IMPORTANCE

OF
INTRODUCING
MICROTAKFUL
Submitted by: Nageeta

Submitted to: Dr. Abidullah

 Importance of introducing Islamic Micro takaful scheme
Goal of world bank is to reduce world’s population who live in poverty to 3% by
2030(worldbank,2015). Poverty reduction cannot be ignored by developing countries. more than 1
billion people in the world live in extreme poverty. Poverty mainly has found in developing countries
therefore it is challenging issue for developing countries to combat poverty. World bank made efforts
to achieving the goal by implementing social safety, providing social insurance, including initiative to
protect people from disaster, epidemics. Poor people do not have access to financial resources and risk
management tool for natural disaster, crop protection, health safety, unemployment risk, death or
disability risk, theft of assets which are their earning source. therefore, they face multiple risks at
same time. To overcome poverty risk, poor people need to be able to borrow but due to low level of
income banks did not give them loan especially to women who works day and night for upbringing of
their children.

From microfinance to micro takaful

Awareness of evils of poverty has a long history. as we see globally a financial exclusion. Financial
system operates in such a way that only elite people can get benefit from financial services. 60% to
70% people cannot open account in banks to save their daily wages, they cannot take loan from banks,
and cannot mitigate risk. Because they have low income about to 5000 to 10,000. according to
financial system policies they cannot return their loan. And insurance policies cannot give guarantee
for them. If they save some amount from this income but unfortunately bank cannot give them
opportunity to open account in their banks.

Microfinance
Micro finance is tool to provide financial services to lower income people which are excluded from
formal financial sector, main objective of microfinance is to include lower level income people into
financial sector and remove vicious circle from their lives. And to fulfill consumption needs of needy
people without taking any collateral. they can get credit of 1000Rs from this sector and they can save
100RS. to 200RS. They can save their livestock through microinsurance.
The initiation of microcredit program as a poverty reduction tool is initiated in 1970. Grameen Bank
model dominant approach of microfinance institutes. Dr. Muhammad Younus gave a concept of
microfinance and initiated this concept with Grameen bank, a bank for borrower in which low income
people can borrow loan without collateral, they can save their money. Especially for woman who are
sole earner for their families but due to needs they want some loan but formal financial sector didn’t
provide them loan therefore Dr. Muhammad Younus gave them loan from their own resources and
with passage of time he enhanced this program by Grameen bank.
The social role of Islamic finance is to serve needy people by providing them financial services in
accordance with shariah law. Given that interest is prohibited in shariah law, so it comprises different
types of financial instruments which are riba free. role of financial instrument based on activity for
which funds are granted. Islamic fqih academy proposes that using cooperative insurance based on
charitable donation and cooperation as a result takaful was developed to come with shariah
compliance insurance scheme.
Takaful
Takaful is an Arabic word Kafala which means joint guarantee. Takaful is form of protection from
risk and give a guarantee for future. Takaful means mutual protection and join t guarantee.
Operationally, takaful refers to cooperation between people who contributes to common fund with
purpose of having mutual indemnity in case of loss. Takaful is kind of cooperative insurance which is
based on Islamic law for enhancing social solidarity among policy holder. It seeks protection against
risk. According to Billah, (2001) the objective of insurance is to diversify risk among members. the
key organizational feature of takaful is mutual insurance and policyholder takes up position of
ownership and bear risk. and managerial function is performed by takaful operator (TAKAFUL
COMPANY). Premium which is like contribution is paid by participant is stored in pooling fund, then
fund is invested and profit from fund is paid back to participants. Takaful is operated by two key
models depending on relationship between company and participant Either they are partners
modaraba model or company act as agent as in wakala model. All funds which are invested in
Takaful are Riba free. takaful does not include Gharrar, interest, Gambling because it is accordance
with shariah principle, its objective is risk diversification.
Reference of Quran
“Help one another in furthering virtue and Allah consciousness and do not help one another in
furthering evil and enmity” AL Maidah: verse 2.
Takaful is form of mutual help in furthering good by helping others who are in need.
Micro takaful
micro takaful is a scheme for low income people, to meet he characteristics and basic necessities of
lower income people such as farmer, worker, small traders.
According to Khan, 2006 Microtakaful is designed as mechanism to provide shariah based protection
to blue collared, under privileged individual at low cost.
Micro takaful pool is made by contribution of zakat, waqaf , Government donation, or participant can
also contribute small portion from their income, then this pool of fund will be invested and profit from
investment is distributed to policyholder, if surplus amount is collected than it should be paid back to
participants. And if pool amount is not sufficient to distribute then company re-assess these basic
contributions go back to all participant to contribute more but it is difficult to recollect from
participants therefore company increase donation rate. company does not get any profit only charge
service fee.
Main characteristics Of Micro takaful
Takaful is mutual insurance with compliance of shariah law while micro takaful focuses on poor
segment which has production capacity, but they are not able to get funding.it needs and can benefit
from Zakat, donations, funding. There is relationship between microfinance and micro takaful both
have same national goal of sustainable development by reducing poverty and protection poor rights.
Micro takaful is so important because without it micro finance funding is not possible.so, it fills
existing gap between microfinance with respect to need and availability of security collateral needed
for poor segment on one hand, and to provide adequate security against risk of default on other hand.
Micro takaful encourages financial institution to finance poor segment by assuring guarantee and it
work to spread culture of social responsibility.
Takaful products
there are two main categories of micro takaful products.
1. General Takaful
2. Family Takaful
General Takaful
General takaful scheme which is basically contract of joint guarantee on short term basis normally one
year. General Takaful plans intended to meet the insurance needs of people and corporate bodies in
connection to materialistic loss or damage done due to any catastrophic condition. Takaful
contribution paid is pooled in participant risk under principle of Tabbaru. This will wipe out risk of
Gharrar.
Products property takaful, marine takaful, motor takaful, cargo takaful, fire takaful, engineering
machinery takaful.

