marriage and retirement plans is gradually growing among the affluent customer base, but significant investment in customer education and training of financial planners and investment advisors is needed. A successful distribution model needs to develop a thorough understanding of customer needs, deliver on its promise, offer product and process innovation, eliminate flaws in product terms and cost structures and enhance customer service delivery.
11 | P a g e
Against this backdrop, major Takaful providers need to enhance their capacity to innovate, carefully review and understand evolving customer and market specific needs, carefully reengineer their product design and customer benefits package, strengthen customer interaction and communications and expand customer reach across multiple distribution channels. One case study where innovation has taken place is in Family Takaful linked investment plans. The FWU Group has pioneered innovation and developed technology to create “white label” savings, education and retirement plans offering, customized for the bank’s mass affluent customer segment. The Islamic savings, marriage, education and retirement plans offer bank customers an attractive investment and protection benefits package. The product design is creative and incorporates some unique features focused on providing customer convenience and a high degree of flexibility. The FWU’s web-based point of sale and online administration system used by the bank’s financial planners offers a seamless interface with the customer, online access to customer application form, illustrative calculations, printing of the Family Takaful plan certificate, managing routine changes over the lifecycle of the Family Takaful plan and providing sales management and customer information on a timely basis. The different modules are well integrated to offer a one-stop service solution to the bank’s customer and enhance the overall customer experience and satisfaction. The FWU Group’s product development approach was a modular one and focused on thinking “outside the box.” It gave priority to first understanding the individual customer needs and concerns by conducting customer focus groups and surveys with its bank distribution partners. Efficient product design, open investment architecture, customer convenience and transparency were some of the salient points, which were reviewed carefully. CONSUMER BANKING GROWTH POTENTIAL The Islamic retail financial services industry has grown significantly. Important developments include the creation of dedicated Islamic banking subsidiaries in Malaysia, new Islamic banks such as the Emirates Islamic Bank, several new Islamic finance companies in the UAE, nascent Islamic banks in Pakistan, many new Takaful companies in Saudi Arabia, Kuwait, Pakistan and Malaysia and the recent establishment of the Islamic Bank of Britain in the UK. The latter is a milestone development and is the first Islamic bank in Europe. Several of these new Islamic retail banks are employing call centers, a direct sales force and interactive technology to enhance the quality of service provided to individual customers. Other commercial banks are evaluating the best market entry strategy into this fast-growing retail banking segment. 12 | P a g e
According to McKinsey’s 2005/06 World Islamic Banking Conference (WIBC) Competitiveness report: “Consumer banking will be the main source of steady profits. Capturing the consumer banking opportunity and appealing to a broader consumer base is key for Islamic banks. So far Islamic banks have managed to capture customers who have a strong preference for Shariah compliant products. Going forward, they will have to broaden their appeal to customers who are interested in Shariah compliant products but are not ready to sacrifice returns, service or convenience. To do so, Islamic banks need to improve their service levels, network convenience and staff knowledge while developing critical enablers (i.e. operations, risk management and people management).” The report findings include: “Successfully delivering against customers’ expectations requires a complete rethink of the bank’s approach. Islamic banks will strongly need to improve their quality of service and distribution network. Islamic product offering presents major gaps and customers want to see some of these gaps closed. Customers would like to see an improvement in price/returns of banking products.” According to the WIBC Competitiveness report: “Islamic banks will need to make substantial efforts to meet expectations. To capture the growth thrust in consumer banking, Islamic banks will have to: ? ? ? ? Focus the offering and develop wider product range. Expand network and use branch channels. Step up service quality and knowledge. Ensure competitive pricing.”
Current retail banking product offerings include Islamic mutual funds, commodities, real estate investments, local IPOs and individual stock portfolios, structured products, and private equity and venture capital funds. The wealth management divisions of banks are now increasingly starting to include a suite of Family Takaful-linked lump sum investment programs for their private customer base. Hence, Islamic savings, education, marriage and retirement plans that combine investments with protection benefits are starting to become attractive. The average maturity of such capital accumulation plans is between 15 and 20 years and the customer retention period in well performing programs is much longer than direct investments in mutual funds. STRATEGIC PRODUCT PARTNER SELECTION 13 | P a g e
Banks are keen to work with strategic product partners who offer a bespoke Family Takaful investment-linked program, the opportunity to “white label” such a program and open investment architecture. The latter enables banks to create a best-of-breed investment offering by blending their own brand funds with top quartile third-party performing Shariah compliant funds. It also offers an attractive array of protection benefits and a transparent but equitable charging structure for the customer and the relevant suppliers. A number of banks have created their own brand funds, but have outsourced asset management to quality international and specialist managers. Recent product innovation includes the embedding of risk calibrated multi-manager portfolios in Islamic retail banking investment linked programs where each investment strategy offered to the individual customer is composed of more than one underlying fund. This permits the investment advisor to remain in control of asset allocation, manager selection and portfolio rebalancing. The bank distribution partners generally prefer a “white label” Family Takaful linked investment plan due to the following reasons: ? ? ? Customers are more comfortable with bank’s “own brand” equity. Banks can blend their own Islamic mutual funds with quality third party Shariah compliant funds. All customer assets of the Family Takaful linked investment business are in the bank’s custody and it also gains the corporate bank account of the life insurance company supplying the product. The bank has access to the web-based point of sale and online administration system without having to integrate new systems or build new interfaces. Due to the lifecycle nature of the product, the bank enhances customer relationship and retention rate.
