The young Islamic finance industry, which began in the early 1960s, continues to grow, although it takes time for the population to learn and be aware of it. Nobody anticipated the extraordinary growth, more than 350% in 10 years, with assets that have jumped, according to Thomson Reuters, from US$462 billion in 2006 to more than US$2 trillion in 2016.
The fact that ‘only’ 40 million Muslims, out of the 1.8 billion in the world in 2012, are today customers suggests an exponential growth reserve that should bring, according to Thomson Reuters, the assets of this industry to US$3.54 trillion in 2021.
The growth of the Takaful industry is now considered to be a key factor in the development of Islamic finance, particularly through its capital-raising power, like conventional insurance. Islamic banks are investing in three sectors when they explore new business opportunities: Takaful insurance, investment funds, and Sukuk. Takaful companies are likely to grow alongside Islamic banks. As is the case in conventional systems, Islamic banks can start promoting their own Takaful products or their own Takaful businesses through bancaTakaful distribution.
The Takaful industry faces its own set of institutional, legal and regulatory issues with a central dilemma: some legal systems in many countries do not accept a mutual or cooperative form without social capital and when such a mutual entity can be created, it may be difficult to obtain sufficient capital to meet regulatory requirements.
In Europe, there are many forms of insurance companies provided by the European jurisdictions that allow the practicing of Takaful insurance while remaining faithful to the principles of mutualism and philanthropy. Moreover, Muslims represent more than 16 million inhabitants in Europe with an insurance penetration rate that is among the highest in the world. They are therefore among those globally who have the largest insurance coverage compared to Muslims in other countries where insurance is significantly less developed. This high insurance penetration rate can contribute to the rise of Takaful in Europe.
When we look at the potentialities of Takaful and the European market, it may be wise to develop a consensus-based Takaful model that aligns the interests of all stakeholders in line with the standards advocated by AAOIFI, the IFSB, and the European insurance law.
In Europe, the market for Islamic finance and insurance remains a niche: conventional operators fear a risk for their image. To date, there are no General Takaful solutions in Europe, which represents a considerable shortfall in an area where there is a large number of mandatory non-life insurance policies, and where the insurance needs of the population are numerous. Europe, thanks to its insurance law, is able to offer the long-awaited model by the global Takaful industry.
This article was first published in Islamic Finance news Volume 14 Issue 47 dated the 22nd November 2017.
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