The Cooperative Insurance in Saudi Arabia: A Nucleus to health Reform Policy

2011 International Conference on Information and Finance IPEDR vol.21 (2011) © (2011) IACSIT Press, Singapore

Created by:
Deena M Barakah, DDS : Dental Clinic Department, King Saud Medical City, Ministry of Health, Riyadh, Saudi Arabia
E-mail address: drdeena@gmail.com
Shakir Ahmed Alsaleh : School of Public Health & Health Informatics, King Saud bin Abdulaziz University for Health Sciences
E-mail address: Alsalehs@ksau-hs.edu.sa

Abstract. In order to fulfill the country's health sector developmental objectives, the Kingdom of Saudi

Arabia has endeavored to reorganize and improve its health care systems. One area of health sector that has

undergone profound change and significant progress is health insurance. A comprehensive health insurance

programs - based on the Islamic concepts- have been created and implemented through a new government

council for cooperative insurance. This paper discusses the Saudi health insurance act, its Islamic philosophy,

implementations of its programs and a brief summary of its concrete accomplishments. A detailed discussion

is given for the many challenges and difficulties faced the implementation of this act. The Saudi cooperative

health insurance innovative approach to health care development, can serve as a model program for

developing countries undergoing rapid health sector development. Evaluation of its effectiveness in

providing improved health care in the kingdom of Saudi Arabia may also offer an example for other Arab

and Islamic countries with similar health care needs.

Keywords: Islamic Cooperative Insurance (Takaful), Saudi health systems, Health Insurance in

developing countries

1. Introduction:

The overall development boom witnessed by the Kingdom of Saudi Arabia over the past four decades

has led to a steady growth of the population of the Kingdom of Saudi Arabia (3.1% per annum), one of the

highest in the world. In addition, the country infrastructure development required a large number of foreign

expatriate workers. This brought to the country more than seven million workers. In view of the existence of

this population growth coupled with the huge workforce expansion, the demand on health services soared

and associated with a considerable rise in the cost of health care. This has reflected on the significant of the

health services and encumbered public hospitals from providing satisfactory health care.

Health insurance system has been anticipated as a strategic solution to this problem and hopefully

expected to realize many objectives of health care sector development. [1] The start of the health insurance

reform was initiated on 1999, when the council of Ministers passed a resolution for the establishment of

cooperative health insurance system aiming at the provision of health care and its organization to cover all

the non – Saudi residents working in the private sector and their families. Later on, the Cooperative Health

Insurance act was issued by a Royal Decree no: M /10 on August 1999.

1.1. Methodology of the Paper:

In this paper, we present a summary of the progress made to implement health insurance system in the

kingdom. A detailed discussion is given for the many challenges and difficulties faced the implementation of

this act. An exploratory approach is used as a primary research method to determine the status of the

cooperative health insurance system in the kingdom of Saudi Arabia. Our study is mainly based on the rich

literature of Muslim scholars on Cooperative insurances, the Saudi insurance act contents, and on official

cooperative health insurance council reports, statistics and documents.

1.2. Related Works and Research Significances:

Prior work on this subject has focused on assessing the application of Islamic principles into insurance

and how this type of insurance arrangement works.[2-4] Several research studies also investigated the growth

of “Takaful” insurance industry and its availability and operation on various countries, especially those with

a significant Muslim population. [5-7]. Studies on the level of knowledge and understanding among Muslims

towards the Takaful concepts are presented in reference [8, 9]. The development of Saudi health sector

based on Takaful insurance is presented in several official reports[1, 10-13] While these published works

are valuable, it is also fundamentally important for researchers to continuously monitor and document the

health care progress and improvement surrounding using new insurance approaches. With lack of sufficient

research studies on Saudi health community, this work seeks to address this gap via presenting a descriptive

study of the current status of cooperative insurance in the kingdom health sector. As few studies have

discussed health insurance in Saudi Arabia, the work presented in this paper, may therefore be the base for

other studies to come. The description of applications and progress of cooperative insurance in Saudi health

sectors is also a valuable initial step towards evaluation of their effectiveness in providing improved health

care in the kingdom of Saudi Arabia.

1.3. Paper Organization:

The paper is organized as follows: The subject of building the insurance industry on the Islamic principle

and Shariah (Islamic law) is discussed in the next section. This section reviews the concepts and principles of

Islamic cooperative insurance which is proposed as an alternative to conventional insurance. In section three,

the trends and history of Cooperative health insurance is covered. Section four describes the Cooperative

Health Insurance Act and the role of the council of cooperative health insurance that has been formed to

implement the act in the Saudi society. In section five, we review the challenges, progress, and achievements

made so far in applying the Takaful system in the kingdom. Complications that faced the growth of the

health insurance industry are discussed in section six. Finally, the conclusion sections summarize the result

of this study.

2. Islamic Cooperative Insurance (Takaful):

Muslim jurists generally agree that Islamic insurance Takaful is based on principles of mutuality and

cooperation. These necessities shared responsibility, joint indemnity, common interest and solidarity, and

freedom from Islamic forbidden elements such as gambling, uncertainty and interest. As an insurance

business, Takaful is perceived as a cooperative insurance, where members contribute a certain sum of

premiums money to a common fund with not profits purpose but to uphold the principle of “bear ye one

another’s burden." Based on this, the main principles of Takaful insurance are as follows: [6, 14]

• Every policyholder pays his premiums to a common Takaful fund

• Losses are shared and liabilities spread among participants as any participant suffering illness would

receive a certain sum of money or financial benefit from Takaful fund as defined in the insurance pact.

