Developing a sustainable microtakaful model for the B40 community in Malaysia

Abstract

The takaful industry in Malaysia has begun to actively offer microtakaful products and services to the B40 population, following the issuance of the Discussion Paper on Microinsurance and Microtakaful by Bank Negara Malaysia (BNM) in 2016. However, the participation rate of the B40 population, a demographic characterised by lower-income levels continues to remain low. The objectives of this study are to (i) assess the main issues and challenges faced by the takaful industry on the current microtakaful initiatives, (ii) structure a microtakaful model that practically and smoothly collates and distributes products and services to the B40 in Malaysia; (iii) explore a sustainable funding mechanism for the proposed microtakaful model which utilises various sources of funding, including Islamic social finance instruments, namely zakat and waqf; and (iv) increase the effectiveness of the proposed microtakaful model’s financial literacy and awareness programme for the B40. The study utilises a thematic literature review as well as a one-to-one interview with takaful industry stakeholders, namely the key personnel of takaful operators (TO), Shariah committee members, a member of a board of directors (BOD), and two representatives of State Islamic Religious Councils (SIRCs). The findings and feedback are then utilised to produce a microtakaful framework that serves as a foundation for the formulation of a robust microtakaful model that not only addresses the challenges, but also ensures an effective and efficient distribution of products and services, tailored to the unique needs of the B40. The interviews explored diverse funding sources, including Islamic social finance instruments such as zakat and waqf, in order to develop a financial framework that would ensure long-term stability and resilience of the microtakaful model, which aligns with the broader objective of enhancing financial inclusivity among the B40 population. In addition, a tailored financial literacy and awareness programme will also be established to encourage effective participation in microtakaful products among the B40. The study provides evidences revealing concerns among the key stakeholders in relation to product oversupply, limited awareness and literacy, and regulatory compliance that overshadow the genuine needs of the B40. The study then progresses to propose strategies for the structuring of an effective microtakaful model, emphasising on Shariah compliance, fund management, non-governmental organisations’ (NGOs) involvement, and community engagement. To address the critical issue of sustainable funding, the study identifies a number of solutions involving corporate social responsibility (CSR) funds, increased government participation, collaboration with state entities, and effective marketing. The study highlights improvements in financial literacy programmes for the B40 through the proposed microtakaful model, emphasising stakeholder coherence, poverty alleviation and technological leverage. In conclusion, the study offers a comprehensive understanding of challenges and solutions in advancing microtakaful initiatives in Malaysia. The envisioned microtakaful model is expected to enhance coordination, sustainability, and penetration rates among the B40.