Takaful and Poverty Alleviation 39 th AIO Conference Khartoum, Sudan May

Overview of presentation Who are the underserved and unprotected? What is microinsurance? Is microinsurance working? The cooperative/mutual way Linkage with Takaful Opportunities for Microtakaful Who are the underserved and unprotected? What is microinsurance? Is microinsurance working? The cooperative/mutual way Linkage with Takaful Opportunities for Microtakaful

Low insurance penetration in emerging markets Source: Sigma/ Swiss Re, Insurance in emerging markets: growth drivers and profitability, 2011

Low premium per capita in emerging markets The cooperative and mutual sector Microinsurance through cooperatives Issues for regulators Case study: Mutual microinsurance in practice The cooperative and mutual sector Microinsurance through cooperatives Issues for regulators Case study: Mutual microinsurance in practice Source: Sigma/ Swiss Re, Insurance in emerging markets: growth drivers and profitability, 2011

The underserved and unprotected Source: Craig Churchill

Lack of access in Africa Approximately 1 billion people live in Africa, of which an estimated 60% are classified as poor A microinsurance market of approximately 700 million people Only 2.6 % of the target population currently uses microinsurance products Microinsurance market in Africa Source: The Landscape of Microinsurance in Africa, 2012

Insurance and Poverty Alleviation “The poorest citizens of the poorest countries are typically exposed to the greatest risks. Earthquakes, floods, drought, disease, crime all tend to hit the poor hardest. Vulnerability and poverty go hand in hand, but microinsurance holds out the promise of breaking a part of the cycle that ties them together.” Jonathan Morduch 2006

“Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved” Protecting the Poor: a microinsurance compendium (Volume II) 2012 “The term “microinsurance” typically refers to adapting insurance services mainly to clients with low income and no access to mainstream insurance services.” Microinsurance Network “Microinsurance is insurance that is accessed by low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices (which should include the Insurance Core Principles) “ Issues in Regulation & Supervision of Microinsurance, IAIS papers (2007) “Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved” Protecting the Poor: a microinsurance compendium (Volume II) 2012 “The term “microinsurance” typically refers to adapting insurance services mainly to clients with low income and no access to mainstream insurance services.” Microinsurance Network “Microinsurance is insurance that is accessed by low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices (which should include the Insurance Core Principles) “ Issues in Regulation & Supervision of Microinsurance, IAIS papers (2007) What is microinsurance?

Is Microinsurance working? 500 million currently covered Growth driven by commercial insurance sector Support from donors and governments Focus on numbers Recognition that there has to be a client-focused perspective to microinsurance 500 million currently covered Growth driven by commercial insurance sector Support from donors and governments Focus on numbers Recognition that there has to be a client-focused perspective to microinsurance

‘The success of microinsurance should not be assessed by measuring uptake, but by measuring actual impact’ Stefan Dercon, DFID ‘To succeed in this market, it is essential that insurers change their attitude and adopt an open mind to the particular needs and characteristics of the market.’ Accenture ‘Microinsurance providers need to understand client needs and preferences in order to improve their products and processes, and hence improve client value’ Microinsurance Innovation Facility ‘Mutuals and cooperatives should be better recognised as a distinct and important form of organisation for insurance provision.’ Arup Chatterjee, ADB ‘The success of microinsurance should not be assessed by measuring uptake, but by measuring actual impact’ Stefan Dercon, DFID ‘To succeed in this market, it is essential that insurers change their attitude and adopt an open mind to the particular needs and characteristics of the market.’ Accenture ‘Microinsurance providers need to understand client needs and preferences in order to improve their products and processes, and hence improve client value’ Microinsurance Innovation Facility ‘Mutuals and cooperatives should be better recognised as a distinct and important form of organisation for insurance provision.’ Arup Chatterjee, ADB

Can cooperative/mutual insurance show the way?

Cooperative definition “A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise” Source: International Cooperative Alliance (ICA) “A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise” Source: International Cooperative Alliance (ICA)

Cooperative/mutual values Self-help, self-responsibility Democracy, equality, equity Solidarity Honesty, openness Social responsibility, caring for others Self-help, self-responsibility Democracy, equality, equity Solidarity Honesty, openness Social responsibility, caring for others Source: International Cooperative Alliance (ICA)

Why a cooperative/mutual?

Cooperatives and Mutuals: the hidden giants of the world economy The largest 300 cooperatives and mutuals have a turnover of 1 trillion USD The largest 300 cooperatives and mutuals have a turnover of 1 trillion USD

Potential for cooperatives to provide microinsurance History of organising the poor Operated in the interest of members by the members Trust Ownership and loyalty Peer pressure Surplus reinvested or redistributed History of organising the poor Operated in the interest of members by the members Trust Ownership and loyalty Peer pressure Surplus reinvested or redistributed

Potential for real impact Values Appropriate mechanism Insurance plus approach DNA Can evolve into mainstream players Values Appropriate mechanism Insurance plus approach DNA Can evolve into mainstream players

Uplift Mutuals, India Growing from the Grassroots

Takaful Marine Insurance – Early second century (9 A.D.) – mutual fund to cover robberies and mishaps 1979 first Takaful operator established 1984 Mudharabah model introduced 1990s Waqala model established Multinationals enter the market Large reinsurers commence Retakaful Marine Insurance – Early second century (9 A.D.) – mutual fund to cover robberies and mishaps 1979 first Takaful operator established 1984 Mudharabah model introduced 1990s Waqala model established Multinationals enter the market Large reinsurers commence Retakaful

