Revealing the Development of Islamic Non-Bank Industry and Its Support to Provide a Better Access to Middle-Low Income Households
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Revealing the Development of Islamic Non-Bank
Industry and Its Support to Provide a Better
Access to Middle-Low Income Households
Indonesia International Conference on Islamic Finance
J.W. Marriott Hotel, Surabaya, Indonesia
3-4 November, 2014
Prof. Dr. Zuriah Abdul Rahman
Arshad Ayub Graduate Business School
Universiti Teknologi MARA, Malaysia
Microtakaful or Asuransi Mikro Syariah • Designed to reduce financial independence through sharing of risks amongst contributors • Designated to the middle and low income & poor for the Indonesian 114 million population • Product designed to alleviate poverty by providing financial assistance during occurrence of events such as: death, disability, sickness, property loss, financial interest (credit or loans)
Indonesia’s Islamic Finance Landscape • Country with the largest Muslim population in the world • Vast untapped takaful market potential. • In 2011, gross takaful contributions is less than 5% of total insurance market premiums • Despite the low market share, Indonesia is one of the world’s fastest- growing takaful markets. • Preliminary industry estimates, gross contributions in the takaful industry were reported to have grown almost tenfold from IDR 498.9bn in 2006 to IDR 4.97tn in 2011 (Fitch Rating, 2013)
Microtakaful has to be part of the
national agendas of nations with a large
Rationale
number of middle-low income Muslim for the
population to alleviate poverty
OIC should make microtakaful and
financial
microcredit part of the 2015 goals set by inclusion of
the United Nations Millennium
Development Plan (Bhatty, 2010) the
underprivil
Financial independence will uplift their
economic status and contribute to the
eged
growth of the economy
Indonesia’s Strategic Long Term Plan
• The government of Indonesia has risen to the occasion and
acknowledged that financial inclusion is essential for the general and
economic well-being of the middle-low income population
• Financial independence on issues of health care; Indonesia created
milestone in its history with the introduction of universal healthcare
program:
JAMKESMAS (general public)
JAMKESDA (civil servants)
JAMSOSTEK (social insurance for private sector workers)
• Microinsurance and microtakaful were identified to be one of the
structures/arrangements that could ensure that this plan materializes
Indonesia’s Strategic Long Term Plan
Microinsurance and microtakaful were identified
to be one of the structures/arrangements that
Financial independence on could ensure that this plan materializes
issues of health care;
The government of Indonesia Indonesia created
has risen to the occasion and milestone in its history
acknowledged that financial with the introduction of
inclusion is essential for the universal healthcare
general and economic well- program:
being of the middle-low
income population
JAMKESMAS (general public)
JAMKESDA (civil servants)
JAMSOSTEK (social insurance for
private sector workers)
MICROTAKAFUL FOR INDONESIAN MIDDLE-LOW INCOME & POOR
Profile 04 Need 01
• Microtakaful is
• Their PROFILE was
offered based on
developed after the
the NEED of the
