Potential of Takaful in Pakistan

SCOPE OF TAKAFUL IN PAKISTAN
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The Scope of Takaful Insurance in Pakistani Market

__________________

A thesis Presented to
The faculty of
Management Sciences
Bahria Institute of Management & Computer Sciences, Karachi
In Partial Fulfillment
Of the Requirements for the
Degree Master in Business Administration
____________________

By

ABDUL WAHAB
Reg # 12927
Dec, 2013


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BAHRIA UNIVERSITY
INSTITUTE OF MANAGEMENT AND COMPUTER SCIENCES, KARACHI
RECOMMENDATION FOR ORAL EXAMINATION

This Project/thesis hereto attached, entitled, The Scope of Takaful Insurance in Pakistani Market,
prepared and submitted by Abdul Wahab, in partial fulfillment of the requirements for the degree
MASTER IN BUSINESS ADMINSTRATION, is hereby recommended for appropriate action.

Date: _______ _________________
Advisor

Name: Muhammad Faisal (Muhammad.faisal@bimcs.edu.pk)


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PROJECT/ THESIS COMMITTEE
In partial fulfillment of the requirements for the degree of MASTER IN BUSINESS ADMINSTRATION, this
thesis entitled, The Scope of Takaful Insurance in Pakistani Market is hereby recommended for Oral
Examination.

_________________________
Chairman
Name: __________________

_____________________ __________________ ____________________
Member Member Member

Name: _____________ Name: _____________ Name: ______________
__________________
Date


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BAHRIA UNIVERSITY

Project/Thesis: Potential The Scope of Takaful Insurance in Pakistani Market

Date: ____________
Time: ____________

PANEL OF ORAL EXAMINERS ACTION
_________________________ ____________
Chairman
Name: _________________
____________________________ ____________
Member
Name: _________________
_____________________________ ____________
Member
Name: _______________
____________________________
Advisor
Name: ______________


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BAHRIA UNIVERSITY
APPROVAL SHEET
This Project/ thesis entitled, Potential The Scope of Takaful Insurance in Pakistani Market, prepared
and submitted by Abdul Wahab, in partial fulfillment of the requirements for the degree of MASTER IN
BUSINESS ADMINISTRATION has been examined and recommended for acceptance and approval.
THESIS COMMITTEE
____________________________
Chairman
Name: _________________
__________________
_______________ _____________
Name: ____________ Name: ____________ Name: ____________
PANEL OF EXAMINERS

Approved by the Committee on Oral Examination with a Grade of __________
__________________________
Chairman
Name: _______________
__________________
__________________ ______________
Name: _____________ Name: _____________ Name: ____________

__________________________________
Head of the Department
Management Sciences

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DEDICATION

I would like to dedicate this thesis to my parents who gave me courage and supported me in this
task. I would also like to dedicate this to my teachers who support me in Bahria University in my
whole tenure.

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ACKNOWLEDGMENT

I am thankful to Allah who gave help, knowledge, courage, support and strength to complete this
task.
I am also thankful to my co-coordinator Sir Muhammad Faisal and my Examiner Sir Akbar saeed,
who supported me and helped me with their advices and suggestion and their guidelines with
which I would not be able to complete this task.
I would also appreciate for Pak Qatar Takaful Company Ltd to entertain my questions and to solve
my queries. Those who help me gather data for this research I am thankful to them too.
Last but not least: I would thank my parents for their support and for allowing me to have an
opportunity to be a part of a prestigious institute of Pakistan; Bahria University.

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ABSTRACT:

This research is based upon how Takaful industry of Pakistan is growing and what is potential and
future of this market. In this research paper the scope of takaful insurance is highlighted making
Pak Qatar Takaful Company an example. Pak Qatar takaful company is chosen for the research
paper because it is pioneer of takaful insurance in Pakistan as well as, it has the maximum resource
and research and experience in this area. The study is important because it identifies that why and
how takaful insurance is better than conventional insurance and on the other hand, it also
determines the future of takaful in Pakistani market. The research is based on data gathered though
a questionnaire filled by 80 individuals. All of them are user of Insurance either congenital or
Islamic. Conclusions and recommandations are totally based on data analysis of questionnaire.


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INTRODUCTION - 01


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INTRODUCTION
The process of globalization, every year makes people with different cultural values and
conceptions of the world more closely interact with each other. In order to find a common
language cannot do without mutual respect based on a thorough knowledge of the globe
neighboring cultures, traditions, religious and historical reasons specific to a particular nation or
people.
Today we'll discuss one of the most numerous of the world community, united by a common
religion of Islam. According to The World Fact book 2004", Muslims make up one fifth of the
world population. The main set of rules and regulations, which must adhere to a devout Muslim,
sharia, is based on the Quran and the Sunnah, the main books of Islam. Sharia requires not only
complying with the numerous religious traditions and rituals, guided by certain principles in
daily life, but also imposes certain requirements for finance and business. And insurance is an
important component of the economy, is no exception. Traditional insurance in the form in
which it is taken in the western world, is not Sharia compliant, and therefore - forbidden.
CONCEPT OF TAKAFUL
Takaful (the mutual provision of guarantees to each other) is the main Islamic insurance product.
Its primary difference from traditional commercial insurance is the absence of elements of gharar
(uncertainty) and riba (usury). Element of gharar in the contract of insurance exceeds the
permitted level of Sharia, because at least for the insured, there is uncertainty as to the terms of
the contract (time, subject, etc.). In addition, the insurer is in the dark as to whether the funds