• All transactions and commercial activity of Takaful must be in accordance with the Islamic principles

and in compliance with the Shariah (Islamic Laws).

• Uncertainty is minimized in respect of subscription and compensation by implementing the concept of

Tabarru (denotation). Thus each participant shall agree to give certain portion of his Takaful instalments

as “a donation”.

• An insurance company is established as manager of the Takaful Operations and is allowed to charge a

management fee for Takaful transactions.

• The Takaful Fund, consisting of the premiums paid as donations, is further invested by the Company in

compliance with the Shariah law with no element of interest (Riba) involved. The investment profit will

be shared on agreed ratio. This surplus is normally distributed on expiry of each insured’s insurance

policy.

• If the participants premiums and investment are insufficient to meet these adjustments, those affected

insured could be assessed for additional contributions.

The above key issues reflect the basic differences between Takaful and conventional insurance. [15]

3. Trends and History of Takaful Health Insurance:

Takaful, or Islamic insurance concepts are based on the principles of TA-AWUN (mutual assistance and

cooperation) and Tabarru (Voluntarily) origin. These can be traced back to Islamic guidance revealed in the

holy Quran fourteen centuries ago. The development of Islamic insurance (Takaful) in recent times was first

initiated in Sudan in 1979 and Malaysia in 1984[16]. The practice was given a strong support by the 1985

Fiqh (Jurisprudence) Complex ruling declaring that conventional commercial insurance is not allowed

islamiclly and that the application of insurance business should be based on the cooperative principles.

Since then, the Takaful industry operations, expanded very rapidly in many countries throughout the world.

Malaysia has been the leading country for Takaful progress through the introduction of several dedicated

Takaful regulations allowing the cooperative insurance industry to have a high growth rate in that country

[17]. This approach was followed by other countries primarily in Islamic countries and countries with a large

Muslim community including: Indonesia, Brunei, Singapore in the Far East and Saudi Arabia, Bahrain, Iran,

Qatar in the Middle East. Recently, takful has also been introduced in UAE, Kuwait, Egypt, Bangladesh and

in non-Islamic countries such as Sri Lanka, Belgium, US and Canada. Main global presence of takful in the

world is mainly in Saudi Arabia (27%) Malaysia (34%), and Indonesia, Bahrain and UAE (5%) [7, 15, 16,

18]. The growth of number of Takaful companies reached 26% per year for the period 2006-2010. In this

regard, it is worth noting that Takaful contribution reached US$2.2 billion and by 2015, and it is estimated

that Takaful contribution could approach US$11 billion, with a growth rate of roughly 11-15% per year [7,

15]. The estimate for global Takaful assets is about 15$ billion by 2015. [15] This shows clearly that there is

a tremendous opening for Takaful to develop worldwide, and with more introduction of Takaful regulations

and investments, Takaful industry is expected to become a healthy and growing industry and strongly

competes with the conventional insurance business.

4. Saudi Cooperative Health Insurance Act and Laws:

Insurance in the Kingdom of Saudi Arabia was first regulated by the provisions of the articles of

incorporation of a national company for cooperative insurance issued by Royal Decree No (M/5) on 1985.

This laid the base to start insurance industry by insurance companies registered in the Kingdom and

operating in accordance with the practice of cooperative insurance and not inconsistent with the provisions of

Shariah. In 1999, the Cooperative Health Insurance Act was issued by a Royal Decree to launch a new

health insurance program, aimed at covering ultimately the whole Saudi and non Saudi population. This new

program is based on ‘Takaful’, or Islamic insurance concepts. The Cooperative Health Insurance act consists

of nineteen articles and aims to first regulate the provision of health care for non-Saudi residents in the

kingdom, and later on, after specified time phases to be applied to Saudi Citizens. [13] The act made the

health insurance compulsory, with anyone sponsoring a non- Saudi resident shall be obliged to participate in

the cooperative health insurance for the benefit of the resident and by attachment of the residence permit

issuance and renewal to fulfilling a cooperative health insurance policy. The Cooperative Health Insurance

act also established the Cooperative Council for Health Insurance (CCHI) to supervise the implementation of

the cooperative health insurance act. The main tasks of the CCHI include: the preparation of the act

executive bylaws, certification of the cooperative insurance companies, accreditation of “private & public”

health care providers centres, and the definition of the cooperative insurance financial regulation and fees.

[19] The act also defined a health insurance policy that covers the basic health services. These services do

not however prejudice the requirements of the social insurance regulations nor with health services offered

by private companies, institutions and individuals to their employees in excess of those provided by this act.

Following the promulgation of the cooperative insurance act, the rules of implementation of the

cooperative health insurance system and the details of cooperative health insurance policy was issued by

Minister of Health Resolution No. 460/23/DH on June 2002. [20] On July 2003, a Royal Decree No M/32

approved the control law of cooperative insurance companies. This law complements the Cooperative Health

Insurance Act and aims towards controlling insurance and re-insurance activities and to regulate and approve

rules for cooperative insurance companies’ establishment and licensing in the kingdom. The Saudi Arabian

Monetary Agency (SAMA) was assigned the power of technically supervising the implementation of the

insurance control law. SAMA main task is to guarantee that insurance companies satisfy the conditions and

the rules applicable in this respect [21]. On 10/2002 the council of Ministers passed a resolution for the

enforcement of the Cooperative Health Insurance Act on Saudi citizens working with companies, private

establishments or individuals. Finally, On May 2009, based on CCHI resolution, the executive bylaws of the

cooperative insurance act and the terms of a unified standard policy was declared in a ministerial decision by

the minister of health [22].

