Mohd Razif bin Abd Kadir: Further development of the Islamic financial
services industry in Malaysia
Speech by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the
official launch of HSBC Amanah Takaful (Malaysia) Sdn. Bhd., Kuala Lumpur, 12 September 2006.
* * *
Bismillahir Rahmanir Rahim
It is indeed an honour to be here this morning to commemorate the launching of HSBC Amanah
Takaful (Malaysia) Sdn. Bhd. This occasion chalks up another accomplishment in the takaful industry
in Malaysia, as we position ourselves towards achieving a dynamic, competitive and efficient Islamic
financial system that is able to contribute to the overall development of our economy, and to enhance
the integration of our Islamic financial system with the global market. The launching of HSBC Amanah
Takaful (Malaysia) Sdn. Bhd. marks another significant milestone in terms of our strategy towards
developing a progressive takaful industry, that is able to adapt to the increasingly challenging and
competitive environment as well as adjust to the forces of change that has redefined the domestic and
international financial landscape.
Ladies and gentlemen,
Over the past two decades, the takaful industry in Malaysia has grown progressively, underpinned by
the holistic and pragmatic approach in the development of the Islamic financial industry. Indeed, we
have witnessed an orderly development of the takaful industry. The takaful industry continues to
exhibit good financial results each year, as reflected in the three-fold increase in total assets to RM6.5
billion in June 2006, as compared to RM1.9 billion five years ago. More significantly, average
doubledigit growth rate of 18.9% for net contributions of combined family and general takaful in the past three
years, demonstrated the high potential of the industry. Whilst sustaining the current pace of
development, there still exists high growth prospect for the takaful sector, in view of the large untapped
potential, with the market penetration rate recorded at merely 6.1% in June 2006.
Ladies and gentlemen,
Bank Negara Malaysia has laid down a number of initiatives to further enhance the competitiveness
and growth momentum in the development of the takaful industry. These initiatives emphasised on
enhancing operational efficiency, strengthening corporate governance and risk management as well
as improving the market practices and consumer awareness. All players need to capitalize on these
initiatives for the takaful industry to achieve sustainable success and unleash the potential gains of the
Islamic finance in Malaysia and abroad.
Allow me to share some significant developments that may shape the future direction of the takaful
industry moving forward.
Firstly, as the prudential framework evolves towards a predominantly principle-based and
riskbased regulatory approach, there will be a greater emphasis on risk management, corporate
governance and transparency so as to maintain investor confidence and public trust.
Commensurate with the diversity and complexity of takaful operational framework, products and
services, the continuous upgrading of risk management practices, with improvements in governance
standards and enhancements of information management systems will be critical. Under this
environment, it is envisaged that takaful operators, individually or collectively, will play a bigger role in
enhancing risk management practices, developing market conduct standards, fostering fair market
practices and improving financial literacy among consumers. This will be even more important with the
implementation of the risk-based regulatory regime, whereby the responsibility for the implementation
of sound risk management and market conduct governance, as well as assessment of risks and
management of the financial condition of a takaful operator, will rest increasingly with the Board of
Directors and Senior Management of the takaful operators. Moving forward, a differentiated regulatory
approach will increasingly be adopted, where companies that exhibit strong corporate governance and
risk management practices will be given greater regulatory flexibility and may enjoy greater capital
savings.
Secondly, it is vital to have in place an efficient and cost-effective delivery channel for the
takaful business, strategically aligned to fulfil the participants' reasonable expectation.
Bancatakaful strikes as an attractive value proposition that enables takaful operators to tap into
banking institutions' large customer base and attract the existing clientele of the latter to have access
to integrated financial service offerings in the most cost effective manner. Strategic alliance in the
bancatakaful arrangement has indeed shown a significant improvement in the takaful contributions
over the past few years. This is evident with the significant three-fold increase in contributions of the
product marketed through bancatakaful in 2005 which accounted for 20.4% of total contributions.
Bancatakaful has contributed considerably to the increased penetration in the family takaful business,
especially for single contribution takaful plans. We envisage significant inroads in the penetration rate
of bancatakaful in future years in line with the positive trend shown by the conventional counterparts,
where the bancassurance captured 45.3% of the new life insurance business premiums generated in
2005.
Through efficient cost structures of bancatakaful and with the entry of joint-venture takaful operators
involving banks and savings institution with extensive nationwide branch network, the takaful industry
should maximize the potential of this alternative distribution channel.
