Nowadays, 'Takaful' has become a buzzword amongst the insurance circles in Pakistan. This Shariah-compliant, co-operative form of insurance has finally 'come of age' having been in practice for over two decades in the more 'enlightened' regions of the Muslim world.
In practice, it is more akin to the time-tested mutual P&I Clubs (ie Protection & Indemnity Clubs) formed by the ship owners. Whereas the conventional insurance companies have only their shareholders to be accountable to, who also are the sole recipients of profits generated from their business operations, a Takaful Company has a second dimension added in the form of its policyholders who become 'participants' and share in the common pool.
Another essential difference is that in case of a general insurance company, 'risk' is transferred to it from the policyholder; but in the case of a Takaful operator, such 'risk' is not transferred but is managed by the operator on behalf of the policyholders (participants).
Hitherto, the conventional insurance system has been providing vital support to the world's economic growth over centuries - rather millennia! Such a long period of sustained growth provided maturity and flexibility and helped the conventional insurance to evolve in its several manifestations.
This went on unchallenged even after the advent of Islam as the Muslims generally regarded insurance, in all its forms, as 'forbidden'.
It was not until the nineteen seventies that Muslim scholars started seriously looking at the basic concept of insurance and its significant role in the modern day commerce.
Thus evolved 'Takaful' insurance based on the principles of co-operation, equity and mutuality in accordance with the relevant-provisions enshrined in the Shariah.
Since then, Takaful insurance spread rapidly in the Muslim world from Morocco to Malaysia. Though currently constituting only a small percentage of the total insurance business, Takaful companies have been experiencing a far higher rate of growth than the conventional companies.
In Malaysia for example, the average annual growth rate of General Takaful over the last ten years has been around 34%, whereas of Life Takaful, it has been over 92%.
Interestingly, even non-Muslims are increasingly opting for Takaful insurance due to its competitive rates, fairness of approach and the prospects of year-end returns in case of no claim.
There are currently around 57 Takaful companies operating world-wide in countries ranging from Morocco in North Africa to Egypt, Saudi Arabia, Sudan, Iran, Bahrain in the Middle East to Sri Lanka in South Asia and right up to Malaysia and Indonesia in the Far East.
In addition, Takaful companies are being planned and established in several other countries, including the UK. Likewise, certain reputable ReTakaful companies are operating and a few more are under planning in these very regions.
All these Takaful and ReTakaful companies are operating as independent companies managed by competent and dedicated professionals, some are operating for the last over two decades.
Not only are they in full compliance with their local insurance regulations, they are additionally abiding by the strict Shariah principles, having renowned Shariah scholars of impeccable integrity.
Furthermore, by the very essence of their existence, they place their investments selectively in only non-interest bearing securities and financial instruments. Yet not a single Takaful or ReTakaful company, out of so many, has gone into liquidation or faced any insurmountable financial crunch.
As of today, schools of highest learning in the UK and elsewhere are teaching the subjects on Islamic Finance and Insurance.
At least one Takaful company is being formed in the UK. Similarly, another new ReTakaful company has been recently added to the list in the Middle East with a paid-up Capital of $300 million.
Sudan allows only the Takaful insurance to be practised in the country. The world-wide Takaful insurance premium for the year 2003 is estimated at around $3 billion. This is projected to increase to $12.5 billion by the year 2015.
Thus, there is a bright future for the Takaful business globally. Some day in fact, if open competition is allowed to continue, all insurance business might be transacted the Takaful way, which is an equitable way!
The Pakistan business market has no dearth of competent professionals who are playing a leading role in coming up with innovative products tailored to the changing market needs.
This is one profession that has exported its expertise even to the developed world. Several Pakistani insurance experts are working at Lloyds, some even independently, Europe, Canada and of course in the Middle East.
Pakistani professionals currently are playing leading roles for at least two Takaful companies in the Middle East. In addition, several Pakistani insurance professionals have set their own independent insurance development houses in Dubai, Bahrain and Saudi Arabia. Not only that, our local insurance professionals have even been frequently hired as consultants in foreign countries to help set up Takaful operations and advise on Takaful products.
