The global Takaful industry continued to demonstrate a strong growth rate in 2010 at rate of 22.9 per cent ($13.7 billion) as compared to previous year (in year 2009 growth rate stands at 17.7 per cent with total contribution value of $11.1 billion) according to the World Islamic Insurance Directory 2012. The Gulf Cooperation Council countries (GCC) market contributed $5.7 billion, Middle East (Non-Arab) at $5.3 billion and South East Asia (SEA) contributions stood at $1.9 billion.
Amongst the key markets, Malaysia, Indonesia and UAE achieved growth rates of over 24.0 per cent, whilst Saudi Arabia saw its gross contributions increase by 9.7 per cent. In 2010, growth in the GCC slowed to 16.3 per cent, from a CAGR of 44.7 per cent in 2004-2009, as the implementation of compulsory medical Takaful in Abu Dhabi and Saudi Arabia was completed earlier.
The report, presented at the Global Islamic Finance Forum in Kuala Lumpur, showed that Saudi Arabia remains by far the largest Takaful market after Iran, contributing $4.4 billion or 32.0 per cent of the industry at an average contribution per operator of $141.0 million. Malaysia grew 24.0 per cent to reach contributions of $1.4 billion at an average contribution per operator of $141.0 million. UAE ranked third with contributions of $818.0 million, growing at 28.0 per cent. Outside of GCC, Middle East (Non- Arab) and SEA, Sudan is the most significant market, with contributions totalling $363.4 million, growing by 7.0 per cent in 2010.
In terms of Takaful models applied, Wakalah-Mudharabah (hybrid model) remains one of the most widely applied models with at least nine countries adopting it. This is followed by (Wakalah with and without fee) and Mudharabah. The past few years has seen certain countries moving away from the latter model to the hybrid model which provide certain advantages over the other such as the upfront Wakalah fee which helps to incentivise Takaful agents to recruit more participants.
Standardisation of Takaful models applied is highly welcomed as it will facilitate cross border selling and making it easier for the customers to understand the product. Nevertheless, the emergence of different Takaful models across jurisdictions presents opportunities for greater understanding and acceptance as different jurisdiction may experience different impediments to implement certain practices.
The Takaful industry is facing strategic challenges as the market establishes itself. Significant investments are required to establish the Shari’ah board, develop technical expertise on Shari’ah compliance, train staff, create brand awareness among customers, as well as implementing the appropriate technology. To ensure the success and sustainability of the Takaful and ReTakaful industry, the companies will need to work with their respective national regulator to address impediments facing the industry. Despite all the challenges, Takaful is a viable alternative to conventional insurance and is expected record gross Takaful contribution of $17.2 billion by end of 2012.
Factors Supporting Takaful Growth
Growing demand for Shari’ah-compliant products
Increasing levels of foreign direct investment
Growth of retakaful capacity
Growth of high quality sukuk papers for takaful companies to invest in
Increased awareness amongst consumers
A more efficient distribution channel of takaful products
Growth in other financing products such as housing financing which leads to increase in housing Takaful
Sept 21 - Standard & Poor's Ratings Services said today that it has assigned its 'BB' issue rating to the $1.5 billion Sukuk Lease Certificates due 2018, issued by Hazine Mustesarligi Varlik Kiralama Anonim Sirketi (the issuer), a special purpose vehicle (SPV) wholly owned by the Republic of Turkey (foreign currency BB/Stable/B).
The transaction raises funds of $1.5 billion in accordance with the Islamic principles of "ijara" (leasing). The assets underlying the lease are state-owned buildings and land in Turkey. Under the transaction, the state sells a pool of property assets to the issuer.
The issuer holds the assets in its own name and for the account and benefit of the certificate holders. The state is to act as servicing agent to maintain the assets. The issuer leases back the assets to the state, which will make regular rental payments to the issuer. These will be the basis for periodic distribution payments payable on the lease certificates. The rental payment obligation ranks pari passu with other unsecured and unsubordinated obligations of the state.
On maturity (dissolution), the state will purchase the lease assets from the issuer at the relevant exercise price, as specified in the purchase undertaking agreement. The purchase price in connection with this sale funds the dissolution amount that is payable to the certificate holders.
In our view, the two key rating factors underpinning the rating on the sukuk are the rental payments to be made by the state, which ensure payment of the periodic distribution amounts, and the obligation that the state has to repurchase the underlying assets, which ensures payment of the dissolution amount to certificate holders. The rating on the sukuk is equalized with our rating on the senior unsecured long-term foreign currency debt of Turkey. Standard & Poor's considers that Turkey has a strong incentive to consider the performance of the lease certificates to be as important as its conventional debt, because the rationale for the transaction is to raise funds in accordance with Islamic principles, rather than to separate the state's own obligations from those of the issuer.
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