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paid to them as fees, to be used for permitted or forbidden by Islamic law transactions. The
element of riba may occur in the payment of interest on certain types of insurance, and in the
event that the amount collected as fees, participate in activities related to the charging or
payment of interest, as well as other operations not permitted by Sharia.
COMMERCIAL INSURANCE & ITS BASIS
In the commercial insurance include such elements as riba (usury), maysir (gambling) and gharar
(uncertainty). These elements are unacceptable from the point of view of Sharia law, though
Muslim jurists still cannot come to a consensus on the degree of the presence of these factors in
the traditional ways of the insured and the insurer. However, the laws of the business world and
impose its own requirements for the protection and preservation of financial and property
interests had developed an alternative form of insurance, known as "takaful" which in Arabic
means giving each other mutual guarantees.
Basis of takaful insurance
Takaful or Islamic insurance, based on the particular mechanism of distribution of profits and
losses, consistent with the principles of Sharia, and therefore satisfies the needs of the Muslim
world. The main objective of Islamic insurance - not just protecting their interests against
unforeseen circumstances by the joint participation of losses, but also making a profit. Because
of this, takaful companies can bring more profits than the traditional (Western-style) insurance
company. This goal is achieved by means of the division of responsibility, based on the model of
"Mudaraba", which is a recognized institute of Islamic economics.


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DIFFERING THE CONCEPT OF TAKAFUL & CONVENTIONAL INSURANCE
Risks are characteristic of human life, and they cannot be completely eliminated. Islam is not
prohibited risk or uncertainty itself, and the sale or exchange of risk or transfer risk to another
person with the contracts of purchase / sale. Takaful - meets the requirements of Sharia
agreement on the mutual sharing of risks, which includes participants and operators.
Unlike the traditional takaful insurance is risk assessment and management, as well as in the
management of takaful fund. In addition, there are differences in the relationship between the
operator (in the traditional insurance - the insurer) and the participants (policyholders).
If there is a traditional insurance risk transfer mechanism by which a person or organization can
exchange for a fee, to the certainty of its uncertainty, the takaful insurance, such a mechanism is
prohibited. Exchange losses on certain unspecified (insurance premium), as implemented in the
traditional insurance falls under the concept of gharar and is not allowed in Islam.
As an alternative to the principle of risk-sharing between the parties for the purpose of mutual
aid. Risk is shared between the parties in accordance with the scheme of mutual guarantee or
takaful scheme. Takaful operator must only organize the scheme. One of the responsibilities of
the operator - to ensure that each participant pays a fair contribution and that in the event of loss
participant will receive appropriate compensation.
Managing Risk in Takaful
In assessing and managing risk (underwriting) are not allowed in the takaful gharar (uncertainty
or speculation) and maysir (gambling). In the investment and management of the fund is not
allowed riba (usury). These three concepts (gharar, maysir and riba) should be completely
excluded from the takaful operations.

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Although Islam and imposes a number of restrictions on business, but he also preaches and
economic activity. The logic is simple: inattention to the economy can be harmful to Islam,
because it will be weakened financial base.
In practice, this means specific prohibitions, and one of the top cover gharar - the transaction, the
terms of which contain unnecessary or excessive risk-taking, for example, where the outcome
depends on the occurrence of a specified event. Because of him, first of all, require a substantial
revision of the classic insurance schemes. Another known limitation prohibits riba - usury, that
is, the percentage of loans. Simply speaking, it is impossible for the money to buy money;
fundraising should be based on a division of profits and risks. Therefore, most Islamic loans
become a joint venture between the bank and the borrower, in the classical interpretation of
reminding financial direct investment. Islamic insurance as a form of business has tremendous
potential and has a great potential of growth and development in the creation of new, unique
products and innovative technologies to promote them.
In order to avoid gharar (uncertainty), there should be complete clarity or disclosure of any
takaful contract. Full disclosure is applicable to both sides, as well as to the object and conditions
of the contract (the amount of coverage, etc.). It is not allowed to enter into Takaful contract if
there is at least one unknown element in the object of the contract and / or unknown risk under
the contract.
Since this is difficult to achieve an ideal situation, the takaful contract should be drafted so as to
avoid any exchange of gharar (uncertainty) between the parties to the contract.

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Maysir (gambling) is redundant side gharar. The participants (policyholders) may have an
insurable interest in respect of the contract object, but if the distribution of risk (in Takaful)
contains any speculative element, such an agreement is prohibited under the takaful.
Forbidden of Riba in Takaful
Riba (usury) is completely forbidden by Sharia law and, as a consequence, within the takaful. To
avoid riba fee for the participants in the distribution of risk is not considered a premium in terms
of traditional insurance. Under the takaful similar fee as a contribution or payment
(Mushahamah) in the form of donations to the condition of compensation (Tabarru). Moreover,
the fund generated from such contributions or donations to parties should be managed and
invested in accordance with the laws of Sharia. Participants or policyholders in the traditional
sense transmit their contributions to the operator or the insurer as a gift for their effective use
with the proviso that when the insured event the money will be refunded. Part of the
contributions received in the savings fund from investing which participants have the opportunity
to receive a regular income in the amount stipulated in the contract of the share which is usually
50 or 60%. With this investment should be made only in the shares or assets of companies that
do not lead contrary to the principles of Sharia activities indicated above. Typically, investments
are made in stocks in the Dow Jones Islamic Market Index.
BACKGROUND OF TAKAFUL INSURANCE
In 1985, the Supreme Council of the Muslim jurists recognized system of takaful alternative
form of insurance that meets all the rules and requirements of Sharia. The first attempts to
introduce Islamic insurance was implemented in 1970 in Egypt, Sudan and the United Arab
Emirates, in the same year, the largest financial-industrial group in Saudi Arabia, "Dalla Al

