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The Opportunities for Growth in Takaful and Current Challenges Faced (continued..)
This would potentially provide a Takaful operator
with access to the 27 EU countries and the EFTA
countries (excluding Switzerland) all on the basis of
a single regulatory authorization.
“Takaful operators could
seek authorization for their
businesses in the UK and
then use the ‘passporting’
process to establish branches
to other EU countries”
What are the challenges to the continued growth
of Takaful?
A lack of understanding by consumers of the benefits
of Takaful has, to date, been an impeding factor to
growth in certain markets. It is generally recognized
that more effort needs to be made to educate people
about the value of Takaful and the protection if offers
against risk. If social attitudes can be changed, then
this will help growth considerably.
There is a lack of an over-arching Shariah judicial
authority (and the uniform Shariah decisions which
such an authority could provide). At present, there
are a range of views from Shariah scholars on many
issues, which can lead to uncertainty and a lack of
clarity for the Takaful industry.
Strong regulatory support for Takaful and a
comprehensive regulatory framework would also
facilitate the development of Takaful. At the moment,
however, the regulation of Takaful is at different
stages of development throughout the world, which
means that, in practice, there is currently no measure
of international uniformity in the conduct of Takaful
business and regulation.
Different jurisdictions have different regulations for
Takaful and there is a lack of standardization. For
example, some jurisdictions like Bahrain prescribe
that a particular model must be used whereas
other jurisdictions like the Dubai International
Financial Center, do not. The development of such
international uniformity is key to facilitating the
growth and global marketing of Takaful.
It is also true to say that further development of
the Islamic capital and investment markets is critical
to the corresponding development of Takaful. A
broader range of Islamic unit-linked funds needs
to be introduced. This will increase investment
opportunities for Takaful operators, enabling them
to maximize returns within the parameters of
Shariah law.
One idea that might assist in enabling the Takaful
industry to achieve its growth aims over the next few
years would be to consolidate the industry and its
practices under the umbrella of the Islamic Financial
Services Board (IFSB) in collaboration with others
such as the International Association of Insurance
Supervisors and the Accounting and Auditing
Organization for Islamic Financial Institutions.
This might do much to introduce the consistency
in standards needed across the industry. Uniform
codes of practice harmonising both Shariah and
regulatory authorities under the auspices of the IFSB
which are consistent with the Fatwas from the Saudi
Arabian Fiqh Academy would also provide further
consistency.
These continue to be exciting times for the Takaful
industry, with considerable opportunities to develop
Takaful in existing markets and introduce Takaful to
new markets. To enable Takaful operators to make
the most of those opportunities, cooperation and
collaboration is needed among regulators, scholars
and operators to avoid the potential of a fragmented
industry using divergent models and practices.
Susan Dingwall is a partner and Ffion Flockhart is
an associate at Norton Rose.
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