5. Challenges and Achievements:

In this section, we are interested in reviewing the application of this new Islamic insurance scheme and

what are the factors that contributed to its success or failure. In the positive side, as a result of health

insurance act, since 2007, health insurance became the largest line of insurance business. At that year it

accounted for 36% of total gross written premium (GWP) and 43% of total Net Written Premiums (NWP)

in 2007 [19, 23]. By early 2011, and after five years from the date of health insurance implementation on

15/07/2006, there are 8.3 million health insured individuals, 2,147 Health Care Providers accredited, and 26

Health Insurance companies certified [19,23]. Recent economy survey into the Saudi insurance sector

revealed that the sector will create between 35,000 to 40,000 job opportunities over the coming decade. [19,

23]. This survey results also revealed that, the sector itself will be worth US$18 Billion by 2016. [19]

The most drawbacks of the kingdom experience with insurance solutions are quite similar to the

experience of developed countries that have preceded the kingdom in implementing commercial health

insurance. Continuous increase of health care cost due to the large demand for health care encouraged by the

insurance sector and the relatively small number of certified insurance companies. The prices of various

health services have continuous rises (5-10%) yearly in the value of insurance premiums depending on the

types of services covered [19]. Other drawbacks is lack of compliance with the Shariah laws by many

insurance companies, due to the absence of regulatory bodies and accurate information data and

transparency of the cooperative insurance practice, which resulted numerous disputes, fraud and abuse of

insurance policies by all parties involved.

6. Conclusion:

The Kingdom’s experiment with health insurance is relatively new and full of challenges. Takaful health

insurance in Saudi society contributed relatively moderate positive impact on certain sectors of Saudi

economy, namely insurance industry, private health care business and job market. However, several negative

fallbacks also occurred which call for reconsidering other additional solutions for funding health care

services

Speaking at the symposium entitled “Health Insurance Conference – Options & Prospects” organized by

the Ministry of Health on 2011, the Saudi Minister of Health pointed out that the main aim of applying

cooperative health insurance in the Saudi kingdom is to improve and develop the health sector according to

the sound principles of Islamic religion and culture without burdening the citizens, as is the case in many

other countries. He also stated that there should be more efforts to identify the concept, the purposes and the

consequences of insurance, to differentiate between commercial health insurance and cooperative health

insurance, and to know that the concept of insurance is not necessarily associated with the privatization of

the health sector. The experience of developed countries demonstrated clearly that the implementation of

commercial health insurance and the privatization of the health sector, led to increasing costs of healthcare”

[24].

In our opinion, the relatively short experiences of the Saudi health sector demonstrated the strong need to

a comprehensive public health insurance coverage. With the respect to Takaful insurance sector , our

opinions is that the application of cooperative health insurance noble principles can assist in reducing

health care cost if this sector is re-structured and regulated.

7. References:

[1] Ali, Kasi Md. Mortuza, 1989. “Principles and Practices of Insurance under Islamic Framework,” Insurance Journal,

(December): 29-38.

[2] Bank Negara Malaysia. (2005). 20 Years Experience of Malaysian Takaful Industry. Bank Negara Malaysia.

[3] Bhatty, Ajmal , “The growing importance of Takful Insurance “ , Asia regional seminar , OCED and bank of

Negara , Kuala Lumpure , 22-24 September , 2010

[4] Dawood, Yousef Taylor, “Takaful in the new millennium Where are we now? Where do we go from here?” ,

Takaful articles , Number 1: ICMIF , August 2005

[5] Habshi, Syed Othman, 1997. “Takaful – A Suitable Alternative for Contemporary Economy,” Labuan

International Summit on Takaful, June 19-20, Labuan, Malaysia.

[6] Kahtani, Ali Ayad “Experience of Mandatory Health Insurance in Kingdom of Saudi Arabia”, Presentation of

Compulsory Medical Insurance Workshop, Bahrain Insurance Association 12-13 OCT 2008, Bahrain.

[7] Maysami, Ramin Cooper, 1998. “Islamic Insurance: Sudan to Singapore,” Asian Business Law Review,19

(January): 62-68.

[8] Maysami, Ramin Cooper and W. Jean Kwon, “An Analysis of Islamic Takaful Insurance--A Cooperative

Insurance Mechanism,” Journal of Insurance Regulation, Vol. 18, No. 1, Fall 1999, pp. 109-132.

[9] Marcel Omar Papp , "Understanding Takaful/reTakaful" , Swiss Re Zurich Company – Retakaful Branch,

Research Report, October 2010

[10] Mohamad Abdul Hamid, Mohd Sukki Othman, "A Study on the Level of Knowledge and Understanding Among

Muslims Towards the Concepts, Arabic and Shariah Terms in Islamic Insurance (Takaful)", European Journal of

Social Sciences – Volume 10, Number 3 (2009).

[11] Norlida AM, Rosemaliza AR, Yusnidah Ibrahim. 2004. Awareness and Ownership of Family Takaful Scheme

Among Muslim Community in Malaysia. The Journal of Muamalat and Islamic Finance Research (JMIFR) Vol.

