Rationale and Regulatory Basis of Microtakāful Market Development PRESENTED AT: Microtakāful Conference Indonesia Borobudur Hotel, Jakarta | 24 April 2014 Kartina Md Ariffin Member of the Secretariat, Technical and Research

Agenda About the IFSB IFSB’s Road Map for Takāful IFSB Initiatives on Microtakāful

About the IFSB The Islamic Financial Services Board (IFSB) was officially inaugurated on November 2002, and started operations on 10 March 2003 Serves as international standard-setting organisation for Islamic financial services industry that promotes and enhances its soundness and stability by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors To this end, the work of the IFSB complements those of BCBS, IOSCO and IAIS o Develop standards & recommend implementation o Provide guidance on effective supervision and regulation & develop risk management & disclosure criteria o Establish cooperation with international standard-setting bodies & member countries o Enhance and coordinate initiatives to develop instruments & procedures for efficient operations and risk management o Encourage cooperation among member countries o Facilitate capacity-building & development of human capital o Undertake research o Establish database SPECIFICITIES OF ISLAMIC FINANCE BCBS (Banking) IOSCO (Capital Markets) IAIS (Insurance) OBJECTIVES

August 2006, IFSB & IAIS established JWG and published “Issues in Regulation and Supervision of Takāful (Islamic Insurance). Takāful issues were grouped into 4 major themes: oCorporate Governance oFinancial and Prudential Regulation oTransparency, Reporting and Market Conduct oSupervisory Review Process To date, specific to Takāful, the IFSB has issued o IFSB – 8: Guiding Principles on Governance for Takāful (Islamic Reinsurance) Undertakings o IFSB – 11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings o GN – 5: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings o IFSB – 14: Standard on Risk Management for Takāful (Islamic Insurance) Undertakings o New Project: Guiding Principles on Retakāful (Islamic Reinsurance) Undertakings o New Project: Research Paper on Microtakāful (joint initiative between IFSB & IAIS) IFSB’s Road Map for Takāful

IFSB Initiatives on Microtakāful In July 2013, the IFSB was invited to participate in the IAIS Financial Inclusion Subcommittee (FISC) meeting held in Manila, Philippines. It was during this meeting that the IAIS proposed for a second joint-initiative to be conducted with the IFSB, similar to the first Issues Paper in Following this, the IFSB together with the IAIS have come to an understanding to focus on issues prevailing in the Microtakāful sector and its role in enhancing the financial inclusion. The Technical Committee (TC) of the IFSB, in its 32 nd meeting in Basel, Switzerland recommended to the IFSB Council to approve preparation of a research paper in this area. Consequently the Council of the IFSB, in its 24 th meeting in Brunei in March 2014 approved the development of a research paper on Microtakāful to be part of IFSB 2014 Workplan. 1 st Joint Working Group Meeting 8 April 2014 Kuala Lumpur, Malaysia

Regulatory Roles on Microtakāful Characteristics of Microtakāful Inclusivity Grouping for Efficiencies Simple Processes Customer Wariness Limited Data Contribution Collection Delivery Channels Stakeholders of Microtakāful The Poor The Regulators The Shariah Scholars The Government The Existing Participants Definition of Microtakāful Rural? Income Level? Standardized?

Challenges of Microtakāful Consumer Education & Awareness Infrastructure Consumer Protection Information Asymmetry Transaction Costs Transparency and Disclosure Product Coverage Mandates of Joint Working Group Joint IFSB-IAIS Research Paper Elaborate on Issues Joint Working Group Members IFSBIAIS IDBADB World Bank Regulators Highlight Areas of Concerns Review Current Framework Regulatory Roles on Microtakāful

THANK YOU FOR YOUR ATTENTION Kartina Md Ariffin Member of the Secretariat, Technical and Research