Current contribution concentrations Source: Ernst & Young's World Takaful Report 2011 Global Takaful Operators (2008) and Contributions (2009)

Principles of Takaful Solidarity and joint guarantee Self reliance and self sustaining for community well being Assist those that need assistance Community pooling system Shari’ah approved investments and products “Bear ye one another’s burden” Solidarity and joint guarantee Self reliance and self sustaining for community well being Assist those that need assistance Community pooling system Shari’ah approved investments and products “Bear ye one another’s burden”

Takaful and Mutuality “Principles of mutuality should permeate every aspect of takaful, and be practised Within Takaful corporations.” Syed Moheeb (President and CEO, Takaful Ikhlas) “Takaful is a cooperative model, it is a mutual model based on solidarity, designed for community welfare, equity, justice and fairness, both cooperatives and Takaful share that.” Hassan Bashir (CEO, TIA) “The best form of Takaful would ideally be an existing mutual or cooperative insurer which invested its premiums compliant with Islamic principles.” Dawood Taylor “Takaful will never converge into the conventional model. If it is going anywhere other than the theoretical takaful model, it will be (towards) the mutuals" Sheikh Dr Mohamed A Elgari “Principles of mutuality should permeate every aspect of takaful, and be practised Within Takaful corporations.” Syed Moheeb (President and CEO, Takaful Ikhlas) “Takaful is a cooperative model, it is a mutual model based on solidarity, designed for community welfare, equity, justice and fairness, both cooperatives and Takaful share that.” Hassan Bashir (CEO, TIA) “The best form of Takaful would ideally be an existing mutual or cooperative insurer which invested its premiums compliant with Islamic principles.” Dawood Taylor “Takaful will never converge into the conventional model. If it is going anywhere other than the theoretical takaful model, it will be (towards) the mutuals" Sheikh Dr Mohamed A Elgari

Takaful and Mutuality “A cooperative and mutual scheme providing Shari’ah approved products and investments is permissible under Islamic law”

Takaful Network Seminar 2011 Returning to our Roots: Realizing our Potential

COLOMBO DECLARATION 23rd November 2011, Lakeside Cinnamon Hotel, Colombo, Sri Lanka Following the first FOIITC,GTG, ICMIF Takaful Network Seminar hosted by Amana Takaful the three associations have agreed to join efforts and resources towards the promotion of Takaful (Islamic Insurance) and Mutuality (cooperative and mutual insurance) worldwide. Further, the Joint committee have highlighted the following objectives: To improve access to Takaful in emerging countries and underserved markets. To facilitate cooperation and collaboration between Takaful/Retakaful operators and associations from across the globe. To raise awareness and understanding of Takaful values and principles worldwide. To effectively represent the Takaful movement to all stakeholders and supervisory authorities. To strengthen and reinforce the mutual values at the heart of Takaful. To improve access to Takaful in emerging countries and underserved markets. To facilitate cooperation and collaboration between Takaful/Retakaful operators and associations from across the globe. To raise awareness and understanding of Takaful values and principles worldwide. To effectively represent the Takaful movement to all stakeholders and supervisory authorities. To strengthen and reinforce the mutual values at the heart of Takaful.

The lack of Insurance Penetration in Muslim Countries Source: Human Development Report 2011 & Sigma (2011) World Insurance in 2010

Insurance penetration rates Source: Ernst & Young's World Takaful Report 2011

Potential Takaful Markets Source: The World Takaful Report 2012, Ernst & Young

Standard of living in Muslim majority countries Source: Human Development Report 2011 & Sigma (2011) World Insurance in 2010

Muslim population in the world Source:

Microtakaful – the need Large sectors of poverty in many Muslim countries Almost half of world’s lowest developed countries have a majority Muslim population Increasing inequality in Middle East and Gulf countries and between Muslim countries Low penetration of insurance Religion plays a fundamental role in the lives of the poor In line with the teachings of Islam and principles of Takaful Large sectors of poverty in many Muslim countries Almost half of world’s lowest developed countries have a majority Muslim population Increasing inequality in Middle East and Gulf countries and between Muslim countries Low penetration of insurance Religion plays a fundamental role in the lives of the poor In line with the teachings of Islam and principles of Takaful

Microtakaful By utilizing the mutual principles and philosophy at the heart of Takaful whilst addressing the religious concerns of the community, microtakaful can be an effective and efficient vehicle to provide protection for the poor and enable achievement of sustainable poverty alleviation

Microtakaful – the way forward Establish informal microtakaful schemes Linkage with pro-poor organisations Encourage government and donor agencies Collaboration between established Takaful operators and the microinsurance community Establish informal microtakaful schemes Linkage with pro-poor organisations Encourage government and donor agencies Collaboration between established Takaful operators and the microinsurance community

Microtakaful – in practice Amana Takaful (Sri Lanka) Working with Muslim Aid to provide affordable protection to the low income population whilst catering for their religious requirements Amana Takaful (Sri Lanka) Working with Muslim Aid to provide affordable protection to the low income population whilst catering for their religious requirements

A Global reach for local strength Thank you Thank you