1/No. 1: 121-136

[12] Penland, Claude, Recent Trends in Takaful, Casualty Actuarial Society, World Wide Web :Casualty Actuarial

Society site : (www.ClaudePenland.com)

[13] Proceeding of the 3rd International Islamic Banking , Finance & Insurance (TAKAFUL) Conference "Islamic

Banking, Finance & Insurance (Takaful) in North America: Opportunities & Challenges“ Ottawa Congress Centre,

Ottawa, Canada May 2007

[14] Rabeah, Abdullah, Conference opening ceremonial speech , Health Insurance Conference – Options & Prospects”

Ministry of Health on 2011 , the Saudi Minister of Health April 2011,

[15] Sharif, Abdullah I., Secretary General Council of Co-operative Health Insurance,” Health System and Insurance

In Saudi Arabia ” , BHF Southern African Conference , July 2008

[16] Sharif, Abdullah I., Secretary General Council of Co-operative Health Insurance , “Compulsory Health Insurance

Way Forward” ,Health Insurance Conference –“ Options & Prospects” Ministry of Health , April 2011

[17] Usmani, Imran, “Takaful : the Islamic insurance” Securities and Exchange Commission of Pakistan (SECP )

Takaful Conference , Karachi , March 14, 2007

[18] Cooperative Insurance Companies Control Law, Royal Decree No M/32 , July 2003, (2 Jumada II 1424)

[19] The First Annual Report For the Year 1428H (2007G), Cooperative Health Insurance Council, Ministry of Health ,

Riyadh Saudi Arabia ,2007Jiang, R. Fan. Recognition of Biological Signal Mixed Based on Wavelet Analysis.

[20] The Second Annual Report For the Year 1429H (2008G), Cooperative Health Insurance Council, Ministry of

Health , Riyadh Saudi Arabia ,2008

[21] The Third Annual Report For the Year 1430H (2009G), Cooperative Health Insurance Council, Ministry of

Health , Riyadh Saudi Arabia ,2009

[22] The Cooperative Health Insurance Act, Royal Decree no: M /10 on August 1999. (1/5/1420 H)

[23] Rules of Implementation of Cooperative Health Insurance system, & cooperative health policy, Ministry of health

Resolution No. 460/23/DH , 1423

[24] Implementing Regulations of the Cooperative Health Insurance Law in the Kingdom of Saudi Arabia (Amended).

Cooperative Council for health insurance Session No. (73), Ministerial Decision No. DH/1/30/6131 , 08/06/1430H

[25] World Wide Web : www.cchi.gov.sa (Council of Co-operative Health Insurance), July 2011

[26] World Wide Web :www.moh.gov.sa ( Ministry Of Health) July 2011

[27] World Wide Web :www.cdsi.gov.sa ( Central Department for Statistics and Information) July 2011

[28] World Wide Web :Casualty Actuarial Society (www.ClaudePenland.com) June 2010

[29] World Wide Web :Institute of Insurance and Risk Management (IIRM) (www.iirmworld.org.in)

[30] www.kantansurance.htmkji.com/fiqh/I May 2010

[31] www.eventscom.net/bia/presentation.htm (Compulsory Medical Insurance Workshop , Bahrain) ), July 2011

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The Takaful Insurance and a Brief Reviewing in Latin America

Introduction

Starting the 1970s and increasingly in the 1990s, Islamic countries and other countries with a significant Muslim population have encouraged the provision of financial services, including insurance, under Islamic principles. As a result, a number of Islamic insurance companies, called Takaful insurers, have been established to provide Muslim individuals and businesses with insurance coverage both in the life and non-life sectors (Field Research, 2011).

Currently, there are about seventy “Takaful” operators world-wide. During last twenty seven years Islamic Insurance (Takaful) has developed mainly in Sudan, Egypt, Saudi Arabia, Iran, Kuwait, Lebanon, Malaysia, Brunei, Indonesia, Singapore, U.A.E., Bahrain, Bangladesh, Nigeria, Tunisia, Bahamas, Belgium, South Africa, Switzerland, Australia and in the USA. Interestingly Takaful is seen in the non-Muslim world as well. For example, in Singapore there are less than half a million (15% of total population) Muslims but at least two operators are now providing Takaful scheme in Singapore. In non-Muslim countries, the scheme is also likely to grow if the operators can prove their worth in comparison to conventional insurance products. In Muslim countries, Malaysia seems to be the single most successful country in terms of Takaful. In Singapore, about 22% of the present Takaful policy holders are non-Muslims (Mortuza, Ali; 2009:10 and Field Research, 2011).

In European countries, the particular case of the United States, and in a smaller scale in Latin America, there has been an important increment in the Muslim population and therefore a big increment in Islamic financial institutions -banking system- that offers financial products to meet the needs of the Muslim population with different characteristics from the ones offered in the Conventional System, meeting the demands of the Muslim population in these countries.

Consequently a new interest arises -in Latin America especially -, an deep interest in the way these markets and their products operate, the interest being such that the Islamic Financial System and its products, in this case the Takaful, can become a financial option or with parallel coverage as the regular financial options and conventional insurances already existent, especially for the Muslim population in these countries and the access to the same by the non Muslim population.

Kooper and Kwon (2000) indicated that as result of this growth process in the Muslim community in many countries around the world, many companies, especially in the United States, and other non Muslim countries in Europe such as United Kingdom and France, have been including financial services related to insurance field or financial products for the Muslim market.

The importance of the diversification in the markets and financial products, especially those related to the Islamic System, the growing interest from non Muslim companies and individuals to understand the dynamic of these products and how to gain access to them, and last but not least, the existence in Europe, United States, and Latin America of an important and continually growing number of Muslim communities in need of the offering of financial tools -according to their religious principles-, conform an important base for the elaboration of this document. The study in this field is made with the goal in mind of understanding why a new product like Takaful could be developed in Latin America, especially to attend the needs of the Muslim community, but also to make it a future option of financial cooperation with social sense, parallel to the existent Conventional Finance System and accessible to the Latin American non Muslim Community that wishes to use the product.

