Suhaimi Ali: Keynote address - Takaful Rendezvous 2023
Keynote address by Mr Suhaimi Ali, Assistant Governor of the Central Bank of Malaysia
(Bank Negara Malaysia), at the Takaful Rendezvous 2023, Kuala Lumpur, 26
September 2023.
* * *
Assalamu'alaikum and a very good morning to distinguished guests, ladies and
gentlemen.
We are a few months away from the 40-year milestone when the Malaysia's Takaful Act
1984 was enacted to provide legal foundation for takaful establishment in Malaysia.
Over the years, the industry continues to grow in terms of offerings and quality of their
participation in the financial system. The size of the takaful industry has expanded
1
nearly three times to where it was a decade ago . This growth is propelled by the
growing public awareness of takaful products and a supportive Islamic finance
ecosystem. Notwithstanding these strides, the takaful industry is also facing critical
challenges to attain scale, expertise and to have the right business model. These
challenges have become roadblocks for the industry to be on a better footing to resolve
the social protection needs in Malaysia and facilitate an orderly transition to a greener
economy.
Globally, the takaful industry has also demonstrated significant progress and
developments. Today, there are more than 330 takaful operators in 47 countries2
3
worldwide. Global takaful assets size stands at an estimation of USD73 billion , almost
doubled from where it was in 2015. Nonetheless, navigating the path to attain greater
market maturity is still a long journey with current takaful share stands only at a modest
1% relative to the global insurance market.
th
Last week at the 18 Kuala Lumpur Islamic Finance Forum (KLIFF), I spoke about four
key game-changers for Islamic finance, which is also relevant to the context of takaful
industry today. Learning from the successes of the Islamic Golden Age, we must
continue to focus on a number of key attributes to propel the industry forward:
1. First, is to have a strong Shariah compass that guides and drives the takaful
activities. To yield meaningful impact, businesses, practitioners and industry
leaders of today must realign their practices to stay true to the spirit of Islamic
finance that places a strong emphasis on the benefit and welfare to society,
beyond just profit-maximisation as a primary objective.
2. Second, is the need to have a culture of innovation. Great Islamic civilisations of
the past thrived on intellectually vibrant environment - an environment that
promotes innovation, research, and the development of new technologies and
practices;
3. Third, it is vital to pursue a collaborative approach to achieve breakthroughs and
expedite reforms. During the Golden Age, scholars from different backgrounds,
cultures, and religions worked together and encouraged cross-pollination of ideas,
leading to innovative breakthroughs and advancements.
4. Fourth, is the need to focus on economic impact that contributes to a more
equitable and inclusive global financial system. The economic impact of past
Islamic civilizations can be seen in their promotion of trade, emphasis on
philanthropy, development of alternative financial systems, and commitment to
ethical business practices.
We can certainly be inspired by the successes of the past, but we must be firm in our
endeavour today to collectively grow the industry to better serve the socio-economic
needs of the ummah .
Ladies and Gentlemen,
Outcomes of Value-based Intermediation Takaful (VBIT) to unlock
potential of takaful
The VBIT Framework and Roadmap is one of the initiatives to provide a steer to unlock
Maqasid
the full potential of takaful industry, to fulfil the objective of Shariah and
progress towards achieving Sustainable Development Goals. Takaful is at the early
initiation stages of implementing the VBIT propositions, and this provides an opportunity
for industry to integrate fundamental values of Shariah and reinforce a framework with
emphasis on the key attributes that I mentioned earlier.
On this note, I wish to spend the remaining part of my speech to emphasise on three
priorities that are high on the agenda in setting the course to unlock potentials of VBIT:
1. First is to introduce value-based products and value-added services to better
meet socio-economic needs;
2. Second is to instil good governance to improve market conduct expectations; and
3. Third is to build stronger business connectivity to tap wider opportunities.
Priorities in elevating the contributions of takaful sectors in meeting
socio-economic needs
Let me begin with the first point on value-based products and value-added services .
An important outcome that we hope to see is greater availability and accessibility of
takaful products to better serve protection needs of the society, fulfilling the modality of
mutuality and solidarity. I wish to acknowledge progressive efforts by takaful operators
to address the protection gaps and to meet the growing demand for Shariah-compliant
products - by extending takaful coverage to underserved segment of society and
embedding new features and services that aligns with a Muslim's religious needs (for
example, badal hajj, waqf and charity).