market survey &
market segment
secondary research
BACKGROUND
& RATIONALE
Security 03 Risk Priorities 02
• Their RISK PRIORITIES
• Their desire came were studied &
about due to their documented
need for SECURITY
both PHYSICAL and
PSYCHOLOGICAL
MICROTAKAFUL : a national level product for middle-low income
population to be launch in phases
• PRODUCT PROTOTYPE
FIRST
• DISTRIBUTION CHANNELS
• REGULATION
• POLICY WORDING
• PRODUCT FINALIZATION
SECOND • FORMALIZATION OF PRACTICE
(MOU – Partner-Agent Model)
MICROTAKAFUL PRODUCT LAUNCH –
THIRD AUGUST 2014MARKET POTENTIAL OF MICROTAKAFUL IN INDONESIA
BASED ON MARKET SURVEY
PERCEPTION
Positive+
POSITIONING
Sesuai Shariah
Sedekah or Tabarru’
Tolong Menolong
Dedicated business unit (dept, FEATURES
or unit or SBU) set up Mutual & Profit Sharing (Berbagai
Keuntungan)
Cash Assistance Plan
Santunan – smallMARKET POTENTIAL & PROFITABILITY OF MICROTAKAFUL BASED ON INDUSTRY EXPERIENCE
01 02
PT Allianz Life PT Asuransi Tri Pakarta
3% 20%
Indonesia – 3% – 20% income
generated from
profits per year
Microtakaful per year
03 04
TAKMIN Group – 100,000
BMT Sidogiri (AsyKi) –
membership generated
400,000 members, 14,000
contributions of Rp150mn
small business owners
per month
05 06
Pegadaian – bundled Pegadaian - Easy to
with pawned products market; well understood,
low handling costPROPOSED TYPES OF MICROTAKAFUL PRODUCTS BASED ON DEMAND (MARKET SURVEY)
LIFE
(family)
SICKNESS
LOSS of (health &
medical)
FINANCIAL
INTEREST TYPES
(credit or loan)
DEATH
(family)
ASSETS
(property owned)INDIVIDUAL RISK PRIORITIES
#
Individual Risk/Problem Risk Ranking By # of # of FGDs Mentioning
Risk 1= 3 points, Risk 2=2 points, Risk 3=1 point Points (n=70) Risk (n=13)
1 Illness 115 13
2 Education 103 13
3 Business Capital /Lump Sums of Money 40 4
4 Daily Living Expenses 34 10
5 Death (including cost of cultural ceremonies) 27 12
6 Accident 22 8
7 Retirement/pension 20 3
8 Motorcycle (in general) 11 2
9 House (in general) 9 4
10 Haji/Umroh 9 1
11 Business 8 1
12 Religious Holiday (Lebaran) 7 1
13 Social Pressures (invitations to community events) 5 1
14 Poor Education Facilities 3 1
15 Debt 2 3
16 Livestock 1 2OUTLINE OF PRODUCT PROTOTYPE
Incentive to
Industry? Branding?
Policy
agreement/contract How to
& certificate administer?
wordings?
Who can
participate?
How to
What are the distribute the
products? products?Microtakaful
Who can participate?
Members of cooperatives, banks,
pawnshops, financial institutionsMICROTAKAFUL PRODUCT OFFER BY PHASES
Any other
innovations
PROTOTYPE 4 Non-standard
To be launched PROTOTYPE 1 & 2 PROTOTYPE 3
products
by Aug 2014
Phase I Phase II Phase III Phase IV
• To discuss and decide by Task Force based on the capacity and
readiness of the industry.
• To establish the target for every phase / product to be launched.PRODUCT DESIGN (DUAL FEATURES) & DELIVERY
Products suitable to participants’ demographic
0101 and economic status from market survey
Bundled with microloans/microcredit
0102 (LKS, LKM, KSP) savings with banks etc.
Complement existing national health insurance scheme:
0103 •
•
Elevate their economic status
Add value to existing national insurance scheme
• Reduced dependency on government hand outs
Use of existing infrastructure to market
0104 products
Your LogoMicrotakaful How to distribute?
