Role of Takāful (Islamic Insurance) in the Islamic Financial Services Industry
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The strong linkages, interdependence and synergies between the Islamic banking, capital market and Takāful segments of the Islamic financial services industry (IFSI) necessitate a balanced development of these segments in order to develop a robust IFSI. Whilst the banking and capital market segements of the IFSi have seen tremendous growth at regional and global levels, the development of the Takāful segment can be described as rudimentary, particularly the development of the Takaful regulatory framework.
Takāful is based on the principle of cooperation and mutual help for the good of the society at large. Currently there are at least three Takāful models that are widely used, based on the contractual forms of muḍārabah, wakālah and waqf or a combination of these. Whilst the existence of these models demonstrates the flexible and practical nature of Takāful principles, they also raise the questions of contractual relationship between parties and their respective rights and obligations, as well as the need to ascertain the types of risks peculiar or common to each model.
The Takāful and Retakāful businesses play a crucial role in managing and mitigating the risks in Islamic finance. Takāful operators therefore assume and important role as economic or financial intermediaries as they essentially mobilize long-term funds in the form of policy-holder contributions and invest them in the available Sharī`ah-compliant investments. As custodians of the Takāful policy-holders' funds, these operators have an obligation to ensure that not only are the Takāful funds managed and invested on a sound basis and in accordance with the Sharī`ah rules and principles, but are also managed at par with the standards of their counterparts in the industry. Underpinning all this is the need for the Takāful operators to act responsibly, transparently and ethically within the ambit of both Sharī`ah and international principles as this is crucial to instill confidence in the industry.
In the absence of clear regulatory framework, prudential standards and codes of good practice, the potential of the Takāful industry for growth and development may be stunted by related obstacles such as lack of legal and regulatory certainty and of transparency, and resultant inadequacies in risk management. These obstacles need to be given immediate attention in order to facilitate the development of the Takāful industry, as failure to remove them would have a negative impact on the pace of development of the entire Islamic financial services industry.
In line with its' efforts to facilitate the industry's sound development, the IFSB is organising two seminars focusing on issues related to the development of the Takāful and Retakāful segments of the Islamic financial services industry.
