An Assignment on

Differences between Microinsurance and Micro Takaful

Submitted To

Md. Tanvir Hamim

Lecturer

Department of Banking and Insurance

University of Dhaka

Submitted By

Md. Siful Islam

MBA Batch-16th

ID: 211

Department of Banking and Insurance

University of Dhaka

Date of Submission: April 29, 2015

Definition of Microinsurance

Microinsurance is a division of microfinance which looks to aid poor families by offering

insurance plans tailored to their needs. Microinsurance is often found in developing countries,

where the current insurance markets are inefficient or non-existent. Because the coverage

value is lower than a usual insurance plan, the insured people pay considerably smaller

premiums.

there are some Microinsurance schemes which may cover various risks (health, life, etc.); the

most frequent microinsurance products are:

Life microinsurance (and retirement savings plans)

Health microinsurance (hospitalization, primary health care, maternity, etc.)

Disability microinsurance

Property microinsurance – assets, livestock, housing

Crop microinsurance

Profile of a “micro” policyholder

The potential “micro” policyholder is unlikely to have a stable source of income and, given

the low average level of income, this means that he will have minimal savings.

He will also probably have a below average education standard. This would also

imply a particularly low appreciation of the use of insurance as a risk management

tool, in particular what to insure and what can be ‘self-insured’.

Other characteristics of a typical “micro” policyholder are:

He is unlikely to have a bank account. Premiums will likely then have to be made on a

cash basis, potentially increasing the cost of collecting installment premiums.

He is unlikely to own much in the form of assets. This would mean any one loss event

can be financially ruinous to the family.

He probably has limited access to healthcare, proper sewage and clean water and thus

can be susceptible to poor health, leading to questions on insurability.

For the hard core poor they will most probably be dependent on loans and government

handouts to make ends meet from day to day. The ability to pay regular premiums is

therefore in doubt. For others the level of disposable income may fluctuate greatly

from month to month again affecting the ability to maintain a regular contribution

towards insurance.

Micro Takaful Definition

Micro Takaful is a mechanism to provide Shariah-based protection to the under-privileged

individuals at an affordable cost.

Micro Takaful benefits

Micro Takaful can help people improve.

Micro Takaful will help them sustain their financial wellbeing.

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

Fig: Micro Takaful Products

Differences between Microinsurance and Micro Takaful

There are some differences between Microinsurance and Micro Takaful. These are given

below:

Points Microinsurance Micro Takaful

Shariah Compliance Microinsurance schemes are

not designed based on

Islamic Shariah

Micro Takaful schemes are

designed based on Islamic

Shariah

Target Clients Poor and Ultra Poor section

from the society

People from informal

economies and under

privileged people

Profit and loss sharing Microinsurance mechanism

is not established on profit

and loss sharing principle

Micro Takaful is all about

profit sharing where profit

and loss shared based on

percentage of contribution

Delivery channels Microinsurance delivery

channels are partner agent

model, provider model,

community based model etc

Micro Takaful is provided by

Takaful operators

Legal Transparency Microinsurance is not good

in terms of legal transparency

Micro Takaful is good as per

legal transparency concern.