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Wednesday, 19 June 2013

Global takaful to hit $20bn despite challenges

JEDDAH – Global takaful business will reach $20 billion by 2017, a new report by Deloitte titled “The Global Takaful Insurance Market: Charting the Road to Mass Markets” revealed.

The report said the GCC region contributes more than 62 percent of the takaful gross premiums and expanded by 17 percent to $5.7 billion in 2010, mainly driven by Saudi Arabia.

It urged more consistency of regulatory frameworks in the takaful market and development of new business models as these are some of the factors that would affect the industry in the future.

According to the report, the biggest challenge being faced by the industry in the Middle East region is the “Arab Spring syndrome” which has resulted in the reluctance of corporates to invest for expansion and to hire. In addition, growth rates of takaful penetration are slowing due to a lack of customer education and inadequate product awareness programs. This has been further hindered by a lack of clear strategies from takaful providers, and lack of research and development in product innovation and marketability.

In the attempts to address the issues, the report suggests that practitioners as well as regulators need to work together to ensure that the industry specific standards ?nd their way in a real, practical sense. 

It presents a model for positioning of new takaful solutions which is largely driven by core influences, which include governance competence, risk management function, Shariah compliance, product governance and process, strategic target market and sales and marketing capabilities. 

Dr. Hatim El Tahir, Director of the Islamic Finance Knowledge Center of Deloitte Middle East, noted that “heightened focus on governance, fiduciary responsibility, risk management and accountability are direct consequences of the global financial crisis and will likely present takaful with challenging practice and regulatory issues during the next five years.”

Ten key challenges were identified that would significantly impact the future of the takaful industry. These are grouped into five industry disciplines which are:

Governance and regulatory compliance: the report finds that more consistency of regulatory frameworks is needed, and optimizing capital adequacy through consolidation will achieve growth and sound corporate structures.

Risk management and internal controls: Making risk-based business a priority, unified with takaful operators' strategic planning, and improving risk and Shariah disclosures and governance.

Operational and Business Excellence: There is a need for new business models to accommodate wider niche markets and improved technology capabilities to achieve cost efficiency and productivity.

Product governance and strategy: Improving product governance and product development processes, and placing emphasis on target markets, sales and distribution.

Capacity building: talent and leadership development: Switching emphasis to internal development to build specialized knowledge and refocusing on competency-based training and leadership programs. 

In 2010, the Far East region recorded the highest growth rate of 32 percent on the back of $1.95 billion in contributions, while the GCC, led by the Kingdom of Saudi Arabia (KSA), maintained the largest share of contributions, growing a further 17 percent to $5.7 billion. 

The GCC region accounted for almost 40 percent of the total takaful business with South East Asia coming a distant second with an 11.8 percent share in 2010, based on figures compiled through inputs given by the various takaful operators around the world.  The sustainable growth of Islamic finance in many parts of the world and in particular MENA and SEA will stimulate additional growth in the takaful sector as finance and insurance services are intertwined. 

The heightened focus on governance, fiduciary responsibility, risk management and accountability are direct consequences of the global financial crisis and will likely resent takaful with challenging practice and regulatory issues during the next five years. 

Achieving growth in the takaful insurance sector and breaking through into the mainstream might be easier said than done. This is especially true because the takaful industry faces enormous challenges to achieve growth and build mass coverage globally. Yet, the growing industry has a number of opportunities to set the stage for both short- and long-term growth.

(Saudi Gazette / 19 June 2013)

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Horizons for Islamic banking highlighted

SALALAH — The Islamic Banking, promising finance horizons seminar was held at Oman Chamber of Commerce and Industry (OCCI) in the Governorate of Dhofar yesterday. Abdullah bin Salim al Rowas, Chairman of OCCI branch in the Governorate of Dhofar, delivered a speech where he commended the efforts of Al Roya newspaper and Hatim bin Hamad al Taie, GM and Editor-In-Chief, to organise this seminar that aim at enhancing public awareness of Islamic banking.

The seminar included four themes namely Islamic banking products, Islamic banking as a finance arm for development and production projects, the role of Islamic banking in financing MSEs and success factors for Islamic banking in the Sultanate. The seminar comes within the awareness campaign organised by Al Roya in collaboration with the CBO with participation by a number of major banks, Islamic banking windows, bankers and experts in the Sultanate.