? ?
Overall, the bank’s distribution partner and their customers gain in the value added chain. The bank has access to the web-based point of sale and online administration system without having to integrate new systems or build new interfaces. USE OF IT TO ENHANCE CUSTOMER SERVICE The skilful design and manufacture of Shariah compliant investment and financial planning programs is, however, just the beginning of the process. Packaging and delivering such programs into customers’ hands by providing an efficient and positive experience is one of the keys to initial and longer term customer satisfaction. The traditional techniques, involving high
14 | P a g e
levels of face-to-face customer contact, are still valid, but are now able to be supported by and complemented with modern distribution IT-based methods. Many financial institutions in the Islamic world have made significant investments in 24 x 7 “virtual channels,” often called “alternative distribution,” but have primarily viewed these as methods to reduce transaction and enquiry costs, thereby hoping for improved utilization of customer contact staff. The winners of the future, however, will wish to further capitalize on their investments by enabling value creation in all areas of sales support and customer care through thoughtful use of these new channels. Successful models in a number of Islamic countries have rapidly identified that call centers, internet and mobile phone services can offer distinct advantages to elements of the sales process compared to a personal contact only strategy. This is particularly apparent as the needs of individual financial planning become more widespread throughout all customer segments. One of the challenges encountered by banks wishing to distribute such investment-linked plans is the cost in technology and service infrastructure required by such programs. Banks prefer a seamless processing environment where customer risk profiling, application processing, illustrative calculations and printing the plan certificate are completed in an efficient manner designed to enhance customer satisfaction levels. The use of a web-based point of sale and online administration system developed by the FWU Group has made the sales process convenient and has introduced economies of scale in both front and back offices. It has enabled banks to track the quality of their sales management and fulfillment processes and the overall quality of their business portfolio. GLOBAL OPPORTUNITIES There is significant untapped expansion potential for Islamic banking, investment and insurance products into the USA, Europe and Asia. The major Takaful operators are well positioned to expand their cross-border distribution reach across multiple distribution channels including, but not limited to, international bank distribution chapters and corporate group plan sponsors. Creative product design, customer convenience and attractive packaging are the key to gaining a competitive advantage across General, Life, Health and Pensions business. Use of web-based point of sale and online administration systems and the enlightened deployment of ecommerce can optimize customer interface, relationship management and effective after-sales customer service. The Takaful industry needs to cater to the growing needs of Muslim and nonMuslim customers around the world. Interestingly, several global insurance brands are currently reviewing their entry into the Takaful shelf space. There is also scope for GCC and international cross-border players to package premier products and services for their middle income and affluent customers and process these through major 15 | P a g e
bank distribution and other financial intermediaries. Business skills and successful distribution models need to be crafted and redeployed intelligently in the development of new markets. Primary markets within Europe that have a sizeable Muslim population include the UK, France and Germany. Asia, China, India and Indonesia also offer opportunities. Islamic centers of product excellence include Malaysia, Bahrain and the UAE, but Indonesia, Saudi Arabia and Pakistan are fast evolving and building their product expertise in this important business segment. The major regional and international players such as Dubai Islamic Bank, National Commercial Bank, Kuwait Finance House, HSBC, Citigroup, Maybank and Bank Mandiri are well positioned to export and adapt their distribution capabilities and customer-centric value proposition to the mature regulatory, tax and accounting regimes of the major OECD jurisdictions. BIBLIOGRAPHY Jaffer, S. (2005). 2005 Global Takaful Review: Evolving Trends, Opportunities and Challenges. Retrieved September 13, 2009, from www.islamicfinance.com. Wilson, R. (2007). Islamic Finance in Europe. RSCAS Policy Papers , pp. 25-28.
16 | P a g e
doc_792099471.docx