130 Islamic Finance in Practice
is shared amongst the policyholders only. These explicit fees are in the
takafulcontract that each policyholder signs with thetakafulcompany,
and are fully transparent.Thetakafulmarket is currently concentrated in Malaysia and in the
Middle East and has been experiencing significant growth rates. Some
estimates are that the globaltakafulindustry is growing at 10-20 per cent
per annum, compared to forecasts for the growthof conventional insurance
of around 9 per cent per annum in emerging markets, and 5 per cent per
annum in Organization for Economic Cooperation and Development (OECD)
countries. Moody’s has predicted that totaltakafulpremiums will rise to $7
billion by 2015. Furthermore, some of the world’s largesttakafulcompanies
envisages that about one-third of their premiums will come from the West
by 2020, and the first puretakafulcompany (Principle Insurance Company
Limited) has just been authorized by the Financial Services Authority (FSA)
in the UK.
One of the key characteristics oftakafulis that its products are price
competitive with conventional insurance products, and so in Malaysia –
which is the most developedtakafulmarket – many of the customers of the
takaful companies are owned by non-Muslims. Furthermore, takaful
business is, by its nature, ethical; it is structured to benefit the policyholder,
the funds are invested in ethically compliant funds and an independent
group of advisors (Shari’a committee) opines that all of the ethical
considerations have been met. In the UK, Europe and the US where
consumers are increasingly spending a greater proportion of their disposable
income on ethical products (eg, organic food), a competitively-priced ethical
insurance has the potential to be just as successful with non-Muslim
customers as it does with Muslim customers.Development of takaful
The first moderntakafulcompany is generally acknowledged to have been
the Islamic Insurance Company of Sudan, founded in Sudan by Faisal
Islamic bank in January, 1979.
The Islamic Insurance Company, which also established a branch in Saudi
Arabia,was apure mutualtakafulbusiness−itwasanIslamically-compliant
insurance company, where the policyholders also owned the company (there
were no shareholders).
In 1985, the Council of Islamic Scholars in Mecca approvedtakafulas a
Shari’a-approved alternative to the conventional insurance system. This led
to mutualtakafulcompaniesbeingestablishedindifferentMuslimcountries,
including Dubai, Bahrain and Malaysia. There was also a concerted effort
by insurance professionals and appropriately trained Shari’a scholars to
develop a Shari’a-complianttakafulbusiness model that allowed for a
shareholder structure.