DISTRIBUTION CHANNELS
MFIs &
[(NGOs be Reference Point) Informal &
IMFIs
Masjid, Pengajian, Persatuan
Kaki Lima etc. MOUs to be Formal Cooperatives
signed by individual Communities
companies)]
Banks
Shariah –
TELCOs national &
rural
Post
Pawnshops Offices
(Pegadaian)MICROTAKAFUL BUSINESS ADMINISTRATION
STANDARD PRODCUCT
1 To report only to OJK
REGISTRATION
NON- STANDARD PRODUCT OF PRODUCT
2 Reported and approved by OJK
but subject to approval by SSB
(Shariah Board of Takaful
Operators)
STANDARD /NON-STANDARD
14 days no response from OJK means, APPROVED
(current ruling, but proposed 7 working days by AASI)PRODUCT ADMINISTRATION
Strong community relationship, good
user networks, member involvement
USE OF EXISTING DISTRIBUTION CHANNELS
& FORMAL AND INFORMAL COMMUNITY
NETWORK
Build trust and loyalty Satisfaction guaranteedMEDIUM FOR MICROTAKAFUL PRODUCT OFFER
MOU with
distribution channels;
Partner-Agent Model
PRODUCT Co- Insurance
OFFER Arrangement
ConsortiumMICROTAKAFUL BUSINESS OPERATIONS
DISPUTE PEFORMANCE
SETTLEMENT MONITORING
• Speedy, low cost, fair and • Regular audit by OJK
efficient & according to • Self-regulation by
Shariah rules; Takaful industry
• Settled out of court, (Intercompany
use Shariah Standard agreements;
policy; Musyawarah or Consortium, Co-
dialogue with community insurance depending
on products offered)5. Branding Who are the parties involved?
BRANDING, MARKETING & PROMOTION
OJK as Asuransi Mikro
endorser of Shariah Logo
product
Takaful Operator’s
Logo AASI LogoREGULATORY ASPECT ON MARKETING & PROMOTION: Regulation & Supervision 3 parties to be regulated: 1. Takaful industry Business planning; Product development; Shariah compliancy 2. Distribution channels Acts & Rules applicable to institutions ) & • Training on microtakaful to all front liners (TOT) • Promotion & Marketing by front liners • Claims Handling by front liners
PRACTICAL APPROACH TO REGULATION
Separation of Funds
Balance
Between shareholders and
microtakaful fund (Aqad as Balance between interest of
per regulation) shareholders and participants
Efficient (priority on participants)
and forward
looking
supervision and No Separate Rules
Risk-Based To address industry
Supervisory peculiarities; cooperate
Framework with DSN on Shariah issues
(Regulation ‘light’
for microtakaful as
incentive for TOs Leveraging
to offer micro On established field of
products) conventional system –
Microinsurance
Grand Design
Shariah Compliant
In all aspect of operationINCENTIVE TO INDUSTRY • OJK to use established Microinsurance Grand Design (accepted by industry) • OJK to relax on Risk Based Capital Policy but ensure Capital Adequacy and Availability • OJK to encourage industry cooperation through Consortium Agreement & Co-Insurance • OJK to encourage innovation and innovative products offerings from industry
ALIGN COOPERATIVE CONCEPT WITH BUSINESS MODEL • Ta’awun - Cooperative Concept well understood by the market • Concept of charity (tabarru’ & incorporation in line with religious beliefs) • Existing infrastructure is adaptable to model & contracts designed to suit model • Regulators (OJK) can influence conventional operators to offer microtakaful products
BUSINESS MODEL
Wakalah bi Ujrah bi Mudharabah Benefit upon claim, surrender
Benefit upon claim or maturity
Participant s
Contributions (possible
Wakala Fee
from zakat funds)
Tabarru’ Investment Contribution
To cover
operating
expenses & Retakaful/Reserves Participants’ Participants’
commission Risk Fund Investment
(tabarru’) Fund
100% 100%
Qard
Shareholders’ (if necessary)
Underwriting
Fund Investment Profit Investment Profit
Repayment Surplus
of Qard
100% Underwriting surplusESTABLISHMENT OF OPERATIONAL MODEL
Funds Segregation (Wakalah Model for Standard Microtakaful)
Shareholders’ Fund Takaful Funds
Pricing : Claims =
Income Pre-Underwriting
Taka
Rp 50K max. Santunan
▪ Upfront fees (ujrah)
▪ Performance fees
Retakaful Investment Liabilities
from takaful funds
Valuation
Operating Costs Qard to rectify
deficit
Surplus / DeficitThank you For your attention!
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