Microtakaful: an alternative insurance co-operative

11 Dec 2012

​A co-operative insurance alternative called takaful is helping to plug the gap in low-income Islamic countries where the uses of commercial insurers are forbidden, under Shariah Law.

Of the 41 lowest human development countries, over 50 per cent have a majority Muslim population and a further nine have a Muslim population over 20 per cent.

“There is a need and a demand, insurance is historically very low in these countries and the religious aspect of it is an important consideration,” Sabbir Patel, ICMIF Senior Vice President, explained. “Takaful ensures that the products are owned by the people and are directly addressing the needs of the people.”

A new publication: ‘Takaful and Mutual insurers: alternative approaches to managing risk’ was released by the World Bank in November. Looking at the success of microinsurance in developing countries, the ICA's sectoral body ICMIF is hoping to promote microtakaful in Islamic areas of low-income.

Sabbir Patel said: “At the heart of takaful is caring, and protecting the most vulnerable in society.” He explained that microinsurance was an important tool for poverty alleviation and religion plays an important role in people’s lives. “It is what really gets them through on a day to day basis,” he added.

Despite takaful growing as an industry, many countries where it is needed do not have a strong co-operative or mutual movement, therefore they are often a hybrid of a mutual and a stock company.

Takaful is a way of improving insurance and “insurance is seen as an important significant factor in the development of a countries’ economy,” continued Mr Patel.

Many larger organisations are becoming involved in takaful. On a visit to a microtakaful scheme in Sri Lanka, Mr Patel said many of the current takaful providers were “enthused by the difference an actual takaful product can make to the livelihoods of these people".

Under Islamic teaching the use of many commercial insurers are not permissible because of: Maysir (gambling) – underwriting of risks by shareholders in anticipation of a profit is prohibited, Gharar (uncertainty) – the insured pays premiums in exchange for indemnity against risks that may not occur and Riba (usury) – the company engages in investments that derive their income from interest and/or prohibited industries.

• Picture: Delegates at a Takaful Network Meeting in Colombo (courtesy of ICMIF).