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Baraka Group (Dallah Al Baraka Group - DAG) established the first insurance company in
Manama.
Currently, Islamic insurance companies operating in Dubai (Islamic Arab Insurance Company
since 1979), Bahrain (Islamic Insurance & Reinsurance Co), Tunisia (BEST Reinsurance), as
well as Islamic Mutual Insurance Company, established in 1994, Jordan Islamic Bank and
subdivision Al Baraka Investment & Development (ABID). In 1987, it established two insurance
and investment company ABID to provide services in accordance with the provisions of Sharia
and the promotion of investment activities of individuals, banks and corporations (Al Tawfeek
Company for Investment Funds Ltd and Al Amin Company for Securities and Investment
Funds).
Saudi Arabia is considered as pioneer in takaful industry whereas Malaysia is considered as the
successor. It is in this country published the first (and only) Takaful Act, which defined its legal
basis, taking into account the European and Islamic law. With the development of the Islamic
financial services market develop this market and regulatory mechanisms. In 1990, Algeria has
established a Commission on Accounting and Auditing of Islamic Financial Institutions
(AAOIFI), responsible for the production of accounting, auditing and other standards for Islamic
financial institutions. Until recently, the standard of its subordinate mainly Islamic banks, but in
2005 the Bahraini financial regulator (Bahrain Monetary Agency, BMA) plans to introduce them
in the Takaful insurance and reinsurance (retakaful). In December 2002 in Kuala Lumpur
commission was established by the Islamic Financial Services (IFSB) to create a global system
of regulation of Islamic financial market. The Commission was established by central banks of
Bahrain, Saudi Arabia, Indonesia, Malaysia, Pakistan, Kuwait, Iran, Sudan and Qatar.

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Study by Takaful Insurance
Takaful is a brilliant example of a business based on supply and demand-driven customers.
Study by the International Monetary Fund (IMF) shows that Islamic economics and Islamic
banking, in particular, contribute to the equitable distribution of resources, less exposed to the
risks of illiquidity and insolvency. The growth rate of Islamic insurance in some countries is up
to 40% per year. Takaful companies are developing dynamically; offering services not only
Muslims, but also the rest of the population.
Major financial players and Takaful Insurance
Such a large insurance field causes the interest of major financial players such as Lloyd's of
London and the British bank HSBC, the introduction into the sphere of Islamic insurance and the
provision of insurance services to Muslims living in the UK (about 2 million) and the EU
(around 15 million people) . Takaful - still a young institution that is gaining popularity in the
world. While it accounts for less than 0.1% of the total global annual insurance premium.
The scope of takaful cannot be overlooked in Pakistani market, as Pakistan is a Muslim country
where people believe in the principles laid down by Holy Quran and Sunnah and according to
Quran Gharar, Maiser and Riba all these terminologies are haram in Islam. Therefore, for a
Muslim it seems to be a sin when following the conventional system of Insurance. This belief
and concept of Islam led the growth and development of Takaful insurance fly high in the
financial markets. Now international companies are also following the concept of takaful
insurance in spite of conventional insurance. The takaful insurance has been introduced in
Pakistani market in 2005. There were only two players in the market at that time but with the

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passage of time and witnessing the growth prospects most of the private and commercial banks
starts their own takaful insurance products. According to Mr. Jamil-ur-Rehman (SBP, PSD) the
scope of takaful insurance would one day eat up the share of conventional insurance because it is
free from gambling and interest. According a survey conducted by Gallop Pakistan, there are
43% people who are in favor of takaful insurance while there are 21% who have doubts and
didnt agree that there is a difference between takaful and conventional insurance.
Although Pakistan is regarded as one of the most densely populated countries of the world,
however the share of takaful is stick to only 3 % annually the share is on increasing trend but not
with the pace as it was expected too. According Omar Mustafa Ansari, the partner of
EnYSidaatHyder, the most important thing is that it is the time we need to maintain strong base
and relationships among the people to clarify their misconceptions. Most of the people didnt
even know completely about the methodology while others dont even try to. In the near 2017
we would be expecting some great numbers in the industry expansion. Now London and markets
of UK are also showing their interest in Islamic insurance sector however their advent in the
market would be fruitful enough to reap the benefits.
PROBLEM STSTEMENT
The Scope of Takaful Insurance In Pakistani Market
SCOPE OF THE STUDY
In this research paper the scope of takaful insurance can be highlighted making Pak Qatar
Takaful Company an example. This example would lead us to finding the change and growth of
takaful industry in Pakistan. Pak Qatar takaful company is chosen for the research paper because

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it is pioneer of takaful insurance in Pakistan as well as, it has the maximum resource and
research and experience in this area.
SIGNIFICANCE OF THE STUDY
The study is important because it identifies that why and how takaful insurance is better than
conventional insurance and on the other hand, it also determines the future of takaful in Pakistani
market.


