The Indonesian Shariah Insurance Association (AASI) has said that Shariah insurance or takaful in Indonesia still faces various challenges, particularly from the regulatory framework. Regulation is viewed as inadequate in boosting takaful penetration in the country.
AASI’s Secretary and Head of the Legal, Compliance, and Inter-Institutional Division, Mr Arry Bagoes Wibowo, speaking during a webinar, noted that while government support for the development of the Shariah economy is quite strong, regulatory initiatives specifically promoting Islamic insurance are limited.
He believes that Indonesia has a great opportunity to develop the takaful sector, given the dominant Muslim population and the growth of the Shariah economy.
Yet, the development of the Islamic insurance industry in Indonesia is considered as lagging, compared to several countries in the region, especially Malaysia. He indicated that Malaysia has in place specific laws supporting takaful a long time, thus enabling faster and more structured growth in the industry.
Shariah financial ecosystem
In addition to the regulatory framework, Mr Arry said that another challenge facing takaful in Indonesia is the suboptimal integration of the overall Islamic economic ecosystem. Connectivity between various sectors in the Islamic financial ecosystem, such as Islamic banks, financial institutions and insurers, is not optimal.
He pointed out that even though many projects promote Shariah-compliant insurance, takaful is not acquired in practice to cover the projects. Furthermore, a number of large companies and financial institutions have yet to adopt takaful in providing protection for their employees. M