For many decades, observers and pundits have pointed to Islamic finance as being the future of financial services in many (mostly Muslim-majority) markets.
If time has taught us anything, it is that developments in the financial world can be rather slow – and so experts no longer expect Islamic finance to undertake a sudden and massive growth spurt. Rather, they have come to expect that the sector will grow slowly and steadily each year.
But even within this progress, there is still a yawning chasm between the growth of ‘High Street’ retail Islamic banking, debt-capital-market-infused Islamic investment banking and takaful.
Takaful, almost without exception, is viewed as the poor cousin of the headline-grabbing banking sectors. There is seen to be less going on, less development and – without any doubt – fewer headlines.
The reasons for this are myriad, but it is not difficult to see that the underlying growth rates of takaful penetration on a global basis are disappointing. Sometimes growth percentages give the casual impression of eye-popping advances – but invariably they are from a very low base.
It is all too easy to conflate data from Gulf and Middle Eastern countries with takaful markets in Asia like Malaysia, Indonesia, Brunei and Pakistan and miss the fact that what growth there seems to be patchy and inconsistent.
But almost certainly the underlying root cause of the difficulties in growing takaful comes down to the single issue of financial literacy.
In many ways, this is the same impediment holding back the further growth of conventional insurance – but the problem facing takaful is more acute because of the inconsistency in the ways in which young people are taught the basics of takaful.
Young people, as we know, are generally hungry for information – quizzical about anything that fascinates them. They are keen to form their own opinions about everything that they feel touches their lives rather than regurgitating the opinions of their parents or teachers.
One single charismatic spokesperson - Greta Thunberg - provides a great example of how an entire generation of young people can be turned on to the importance of climate change and the need for environmental protection.
The task of teaching young people, while they are still in school, if possible, about the important part that takaful could play in their lives – in terms of protection, of risk pooling and of financial planning – should not be underestimated.
It is unlikely that this can be achieved without expert inputs from all sectors – financial specialists as well as educational specialists – but teaching the young today about the proper role of takaful may be the only way that the sector will see the kind of sustained growth that it has been striving to achieve for decades.
The rise of cryptocurrencies and blockchain and such developments are already piquing the interest of an entire generation and so this could be the time for a concerted transnational effort to teach young people about the realities of takaful – in the hope of a substantial rise in takaful penetration across the world in a generation from now.
Paul McNamara
Editorial director
Middle East Insurance Review