Islamic Finance: Coming of Age. 10/29/13 GAB Annual Islamic Finance Conference

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1 Islamic Finance: Coming of Age 1

2 Islamic Finance Sector in Kenya 1. A Sector View 2. A Company View 2

3 Sector View 3

4 Company View 4

5 The Takaful Concept What is it? How does it work? How is it different from conventional? What was the Kenyan experiences? What were the challenges in Kenya? What are the prospects in Africa? 5

6 A Brief History Born in Sudan (1979) Bred in Malaysia (1984 ) Matured in GCC Popping up Everywhere Else 6

7 Current Status 200 Takaful companies globally 35 Retakaful companies USD 12 billion in 2012 Estimated USD 25 billion in 2015 Average 30% annual growth rate 7

8 What is Takaful? 8

9 Takaful Is: A pact amongst a group that agrees to donate contributions to a fund that is used to jointly indemnify covered losses incurred by the members 9

10 Takaful Is: A risk management system A risk sharing system A cooperative, mutual, welfare-based system An alternative to conventional insurance A system that goes beyond managing risk A system that recognizes the real insurer A Tabaaru system 10

11 Five Key Elements 1. Mutual Guarantee 2. Ownership of the Fund 3. Elimination of Uncertainty 4. Management of the Takaful Fund 11

12 How Does Takaful Work? 1. Models of Takaful 2. Key Parties in the Takaful System 12

13 Models of Takaful 1. Pure Wakala (Agency) 2. Pure Mudaraba 3. A Mixed Model 4. A Waqf Model 13

14 Key Parties Key Parties in the Takaful System: a) Takaful Operator (Shareholders, BoD, MGT) b) Regulator (Government) c) Shariah Supervisory Council (SSC) d) Participants (Policyholders) 14

15 Takaful Operations CONTRIBUTION MANAGEMENT FEE ( - ) TABARRU (DONATIONS) CLAIMS INVESTMENT INCOME ( - ) ( + ) PROFIT / SURPLUS ( = ) 15

16 How Is Takaful Different From Conventional Insurance? 1. A Conventional View 2. A Takaful View 16

17 A Conventional View Conventional is a risk trading mechanism Collects premium, pays claims, & retains profit for Shareholders A contract of buy & sell Contains excessive uncertainty & riba Has excessive conflict of interest Risk Fund & Shareholders one & the same Represents ultimate interest of Shareholders 17

18 Risk Transfer Model 18

19 A Takaful View A risk pooling, sharing mechanism A system of self-insurance A system of sharing both risks & rewards Removes riba & reduces uncertainty Risk Fund & Shareholders are separate Eliminates conflict of interest Represents interests of both Participants & Shareholders 19

20 Operation of Takaful Participants /Members Risk Pooling Concept (Financial Risk) Share of Surplus Loss/Claims Share of Surplus Company Pool Manager Pooling of Risks Tabarru Fund (Contribution Fund) Share of Surplus Indemnify Indemnify Contributions Concept of Mutual Assistance 20

21 Conventional Oversight 21

22 Takaful Oversight 22

23 A View of the Kenyan Experience 23

24 In Kenya Effort started in 2002 Led to the first license in the region in 2011 A Mixed (Wakala-Mudaraba) model adopted Two years of successful operation in Kenya Premium growth to Kshs. 430 million in 2012 Gross claims of Kshs. 187m in 2011 & 2012 Declared surplus for year

25 Coming of Age 25

26 In Kenya & EA Licensed by RBA & rolled out the first Sharia compliant Pension Scheme in Q Licensed for Family Takaful operations in March 2013 Licensed & preparing to rollout in Somaliland & Puntland in Q Strategically positioned for TZ, UG, DJ, Ethio, Som 26

27 Main Challenges in Kenya 27

28 Key Challenges Great need for public awareness/education Conflict resulting from misconceptions Absence of conducive regulatory framework Shortage of trained human resource Absence compliant capital market Limited investment instruments Unhealthy price-based competition 28

29 How is the Prospects in Africa? 29

30 Prospects in Africa 30

31 Prospects in Africa 31

32 Prospects in Africa A great model with a fit for Africa A 1b young culture with inherent coop, mutual, solidarity, chama, Tabaru attitude Among those are 500 million Muslims On average less 1% ins penetration level Poor public perception of the conv industry 600 million mobile users growing The world fastest growing continent The home of profit for the next 2 decades? 32

33 Conclusion Africa is the home the Takaful The potential for both investors & consumers is emmense 33

34 May Allah bless you for giving me your precious time

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