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RESEARCH METHODOLOGY 02


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RESEARCH DESIGN
The research design for this research study THE SCOPE OF TAKAFUL
INPAKISTAN is Exploratory. In this research study I would be exploring some important
facts and figures through a detailed questionnaire study in order to determine the views of people
which lead to the scope of takaful industry in Pakistan.
RESEARCH OBJECTIVES
The main objective of this research is to highlight and demonstrate the scope of takaful
insurance and its role in the Pakistani industry. The main objective of this research is to put light
to the concept of Takaful and its role in the banking industry of Pakistan.
The study has following research questions to examine through analysis. The questions are:-
What is takaful insurance and why it is gaining growth in the whole world?
How Takaful Insurance can be differing through Conventional setting?
Why people go for takaful insurance?
What are the main attributes and competitive advantages on conventional setup
SOURCES OF DATA
The data for this research has been gathered and compiled from a number of sources.
These sources are from different authors and researchers and also include interviews and
questionnaire.
A. Primary Source
B. Secondary Source

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PRIMARY SOURCES
Interviews would be taken from the people of Pak Qatar takaful who define the takaful industry
and its scope in Pakistan in real terms. On the other hand, a questionnaire would be filled from
the respondents in order to know their perspective about the takaful insurance and their response
in Pakistan.
SECONDARY SOURCES
SydatHyder Report
SBP Pakistan Journal
Emerald
RESEARCH INSTRUMENTS
I. Questionnaire analysis
QUALITATIVE QUANTITATIVE RESEARCH
The research is both qualitative and quantitative in nature.
UNIT OF ANALYSIS
a) Pak Qatar Takaful
b) Takaful Insurance
EXTENT OF THE RESEARCHER INTERFERENCE
The researcher interference for this research is minimal.

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TIME HORIZON
The time horizon for this research is Cross-Sectional. The study is cross sectional so as to save
the cost and time as we have only 6 months to complete the thesis.


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REVIEWING LITERATURE CRITICALLY


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According to the report published by the SECP Pakistan in 2007, the analysts are of the view that
the scope of Islamic insurance is becoming brighter as the number of companies are still
increasing there are now 49 Islamic insurance companies in Pakistan.
According to the research conducted by the Muhammad Ayub, the takaful insurance is under
some misconceptions. The people are of the view that there is only one way y to strengthen the
Pakistani economy that the government should favor the Islamic products as they do it for
attracting international investments. However from the research it has also comes to the
knowledge that the Government believes on true and fair competition in the insurance therefore
giving leverage and advantages would de-motivate the other players. In his research Ayub
suggest some recommendations that the Islamic insurance companies should have to design such
policies and marketing their product in such a way that they would lead from the front and it is
not ban.
According to ZulfiqarHasan in 2011, Takaful is the most preferred insurance is the fastest
growing business models throughout the world the major share is still with the Saudi and Middle
Eastern players however it also strengthens its roots. According to Zulfiqar the Islamic insurance
is a balanced approach based on the Islamic principles acting upon which is a binding for a
Muslim.
According to Abdul Wahab in 2002, the takaful insurance is the most charming and up beating
sector of Islamic economy. In Pakistan the scope of takaful of increasing as awareness and
knowledge about religion is increasing. In his research along with the SydatHyder associates
Wahab is of the view that, there are a number of obstacles which the Islamic insurance had to
face but according to the international Reports and the industry professional the Islamic

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insurance sector in Pakistan is increasing by 16 to 20% annually. In his research Abdul wahab
has also given some recommendations to the Companies so that they can make it better.
According Omar Mustafa Ansari, the partner of EnYSidaatHyder, the most important thing is
that it is the time we need to maintain strong base and relationships among the people to clarify
their misconceptions. Most of the people didnt even know completely about the methodology
while others dont even try to. In the near 2017 we would be expecting some great numbers in
the industry expansion. Now London and markets of UK are also showing their interest in
Islamic insurance sector however their advent in the market would be fruitful enough to reap the
benefits.


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INTEGRATION OF DATA


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DATA ANALYSIS
The integration and analysis of data for this research is through collecting the views of
respondents i.e. from the questionnaire analysis. The questionnaire analysis helps us to examine
and determine the views of the selected people.
The respondents are randomly selected for this research but they are selected keeping in view
that they should be clients of even the conventional insurance or they are from the Islamic
insurance. The main aim is to analyze the scope of takaful insurance in Pakistan and this can
only be gauged through their reviews.


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Q. What is your Age Group?

21 30 years
31 40 years
41 50 years
51 60 years\

From the above graph it becomes clear that we have selected 20 respondents from different ages.
That is 21 30 age people are of 20, 31 40 are of 20, 41 50 are of 20, 51 60 are of 20. This
means that from all the ages 20 respondents are selected.

0
5
10
15
20
25
21 - 30 31 - 40 41 - 50 50 - 60

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What is your Gender?

Male
Female

From the above graph it becomes clear that, most of the respondents for this research are Males
as they better know about the matters like insurance while on the other hand, the females
selected for this research are 29 and those 29 female respondents are working women.

0
10
20
30
40
50
60
Male Female

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Have you ever purchase any kind of insurance?
Yes
No

From the above graph it becomes crystal clear that the respondents selected for this research
have purchase some kind of insurance in any manner that is, health insurance, Car Insurance,
Family insurance etc. for this research only those respondents are selected who have purchase
any kind of insurance in any manner. The reason of selecting these respondents is to have a
better overview based on all the respondents.