Family takaful
family Takaful provides long term protection saving and investment opportunities. This scheme has
tendency to be normal reserve funds designs where participant demonstrates his need to accomplish
an objective amount by a predetermined time later. This will release the burden of family in
misfortune time.
there are two main types of family Takaful product
1. Individual family Takaful product
2. Group family Takaful products.
Individual family Takaful products consists of protection product, investment product, retirement
product, medical product, educational plan, marriage plan. While, Group family Takaful is normally
subscribed by employer for benefit of employees. It provides financial assistance to participant to any
emergency, normally medical expense.
Family takaful protection aims to provide financial help for the beneficiaries of participant when
participant died or disabled.
Retirement Takaful aims to provide a lump sum amount after retirement and provide medical benefits.

Importance of Micro takaful schemes

Introducing micro takaful schemes in developing countries where majority of people are deprived
from financial services. Poor people needed saving insurance, term insurance, health insurance,
education insurance, livestock insurance, crop insurance, credit insurance for loan, property, or asset
insurance. These types of insurances are provided by conventional insurance and takaful but people
who belongs to lower income level cannot approach to these insurances. Suppose education micro
takaful is promoted in Pakistan it will help in sustainable development of country, because when poor
children attend school child labor reduces it will further move toward employment level where they
use their skills creativity and knowledge and they will design future of nation. As jubilee family
introduced Wafa education Takaful plan that allow participant to manage saving for children’s better
future. It has maturity benefit, and death benefit.
Agriculture is source of food and raw material, but this is highly exposed to unfavorable conditions.
Crop micro takaful do not only save crop of poor people but also it will help in boost up economy.
Poor farmer work on crop day and night but collect only few rupees with risk of flood, insect attack.
They cannot bear these risks. If micro takaful Is provided to farmers, they have at least guarantee that
some one will help them to mitigate risk. Punjab Government launched crop takaful scheme to protect
income of farmers against unfavorable circumstances.
its knowing that life can brings you its ups and downs so everyone want to be prepared. So,
introducing family micro takaful for those who are really in need having low income, suffering from
disease, have family burden is blessing for them. Micro takaful will cover expense incurred by
hospital, treatment cost. After disability or death of participant beneficiaries will get benefit at least
they will fulfill their basic needs. if individual Invest 100RS. AT the end he has as much as he can
hold his family expense. As standard charter bank limited introduced a Mustqabil a underwritten plan
by Pak Qatar family. This is limited to ensuring a bright and relaxed future.
Property Takaful such as small homes small enterprises valuable assets, machineries, equipment
required certain security from fire, theft, or from any unfavorable events especially need people who
collect their daily wages and make their home need micro takaful. If they face any unforeseen losses
so they can save their property from microtakaful. In Pakistan FIRE and Allied PERIL Takaful which
is designed to cover participants properties against any risk, destructions, damages to make life secure
of needy people.
Introducing Micro takaful will contribute in income, wealth, quality of life, social cohesion among
people, economic wellbeing, employment, it will also help to counter poverty and deprivation. Also
help in sustainable development which is achieved through mutual work.
As accessibility of investment fund credit facilities will help the poor to face and overcome
unforeseen losses, yet, that because of the high repeat of mishaps of accidents and disasters in the
areas where this category live, and a higher claims rate on one hand, and the ability to save or borrow
is very limited or non-existent on the other hand. Close until the very end or illness or disability of
the head of household means inability to pay any outstanding balances of debt, so the micro takaful
can play an important role, even it will be the only resort and the most effective way to confront risks
to this category and at the same time maintaining optimum utilization of assets, savings and loans.

Endowment Micro Takaful

There is no doubt that there is a hope in micro takaful resulting from concerned effort of all people.
Micro takaful is one of economic service sector that is expected to experience exponential growth in
coming years not only in Muslim countries but world while because many countries are now move
towards it.Micro takaful scheme have a social protection element it is incomplete without
Government of any country because lower level income can’t pay premium or can’t contribute to
takaful fund . country is responsible for providing all types of benefits. India has an integrated
insurance package for insurance Vimo Sewa which offers three products death, sickness, loss of
death. China is also providing flood insurance for those who lives near Yangtze river basin.
Government pays 70% and policyholder pays 30% of premium. it is also important to merge micro
takaful with Zakat, waqf, donations from charitable organizations, NGOS premium can be paid by
zakat amount and donation amount. Organization of Islamic conference international waqaf and zakat
foundation it is recommended by these organization to utilize zakat fund to subsidies contribution of
poor people. this is important to reduce premium amount for low income people as they purchase
policy. As waqaf is voluntary charitable donation of asset or property. So, profit which is generated
from waqaf projects can be utilized for micro Takaful.

Conclusion
It is very challenging to implement micro takaful schemes in developing countries. Micro Takaful is
emerged from microfinance. it is tool for poverty alleviation and inclusion of low- level income
people into formal financial sector. Micro takaful is shariah based scheme for blue collared,
underprivileged people. It is form of protection from risk and give a mutual guarantee for future.
Micro Takaful will help in sustainable development when basic needs of poor are satisfied by
different products of micro takaful schemes .Government ,NGOS , international organizations,
organization of Islamic conference are working towards micro takaful.it is considered as more
important because it mitigate risk , it is cooperative in nature and share profit. Both Takaful and micro
takaful are predicting to future growth of not only in muslim countries but also in all developing
countries.