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Thursday, 18 April 2013

Family takaful to hit $5.6b by 2016

The global family takaful industry is on track for a sharp growth with its gross contributions set to treble by 2016 to $5.6 billion, an industry study said.

The growth of family takaful has outperformed the growth in conventional life insurance, and over the past five years it has picked up pace at a compound annual growth rate, or CAGR, of 32 per cent, according to a report released at the opening of the 8th Annual World Takaful Conference, or WTC, in Dubai on Monday.

The global takaful industry has been experiencing double-digit growth rates with the GCC and Malaysia being the major contributors, said David McLean, executive of the WTC.

“However, the latest industry data reveals a slight deceleration in the growth rates. A critical factor that will determine the success in taking the industry to the next level of development is the existence of players with the right quality and calibre, as well their readiness in terms of capacity and capability to formulate and execute successful strategies in response to new market opportunities,” he said.

“To achieve this, it is essential that key players in the industry remain profitable in the long run and the current slowdown makes it even more challenging for takaful operators to maintain momentum while boosting profitability. This calls for taking proactive steps and rethinking strategies to overcome diverse challenges to sustain the forward growth momentum,” McLean told a gathering of more than 400 senior decision makers from over 150 organisations.
Jeff Singer, chief executive officer of the Dubai International Financial Centre Authority, inaugurated the two-day event.

Safder Jaffer, managing director of Milliman Middle East and Africa, said that over the past five years, growth in family takaful has increased at a CAGR of 32 per cent. “Growth of family Takaful in Asia and Indonesia in particular is increasing at far higher rates, and Malaysia continues to provide global family takaful leadership on all fronts. In the Middle East, family takaful penetration has not been as rapid, though the region has all the necessary ingredients to make family Takaful more viable and profitable than general takaful.”

The Global Family Takaful Report, developed by Milliman and released at the WTC, provided research insights into the performance of family takaful offerings, the future direction of the market and new opportunities for the growth of family Takaful across key international markets.
By 2016, family takaful contributions are poised to grow to $5.6 billion from $2.2 billion in 2011, the report said. The global takaful industry had been projected to record gross contributions of $17 billion by the end of 2012.

The report also noted that with bottom-line profitability on the general takaful front facing stiff competition from a relatively soft market, family takaful is seen as a long-term and sustainable proposition with strong bottom-line expectations.

Though the challenges of matching the long-term liability profile of family takaful with similar duration Shariah-compliant assets remain, higher profit margins and the potential for surplus sharing make family takaful a more viable long-term proposition and ideally placed to meet the “spiritual” dimensions of takaful, the report said.

“This report addresses the increased need for a pertinent reference source to help industry leaders navigate the evolving family takaful landscape.”

(Khaleej Times / 16 April 2013)

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Ethics and Finance: Doing the Right Thing Can Be Profitable

Discontent is on the rise among Western banking customers faced with abuses such as Libor rigging, mis-selling of financial products, hidden trading losses and sloppy anti-money laundering, writes Paul McNamara
As the conventional financial system takes blows to its credibility, the question arises whether there is a better financial system waiting to be found.
Many believe the answer lies in some form of ethical finance with a philosophy that is underpinned by moral tenets or religious beliefs. While Islamic finance scores highest in this area in terms of the number of headlines it secures, other religious groups can find themselves in lockstep with these same views.
Ethical finance encompasses a wide range of issues from sustainability to firearms, exploitation of people and resources to environmental concerns. Investors who require an ethical overlay to their money management want to look after the world they live in and this can mean investing in companies which have business models that are sustainable in an ecological, social, economic and political way.
Islamic finance, through its investment filters, provides one means of doing so. In 2009, the Vatican's official voice piece, the newspaper L'Osservatore Romano, came out in favour of Sharia financing saying: "The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service."
In the UK, there has been a push towards ethical finance. Campaigns, such as Move Your Money, launched last year urging consumers to shift funds from mainstream banks to ethical alternatives.
Graham Burnside, partner and chairman of law firm Tods Murray and a board member of the Islamic Finance Council UK, points to the growth of the Co-operative Bank, which saw primary current accounts increase 8.2 per cent last year, as a sign that things are moving in an ethical direction.
The emergence of Triodos Bank, the self-proclaimed "world's leading sustainable bank", may also hint at what the future holds in store. Triodos posted a 31 per cent rise in 2012 net profits and a 23 per cent rise in its customer base in the year. Such growth may be impressive, but it is coming off a very low base.
Mr Burnside suggests that while there is some "thought and discussion around other faith-based finance initiatives" in the UK - the Church of Scotland has a committee devoted to it, for instance - "it is still some way from turning into an offering in the market".