0
10
20
30
40
50
60
70
80
90
Yes No

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Are you a customer of Conventional OR Islamic Insurance (Takaful)?
Conventional Or General Insurance
Takaful / Islamic Insurance.

From the above graph it becomes crystal clear that, the respondents are the customers of both
conventional and Islamic insurance i.e. out of 80 respondents 30 are those who are customers of
conventional insurance like (Car Insurance, Home Insurance, Business Insurance) while on the
other hand, the remaining 50 are the customers of Islamic insurance like (Islamic Ijarah, Family
Takaful etc). This means that most of the respondents are the customers of Islamic insurance this
is because the hype of Islamic banking and Islamic insurance.

0
10
20
30
40
50
60
Conventional Takaful

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What is the reason why you purchase Islamic Insurance (Takaful)?
It is Islamic
Religious reasons
Personal Satisfaction
Others Influence

When a question regarding the reason for the usage of Islamic insurance is asked from the
respondents they have of the view that, out of 80 respondents 22 are of the view that they have
selected the takaful model because it is Islamic, 16 are of the view that they are using it because
of religious reasons while 30 respondents when asked said that, it is because they are personally
satisfied with the Islamic insurance on the other hand, 15 are of the view that, they have chosen
takaful because others (Family and friends) ask them to choose it.
0
5
10
15
20
25
30
35
It is Islamic Religious Reasons Personal Satisfaction Other Influences

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Are you a prior customer of Conventional Insurance?
Yes
No

When respondents are asked about their prior experience with the conventional type of insurance
they are of the view that, out of 80 respondents 51 are of the view that they were priory the
customers of conventional insurance while on the other hand, 29 are of the view they didnt have
prior experience of Insurance. This means that, most of the customer has prior experience of
insurance and they can better differentiate in the service.

0
10
20
30
40
50
60
Yes No

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Q. Did you find any Difference in Islamic and Conventional Insurance?
Yes, they are Different
No, they are Same

When respondents are asked about their views on the question that what they feel about Islamic
and conventional insurance is there any difference. Out of 80 respondents 52 are of the view that
yes, both of them are different with distinctive ideas and separate origins. However, there are 28
out of those 80 who are of the view that they are both the same without any significant difference
is to put a tag of being Islamic and earn the same interest in the name of Rent. This concludes
that most of the respondents are of the view that, Islamic concept of insurance is different from
the conventional insurance.

0
10
20
30
40
50
60
Yes, They Are Different No, They are Same

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Q. What do you think in Pakistan the companies are implementing the proper model of Takaful
or not?
SCALE
1 2 3 4 5
Strongly
Disagree
Disagree Neither/
Neutral
Agree Strongly
Agree
1
Properly Implementing the model 11 15 10 16 27
2
Somewhat Implementing

From the above scale table it becomes clear that how respondents and customers of insurance
companies feels and views about the implementation of the basic model upon which the Islamic
insurance is based. Most of the respondents are of the view that the insurance companies are
implementing the full fledge model of takaful. While some of them i.e. 15 shows disagreement
and 11 are Strongly Disagree. On the other hand, it comes also into consideration that some of
the respondents didnt have proper understanding of the model.


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Q. Rate the following?
SCALE
1 2 3 4 5
Strongly
Disagree
Disagree Neither/
Neutral
Agree Strongly
Agree
1 Takaful is free from element of gharar
(uncertainty), riba (interest) and Maysir
(gambling)
7 4 9 15 35
2 The refusal of uncertainty, gambling and
usury elements differentiate Takaful from the
conventional insurance
4 9 2 15 40


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Q. In your opinion what is the future of Takaful insurance in Pakistan?
It is bright
It is not bright

From the above graph it becomes clear that the future of Islamic insurance in Pakistan is
quite high. However there are some facts which are related and supportive with the argument.
The future of Takaful would be high in case of proper awareness should be given to the
customer. Currently the customers are confused they are going for takaful insurance because it is
Islamic and they have to follow it. However they are not following the Islamic insurance
according to their own will and choice.

0
10
20
30
40
50
60
70
80
It is Bright It is not Bright

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Q. Is government of Pakistan Supporting or giving some benefits or advantage on Islamic
insurance?
Yes
No

When respondents are asked that if the government of Pakistan is giving any kind of
favor or relaxation for choosing the Islamic insurance, the respondents are of the view that no the
government is not giving any kind of advantage. Out of 80 responds only 12 are of the view that
yes the government is giving them some advantage while on the other hand, 62 out of 80
respondents are of the view that the government of Pakistan is not giving any kind of advantage
and favor to them even in taxes.