These differentiators, which are commendable, should be further scaled up and further
diversified. Exploration of more distinctive business models are envisaged, such as
social blended takaful through the use of private and social funds complemented by
targeted financial and risk management programmes. This is similar to the blended
finance in the banking side. In driving differentiation and value-based innovation, digital
technology should be harnessed, and this is where the industry should make full use of
the conducive regulatory environment provided through the Regulatory Sandbox and
Digital Insurance and Takaful Operator (DITO) Framework - where we recently
concluded the public consultation on the exposure drafts and in the process of finalising
the policy documents. We at Bank Negara Malaysia are keen to facilitate emerging
innovative business models by new entrants and incumbents through these initiatives.
The second priority is on self-governance and best conduct , to align the
organisation's strategic orientation with Shariah values . The last sermon by Prophet
Muhammad (peace be upon him) serves as a reminder. He said,"-so regard the life and
property of every Muslim a sacred trust-". Within the context of takaful business, this
underscores the importance of takaful operators to have good management of takaful
business, based on the amanah (trust) provided by the contributing participants and
amanah ihsan
society at large. Complementing the and principles as a standard of
excellence provides an ethical framework to drive the best of conduct, an area often
overlooked in the pursuit for profit.
The integration of Shariah principles, Maqasid Shariah and VBIT across the value chain
and in managing the takaful funds, is not only expected but crucial for the industry's
advancement. Takaful industry must be steadfast in upholding expectations by acting in
the best interest of takaful participants and recognising the role of takaful operator as
manager ( wakeel ) with fiduciary responsibilities. Takaful operators should also not lose
sight of the vital importance of having robust control function. This ensures continuous
enhancements of internal operations.
The third priority is to build a stronger business connectivity by tapping wider
business prospects. The takaful industry in Malaysia is poised to benefit from various
national economic plans including the National Energy Transition Roadmap and New
Industrial Master Plan, alongside the ' Ekonomi MADANI: Memperkasa Rakyat '
framework.
In tapping these opportunities, the future direction of takaful demands a broader
perspective and commitment to address issues of scale, expertise and risk appetite.
Diversification and expansion, beyond the current concentration in personal lines (e.g.
motor and fire) are essential. This would mean building own capabilities and knowledge
to venture into unfamiliar risks, where coordination and cooperation are key alongside
innovation - involving various disciplines of Shariah, product, risk, strategy and
actuarial; and often with the support of retakaful and reinsurance players.
Malaysia has an enabling ecosystem with growing demand for Islamic finance, either
from individuals or businesses to support various economic needs. Today, halal
industry is also at the centre stage of many jurisdictions in the world, supported by the
shift in demand globally from both Muslims and non-Muslims towards ethical
consumption. Takaful operators should leverage on the halal ecosystem and meeting
the takaful needs for property and business protection to complement the wide range of
trade finance solutions for importers and exporters. Joint efforts in targeted financing
initiatives such as the iTEKAD for SMEs also provide an opportunistic avenue to foster
collaboration to tackle the pain points of accessibility, trust, affordability and protection
against unforeseen events.
For the retakaful players, it is imperative to capitalise on Malaysia's strength and
ecosystem for business outreach to Asian region and beyond. More countries are
working on the necessary regulations to enable takaful offerings and scaling up the
contribution of the sector. Retakaful players in Malaysia, with ready expertise and
capabilities could provide capacity to support growth and expansion of the takaful
industry in other markets.
Ladies and gentlemen,
As we stride forward, the three sets of priorities I have explained earlier on value-based
offerings, exemplary conduct and business connectivity calls for transformative actions,
to chart a future direction of the takaful industry that is agile and responsive to the
evolving needs of the modern and digital society.
Having a wide pool of high-calibre, knowledgeable and skilled workforce is paramount
to drive these priorities. The industry needs to continuously attract the right talent,
invest in capacity building efforts, and partner hand-in-hand with talent development
institutions. Following these points, I wish to encourage takaful stakeholders to leverage
on efforts that will be undertaken by MIFC Leadership Council (MLC) in exploring
innovative areas within takaful and work closely with human capital development
entities within the ecosystem.
The re-thinking and re-calibrating efforts can no longer wait. Quoting the words of
William Shakespeare - Action is eloquence. I believe the conference will accelerate
momentum to chart and act for a better future of the takaful and retakaful industry. VBIT
can be the catalyst to accelerate the progress in unlocking this. With this, I wish you all
a productive forum ahead. Thank you.
1
As at July 2023.
2
ICD-Refinitiv Development Report 2022
3
ICD-Refinitiv Development Report 2022