The IFSB and IAIS Release Joint Paper on Issues in Regulation and Supervision of Microtakaful (Islamic Microinsurance) Sector.

The Islamic Financial Services Board (IFSB) and International Association of Insurance Supervisors (IAIS) today announced the issuance of a Joint Paper on Issues in Regulation and Supervision of Microtakaful (Islamic Microinsurance).

Microtakaful is an important mechanism that provides Shariah-compliant protection to low-income and under-privileged segments of society under the principles of Tabarru' (donation), Ta'awun (mutual assistance) and prohibition of Riba (interest). Due to its nascent stage, regulators and supervisors have relatively little experience or empirical data to support their role in creating an environment conducive to the promotion of affordable Takaful services to low income and under-privileged segments. Therefore, the main objective of this paper is to highlight and identify regulatory issues prevailing in the Microtakaful sector and outline the role this sector can play in enhancing financial inclusion. In particular, the issued Paper:

· Identifies current practices and models for offering Microtakaful products, and the challenges and potential issues in offering them to target customers.

· Reviews the current regulatory framework for the Microtakaful sector in various jurisdictions and suggest initiatives to strengthen it and thus enhance financial inclusion through the Takaful sector.

· Provides guidance to the regulatory and supervisory authorities in implementing an enabling environment for the development and growth of the Microtakaful sector.

The Issued Paper highlights distinguishing features of various models used for offering Microtakaful products which, despite having many common features with Takaful products, pose various unique supervisory challenges. Backed by a survey from Microtakaful operators as well as regulatory and supervisory authorities, the Issued Paper delineates the distinguishing features of Microtakaful such as types of participants, product features, participants' contribution and distribution channels.

The paper also sheds light on corporate governance aspects of the Microtakaful sector, including the role of boards of directors and Shariah Boards in providing policy direction and ensuring the effectiveness of the Shariah governance framework.

This Issued Paper also delves into critical issues that require the attention of regulatory and supervisory authorities of Microtakaful sector. These areas pertain to the requirement of the separation of funds, solvency and capital adequacy framework, investment policies and Shariah compliance requirements. Other key aspects covered include customer education and awareness, consumer protection, licensing requirements and supervisory review processes. Finally, the Issues Paper illustrates the relevance of the IAIS' Insurance Core Principles in the practice of Microtakaful.

The Secretary-General of the IFSB said, "Following the global financial crisis, the G20 and international standard-setters have stressed the importance of supporting initiatives to widen access to finance, as a means to promote greater financial and social stability". He further noted that, "This joint Issued Paper with the IAIS continues the IFSB's work in clarifying the appropriate regulatory issues that can, in appropriate manner, extend and widen the reach of Islamic finance to the poorest and least-served segments of society".

The Issues Paper is available for download from the IFSB and IAIS websites at www.ifsb.org and www.iaisweb.org.