This document in first instance presents a general explanation about the Takaful, especially its origin and importance, followed by a general approximation –due to lack of information- to the development of the Takaful in Latin America. Continuing with a description of the Muslim community in Latin America, and later why is important to develop the Takaful in Latin America for the Muslim community as well as the non Muslim population, finally conclusions on the matter.

2.Brief Background

2.1.Takaful principle approach

With the establishment of the Dubai Islamic Bank and the Islamic Development Bank, as the starting point of Islamic Banking Movement, H.E. Prince Mohammed-El-Faisal-Al-Saud of Saudi Arabia took initiative for the establishment of a number of Islamic Banks. In one of such initiatives in February, 1976 he held discussions with H.E. Gafar Nimeiry (the then President of the Democratic Republic of Sudan) and asked for permission to establish an Islamic Bank to be operated in Sudan. Executive and Legislative authorities in the Sudanese Government at all levels gave every encouragement and acceded to the proposal (Mortuza, Ali; 2009:5).

When Faisal Islamic Bank was established, the Bank authorities initiated studies on the establishment of a co-operative insurance company. In this respect the opinion of the Bank’s Shariah Supervisory Board (S.S.B) was sought. The S.S.B studied the case at the first meeting. Studies continued and several steps followed. The Memorandum of Association and Articles of Association were prepared by the Faisal Islamic Bank authorities. The S.S.B proposed some amendments which were implemented. The S.S.B ensured that the scheme was sound from Shariah point of view as well as feasible from practical point of view. Consequently, the Islamic Insurance Company Ltd Sudan was incorporated as a Sudanese Public Company (under the Companies Act 1925) in January 1979 (Mortuza, Ali; 2009:5).

Mortuza (2009) mentioned this is the first ever insurance company established in the world to transact business according to the Islamic Shariah. The entire authorized capital of this company was subscribed to by the Faisal Islamic Bank. The company was allowed numerous concessions and exemptions. All its assets and profits were exempt from all types of taxes. Further, the assets of the company are not subject to confiscation, nationalization etc. The company is also exempt from the application of The Acts regulating insurance in Sudan.

In recent decades, many Islamic countries have found that insurance plays a crucial role in furthering their economic developments and, even in some of those countries; Western (non-Islamic) insurers are allowed to underwrite risks. A few local insurance companies were also incorporated in selected countries. Yet, it seems somewhat remote that Muslim communities would accept broadly the Western concept of insurance because it does not conform well to several Islamic principles. They instead have developed a new concept of insurance that complies with Islamic principles, called Takaful insurance (Kooper and Kwon; 2000:2-3).

This is a type of joint guarantee insurance mechanism based on the law of large numbers in which a group of societal members pool their financial resources together against certain loss exposures. Takaful insurance is now popular in many, yet not all, Islamic countries as well as in other countries with a significant Muslim population, e.g., Brunei, Indonesia, Malaysia and Singapore. Interestingly, Takaful arrangements are also found in Luxembourg and Switzerland and, recently, in the US, Australia. Growth is forecast to be especially rapid after the turn of the century (Kooper and Kwon; 2000:3).

The idea of having Shariah based insurance system (Takaful) stems from the earnest desire of the followers of Islam to conduct their affairs in day to day life according to the teachings of Islam and within the framework of Islamic Law. Takaful is based on the concept of cooperation, brotherhood and solidarity of the members of the society who voluntarily agree to contribute money to support a common goal of providing mutual financial aid to the members of the group under certain terms and conditions (Mortuza, Ali; 2009:2).

Currently, Takaful has emerged as a complementary and supportive system of Islamic Banking movement throughout the world. Islamic Insurance (Takaful) like Islamic Banking has become a viable reality. Due to inherent Sharia principles which are universal in character, the Takaful business would be more appealing in the coming years both for the Muslim and non Muslim communities. Most of the Muslim countries having Islamic Banks have established Islamic Insurance companies as necessary complements to Islamic Banking. The growth of Islamic Insurance companies would serve as the vehicle of risk pooling. It will also provide means of investment (Motuza, Ali; 2009:2).

More than seventy Takaful/Islamic Insurance companies have been established for providing insurance coverage both in the life and non-life sectors. These insurers generally known as Takaful operators are found not only in Islamic countries but also in Europe, North America and Australia. This type of modified insurance mechanism is expected to further influence the supply of and demand for insurance in the Muslim community (Mortuza, Ali; 2009:6).

2.2. Takaful Insurance in Latin America

In the case of Latin America, information regarding Islamic Finances and specifically the implementation of products like the Takaful is extremely difficult to find. There are only a few documents written with this regard and the informational resources don’t have a valid source that allows us to make a trustworthy analysis on the subject.

In a region with few Islamic financial institutions like Latin America -particularly Takaful firms- it is surprising that different institutions consider a move into the Latin America Takaful market. For instance, BestRe2, the reTakaful subsidiary of Dubai-based Salama with most of its business in East Asia, is planning expansion into South America. Now, the timetable for this expansion is some ways off -5 to 7 years. BestRe’s general manager its HQ in Tunisia, Riadh Karray, confirmed that the company’s timeline for its South American expansion depends on the growing Takaful industry expanding to meet demand from Muslims in countries with larger Muslim minorities, either Guyana, Surinam and French Guyana or Brazil and Argentina which have the largest total number of Muslims in South America3. AIG as a worldwide insurance company -as well as BestRe- have presented the need of promoting Takaful insurances in Latin America, however is not a real project at the moment.

