The IFSB Issues Exposure Draft of IFSB-IAIS Joint Paper on Issues in Regulation and Supervision of Microtakāful (Islamic Microinsurance) for Public Consultation

Kuala Lumpur, 22 June 2015 – The Islamic Financial Services Board (IFSB) issues the Exposure Draft of its Joint Paper with the International Association of Insurance Supervisors (IAIS) namely, “Issues in Regulation and Supervision of Microtakāful (Islamic Microinsurance)” for public consultation starting from 22 June 2015 to 6 August 2015 and invite comments from regulatory and supervisory authorities, international organisations, market players, academics and other interested parties.

Regulators and supervisors in jurisdictions where Takāful (Islamic insurance) providers offer their services have relatively little experience or empirical data to support their role in creating a conducive environment for the Microtakāful market that could work effectively for the lower income segments. Therefore, the main objective of the Joint Paper is to highlight and identify regulatory issues prevailing in the Microtakāful sector and outline the role this sector can play in enhancing financial inclusion. In particular, the objectives include:

1. To identify the current practices and models used for offering Microtakāful products, and the challenges and potential issues arising from Microtakāful transactions;
2. To review the current regulatory framework for the Microtakāful sector in various jurisdictions and suggest initiatives to strengthen the framework and thus enhance financial inclusion through the Takāful sector; and
3. To provide guidance to the regulatory and supervisory authorities in putting in an enabling environment for the overall development and growth of the Microtakāful sector

The Joint Paper highlights the distinguishing features of various models used for offering Microtakāful products which, despite being similar to the models used for Takāful products in many respects, pose various unique supervisory challenges. Backed by a survey from the regulatory authorities and Microtakāful operators, the Joint Paper delineates the main features of Microtakāful from various aspects including types of participants, product features and contributions as well as distribution channels.

The Joint Paper also examines critical issues that require the attention of regulatory and supervisory authorities pertaining to the Microtakāful sector. These include the requirements of separation of funds, solvency and capital adequacy framework, investment framework and Sharī`ah compliance. Other pivotal aspects covered in the Joint Paper include customer education and awareness, consumer protection, licensing requirements and supervisory review process. Additionally, the Joint Paper illustrates the relevance of IAIS’ Insurance Core Principles in the practice of Microtakāful.

As part of the due process, the IFSB and the IAIS invite all interested parties, especially the IFSB members, to send their comments on the draft Joint Paper at: [email protected] before or on 6 August 2015.

The draft Joint Paper is available for download from the IFSB website at www.ifsb.org.