Finally, on the global front, Islamic finance has made significant inroads and has achieved
growing global recognition. Another significant milestone in the progress of Islamic banking
and finance as recently announced by Bank Negara Malaysia is the initiative to enhance the
position of Malaysia as an international Islamic financial centre (MIFC). With the vibrant domestic
Islamic financial industry that has become an integral component of the financial system, Malaysia is
now well positioned to be an international centre of origination and issuance of Islamic financial
instruments, fund and wealth management, Islamic financial activities in international currencies and
takaful and retakaful businesses.
As at year 2005, the total gross contributions from takaful business outside Malaysia recorded an
insignificant proportion of the total contributions of the industry. The relatively low participation of
takaful operators in international business, is however set to change with the recently announced
MIFC initiatives, to allow qualified local and foreign financial institutions to conduct the full range of
Islamic banking and takaful businesses in foreign currencies. It was also announced in the recent
budget that attractive tax packages in terms of 10 year tax holiday are given to all takaful operators on
their international currencies takaful business. In addition, MIFC accords greater operational flexibility
for the Islamic financial institutions to conduct Islamic financial services in foreign currencies from
anywhere in Malaysia. To ensure effective delivery system under MIFC initiatives, the MIFC Executive
Committee, with Bank Negara Malaysia as secretariat, has been set up to provide directions and drive
implementation of policies and strategies to foster effectiveness and efficiency of the MIFC.
Well capitalised and reputable financial institutions that possess sound track record are encouraged to
set up international takaful operation in Malaysia to conduct out-out takaful and retakaful businesses.
The Malaysian takaful operators should seize the opportunity to venture into out-out takaful business
establishing an international currency business unit to offer takaful business in international
currencies.
Ladies and gentlemen,
In tandem with the rapid changes and expansion of the Islamic financial sector, it is vital for us to have
a strong, continuous support in talent management and development. Towards this end, several
initiatives in regards to sustaining and improving the level of expertise in the industry have been put in
place. Earlier this year, Bank Negara Malaysia has launched the International Centre for Education in
Islamic Finance (INCEIF), an institute providing internationally recognised certification and
programmes with the aspiration to strengthen the pool of specialists in Islamic finance. INCEIF offers
an international professional certification programme for Islamic financial practitioners that includes a
dedicated module on takaful. This complements Islamic Banking and Finance Institute Malaysia
(IBFIM) and International Centre for Leadership in Finance (ICLIF) in providing adequate training at all
levels to the industry players and technical programmes in Islamic finance. In addition, Bank Negara
Malaysia has recently announced the Shariah Scholarship Award that is offered to local and foreign
candidates to pursue post-graduate studies in the field of Shariah relating to fiqh muamalat (Islamic
commercial jurisprudence) in recognised universities as well as to obtain the Certified Islamic Finance
Professional offered by INCEIF. The Bank also offers Shariah Research Grant to research
organisations and institutions of higher learning, both local and foreign, to undertake research in the
areas of Shariah relating to Islamic finance, takaful and the Islamic capital market. All these initiatives
are aimed to enhance the pool of talents, knowledge and research capacity in the field of Shariah
relating to Islamic banking, takaful and the Islamic capital market.
Ladies and Gentlemen,
The growth and development that have been achieved thus far have provided takaful operators with
greater opportunities or avenues to progress, both at domestic and international levels. HSBC
Amanah Takaful (Malaysia) Sdn. Bhd. and HSBC Bank Malaysia Berhad, with the group's strong
international network and experience, are well positioned to make Malaysia as their regional and
global hub for Islamic banking and takaful. HSBC Amanah Takaful (Malaysia) Sdn. Bhd. should also
leverage on the strengths of its shareholders i.e. HSBC, Jerneh Insurance Berhad and Employees
Provident Fund, to further accelerate the growth of the takaful business. On this note, it is my pleasure
to congratulate HSBC Insurance (Asia Pacific) Holdings Limited, Jerneh Asia Berhad, and EPF on this
momentous occasion of the official launch of HSBC Amanah Takaful (Malaysia) Sdn. Bhd. I wish
HSBC Amanah Takaful (Malaysia) Sdn. Bhd. every success in its endeavours and look forward to its
contribution towards further development of the Islamic financial services industry in Malaysia.
Dengan lafaz Bismillahir Rahmanir Rahim, saya dengan sukacitanya merasmikan pelancaran HSBC
Amanah Takaful (Malaysia) Sdn. Bhd.
Terima kasih.