azerbaijan: emerging market islamic banking and finance

NEWHORIZON Shawwal–Dhu Al Hijjah 1429
TAKAFUL FOCUS
would like to promote it to the community
at large as an ethical product.’
The car insurance product has been
designed as a mutual product within
Shari’ah principals. Policy holders (takaful
participants) contribute a premium into a
takaful pool. Any money in this pool is
then invested into Shari’ah-compliant or
ethical products that don’t provide interest.
Any return on these investments goes back
into the pool and any claims are taken out
of it. Anything that is left over in that pool
is then distributed to the policy holders as
a discount on their renewal premium for
the next year. ‘It’s a mutual pot, they are
guaranteeing each other. They are the
insurer and the insured,’ explains Gelu.
‘When they put in premiums it’s their
money that’s invested, any return is their
money.’
Principal will act as the takaful operator.
Therefore, it will make its money through
taking a wakala fee. ‘That fee covers us
for all our costs, including administration,
operating costs and the profit for the
shareholders,’ say Gelu. The details of the
wakala fee and the specifics of the takaful
model adopted will be communicated to
the participants through their
documentation.
To ensure that Principal’s activities are in
line with Islamic law, it has appointed a
Shari’ah supervisory committee made up
of three prominent Shari’ah scholars: Shaikh
Nizam Yaquby of Bahrain, Dr Mohammed
Elgari of Saudi Arabia, and Mufti Abdul
Kader Barkatulla from the UK. ‘All aspects
of our business are underpinned by
independent Muslim scholars, specialising
in Islamic law, who give guidance, approval
and supervision of our activities,’ explains
Gelu. This is not just restricted to the
products the insurer will put out. The
committee will look at everything the
takaful operator does to ensure it is
Shari’ah-compliant.
The company is working to a timetable of
motor insurance first, followed by contents
and buildings insurance, a product Gelu
says will be ready for the market by the end
of the year. In the next 18 to 24 months it
is also looking to launch family takaful
products, such as life insurance. It is also
looking at commercial lines for SMEs. ‘We
know there are 140,000 Muslim-owned
businesses and we believe there is a market
there,’ he explains. On top of this, it wants
to examine expansion plans into Europe
and the GCC.
Gelu believes ‘the climate is right’ for
Islamic finance. He is determined to
challenge the stereotype that Islamic
products are more expensive than conventional
ones. ‘With our motor products
we have to be competitive [in terms of
price], and also our products will be
competitive in terms of their features and
conditions. We feel that we have to give
our customers the same product that they
enjoy today.’
The next challenge for Principal is to make
its audience aware of SHI. To do this it is
embarking on a community awareness
and outreach programme. It is looking to
get in touch with mosques, imams and
community leaders, as well as organisations
such as the Muslim Council of Britain to
raise awareness of its products.
It is taking a dual approach bring its
products to the market. The first is taking
the direct route. It has a UK-based call
centre with advisers who can speak a
number of languages to deal directly with
customers. It is also using the online
channel where people can get a quote and
purchase insurance via its website. Gelu
thinks this is a particularly important
channel because ‘web-based business
accounts for around 60 per cent of the
insurance business’. However, this will not
be the only route to market. The takaful
company is also looking to sell its products
through other Islamic financial service
providers, such as banks. It is in discussions
with these institutions in order to ‘try to get
some cohesion and synergy with them to
promote our products in conjunction with
their financial products’. Principal is also
looking at other organisations not currently
involved with Shari’ah-compliant finance,
such as supermarkets, to try and get its
products sold this way as well. ‘It is very
important that we have other channels,’ he
concludes.
One thing that Principal has benefited from
in its marathon quest to get to market, is
talking to the other Islamic financial service
providers in the UK to get their experiences
of starting out in this market. ‘Although we
are a different type of organisation, we have
learnt a lot, and experience has shown to
us it’s going to be a slow process,’ explains
Gelu. ‘Like any new business you can’t say
you’re going to start making profits
tomorrow. But in this case, because it’s a
unique market, we have talked to the
Islamic Bank of Britain and others, and
taken their advice.’
By learning from others, Principal knows
it needs to be in for the long-haul to be a
successful business. ‘Currently we are
positioned as an organisation to take
market share in time. We’ve done a lot of
analysis to see how our rates and prices
match up.’ To take that market share it
must provide products that are attractive
across the board. Whilst it is true that
Muslims do tend to buy products in
accordance with their faith, to gain a
significant market share the products must
be universally appealing.
In order to be a success, SHI’s products
must be in line with what the market is
demanding. Gelu knows that he is in for
a challenge, the competition will be fierce
and where Principal has led, others are
bound to follow. But the company does
have first mover advantage in a market that
is clearly ready for its products. Modern
Britain is a cultural melting pot, and any
products that can provide ethical benefits
are sure to be a hit with consumers.
Only time will tell if SHI will be a success.
Currently it has everything going for it;
now it must take advantage of this, and
push on to drive the industry forward. The
UK has a long way to go if it is to achieve
its aim of being a global hub for Islamic
finance. But with its first takaful provider
making it to the market, it is certainly on
the right path.
www.newhorizon-islamicbanking.com IIBI 21