Report on International conference Takaful 2003
Bismallah Rahman Alrahim
In the name of God the most compassionate the most merciful.
Your Excellency, Tan Sri Dato¹ Dr Zeti Akhtar Aziz, Governor of Bank Negara, Malaysia, respected Shariah Scholars, Dr Badawi, Mr Omar Abdi Ali, distinguished guests, experts from the Takaful and Retakaful industry, specialists from the Insurance world, ladies and gentleman.
Assalam Alaikum Wa Rahmatallah Wa Barakatouh and very good morning to you all.
It is indeed a great privilege and honour for me to welcome you on behalf of the Institute of Islamic Banking and Insurance and its founder Mr Muazzam Ali, its Board of Governors, one of which I am privileged to be and its staff to this landmark conference on Takaful and Retakaful in London. When Mr Muazzam Ali asked me to deliver the welcome address, I had no option but to tell him that ³his wish was my command². In doing so, however, I was remiss in not heeding advice of another great leader, Winston Churchill, who said ³never speak to an audience on a subject which they know more than you do².
Before I speak about the Takaful and Retakaful industry, let me lay the context for the evolving world of Islamic insurance. Takaful is a part of the broader Islamic Finance Industry. Islamic finance is a corporate, social, responsibility movement of the educated, enlightened Muslim middle classes. It is a trend which is broadening the ownership base creating more stakeholders and bringing the hope of stability to more than 1.3 billion Muslims across the world. To us at HSBC Amanah Finance, Islamic finance has always been about community banking, ethical investments, affinity marketing and investment in the real economy. It is about inclusiveness, a significant proportion of our customers in HSBC Amanah Finance in Malaysia are Chinese customers. A number of investors into our funds in the Middle East are British and Indian expatriates.
It is a trend which is strengthening the local economy. You cannot have a strong economy if you do not have a strong banking system and you cannot have a strong banking system unless it has indigenous roots. As such, Islamic finance is a regulated industry based on private sector, public sector partnership. In our experience, the Islamic finance industry has high fiduciary standards which are strengthened by the fact that they have independent Shariah supervisory board which acts as an added layer of fiduciary guidelines. We have seen a marked improvement in the quality of products and services offered by these Institutions. This improvement is directly related to the quality of the professional staff joining these dedicated Islamic financial institutions.
This industry has the same lawyers, same auditors, same accountants as the conventional financial services industry. There seems to be a symbiotic relationship between conventional financial institutions and Islamic financial institutions. The industry is growing and today it stands at around $250 billion. The growth rate averages around 20% per annum. It was originally driven by the retail investors, now we are seeing the institutional sector opening up endowment funds, pension funds, reserve managers and central banks are all gradually participating in this growth industry. We are seeing the reach and richness of the Islamic finance industry expanding New markets from Singapore to UK are opening up as are new product lines such as the Sukuk Al-Ijara.
Last year when we bought Keppel Insurance company in Singapore, we found that they had a very nice Takaful platform which was servicing the Muslim community in Singapore. Recently we launched our products in the United Kingdom and we saw strong community support. These trends point to the increasing reach of the Islamic Finance industry.
Similarly the richness of the Islamic finance industry is being enhanced by private equity initiatives, structured alternate assets such as real estate financings and above all by Sukuk. Our own bank was privileged to lead the Malaysian Global Sukuk last year. Currently we are working for the State of Qatar Sukuk. All these initiatives are enhancing the richness of the Islamic finance industry. Taken together the expanding reach and the growing richness of the Islamic finance industry is broadening and deepening the markets for Islamic Financial Instruments.
Time and again we see a direct relevance between the middle class and the market share for the Islamic finance industry. In Kuwait where there is a large middle class, the share of the Islamic finance industry is increasingly growing and is estimated to be in excess of 45% of the market. Similarly in Malaysia, Bahrain and all the countries where there are large middle classes, there is a growing Islamic finance industry.
Let me move onto the role and relevance of the Islamic finance industry. In Muslim majority countries as an indigenous form of banking, it strengthens the local banking system, therefore it fortifies the local economies. In Muslim minority countries, for example in the United Kingdom, it allows the Muslim to straddle the paradigm of how they can be a good British citizen and a good Muslim at the same time.
From an economic prospective today, Islamic finance provides cross borderline in a belt of IDB member countries. Islamic financial institutions have become the biggest arrangers and providers of cross border fundings in selected IDB member countries. They have reached the league tables as arrangers and providers of finance in these countries. Continuing with the theme of relevance, today Islamic finance confines its focus on the real commercial value producing economy, brings the real economy close to the financial economy, thereby bringing stability to the markets in which it operates. It is in this context that Takaful and Retakaful have to be understood and evaluated.
Takaful is both a leading product and a lagging product. Generally Takaful products are sold behind some leading products such as home financing products, car financing products. For Takaful is after all a cross-sell opportunity. But because of the lack of credible Takaful products in certain markets such as the United Kingdom, Takaful could also be a lead product. So from that prospective Takaful is both a leading product and a lagging product proposition.
The success of a Takaful and Retakaful industry is directly linked to the asset management capabilities of the Islamic finance industry. The fund of the shareholders and the fund of the policyholders i.e. Takaful premiums have to be invested in a Shariah compliant manner and in a profitable manner. The more successful the asset management proposition would be, the more stronger the Takaful proposition would be. In the last decade the Takaful industry suffered because the Islamic portfolios lacked a tradable fixed income component. Today the Sukuk offer that asset class which will allow the Takaful industry to create annuity kind of products. The success of the Takaful industry is linked to many initiatives which are of paramount importance to the Muslim community in today¹s world. The future of our college fee planning programme, pension products is dependant on successful Takaful and Retakaful industry. Clearly Takaful is the goldmine of the Islamic finance industry.
Reflecting on the past, present and future of Takaful reminded me of the words of the famous historian, Francis Hodgson Burnett 1849-1924, who wrote about the history of new ideas: ³at first people refuse to believe that a strange new thing can be done, then they begin to hope it can be done, then they see it can be done then when it is done all the world wonders why it was done centuries before².
The future of the Islamic finance industry can be best understood through a mountaineering analogy we are kind of halfway up the mountain when we look down, we see how far we have come and when we look up, we see how much we have to do to get to the top of the mountain. When I look up I see Takaful as a major source of the strength in helping the Islamic finance industry climb to the peak of the mountain.
Talking about the peak of the mountain, no country has done more than the Government of Malaysia to promote the Islamic finance industry and within the Government of Malaysia it is Dr Zeti who has given Islamic finance clear strategic priority under her leadership. It is under Dr Zeti¹s leadership that we find the creation of a dedicated Islamic finance department at Bank Negara. It is under Dr Zeti¹s leadership that we find the launching of the first Global Islamic Sukuk to be issued by any Sovereign.
Ladies and gentlemen, in recognition of the excellent work done by the Central Bank of Malaysia, under her stewardship, Tan Sri Dato¹ Dr Zeti Akhtar Aziz has been awarded by Euromoney the award of the Best Central Bank Governor in Asia Pacific. This award is clearly a vote of confidence in the Malaysian economy, in the Islamic finance industry and in IFSB which Dr Zeti was instrumental in establishing.