Takaful for

Microfinance

1st International Conference on

Inclusive Islamic Financial Sector
Development
 Overview of presentation
 Insurance and Poverty Alleviation
 Challenges providing microinsurance
 Opportunities and need for microtakaful
 Microtakaful in practice
 Can insurance assist poverty
alleviation?
 The poor are the most vulnerable
 The impact of losses are more severe
 They have minimum means of recovery
 Success of microfinance schemes show
the poor can and want to save
 Savings and credit are used
unproductively
 The poor need a safety net to escape
poverty
“Insurance is now
recognized as an
important tool for
poverty alleviation”
 Microinsurance products

 Loan protection
 Disability and Sickness
 Savings
 Health
 Funeral
 Property
 Agriculture
 Providing microinsurance
The challenges
 Coverage
 Regulation
 Moral hazard and Fraud
 Adverse selection
 Education and trust
 Technical expertise
 Affordability
 Retention
 Sustainability
 Penetration
 Key success factors for
introducing microinsurance
 Organized group
 Existing financial infrastructure
 Trust
 Need
 Understanding
 External support
 Providing microinsurance
The possibilities
 The cooperative microinsurance model
 History of organising the poor
 Operate for the interest of members by

members
 Trust

 Ownership and loyalty

 Peer pressure

 Surplus reinvested or redistributed

 Providing microinsurance
The possibilities
 The partner agent model
 No-risk fee for microinsurance provider
 Better coverage for policyholder

 Access to new market

 Pooling of risks between informal and formal

sector
 Providing microinsurance
The possibilities
 The donor agent model
 Access to expertise
 Financial sustainability

 Guiding hand
Opportunities and need
for microtakaful
 Principles of Takaful

 Solidarity and joint guarantee

 Self reliance and self sustaining for community
well being
 Assist those that need assistance
 Community pooling system
 Shari’ah approved investments and products

“Bear ye one another’s burden”

 The Global Takaful sector

 1979 First Takaful Company established

 1996 – 30 Institutions transacting Takaful
 2002 – 50 Takaful operators and four Retakaful
providers
 2004 – 80 Takaful operators, 200 Takaful windows
and 12 Retakaful providers

Source: IBB Solicitors, UK – (2005)

 The need for microtakaful
 Social services inadequate or unavailable
 Large sectors of poverty in many Muslim
countries
 Over half of world’s lowest developed countries
have a majority Muslim population
 Increasing inequality in Middle East and Gulf
countries
 Religious considerations are important in villages
and small communities
 Established Takaful sector neglecting low income
sector
 “Takaful is the
second most
important social
institution to
counter poverty
and deprivation”
Omar Fischer
1999
Possibilities for microtakaful
 Establish community based microtakaful
schemes
 Involvement of NGOs, zakat funds, donor
agencies
 Support from Takaful sector
 Technical expertise
 Financial assistance

 Partner-agent model
 Microtakaful in practice
 Agricultural Mutual Fund - Lebanon
 Amana Takaful – Sri Lanka
 Takaful Ikhlas
 Takmin - Indonesia
 Summary
 Microtakaful can succeed
 Microtakaful can compliment microfinance
 Microtakaful is imperative to ensure productive
use of assets for the poor.
 It is key to ensuring the long-term self
sustainability of the individual and his family to
stay above the poverty line.
 Existing Takaful operators have a responsibility
to take a lead in this area in accordance with
the basic principles and philosophy of takaful
which is to “bear one another’s burden”.
 The case of a microtakaful
policyholder
 Ibu Iwit, 50 years, farmworker, earning
one dollar a day.
 Took out a 6 month loan of 55 USD from
local Baitul mal Wat Tamwil
 Insurance premium was taken out with
Takmin at 0.16 USD
 Ibu Iwit passed away a couple months
later
 Her husband, Amad, age 60 years, no
income
A Global reach for
local strength
Thank you

www.takaful.coop