During the past decades, much attention has been given to the development and growth of the commercial and profitable side of takaful (takaful al-tijari), whereby this side of takaful focuses primarily on the personal benefits or interests of takaful participants. This excludes the poor as well as the vulnerable in society at large due to the fact that they are not the takaful participants and do not contribute to the overall tabarru' fund. Having said so, the spirit that underlies these operational takaful efforts should not be overlooked. The takaful participants are in fact part of the society themselves; therefore, ensuring the well-being of the lives of others should be considered as an ibadah, and that responsibility should be upheld by all especially Muslims. This study aims to explore the social element in commercial takaful (takaful al-tijari) and how it can be amplified to contribute to the Islamic social finance ecosystem. This study adopts desk research as its methodology, where relevant past works of literature of secondary data such as books, journal articles, reports, and websites are reviewed and interpreted. This study appears as an attempt to discuss and highlight the opportunities for commercial takaful to contribute further to the Islamic social finance ecosystem. Findings of this study suggest that there is room for commercial takaful to contribute further to the Islamic social finance ecosystem.
TopIntroduction
For the past 5 years, Malaysia was reported as the leader of the Islamic economy ecosystem in the State of the Islamic Economy Report 2018/19 from 2013 until 2018 consecutively (Dubai International Financial Centre & Thomson Reuters, 2018). The Malaysia International Islamic Financial Centre (MIFC) stated that Malaysia continues to be the main contributor for the Sukuk market, representing 47.5% of the total global outstanding Sukuk as at end February 2020; and accounts for 34% of the total global Islamic funds assets under management (AuM) as at end 2019. In 2019, Malaysia was ranked as the most developed Islamic finance market globally based on Islamic Finance Development Indicator (IFDI) values with a score of 115 IFDI value. The IFDI provides rankings and profiles for different Islamic finance markets worldwide. Interestingly, the IFDI indicator does not only focus on the overall size and growth of Islamic finance sectors across countries; additionally, it also evaluates the strength of the overall ecosystem that contributes in the development of the Islamic finance industry. There are five main indicators of the IFDI: Quantitative Development, Knowledge, Governance, Corporate Social Responsibility (CSR) and Awareness. Each main indicator is also comprised of several sub-indicators as depicted in the figure 1.
Figure 1. Main and sub-indicators of IFDI
Based on the IFDI ranking system as in the figure below, although Malaysia took the lead in the overall indicators, there was one indicator that Malaysia falls short in the 11th place which is the CSR indicator (ICD - Refinitiv, 2019).
Figure 2. Source: Islamic Finance Development Report 2019 On top of Malaysia’s inspiring performance as the pioneer in the commercial sector of Islamic finance, it is high time to gear the country up to similarly lead the revival of Islamic social finance instruments. Islamic social finance instruments have the potential to be an important factor in reducing poverty (IRTI & Thomson Reuters, 2014, p. 34) and attempting to overcome the challenging socio-economic problems, for example, education, unemployment, malnutrition and health issues (A. Abdullah, 2019).
The three main traditional Islamic social finance instruments: zakat, sadaqah and waqf are philanthropic in nature. There is also another type of Islamic social finance instrument such as qard and kafala which are ta’awun (cooperation) in nature (IRTI & Thomson Reuters, 2014, p. 14; Mohd Zain & Engku Ali, 2017). In the present contemporary world, Islamic social finance may also come in the form of contemporary Islamic financial services such as Islamic microfinance, Sukuk and micro takaful. Ta’awun-based concepts form the basis of the underlying contract in today’s takaful products and services. Takaful can be developed as a sustainable instrument of safety net for society at large in providing basic needs to the public, especially in facing tragedy or calamity (Mohd Zain & Engku Ali, 2017).
When talking about Islamic social finance in the form of modern Islamic finance, Islamic microfinance, sukuk and micro takaful are among the widely discussed instruments. However, this study tries to explore the social element of mutual social responsibility (takaful al-ijtimai) within the commercial takaful which is rarely discussed in works of literature.