0
10
20
30
40
50
60
70
80
Yes No

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Q Did you know what kind of model the Islamic insurance companies are following?
Yes
No

From the above graph it becomes clear that When respondents are asked that if they know about
what business model the Takaful companies are following then out of 80 respondents 69 were of
the view that they dint have any idea and the company didnt even mention them this. On the
other hand, only 11 are of the view that they know which model the company is following for
this business. This means that most of the people who are even clients have any kind of
knowledge about the model

0
10
20
30
40
50
60
70
80
Yes No

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Q. What is the main point which a takaful company needs to enhance the scope of Islamic
insurance?
Awareness Sessions
Leverages and discount Offers
Market the Islamic Factor
Contract Directly with Banks

When respondents are asked that how the takaful insurance would tend to grow in the Pakistani
environment. They were of the view that the scope of takaful insurance is quite higher in
Pakistani market. The market capitalization is also big and these companies need to adopt certain
measures to lead the market. Out of 80 respondents, 27 are of the view that through awareness
sessions that can be developed because people are not aware of the facts about the Islamic
insurance however 20 are of the view that, they should market the Islamic factor in it
0
5
10
15
20
25
30
Awareness Sessions Leverages Market Islamic Factor Contract Directly With
Banks

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Q. what is the major product which is frequently used by you?
Marine Insurance
Motor vehicle Insurance
Home Insurance
Health Insurance
Business Insurance

When Respondents are asked about what kind of insurance product they would use frequently
they were of the view that, 80% of the people use Auto Insurance and Business Insurance
products. While for the business purpose most of them are insured as marine insurance. This
concludes that in Pakistan two major products are used i.e. Business insurance and Auto
Insurance. From the respondents reviews it comes to knowledge that, people use these insurance
because of burglary and dacoits.
0
5
10
15
20
25
Marine Auto Home Helath Home Business

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Q. Is Takaful insurance providing all these products as conventional is providing them?
Yes
No

When respondents are asked about the takaful insurance that if they are providing these products
or not. Out of 80 respondents 53 are of the view that yes the takaful insurance is providing all the
products which the commercial insurance is providing while on the other hand, 27 are of the
view that takaful is not providing all the insurance because of some restrictions and because they
are also new in the market. The people who are saying that takaful is not providing the insurance
are of the view that it takes time for takaful insurance to change the belief of a common man
because most of the people think that they are the same.

0
10
20
30
40
50
60
Yes No

Page 43

INTERNATIONAL TAKAFUL INDUSTRY AND ITS INCREASING SCOPE
From the current estimates it has been come to the knowledge that the current takaful
industry reaches up to US$11b in 2012 (from US$9.4b in 2011). However the contribution in
these increasing trends includes Saudi Arabia with the highest 51% share. However in some
parts of the world the scope of takaful is connected with the awareness among people and the
growth rate remains in between 13% to 16% annually. The potential of growth in these countries
are higher but some strategic kind of activities needs to be done on priority basis so as to boost
up the ratio.

Figure 1 Country Wise Growth Chart

Page 44

The Main Business Centers of Takaful INSURANCE
Their business centers are basically the countries in which we are analyzing the growing trend of
takaful insurance. One of the main reason for faster growth in these countries is that they have
proper awareness sessions or mostly they are densely populated Muslim world with Strong
Governments.

The above picture shows the growing trend of takaful in different parts of the world. Saudi
Arabia being the center of Islam and practices is on the highest trend. The GCC countries include
North African countries.


Page 45

FINANCIAL PERFORMANCE OF TAKAFUL COMPANIES IN PAKISTAN

2010 2011 2012
CLAIMS RATIO 63 50 48
CUSTOMER BASE 14 27 49
EXPENSE RATIO 38 23 21
ROE 1.2 5 14

Figure 2: Financial performance of takaful companies 2010 2012at a glace report

The above Financials shows that the takaful companies are on a better and increasing
trend in Pakistan. According to Jaweriyia Ahsan (Assistant Director, Pak Qatar Takaful) the
takaful industry is in the developing phase in Pakistan and we are the biggest institution to lead
from the front. It is still a long way to go and we are working on the new and innovated Islamic
products. Our customer base is increasing day and day and globally. In order to boost up the ratio
of takaful insurance the company has already designed a phase wise plan. The company is also
focusing on the future marks i.e. enhancing the Motor Vehicle and Marine insurance plans so
that we can make it better.

Page 46

CRITICAL DEBATE


Page 47

CONCLUSION
The takaful industry has now become one of the leading and most emerging Islamic economic
and financial segments of the economy. it is not only recognized in Pakistan but its recognitions
was also remarked by international financial institutions, Stock Markets and economies. The
main aim of Islamic insurance is to maintain a balance in the economy and treat it in an Islamic
manner which is free from the elements of gharar, Interest and gambling. The Islamic insurance
is based on the principles of Sharia. The trend of Islamic insurance is growing in rapid manner
and this is the sign of change in the economy and in the minds and perception of people.
The main aim of this research paper is to analyze the scope of Islamic insurance in the Pakistani
market. In Pakistan the insurance sector is divided into Private as well as public companies, in
private there are 50 companies while in public there are 4 companies operating with maximum
market share. However Islamic insurance begin to start their operations with a tough competition
but being Islamic is one of the most contrasting and competitive edge for them. Islamic insurance
has defined its own business model totally based upon the Islamic practices of sharia.
In this research paper the scope of Takaful insurance in Pakistan is analyzed with the help of
interviews and questionnaire floated among the general public who are clients and customers of
conventional and non-conventional insurance. The main aim is to analyze the perception of the
people because it is the perception which becomes the final decision. However we have
witnessed that people are quite satisfied from the Islamic insurance and welcomes the growth of
takaful in Pakistan.
From the research it has also been concluded that the future of Islamic insurance in Pakistan is
brighter but there are some obstacles and misconceptions. This can be eliminated with the help of