For ethical finance to take firm root, it must appear to be as competitive as conventional finance.
Customers, after all, may not be willing to pay a premium for their beliefs. However, for investors cynical about the cash value of "doing the right thing", a quick look at the DAXglobal Sarasin Sustainability Germany Index, which tracks German and Swiss companies that meet sustainability criteria, should give pause for thought. The index has been known to outperform the DAX index by 100 per cent over extended periods.
In many markets, Islamic banks are very keen to promote that they are open to non-Muslims and Muslims alike. Indeed, in Malaysia it is not uncommon for an Islamic retail bank to have more Chinese non-Muslim customers than Muslims.
Throughout the Gulf, many Islamic banks focus their promotional message on the fact that their roots are in ethical finance first and foremost. "The ethos of Islamic finance is universal and is really coming to the fore of how people want to conduct business," says Saadat Khan, chief executive of Sharia-compliant firm Ethical Asset Management. "If we take away the Islamic finance label and present it as ethical financing, which is what it is, there is a lot of demand."
This article was originally featured in Raconteur's special report on 'Islamic Finance' which published in The Times newspaper on April 16, 2013.

(Huffpost Business / 17 April 2013)

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Australia: Government eyes Islamic finance growth opportunity

The Australian government has said that the Islamic finance provides a opportunity for growth in the both the Australian financial services sector and the wider economy.

Addressing delegates at the first Amanie Australia Islamic Finance Forum in Melbourne, Parliamentary Secretary to the Treasurer Bernie Ripoll said the introduction of Shariah products to the domestic market would help to create jobs and boost sustainable growth.

"The Shariah prohibition of highly speculative activities not only helps to protect the economy against abuses and distortions, but also forges a closer link between financial activity and the real economy," he said.

The Islamic finance industry is growing at a rate of 15%-20% per year and recent estimates cited by Ripoll say it could be worth as much as $2 trillion within the next three to four years.

Ripoll said the growth would benefit not only the Australian Muslim community, but the financial services industry as a whole.

"The introduction of Islamic finance products into the Australian market is not a replacement for other forms of finance, but rather a door to new opportunities for our financial services sector and for our economy more broadly," he said.
Ripoll also sought to reassure delegates that Shariah-compliant products would be privy to the same regulation and capital laws that governed all Australian financial products.

"As well as a large and growing Muslim population, Australia has several advantages that make us well-placed to facilitate further demand for Islamic finance services," Ripoll continued.

"Our geographic position places us in close proximity to large Muslim populations. Over twenty years of the Superannuation Guarantee means our financial institutions have extensive funds management expertise. Additionally, we have a well-resourced, well-regulated and innovative financial sector."

Ripoll added that the government would commit to a greater focus on deepening Islamic finance skills though education, training and qualifications as well as to examine whether any changes to tax laws were needed to ensure parity between Islamic and non-Islamic financial products.

(Financial Standard Online / 17 April 2013)

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Bahrain playing key Islamic finance role

MANAMA: Bahrain continues to be the intellectual hub of Islamic finance powered by its deep-rooted institutions, a leading industry thought leader said.
"With institutions like the Accounting and Auditing Organisation for Islamic Financial Institution (AAOIFI) and a regionally respected regulator like the Central Bank of Bahrain (CBB), the kingdom will continue to provide guidance to the industry as it grows," AAOIFI board of trustees chairman Shaikh Ibrahim bin Khalifa Al Khalifa told the GDN.
He was speaking on the sidelines of the Annual Sharia Conference 2013 organised by the AAOIFI under the patronage of the CBB.
The event concluded yesterday after two-days of active deliberations at the Diplomat Radisson Blu Hotel, Residence and Spa.
"Although it is clear that for major players in the industry, Bahrain lacks size and scale, the kingdom has qualified manpower with in-depth experience honed over many years," Shaikh Ibrahim said.
"With a significant increase in the market share of Islamic banks in the GCC and given the increasing appetite for Sharia-compliant financing and investment alternatives, the industry is yet to fully realise its full potential in the region," he added.
"The recent increased international attention on Islamic finance, post the financial crisis, presents a unique opportunity for the industry to further strengthen its appeal by attracting investors who are now turning to more ethical products that are based on risk participation," he added.
Participants were of the opinion that institutions now need to reorient themselves so that their products and services are 'Sharia-inspired' and not just 'Sharia-compliant'.
The convergence and integration of key components of a holistic Islamic economic system, will set a new growth wave for the Islamic banking and finance industry not only locally, but globally, they said.
According to KFH-Bahrain managing director and chief executive Abdulhakeem Alkhayyat, the conference is an essential forum to meet and discuss various key issues among participants and specialists.
"The AAOIFI continues to lead the way by gathering the major financial institutions together and set new standards and best practices for Islamic financial institutions.
"The valuable discussions held during the sessions will help steer the Islamic finance industry towards growth and this influence will be felt worldwide as the concept of ethical banking continues to develop and expand," Mr Alkhayyat added.
KFH-Bahrain was a Gold Sponsor of the event. Another key sponsor was Ithmaar Bank.
"With our long, proud history as a pioneer of Islamic banking in the region, Ithmaar remains as committed as ever to further developing the concept of Islamic banking and finance and, more importantly, to delivering a premium Islamic banking offering," said Ithmaar Bank chief executive and board member Mohammed Bucheerei.
"Our relationship with and support for AAOIFI go back to the very establishment of the institution," Mr Bucheerei said.
"In fact, Ithmaar Bank, then Faysal Islamic Bank of Bahrain, the predecessor of Shamil Bank and later Ithmaar Bank, was the very first bank anywhere in the world ever to publish its financial results in accordance with AAOIFI standards," he said.

(Gulf Daily News / 17 April 2013)

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