Their experience and expertise in this area is second to none. Even in Pakistan, there are dedicated institutions and professionals who are conducting full-fledged courses in Islamic finance and insurance.
There is no shortage of those intending to obtain admission and in fact, they had to decline many due to paucity of space and seats. Having said this, however, there is always room to enrich one's expertise in such new avenues by interacting with contemporary professionals and synergising our potential for the common cause.
In this respect, foreign Takaful operators are keen to provide technical support in all pertinent areas.
There is already a fully Shariah Complaint Islamic bank operating its countrywide operations successfully. 'First Takaful Insurance Company', incorporated last year, is on the verge of commencing Takaful operations very soon once Takaful rules are formally notified and registration is granted by the SECP.
We are already negotiating reinsurance terms with reputable reinsurers and ReTakaful companies and the response from such companies has been encouraging.
The first Takaful insurance Company has been established independently in full compliance with all the laws of the land. It shall operate as a dedicated Takaful operator with full transparency, providing the best possible client services and peace of mind.
It may also be noted that the successful Takaful operators world-wide, and the regulations in those countries, require separately established Takaful companies as this is the only way to ensure fully Shariah-compliant operations and gain consumer confidence.
Lately, however, there has been talk of allowing the conventional insurance companies to offer Takaful products, side by side with the conventional insurance, by opening 'Takaful window' operations.
This will crumble the very pristine foundation on which the edifice of Takaful has been built viz, providing a pure, interest-free, Shariah-compliant form of insurance solution to the growing market need.
Any one who wants to ride the 'bandwagon' of Takaful is free to do so by forming a separate company for this purpose with the required paid-up capital instead of trying to manipulate a short cut by way of 'Islamic window' within its conventional operations.
The very fact that certain interests want to exploit the opportunities to sell Takaful products using their existing platform is in itself prima facie evidence that there is a significant potential for Takaful in Pakistan.
We strongly oppose such a move for, if allowed, apart from being in violation of the Quranic injunction: And mix not, the Right with the Wrong; and hide not the Truth when ye know it! (Al Baqra, Verse No 42)
It will also disillusion the general public who will then regard this as a mere marketing ploy and a gimmick in the name of Islam (they are already sceptical about it, given their previous experiences with the banks operating the so-called 'Islamic windows' along with their conventional operations; the effectiveness and true segregation of which are yet to be tested).
Furthermore, it will not be practicable to keep Takaful funds and the investment thereof, separate from the conventional, fixed interest bearing funds and investment, nor to segregate or apportion the management expenses between the two.
It may also be pointed out here that there is no paucity of funds with the conventional insurance companies in Pakistan.
In fact, some of them have even formed separate specialised companies as their subsidiaries. So if they are really sincere and committed to the cause of providing Islamic products. They can set up a separate Takaful company as well.
The government has all along encouraged local business houses to come up with new Islamic financial products.
Our lead sponsor PAK-KUWAIT is one such forward-looking, progressive group that has the will and the commitment to set up fine Islamic financial institutions in the country.
They are the pioneers in setting up the first Islamic bank, the Meezan Bank, an Islamic closed-ended as well as an open-ended Mutual Fund.
Now that we have embarked upon the venture of introducing the first Islamic insurance company in the country, we have the blessings and support of the government in our initiative.
In fact, our newly elected Prime Minister had reiterated in his budget speech (as the then Finance Minister), the government's resolve and commitment to the cause of promoting such initiative for providing Shariah-compliant Takaful as well as other Islamic financial products to the people.
We look upon the task force set up for the formulation of Takaful Rules in Pakistan, to defy all such moves aimed at undermining the good intentions at the very outset.
The need of the hour is to allow only the serious, committed institutions to introduce Takaful Insurance as separate companies, instead of mere 'window operations'.
Furthermore, in line with the practice elsewhere in the world, permission should be accorded to set up such Takaful venture as a composite company providing Halal, Takaful products, for both Family (Life) as well as General insurance requirements.
We expect Takaful Rules to be notified in right earnest in order to meet these needs of significant segment of our people yearning for such pure Islamic and Halal form of Insurance coverage, untainted by fusion with the conventional products thriving on fixed-interest bearing income.
(The writer is Head of Operations, First Takaful Insurance Company.)