The emergence of takaful, or mutual insurance arrangements that conform to the principles of Shari'ah, is a welcomed development that enhances and completes the Islamic financial system. Through takaful, consumers and providers of Islamic financial services are provided with a Shari'ah-compliant means to obtain insurance cover against personal and business losses. Takaful companies support Islamic capital markets through their active subscription of and trading in Islamic financial instruments. Insurance coverage for the assets underlying Islamic financial contracts can also now be done in a Shari'ah-compliant manner.
Growth in the takaful industry has been robust in recent years. Nonetheless, the industry is still in its early stages of development relative to the other sectors of Islamic finance in banking and capital fund-raising. Industry estimates put takaful contributions globally at about US$3.4 billion in 2007. This figure is creditable given the low penetration rates for takaful in many jurisdictions and that the industry is presently more focused on the retail markets, with wholesale needs largely yet to be addressed. Herein lies the still largely untapped potential of takaful. There are now about 150 takaful operators worldwide, including those in non-Muslim countries. In Singapore, takaful products have been available since 1995 and the first retakaful company started operations in 2004.
One of the main challenges confronting the takaful industry is raising awareness among its various stakeholders. Misconceptions about insurance cover among potential consumers would have to be dispelled, so as to foster greater acceptance of takaful. Providers of takaful would need to acquire stronger and more in-depth understanding of the technical, operational, legal and Shari'ah requirements for takaful operations, if they are to broaden the range of takaful products they offer and raise the quality of their services. Regulators too would also need to develop a full understanding of the risks to ensure that takaful operations within their jurisdictions are adequately regulated and supervised. All stakeholders, including rating agencies and standard-setting bodies, should also not lose sight of an important objective in the takaful industry—that is to ably meet the rising consumer demand in the most cost-effective manner. Only then can this nascent industry grow and develop in a sustained path and reach a wider segment of consumers, both Muslim and non-Muslims. Drawing lessons from the present financial crisis, takaful operators will also need to have in place robust risk management and corporate governance systems in order to be able to serve their customers well over the longer-term.
Against this perspective, Takaful Islamic Insurance: Concepts and Regulatory Issues is a timely and welcomed addition to the growing body of literature on takaful. The book is edited by three eminent scholars and practitioners in Islamic finance, Professors Rifaat Ahmed Abdel Karim, Simon Archer and Volker Nienhaus. Distilling from their considerable expertise, they have joined other notable scholars, regulators, and industry practitioners to contribute insightful chapters to this book. Part 1 of the book examines the business models and conduct, the Shari'ah principles, corporate governance as well as regulatory, legal and supervisory issues in Takaful. Part 2 then delves in detail into the technical and operational issues of takaful and retakaful encompassing solvency and capital adequacy, investment of contribution, risk management, risk ratings, transparency and financial reporting. This publication is therefore well placed to help raise the much-needed awareness and understanding among stakeholders of the takaful industry and contribute to its sustained development.
Heng Swee Keat
Managing Director
The Monetary Authority of Singapore
June 2009