International Conference onIslamic Microfinance

CENTER OF ISLAMIC BANKING & ECNOMICS

Organized By :

Held At:

Faisal Auditorium Islamabad - Pakistan

MicroTakaful – the way forward

Presented by:Capt. M. Jamil Akhtar Khan ACII, MCIT, Master Mariner

Managing DirectorTHE UNIVERSAL INSURANCE COMPANY LTD.

Contents

• Introduction• MicroTakaful defined• MicroTakaful schemes in other countries • Prospects in Pakistan• Incremental values – The Takaful advantage• The way forward• Conclusion

Introduction

Micro-insurance defined:

“Risk-pooling products that are designed to be appropriate for the low-income market in relation to cost, terms, coverage, and delivery mechanisms”.

MicroTakaful refined:

“A mechanism to provide Shariah-based protection to the blue collared, under-privileged individuals at an affordable cost”.

Introduction Cont’d. …• Microfinance can help people improve.

• Microtakaful will help them sustain their financial well being.

• Feeling of togetherness & security.

• Opens avenues for joint efforts for mutual benefits.

• Cooperative approach and outlook.

• Result – migration of individual level.

• Society benefits at large.

Global Landscape

• Only eighty million out of the world's 2.5 billion poor are currently covered by some form of micro insurance.

• Only 3% of poor lives are insured in India and China.

• Only 0.3% of the poor are insured in Africa.

• In 23 of the poorest 100 countries in the world, there is currently no identified micro insurance activity.

Prospects in Pakistan

• Serious efforts at national level only picked up

during the last decade.• Advent of Microfinance banks.• Large rural/urban divide (65% : 35%)• 40% population below poverty level.• Scope for extensive work.• Mushroom growth of NGOs.

Prospects in Pakistan (Cont’d. …)• Government’s initiatives – Rural support programs.

• SMEDA.

• Financial Support from ADB, WB, etc.

• State Bank’s initiative – 20% branches of commercial banks required in rural areas.

• Agriculture/Crop & Livestock Finance and Takaful.

• Benefit of economies of scale to make these viable ventures.

Construction of a House

Marriage

Death

Prolonged Illness

Education of Children

Business Failure/Loss of Job

Birth of ChildrenImp

ort

an

ce o

f R

isk/E

con

om

ic S

tress

Potential areas of action

“ … they seemed satisfied with the convenience and affordability of the policy, but some thought that the

premium should be reimbursed if they do not file a claim”.

Excerpt from

The Demand for Micro insurance in Pakistan

by

ELIZABETH MCGUINNESS AND VOLODYMYR TOUNYTSKY

MARCH 2006

The Takaful Advantage

InvestmentIncome

Operational Cost of Takaful

/ ReTakaful

Claims &Reserves Surplus

(Balance)

P A R T I C I P A N T S’ T A K A F U L F U N D (P.T.F.)

Mudarib’s Share of

PTF’s Investment

Income

Wakalah Fee

InvestmentIncome

Management Expense of

the Company

Profit/Loss

S H A R E H O L D E R S’ F U N D (S.H.F.)

Participant

WAQF

Takaful Operator

Share Holder

Investment by the Company

The Takaful Advantage

The way forward

NO

?????

THEN

The way forward• Tax incentives• Goodwill• Awareness• Extensive documentation• Distribution channels• Strategic alliances• Incentives & Awards

• Setting up a dedicated micro-Takaful

company!

The way forward (Cont’d. …)

Setting up a dedicated micro-Takaful

company!• Initiative by DFIs, NGOs, and other interested

investors.• Ideal synergies with micro-finance institutions

and other lending organizations. • Govt. to prescribe lower paid-up capital. • Managed by dedicated professionals.

Current scenario

What is required?

Where there is will, there is a way!

Thank You

CENTER OF ISLAMIC BANKING & ECNOMICS

Head Office: 192- Ahmad Block, New Garden Town , Lahore, Pakistan Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056E-mail : info@alhudacibe.comWeb: http://www.alhudacibe.com