POTENTIAL OF TAKĀFUL IN PAKISTAN: OPERATIONAL AND TRANSFORMATIONAL PARADIGM

Abstract

Potential of Takāful in Pakistan: Operational and Transformational Paradigm Takāful is an Islamic way of doing insurance. It proved its viability after several Fatwās were issued by Ulama and Fiqh academies in its favour. Presently, over 100 Takāful and Re-takāful companies as well as Takāful windows under conventional insurance are operating across the world. Enhanced financial performance of selected Takāful companies has shown the growing interest in Takāful business across the world. Insurance comparison in Muslim and advanced countries as well as in the South Asian region has identified low literacy, low GDP per capita and low GDI value as the probable causes of low insurance penetration in Pakistan. Geographical spread of Takāful business and estimated future potential together with the increasing trend of insurance business indicated that potential for Takāful business exists in the country. It urges the policy makers to pay attention to global indicators that might become potential contributors to Takāful business. The study emphasizes that strengthened regulatory standards, with Sharī'ah compliance mechanism playing a central role, are essential to transform conventional insurance system and exploit the existing business potential. To further analyze which of the Takāful standards are significantly affecting Takāful practices, a survey of Takāful operators in the country indicated that reporting standards and internal controls have low level of observance in Pakistan. The survey of 150 life insurance customers revealed that majority of the respondents is unaware of Takāful concept. Level of Takāful awareness was found to be significantly associated with the education of the customers, their perceptions about Takāful and their intentions to shift to Takāful Company. Education was found to be the single important factor affecting monthly income of the respondents, their state of mind and hence their awareness about Takāful. The study identifies effective regulatory framework a critical factor for the success of Takāful business in Pakistan. A greater focus on promotion of Takāful and governance issues along with strengthened role of SECP as a regulatory authority is likely to contribute for further growth of Takāful industry in Pakistan.