An Introduction to Islamic Finance: Theory and Practice

Non - bank Financial Intermediation 217

and Western Europe. This can be attributed to the fact that the conven-
tional insurance industry indulges in the prohibited elements of interest and
gambling. However, with the introduction of an Islamic mode of insurance,
more and more Muslims are open to the idea.
At present, takaful has very limited application in Islamic fi nancial
markets, with very few institutions offering insurance services on a large
scale. Although, the application of takaful is for the most part indemnity -
based and limited to the loss of physical property, there are products in
the market targeting family and medical coverage based on Shari’ah prin-
ciples. According to some estimates, the global takaful industry has grown
from US$1.4 billion in 2004 to around US$5.3 billion in 2008 (2010
forecast US$8.9 billion), which is considered signifi cantly below its true
potential.^6 It is estimated that the market now comprises more than 130
companies in both Muslim and non - Muslim (including Western) countries.
In several economies where Islamic fi nance is practiced, takaful is offering
price - competitive products and has captured signifi cant proportions of non -
Muslim customers.^7 Figures 10.1 and 10.2 show how the coverage was
distributed among different sectors in the Middle East and North Africa
(MENA) and Southeast Asia regions during 2007. The greater prominence
of family and medical insurance in Southeast Asia could be attributed to the
popularity of takaful in Malaysia.

MENA

Property and

accident

Motor

Marine and

Aviation

FIGURE 10.1 Takaful market segments in MENA region
Source: E&Y (2010)

Southeast Asia

Property and

accident

Motor

Marine and

Aviation

Family and

Medical

FIGURE 10.2 Takaful market segments in Southeast Asia region
Source: E&Y (2010)