KARACHI – The fast-expanding Takaful industry, which has proved to be an engine of growth in Islamic countries like Malaysia, appears to be a long neglected sector in Pakistan.
Whereas some 40 to 42 conventional insurance firms are faced with a negative growth given the ongoing economic recession and its indirect trickle-down effect on the insurance sector, the Islamic insurance industry is growing in Pakistan so rapidly that Pak-Qatar Family Takaful (PQFT) has exhibited a growth of 100 percent during 2010.
“We have crossed the one-billion rupee mark this year (2010) compared to some Rs 500 million the previous year,” Pervez Ahmed, the pioneer of family Takaful in Pakistan Takaful, an Arabic word for insurance, envisages a risk mitigation strategy whereby joint or mutual guarantees are ensured by the insurance companies on family and corporate level, respectively, to provide life and assets insurance in line with the provisions of the Islamic Shariah.
In view of the encouraging response from customers, the Shariah Compliant Company has introduced various products like Share N Care Saving Takaful, Education Takaful, Takaful Shied Decreasing Term Plan and so on. While the government is leaning on local and foreign creditors to ensure fiscal stability at home, the potential of growth-oriented industries like Takaful is still overlooked by Islamabad.
“The government is not providing us with any incentives like the longstanding demand for a tax-break which it has recently accorded to mutual funds,” Ahmed lamented, adding, “such tax incentives on Takaful have been granted in countries like India, Malaysia, Bangladesh, Thailand, Singapore amongst others.”
Ahmed said despite repeated requests made by industry representatives on various formal and informal platforms, the government had not been able to slot in the tax-break into the Finance Bill. In 2005-06, the CEO recalled, Islamabad had, initially at least, acquiesced to the demand of insurance companies, but the proposal was absent from the final draft of the Finance Bill.
“We demand the government institute a minimum tax-break of up to Rs 300,000 on the pattern of mutual funds,” the PQFT chief demanded saying the incentive would help the Takaful companies boost their business volume by up to Rs 3 billion a year.
“The basic theme of our products is saving so if more people save money, more money would be pumped into the stock market and the banks that would reduce the government’s burden of foreign and domestic debt,” Ahmed opined. Ahmed went to say that giving more incentives to Takaful firms were necessary to make a real dent in the saving rate.
Currently Pakistan has a 13 percent saving rate, lagging far behind its traditional competitor India where it is up to 26 percent. According to the PQFT executive, increased savings would make available “low cost papers” for the government as compared to the high-weighted Ijara bonds through which Islamabad was recently raising funds from the local market.
“If you extend these incentives to the Takaful industry it would become one of the top engines for growth in the country mirroring what has happened in Malaysia,” he observed. He expressed a hope that the move would also help the Islamic insurance operators penetrate deeper into the potentially large and underserved market.
Asked about distinctions of PQFT, Ahmed said the optimal utilisation of the technology his company had instituted, allowed the customer to get the Takaful insurance policy from authorised banks in a matter of minutes under the concept of “bancaTakaful” or “bancassurance”.
“Against the one-week time required for the issuance of a conventional policy, it takes a customer hardly 20 minutes to get a policy at the selected bank branches,” he said. For this purpose, he said, PQFT had clinched separate deals with both Islamic and commercial banks like Standard Chartered, Dubai Islamic Bank and Emirates Global Bank for the implementation of “bancassurance” at their respective branches.
The time-saving “bancassurance” may emerge as a standard in the successful operations of the Takaful sector in the country while the PQFT is vigorously engaged in talks with banking giants like MCB Bank, Bank Al-Falah, Dawood Islamic Bank, Bank of Punjab, Faysal Bank amongst others for the expansion of services. Elaborating on the penetration of Takaful industry, the chief executive said his firm had some 150,000 corporate clients in 350 companies while some 30,000 others were enlisted with the Takaful under the individual category.
Ahmed believes that creating awareness in a Shariah-conscious society like Pakistan will certainly take some time. To a query, Ahmed complained that the insurance industry as a whole was suffering from a lack of professional approach on the part of both customers and conventional firms. He candidly said that this was clearly reflecting in the volumes.
Explaining the concept of Takaful, Ahmed said insurance and for that matter even Takaful is considered to be against the Islamic concept of Tawakkal. “This belief is actually based upon a misunderstanding and therefore is not valid, for Takaful does not suggest rejection or abandonment of either means or resources, but its use in various agencies while leaving the outcome to the Almighty’s will,” he said.
He said the system of Takaful was based on the principles of brotherhood, mutual solidarity and Taburru which was encouraged by the Shariah. “In our society, we have varying levels of Takaful, the joint-family system for one and cooperative societies in which risks and financial losses are distributed amongst participants and help is mutually extended in times of need on the principle of Ta’awun (cooperation),” he said.
“Exactly the same happens in Takaful, where participants pool their resources so that they might be able to help each other in the time of need,” he added.
