Opportunities & Challenges

Oct 29 - Nov 04, 2007

Takaful is the latest "wave" in financial protection. Having firmly gotten hold of markets in East Asia, East Africa and the Persian Gulf it has started to establish a foothold in South Asia and Europe. Pakistan saw its first Takaful operator, in the General side, start in 2006. Since then another two operators in General and one in Family have commenced operations.

Takaful is not just another tool for risk mitigation and financial protection. Nor, is it just a Shariah compliant one. Rather it is an ideology which promotes solidarity and joint guarantee, self reliance and self sustainability for community well being, assistance to those that need it and a community pooling system. In a nutshell, a system which works as a source of good for those that use it and the community at large. Tools like these are critical for developing nations, especially those which are witnessing rapid economic growth. Increasing personal debt, widening divide between haves and have-nots, and other such issues are regular plagues in rapidly growing developing nations.

Pakistan is a nation which fits into the rapidly growing developing nation segment. Its position as one of the most populous in the world further makes it prone to many of the above issues. Rapidly growing GDP coupled with a population which is primarily in the workforce and thus looking for upward mobility means a massive market for users of financial protection tools.

To truly comprehend the opportunities for Takaful in Pakistan we need to see where the present insurance sector stands and at the same time keep our sights on the demographic data in Table 1.



165 Million

Population Growth Rate


Median Age

20.9 years

Age structure

0-14 years: 36.9%
15-64 years: 58.8%
65 years and over: 4.3%

GDP per Capita


GDP Growth Rate


The best way to understand the meagre values from Table 2 is by comparing them to another nation which shares many traits with Pakistan. India, a much larger neighbour, has an insurance penetration of 4.8%, against Pakistan's 0.8%, and its insurance density is USD 38.4, against Pakistan's USD5.9.

Total Premium Volume

USD949 million


USD375 million


USD574 million

Insurance Penetration (premiums as % of GDP)






Insurance Density (premiums per capita)






Another aspect of the financial market which is not yet effectively utilizing these tools is the consumer banking sector. Table 3 shows how rapidly this sector is growing and the possibilities it holds for financial protection. This is an area where the present insurance companies are working on moving into but thus far they have just touched the surface. Given the growth and figures in Table 3 there is a lot of room for growth.

When specifically looking at the Islamic Banking sector Takaful sees an even brighter market. The Islamic Banks are bound by their Shariah boards to only utilize Takaful for all their financial protection

needs. Islamic Banking presently stands at approximately 3.2% of the total banking sector (which is at PKR 4.4 trillion in total assets) and the State Bank of Pakistan is pushing to bring this ratio to 15% in the next few years.

Total Number of Banks


Size of Banking Sector

PKR4.4 trillion in total assets

Growth in Banking Sector


Total Consumer Financing

PKR50 billion


PKR15 billion

Growth in Consumer Financing

15% - 20% annually

These values make it very clear that there exists a significant gap in the market for financial protection tools in Pakistan. This gap makes the Pakistani market very promising for Takaful.

Keeping in mind that we are not just aiming at that segment of the market which is averse to non-Shariah compliant products rather every individual and organization which requires financial protection and is not willing to compromise on good products and services. Our key selling proposition is that we will push our products based on the following variables; need based products, appropriately priced products and immaculate customer service. An additional feature of our offering is that it is Shariah compliant and so you need not compromise on your beliefs to be able to get the best in financial protection.

As we know that achieving expectations is not as easy as formulating them. There are significant challenges for Takaful in Pakistan.

Education & Awareness. This is definitely the most obvious issue which the new Takaful operators have to deal with. Why does the Pakistani public at present not use insurance at the levels which other nations do?

Is it just because of Shariah issues, it did not stop them from using conventional banks prior to the advent of Islamic ones.

The fact that as a nation Pakistani's are conservative spenders and given the low GDP per capita spending on something additional, especially where the benefits are uncertain, is not something taken to very easily.

Is it just that we do not know the benefits of using financial protection tools, no one has taken the effort to educate the masses about this aspect of the financial industry.

It would be safe to assume that the answer consists of a combination of the above elements. In order to deal with these issues significant investments will be required to reach out to the public and correct their misconceptions.

Ambiguity in Regulatory Statutes. Given how recently the rules were formulated by the Securities and Exchange Commission there still remain a lot of aspects which need clarity. These will only be addressed with time and the experiences of the operators.

Uncertainty in dealing with the Law. As with the regulatory rules Takaful has also not had to deal with the courts yet. Thus here also there is an element of uncertainty.

Thin Margins. Unlike the insurance companies the Takaful operators' primary source of revenue is the Wakala fee which they will collect from every contribution. This has relatively little room to manoeuvre and so they will need to work very hard to ensure that their operations are not just very effective but also very lean. To achieve this they will need to invest heavily in powerful IT systems.

Thus we see that the challenges are not small by any measure but they can definitely be overcome.

If the present and future Takaful operators take the above challenges by the horn and strive to provide products which meet the needs of the people, are priced so that they can be affordable, and finally are serviced in a customer centric manner there is no reason why Takaful can not be successful in Pakistan. Infact it can easily achieve levels which even the present insurance companies have thus far been unable to reach.