The Shariah Fortune4 in their website indicates that in Latin America, the Takaful can be found in Brazil. The company is ACE Latin America, located in Sao Pablo and it’s the provider of Takaful insurance in the country. Also in Sao Pablo, the Bank of Tokyo-Mitsubishi UFJ, Ltd. No more records were found in Latin America of other companies or banks that offer Islamic products like Takaful Insurance.

2.3. Muslim Population in Latin America

Islam is the second largest religion in the world with one and quarter billion followers. In all, Muslims form a majority of the population in over forty countries. Muslims live in 184 countries comprising about 20 percent of world population (Mortuza, Ali; 2009:6).

In Africa, Islam is the second most dominant religion after Christianity and over 40 percent of the population is Muslim. In Asia, where Islam is again the second most popular religion after Hinduism, over 20 percent of population abides by Islamic principles. Muslims also comprise approximately 4 percent of the European population. In the US, the number of Muslims has grown from more 10,000 in 1900 to over 4.8 million in 1997. All in all, 1.12 billion Muslims live in 184 different countries, comprising about 19.4 percent of world population in 1996.

In Latin America, from the beginning of the second half of the 20th Century, the Islam recovered the expansive power from the mediaeval age, concentrated on reaffirming their traditional territories, all the while it begins an expansion to regions traditionally non Muslim, among others Latin America. Even with the presence of Muslim since the colonization times, the Islam has never presented Latin America as an objective since its expansion until the end of the 20th century. (Andrade, Gabriel; 2001:119)5.

For the “Organizacion Islamica para America Latina” (OIAL), the arrival of the Islam to America is just as ancient as the region itself. Since the discovery of America by the Spaniards in the XV century, the slaves, brought by the conquerors from the north and west of Africa, introduced the Islam, they settle down in countries like Brazil, Venezuela, Colombia, and some islands of the Caribbean. A big majority of these slaves were Muslims, who did not have the freedom of practicing their own religion. Therefore with time the remains of the Islam started disappearing from Latin America.

The OIAL (2011), have calculated that Brazil and Argentina are the countries with more Muslim presence. Also there has been immigration of Arabian communities to Venezuela, Colombia and Paraguay. The majority is Syrian and Lebanese’s (Christian and Islamic). In Costa Rica is calculated that the number of Muslim families could be around 2006 (around 1200 people).

It’s calculated that the Muslims in Latin America are around 6 and 7 million, according to data for 2006. The groups are the Sunnis, the Chita’s, Orthodoxies, the Marnoites, the Sufis and the Druze. The specialists agree that the numbers on the Arabian presence and Muslim in Latin America are very confusing and diverted. The first mosque in Argentina was built around 1986, Carlos Menem, ex-president of Argentina was a descendent of a Muslim family from Syria that got converted to Christianity. Others such as Abdala Bucaram, was a president of Ecuador and he was descendant from Libya. Gabriel Turbay, presidential candidate in Colombia in the forties, was Lebanese, and the famous Architect Alejandro Christophersen from Uruguay had Muslim origins. In Brazil alone there are 40 mosques with 36 Islamic organizations7. There are registries of the new construction of the new mosque in Panama, as well as the advances in the possible construction of a mosque in Costa Rica.

There was also a significant financial support from countries like Qatar, Saudi Arabia and Kuwait. These countries have invested around 20 million dollars to build major mosques and Islamic centers in Latinamerican major cities like Buenos Aires, Mexico City, Caracas and Lima (LAMU, 2009 en Andrade, Gabriel; 2001:127).

In the Central America case, surnames such as Kattan, Handal, Siman, Salume, Canahuati (Qanawaiti) Frech, Hasbun, Samara, are famous on the economic and political elite more powerful in the region. Some, like Carlos Roberto Flores from Honduras, and Antonio Saca in El Salvador have become presidents of these countries -although the story has been the most successful Mexican billionaire Carlos Slim, one of the world's millionaires entrepreneurs-. Palestinians also came to Nicaragua, and have had much influence in the life of the country. Nicaragua opened the first and only diplomatic representation of the Palestine Liberation Organization (PLO) for the entire region. The same happened in Panama, Guatemala and Belize, where there are strong communities of Palestinian origin, such as the rest of Central America, have been integrated and mixed with the rest of the Central America population8.

In the Costa Rica case, the Muslims arrived around 1887. Mostly Lebanese in isolation, and in successive waves -and such as the Palestinians-, fully integrated into the economic, political and cultural life. It was a descendant of Lebanese, Miguel Barzun, who founded in 1976, the “Bolsa de Valores de Costa Rica”9.

However, despite the growing importance of Muslim communities, and native increasing who adopt the Muslim religion in Latin America, it is clear that countries that support the expansion of Islam, especially in economic and financial terms have been to Latin America on the second place, especially since these strategies have expanded more strongly in the U.S. and Western Europe.

3. Takaful Insurance importance for Muslims and Non-Muslims Communities in Latin America

In the Latin American case, the Banking System is an essential element of the reproduction of capital. In this regard, the Banking Credit System uses the mechanism of interest charges on loans granted to Banks, which eventually generates capital gain. In Islamic System, the capital as an instrument can’t produce more capital, unless it is associated with a certain type of production. The “usury” prohibition from Islamic System has recently become an option to appeal the vast majority of Latin Americans, both Muslims and no-Muslim population (Andrade, Gabriel; 2001:123).