It gave participants the opportunity to gain first-hand information on the importance of the industry to the financial landscape of Oman. It included in-depth insights into the Islamic banking tools available to realise growth in the economy.

(Oman Daily Observer / 19 June 2013)

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Uniting Islamic finance and halal at conferences

(MENAFN - Khaleej Times) Conferences provide an insight on the road ahead for industries, products, innovations, and services. The speakers are assumed to know more than most on the other side of the podium.

One of the interesting developments in the Islamic finance conferencing arena has been the introduction of topical issues from the 2.1 trillion halal industry. Is it because there is no 'new new' in Islamic finance or the realisation that Islamic finance needs to build bridges to new areas linked to the real economy or both?

Halal, depositors and alternatives

There is a realisation and recognition that, at one level, halal is demand based, hence, one needs to eat, before one invests in, say, mutual fund or bank/sukuk finance a tower. Thus, halal, being a consumer non-cyclical, is actually less volatile (or more stable) than Islamic finance's traditional area of finance: real estate.

Furthermore, as there are more Muslim depositors than investors (debt culture), there are more participants in halal than in Islamic finance (food over finance). To wit, Islamic finance participants will be almost always be consumers of halal foods, but halal food consumers will not always be Islamic finance participants. The reasons may be due to lack of availability of Islamic finance, especially at retail levels in non-Muslim countries, excessive costs or lower returns, inferior customer service, lack of range of products, etc.

For Muslims, the alternative to halal foods is the acceptable kosher. For example, in the US, Muslims consume more kosher products than Jews, as there are more than 86 kosher products for every one halal product. Thus, halal and kosher are a good example of building bridges of inter-faith dialogue.

The alternative to Islamic finance is the conventional and ethical (which has elements of interest) or cash economy. Obviously, not many ideal choices, but many scholars have invoked 'law of necessity' for allowing Muslims to participate in interest based finance as an Islamic alternative is unable and would cause undue hardship. Furthermore, there are a number of Christian and Catholic funds available for investing, but Shariah scholars have not approved them for investment for Islamic investors.

Thus, the 'acid of purity or authenticity' may be articulated by following observation:

If there are pork traces of DNA found in halal food products and known by the consumer, the consumption of the product would be prohibited. Only caveat is when consumption of pork would save a person from starvation to death. In Islamic finance, the Shariah scholars have allowed 'minor' amount of interest and impermissible income (which must be purified by way of charitable donation) and acceptable amount of conventional debt (screening companies for compliance for investment purposes) as preconditions for participation. Thus, halal can be said to be Shariah based and today's Islamic finance as Shariah compliant. [Capital structure of halal food companies is conversation for another day].


Islamic finance conferences are about awareness, education and networking, but they are commercial undertaking with profit motives. The injection of halal at such conferences is actually a paradigm shift, as Islamic finance has traditionally ignored its much larger brethren: halal. It should be noted that at halal conferences/events, like World Halal Forum, Islamic finance topics are commonplace and, even, Islamic banks sponsor such events.

The time has arrived to present the halal value proposition at Islamic finance events. Thus, I was requested to present on halal at major events like the Kuala Lumpur Islamic Finance Forum (KLIFF) 2012, World Islamic Banking Conference (WIBC) Asia 2013 in Singapore, and at the Brunei Islamic Investment Summit (BIIS) 2013.

Furthermore, after His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, made the historical announcement in early 2013, about Dubai's ambition for an Islamic economy, it has institutions, consultants, and conference organisers scuttling to put together a 'blue print' of the Islamic economy, including halal.

Halal conversation

The conversation on halal must continue to evolve from the academic, certification and research to the practical, immediate and impactful. Put differently, the monetisation of halal needs to entice the Islamic money, as the riba based money has financed halal. For example, one only needs to examine at the balance sheet of, say, publicly listed halal food companies in the SAMI Halal food index for Shariah compliance (financial ratios, especially on debt), and realise quite a few fail the screening process.

(Menafn.Com / 18 June 2013)

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