SHAMSUL GHANI (shams_ghani@hotmail.com)
Dec 22 - 28, 2008

The potential of insurance sector has not been tapped as it should have been. With a low penetration of less than one per cent, the industry is still at a nascent stage in consequence of very low demand. The insurance density (premium per capita) in case of Pakistan hovers around $6 - a great deal low as compared to its South Asian Region partners. Insurance forms an important segment of the entire financial sector. With its role of an institutional investor, this industry assumes an important position of providing impetus to the capital and money markets. Pakistan Economic Survey, 2007-08 concedes:

With two thirds of the population living in the rural areas and low per capita income, the insurance sector faces various hurdles in its growth.

The low insurance penetration highlights the need for concerted efforts to bring about reforms that would increase the competitiveness and outreach of Pakistan's insurance industry."

The five to six year period (2002-07) was the boom period for our financial sector when our commercial banks registered a record asset growth. The insurance sector couldn't keep pace with the revolutionary growth process as its total assets stood at a meager Rs.245 billion at the end of the calendar year 2006. In a sharp contrast, the total assets of scheduled banks at the end of March 2007 stood at Rs.4,317 billion. The under-performance of insurance sector in our country can be attributed to a narrow user base which in turn is the outcome of a number of factors for example lack of awareness, low literacy rate, high tariffs, low disposable income and above all, the religious taboos. While the low disposable income problem persists, the emergence of Islamic Insurance has given hope to achieve a breakthrough. Reaching out to an insurance-unfriendly society is now much easier with the help of Islamic products.


The conventional insurance is perceived by the majority of Muslims as totally non-Islamic with Riba (interest) and Gharrar (uncertainty) being its basic ingredients. Takaful has gained acceptance as a Shariah-compliant alternative to conventional insurance. Islamic Finance news defines Takaful in the following words:

Based on the principle of mutual assistance, Takaful provides mutual protection of assets and property and offers joint risk-sharing in the event of a loss by one of the participants. Takaful is similar to mutual insurance in that members are insurers as well as the insured."

Tabarru or Takaful donation forms a protective firewall for the Takaful participants. Under Tabarru, a participant by way of a contract agrees to donate a predetermined percentage of his contribution to a Takaful Fund with the intention to provide support in case of a loss to any of the participants thereby fulfilling his obligation of joint guarantee and mutual help. Takaful also acts as a resource mobilization agent. New Takaful products are being developed to cater to the changing needs of the global financial markets.

Due to the lack of proper legislation, Takaful made a late entry into Pakistan. Having made its debut in Sudan and Bahrain in late seventies, the idea has found roots in 35 countries of the world with more than 100 Takaful companies in operation. Malaysia, Indonesia and Gulf countries are the hub of Islamic Finance activities. The business appeal of the idea has attracted a number of non-Muslim nations and multi national companies as well. Beside predominantly Muslim countries, Takaful companies are operational in Russia, South Africa and a number of European countries. Many of the other non-Muslim countries throughout the world are also in the process of establishing Takaful companies. Zurich Takaful Company Limited is being established under a joint venture agreement between Zurich Financial Services Group and Abu Dhabi National Takaful Company. Munich-based FWU group has won the award for best Takaful operator in 2007. Recently, the BankIslami has signed a strategic cooperation agreement with Pak Qatar Family Takaful Limited and FWU group to set the stage for the launch of Pakistan's first Shariah-compliant bancassurance.

In UK, Salaam Halal Insurance was launched in July this year. It is UK's first Shariah-compliant insurer company offering Takaful-based motoring insurance. It further plans to launch home insurance policy scheme. American International Assurance has been licensed by Bank Negara Malaysia as the first international Takaful operator in Malaysia.

The leading Takaful operator in Pakistan, Pak Qatar Family Takaful Limited vies for strengthening its presence in Pakistan. It already has its branches in Karachi, Hyderabad, Lahore, Islamabad, Faisalabad, Gujrat, Peshawar and Quetta and plans to further expand its branch network to Sialkot, Multan, Mirpur and Sukkur. The group foresees its workforce increased to 3000 by the end of 2010.

In Pakistan, Takaful industry is in a nascent stage. Taking off as late as 2005-06, the industry is presently being run by three general Takaful operators namely Takaful Pakistan Limited, Pak Qatar General Takaful and Pak Kuwait Takaful Insurance Company; and one family Takaful operator Pak Qatar Family Takaful. A few more operators are lined up to get qualified as market players. With the GCC countries eying Pakistan as a potential market, the Takaful Industry of Pakistan seems to have a great future. Unlike conventional insurance, the Takaful concept vies to be a sure starter. Globally too, the Takaful industry is set to make its presence felt both in the Muslim and non-Muslim segments of financial markets.