The banking system is an important channel to develop products such as Takaful. In Latin America the Conventional Banking System prevail, and the possibilities of offering Islamic products has been almost impossible for many years, especially with the latinamerica conutries conditions, and religious principles underlying the Islamic Financial System. Those are very differents from the Conventional Banking System. In addition, has not been also a demanding application of this system in the region except in Brazil where -as noted above-, there is already Takaful Insurance market.

The situation in Latin America has been very different than happened in Europe or United States. Important efforts have been during recent years in Latin America, but not yet consolidated. For instance, in the banking system, there are advanced talks about the importance of guidelines establishing that contribute to the development, throughout the region, the Islamic Banking System, and Takaful Insurance. Brazil, Argentina and Panama, have been most concerned to advance on these issues10. This would facilitate greatly the development, not only of products such as Takaful, but other Islamic Financial products. Importantly, Brazil has advanced greatly in the implementation of Islamic Financial Institutions, and financial products like Takaful Insurance.

According to Mortuza (2009), the Takaful is based on the concept of cooperation, brotherhood and solidarity of the members of the society (as important principles of Islamic Law) who voluntarily agree to contribute money to support a common goal of providing mutual financial aid to the members of the group under certain terms and conditions. The objective of Islamic Economic system is the promotion of welfare of people which lies in safeguarding their faith, their life, their posterity and their property. By ensuring and safeguarding these elements of the people, Takaful serves public interest and, therefore, can play the most important role.

Based on the words of Mortuza (2009), the Takaful Insurance in Latin America could become to expand the universe of possibilities in the insurance sector, especially by providing a differentiated product based on cooperation and solidarity principles of society. More Muslims in Latin America would be able to access this system. In addition, more non-Muslim population of Latin America would have the opportunity to learn the system, and to expand their opportunities for choice between a Conventional Insurance, and Takaful Insurance.

Mortuza (2009) also metioned Takaful is an alternative form of conventional insurance based on the concept of trusteeship and cooperation inspired by the beliefs of the followers of Islamic teaching. Muslim societies in different parts of the world are now practising Takaul scheme as their own way of sharing financial responsibilities to assist each other. They have invented an Islamic way of mutual assistance to deal with uncertainties of life. Takaful is a service to Muslim Ummah (community) as a welfare scheme. Introduction of Takful is an example as to how the principles of Islamic Shariah can help to create new socio-economic mechanism based on equity, justice and fair play.

Takaful is a social scheme based on the principles of brotherhood, solidarity and mutual assistance. It provides mutual financial aids and assistance to those who are members of the takaful scheme and voluntarily agree to contribute a certain amount of money for that purpose. It is a mutual agreement among the participants of the scheme. This has its origin from the concept of collective sharing of individual’s loss. Takaful, is being practised now as an alternate of conventional insurance system and is bounded by Islamic principles, rules and the law of Islam -Shariah- (Mortuza, Ali; 2009:2).

Being a social framework based on the principles of brotherhood, solidarity and mutual assistance as Mortuza points (2009), Islamic finance in general, and specifically the Takaful could become an important tool in social terms in Latin America. Disadvantaged groups, especially those in agriculture and rural areas, have been desperate for new alternatives, strategies and / or more accessible social and financial programs. Recent studies indicate that there is demand for Takaful products, especially micro-takaful -among the poors populations- to micro finance and insure their business, especially in the agricultural sector. However, coverage of these programs is limited by the trained personnel lack; the lack of awareness of the poor people of the importance of insurance, insurers and reinsurer’s lack, and the lack of appropriate regulation. Islamic laws allow the establishment of cooperative links between insurance companies and Takaful (not between cooperatives and commercial insurance companies) in order to contribute to greater coverage to the poor people socially excluded.

As an example of this, the first draft of Takaful –micro takaful-, the Agricultural Mutual Fund (Agricultural Mutual Fund) was established in Lebanon in 1997 to provide health insurance to the rural poor people. The scheme considers expenses not covered by the government program that pays 85 percent of hospital costs. Currently, the Fund operates in 180 communities and serving 23,000 members. Members can access it from any religion. Each insured family must pay $ 10 a month, but the communities cover the cost of the poor people who can not afford. Premiums are kept low because the health costs are low in Lebanon since the program is heavily subsidized by government.You may need to outline their premiums rise if the government withdraws or reduces its subsidy. It also requires an expansion of coverage beyond the rural areas, increased the technical assistance, and reinsurance to help them achieve sustainability (Nagarajan and Meyer; 2005:43).

Due to inherent Sharia principles which are universal in character, the Takaful business would be more appealing in the coming years both for the Muslim and non Muslim communities, especially in United States, Europe, and currently in Latin America as new option -especially for poors inhabitants-. Most of the Muslim countries having Islamic Banks have established Islamic Insurance companies as necessary complements to Islamic Banking. It has been estimated that total Takaful contribution (premium) is approximately 0.05% of total world insurance premium. The consumers demand for Shariah compliant products is increasing and a high level of demand for Takaful is being predicted by market observers. The Takaful industry is fast evolving and entering a stable development phase. It is now right time for the national regulators to provide supportive Takaful laws, rules & guidelines (Mortuza, Ali; 2009:2).

As clearly pointed Mortuza (2009), the importance of Islamic Financial System has increased in recent years around the world, but in the specific case of Latin America, the efforts should be made to increase the presence of financial sector and their products like Takaful.