Page 48

continuous awareness sessions and defining the real aim of takaful for the public. Still the people
who prefer Takaful over conventional didnt even know the difference between the two. The
companies need to consider a number of factors keeping in view the Pakistani culture and
environment which has now become a mixture of western and eastern values.
Important Findings from the Research
According to the statisticsof 2008 published in the report of SydatHyder Associates
Pakistanindicated the insurance market premium is of Rs. 12.5 billion with the operation of 40
companies.
a) Population Base:
The Population of Pakistan is approximately reached up to 18 billion and around 95% of the
population is Muslim. Muslims are those who practice the things as defined by their religion.
Interest and Gambling which is the basic elements of conventional insurance is totally forbidden
in Islam therefore, keeping in view this factor the takaful companies could brand their name as
Islamic and market them as much as they can to beat the local market.
b) Industry Base
Currently the insurance industry of Pakistan is totally dependent upon the conventional
insurance companies as they are greater in numbers, have professional employees even the
Government of Pakistan which is Islamic republic of Pakistan is following the conventional
setup. This means that the major share of the market is under the control of these conventional
players.

Page 49

c) Misconceptions
From the research it has been analyzed that a number of people have misconceptions about
the Islamic insurance they are mostly of the view that there is no difference among the one
another both of them are same the only different is they call it interest and Islamic called it rent.
This misconception among the people is the major obstacle among the growth of Islamic
insurance in Pakistan however, still the people believe on the Fatwa and are opting the Islamic
insurance because of being Islamic and interest free.
d) Preferences
People now prefer the Islamic insurance because of the fact that it is Islamic and they are of
the view that they have selected the right choice as said by the religion and sharia. Still the
Islamic insurance market is in the growing phase in Pakistan because they are lack with the
professionals.
e) Major Business Products
The people of Pakistan mostly used three main insurance products: Vehicle insurance, Home
insurance and business insurance. These products are widely in Pakistan especially the Motor
vehicle insurance however the major market share in this sector is with banks and local
conventional insurance companies because they have direct linked and contracted with the banks
and companies.
f) Industry Professionals
One of the major facts which also become the factor for the future growth of takaful in
Pakistan is the professional experts. From the research we have analyzed the fact that there is
still a shortage of the industry professionals in takaful insurance. On the other hand, in the

Page 50

conventional setup there are a number of professionals and policy makers who define and design
such a policy so that their market share is still on the higher side.

g) Government Advantage and Leverage
From the research it has come to the knowledge that the government of Pakistan is not giving
and offering any kind of advantage to the Islamic insurance clients. This is the need of the hour
and the government should focus on this. However in countries where the Islamic insurance is on
its boom like Saudi countries the Government of Pakistan has strict bans on Conventional
insurance however in some parts of UK and Middle East the local government is offering some
leverages in taxes and they are giving other benefits too.
The people are of the view that there is only one way y to strengthen the Pakistani economy
that the government should favor the Islamic products as they do it for attracting international
investments. However from the research it has also comes to the knowledge that the Government
believes on true and fair competition in the insurance therefore giving leverage and advantages
would de-motivate the other players. The Islamic insurance companies should have to design
such policies and marketing their product in such a way that they would lead from the front and
it is not ban.
h) Islamic Insurance Business Model
The research also clarifies that the business model which is followed b the Islamic insurance
companies is unique but not known by the clients.

Page 51


Page 52

RECOMMENDATIONS
Based on the above research insights some of the important recommendation which in
my opinion becomes the growth prospect of the future of Islamic insurance companies is as
follows:
1. The population of Pakistan is increasing and hence the consumer base is also increasing.
The people of Pakistan have now become more conscious about the insurance and
mitigating the risk however there is still a huge market to go on with. The Islamic
insurance companies
2. The insurance companies hold has to initiate awareness sessions free phase wise. In the
initial phase they have t to train the people of banking institutions so that they can guide
the pubic in a better way while on the other hand, in the second phase they have to come
to public and inaugurate public awareness sessions in which they market the Islamic
point of view.
3. The Islamic insurance companies would have to clarify the misconceptions regarding the
Islamic insurance and their match with the conventional ones.
4. The Government of Pakistan would have to focus on implementing the Islamic insurance
however if they didnt do it, just give some benefit to the users of Islamic insurance.
Being an Islamic Republic of Pakistan the country Government should have to focus on
it.
5. Strategic collaboration with the Saudi companies and other Middle Eastern companies
should be strengthen and develop with a view to have more groomed product.

Page 53

6. The major sectors of insurance sector growth are Automobile sector, Business insurance
and home insurance sector. The Islamic insurance companies should have to focus on this
avenue to groom up this opportunity.
7. Regulatory framework for the policy should be made and policies are designed in such a
way that the new customers would feel some flexibility.


Page 54

References
Anwar, M., & Hussain, M. (1994). Comparative Study of Insurance and" Takafol"(Islamic
Insurance)[with Comments]. The Pakistan Development Review, 33(4), 1315-1330.
Bekkin, R. I. (2007). Islamic insurance: National features and legal regulation. Arab Law
Quarterly, 21(1), 3-34.
Bhatty, A. (2005). The growing importance of Takaful insurance.In Asia Regional Seminar
organized by OECD and Bank Negara Malaysia under the sponsorship of the
government of] apan (pp. 23-24).
Bhatty, Ajmal, "Takaful Industry: Global Profile and Trends, 2001" , New Horizon, Institute of
Islamic Banking & Insurance, London, April 2001
Data Retrieved From http://www.kantakji.com/fiqh/Files/Insurance/DiffbwConvIns.pdfDated,
08
th
December, 2013
Data Retrieved From http://www.sbp.org.pk/departments/ibd/Takaful.pdf Dated, 08
th
December,
2013
Dr. M.M. Billah, "Life Insurance-an Islamic View". Arab Quartely, Vol. 8 part 4. 1993 Institute
of Islamic Banking and Insurance, Directory of Takaful Companies 2000, London
Fisher, Omar, "Growth of Islamic Finance and Scope for Retakaful", speech International
Takaful Conference, KL Malaysia, June 2000.

