Proper regulator key to takaful success
Manama, October 18, 2012
Consolidation is the way forward for the takaful industry, which is in need of a proper regulatory body to oversee enforceability of rules.
"Any young industry always begins with mushrooming of various businesses," Ernst and Young Islamic Banking Excellence Centre head Ashar Nazim told the Gulf Daily News, our sister publication.
"They experiment with various business models. However, there comes a time when a choice has to be made on what works best for the industry," Nazim observed.
"Consolidation is the way forward for the industry," he added.
"Right now there is no one taking responsibility for a five-year or a 10-year view on the industry. There is no proper regulatory body which can effectively enforce rules," said the expert.
"The industry needs to come together and it needs to consolidate and a proper regulator needs to take a lead in that," he added.
The continuing growth of the takaful industry is driven by rising demand from a global population of 1.6 billion Muslims. Twenty-three per cent of the world's population is Muslim and they have an inherent interest towards working their financial matters to Sharia-compliant.
"They are also very clear that it should not be at the expense of product quality, convenience and service," he said.
"The challenge for the industry is that being young, it needs patient investors and double compliance." A uniform template for the industry has yet to be adopted across diverse Asian, African and European markets.
With changing political climate in large countries such as Egypt, which has 80 million Muslims, new takaful operators with different business models are set to play a greater role.
"One opportunity or vacuum in the market today, is that takaful does not have a proven template to work in large populous Muslim markets except Malaysia," he said.
"Except for Malaysia, it hasn't been replicated elsewhere. The GCC is a small market. We see huge potential in markets such as Turkey, Egypt, Libya, Pakistan and Bangladesh," he said.
Secular countries with large Muslim populations are changing regulations to allow takaful players to operate. "Turkey which is secular calls Islamic banking, 'participation banking'," remarked Nazim.
"In the West, it has always been there as ethical banking or socially responsible banking. Names can be different, but the form is the same everywhere.
India, which has a 177 million captive takaful market, still remains untapped because of regulatory requirements.
"There has to be a policy in place to allow Islamic finance. Captive demand is huge. Market participants need to realise that they have to simplify regulation to allow takaful operators to attract foreign direct investment and promote an inclusive financial systems.
"If successful templates of the industry have worked in religiously neutral countries such as Turkey, there is no reason why it would not work in India," he added.-TradeArabia News Service