Is There Any Takaful Product For The Poorest?

Is there a Takaful product tailored for the poorest communities? The International Shariah Research Academy (ISRA) in Malaysia is on a mission to find one. By next year, ISRA aims to develop an innovative Islamic insurance model that could cater to the bottom 40% of wage earners in Malaysia. If successful, this model may serve as a blueprint for similar programs across the Muslim world, providing a much-needed safety net for economically disadvantaged families.

A Collaborative Effort to Address Economic Vulnerability

ISRA, based in Kuala Lumpur, is collaborating with FWD Takaful, a prominent insurer, on a pioneering initiative. The project, with a one-million ringgit budget, focuses on extending Takaful coverage—an Islamic insurance system based on mutual assistance and ethical investments—to the poorest 40% of Malaysian families. Professor Ashraf Bin Md. Hashim, CEO of ISRA Consultancy, envisions creating a viable Takaful product that meets the economic needs of these families in times of emergency, such as illness, natural disasters, or loss of income.

Currently, both conventional and Islamic insurance providers in Malaysia mainly target financially stable customers. This leaves the economically disadvantaged with limited access to affordable insurance options, putting them at greater risk during times of crisis. The project aims to bridge this gap by crafting a solution that is both Shariah-compliant and accessible to low-income families.

Designing a Holistic Solution: Key Components and Challenges

The proposed Takaful model will require a multi-faceted approach, combining resources and expertise from various stakeholders:

• Insurers: FWD Takaful will play a key role in developing and providing affordable insurance coverage.
• Zakat and Waqf Institutions: Islamic social welfare systems like Zakat (obligatory charity) and Waqf (endowments) are integral to Muslim societies and will contribute financial and social support to the scheme.
• Target Customers: The solution will be tailored to the needs of low-income families, ensuring the product is affordable and effective for the poorest segments of society.

The challenge for ISRA will be to find a “win-win” solution that benefits all parties involved, from insurers and regulators to policyholders and welfare organizations. Developing a Takaful product that is sustainable, provides adequate coverage, and fits within the Islamic framework will require careful consideration and innovative financial strategies.

Learning from Global Models: Egypt and Bangladesh’s Approaches

ISRA’s initiative is part of a growing movement across Muslim countries to provide social safety nets through Takaful. Similar programs have been implemented in Egypt, where the government launched conditional cash transfer schemes known as Karama and Takaful. According to a recent World Bank survey, these programs successfully reached half a million of the country’s poorest citizens, prompting further expansion to millions of families. The World Bank has recommended that Egypt continue scaling these programs to combat poverty and provide more inclusive financial security.

In Bangladesh, micro-Takaful—an insurance model aimed at low-income communities—has seen annual growth of 13.5%. However, as noted by K.M. Mortuza Ali of Prime Islami Life Insurance Ltd., the expansion of this form of insurance faces regulatory challenges. For micro-Takaful to reach its full potential in providing affordable coverage for the poor, government policies and regulations must evolve to support the industry’s growth.

Malaysia’s Existing Takaful Initiatives and the Road Ahead

Malaysia has already made strides in extending financial and insurance services to its lower-income families. The government’s MySalam Takaful scheme is a notable example, currently supporting 4.3 million individuals by providing financial assistance in emergencies. This demonstrates the country’s commitment to financial inclusion, and the new initiative by ISRA and FWD Takaful aims to build on this success by developing even more comprehensive insurance solutions for the poorest communities.

By researching and designing a sustainable Takaful product specifically for low-income families, ISRA and FWD Takaful hope to make significant headway in tackling economic vulnerability. If the project succeeds, it will not only empower marginalized families in Malaysia but also set a precedent for Muslim countries seeking to establish robust and inclusive Islamic financial services.

This innovative model could help expand the reach of Takaful, combining Islamic principles of mutual aid and financial protection with modern insurance practices, and potentially changing the landscape of social welfare in Muslim societies.