Page 55

Kader, H. A., Adams, M., & Hardwick, P. (2010).The Cost Efficiency of Takaful Insurance
Companies&ast. The Geneva Papers on Risk and Insurance-Issues and Practice, 35(1),
161-181.
Khorshid, A. (2013). Islamic insurance: a modern approach to Islamic banking. Routledge.
Mankabady, S. (1989). Insurance and Islamic Law: The Islamic Insurance Company. Arab Law
Quarterly, 4(3), 199-205.
Maysami, R. C., & Williams, J. J. (2006).Evidence on the relationship between Takaful
insurance and fundamental perception of Islamic principles.Applied Financial Economics
Letters, 2(4), 229-232.
Taylor, Dawood, "Developing Takaful Taawuni in Saudi Arabia" speech International Takaful
Conference, KL. Malaysia, June 2000
Wahab, A. R. A., Lewis, M. K., & Hassan, M. K. (2007). Islamic takaful: Business models,
Shariah concerns, and proposed solutions. Thunderbird International Business
Review, 49(3), 371-396.


Page 56

APPENDIX
OBSTACLES in Takaful

Legal (Takaful Rules / Shariah Board) Aspects
1. As per the Insurance Ordinance 2000, Takaful means a scheme based on mutual
assistance in compliance with the provisions of Islamic shariah, and which provides for
mutual financial aid and assistance to the participants in case of occurrence of certain
contingencies and whereby the participants mutually agree to contribute to the common
fund for that purpose.
2. There are at these stage legal obstacles in the establishment of a takaful operator. Takaful
Rules need to be developed so that a takaful operator can be given permission to operate
under the guidelines of those rules.
3. There would also be a need to have a central Shariah Advisory Board with which SECP
would need to take approval/advice prior to approval of products and other
documentation filed by insurance companies.

Consumer Mindset
Consumers mindset has become such that they have the tendency to try to recover the
premium that they have paid to an insurance company. A number of malpractices have crept into
the system because of this mindset. Changing this mindset can become a major challenge for a
takaful operator. It would need to ensure that like the conventional system, compromises do not
creep into the system due to pressures from clients. It may be important for a takaful operator to
avoid insuring such consumers as they can affect the credibility of the takaful system and ensure
that operational controls are not compromised.


Page 57

TAKAFUL BUSINESS MODELS
Presently different takaful models are prevalent in different countries. The basic models
being two i.e. Mudaraba based (Malaysian Model) and Wakalah Model (Middle Eastern
model). However there are a number of finer issues and combinations of models that
exist in practice which have been discussed briefly in Annex 1.
Discussions with scholars in the country show a clear preference for the Wakalah model
due to less serious Shariah related concerns with this approach as opposed to the
Modaraba model where scholars have a number of serious concerns. A refinement of the
Wakalah model has also been made which is called Wakalah with WAQF Fund that has
been evolved by DaroolUloom, Karachi. I had the opportunity of assisting in this process
and a model has taken shape which still needs to be discussed on a larger platform before
it can be considered as being ready for implementation by Takaful operators.
The general perception also is that people would be more comfortable with the approach
acceptable to Middle Eastern Shariah scholars compared to the Malaysian approach
which is generally considered as more liberal even in Islamic banking.
A final consensus needs to be developed and decision taken on the model that we wish to
adopt for Pakistan. It is hoped that urgent discussions take place on the model issue and
consultations are done with Shariah scholars from other countries to arrive at a consensus
approach. A central Shariah Board would also be required to advice SECP on the
approval of specific products that would later be submitted to SECP by different
companies.
Once a consensus has been reached, it is equally important to emphasize that the Takaful
Rules should specify the specific model to be adopted to avoid confusing the public at
large with different models and further different variations of models being adopted by
different companies. The Rules may however allow for some flexibility in certain aspects
which may be left to the Individual Shariah Boards. This step would go a long way in
ensuring public faith and acceptability of the takaful system and avoid creating confusion
and interpretations of different models.

Page 58

In conclusion, Islamic Finance and Islamic Takaful are ethical financing and cooperative risk
protection methods that are superior alternatives precisely because they reinvigorate human
capital, emphasize personal dignity, community self-help, and economic self-
development..generating manifold benefits for all participants. Islam is an integrated way of life.
Thus, interest-free financing and Takaful are mutually reinforcing systems that promote at once
economic efficiency, communal risk-sharing and individual rewards through self-purification. In
as much as the Takaful system resolves around active participation by members of the
community, it is imperative that public awareness be enhanced. As Muslims and non-Muslims
alike come to understand the real benefits of Takaful and cooperative risk sharing, the evolution
of the Takaful industry will accelerate making the projections described herein overly
conservative.

Potential of Takaful in Pakistan

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