Takaful, generally means joint guarantee. It is an understanding among a group of people (called the participants) who agree to reciprocally guarantee each other financially should any event (as defined in the contract) occur. The basic objective of a Takaful contract is to pay from a common fund, which is set up by the participants of the scheme. The fund thus created may be managed by the participants themselves or through professionals or by a registered Takaful Operator11. The fund is created by the equitable contributions of the participants (Mortuza, Ali; 2009:3). While it is still non-existent or underdeveloped Islamic Banking System in Latin America, which could be the main channel for products such as Takaful Insurance, is important to consider the future implementation in the region. For instance, the Islamic principles on which to base the Takaful, the growing population of Muslims world-wide, especially Latin America being an important region in number of Muslim inhabitants as well as non-Muslim community interest to know about the Takaful, and be able to access this type of financial products, are important elements to consider strengthening the idea that in the short term to generate studies which help to develop strategies for the inclusion of these and other Islamic Financial products worl-dwide, and especially in Latin America.

Few efforts have been made on this issue. The Shariah Fortune12 in their website indicates that the Takaful Insurane can be found in Brazil. The ACE Latin American Company, located in Sao Paulo, is a provider of Takaful Insurance in the country. Also can be found the Bank of Tokyo-Mitsubishi UFJ, Ltd in Sao Paolo. In the rest of Latin America, not able to obtain more records from other companies providers or banks that offer Islamic Financial products such as Takaful Insurance. Likewise, there are in Latin America around between 6 - 7 million Muslims accounted for until 2006, of which about 2 million are located in Brazil -about 33% of the total-, a large majority in Argentina and Mexico, likewise a significant number in other countries such as Uruguay, Venezuela, Panama, Costa Rica, El Salvador, Colombia, among other countries, which account for almost 67% of the total. Considering the Brazil case, has a Takaful operator that works in this country, it could indicate that around 67% of Muslims living in Latin America do not have the opportunity to access that Islamic financial products, but also these statistics are some references to see if it really is feasible the development of Islamic Financial System and Takaful Insurance in Latin America.

Key elements that make up the Islamic Financial System could support both Muslims and non-Muslims in Latin America. For example, the principles of brotherhood, cooperation and social integration, the system of sharing profits or losses or to provide money without charging interest would make the Islamic Financial products more attractive to the Latin American population, especially because the Conventional Banking System lost from many years ago the social component in their financials operations, especially for poor people. As mentioned Mortuza (2009),

“Takaful has been designed to help and stabilize the financial situation of individuals, families and organizations. At the same time Takafukl operators can meet the financing needs of large projects, thereby helping the national economies by enlarging the set of feasible investment projects and encouraging economic efficiency. Takaful will definitely help to foster a more efficient allocation of capital and resources of Islamic countries, by way of promoting trade, commerce and entrepreneurial activities”.

Finally, the Islamic Banking and Islamic Insurance system have tremendous potentiality and prospect. The successful launching and operation of Islamic banks and insurance has established the fact that banking and insurance without interest is feasible, viable, competitive and sustainable on the face of competition from the conventional interest based system. The gradual and successful globalisation of Islamic Banking and Islamic Insurance coupled with growing awareness of the people about its financial and social benefits makes it clear that the current century is going to be the century of Islamic banking and insurance vis-a-vis complementation of Islamic ideals for the betterment of the people at large and establishing equity & justice for all (Mortuza, Ali; 2009:13-14)

Conclusions

The document is a very general approach on a specific topic such as the Takaful Insurance. There are still many gaps to take and explain, especially because in Latin America such issues are poorly studied, and access to information is limited. Also the possibility of developing an Islamic Financial System or the Takaful Insurance System could be considered little or no currently feasible in many Latin American countries, except Brazil and other countries such as Venezuela, Argentina, Panama, Chile, Peru and Costa Rica, with greater openness in financial services issues.

The lack of information about the system structure and the principles on which it is based, and the benefits to be accrued for the Latin American population in general, are highly unknown. This reduces the Takaful System promotion in the region. In addition, other elements such as political barriers, economic model, cultural, religious system, and language, could further reduce the implementation in Latin America of the Islamic Finance System and Takaful Insurance System, however, those are some of the challenges. As I mentioned earlier, the Brazilian case could be studied and to seek possibilities for play on the rest of Latin America.

Based on the above, other more specific studies and other field’s researchs can contribute in the near future, to develop strategies to encourage the development of the Islamic Finance System and Takaful Insurance System in Latin America. The Takaful Insurance Principles like brotherhood, cooperation and solidarity in society would make a significant resource in a region as Latin America, with so many social and economic poblems. Likewise, the productive sectors, especially those with less access to Conventional Finance Systems, are urged financial tools and social coverage, consistent with the conditions presented.

The same as North America -specifically Canada and the United States- or Europe, where the Muslim community has grown, in Latin America also today there is a large Muslim community, somewhere between 6-7 million, which opens the possibility of studying the conditions that could make feasible the implementation of Islamic Financial System, in this case, the Takaful Insurance System.

The possibilities in Latin America there are other Financial Systems –such as Islamic Financial System- than the conventional Financial System, could be many, varied, and greatly strengthened. As I mentioned above, in Brazil there are efforts in this regard, and specifically ACE Latin America Company with the implementation of Takaful Insurance, which could facilitate the model replication in other countries in the region, and willing to adopt the new system. Also, discussions to expand this system in other Latin American countries has -notably Panama and Argentina-, been an important agenda item.

However, the information limited about Islamic Financial and Takaful Insurance, but mostly the policy, cultural, religious and language differences could make some barriers between new financial products -especially those from the Islamic Finance- and Conventional Financial products stablished in Latin America. Questions as: What? Why? and Who? may not be clear enough, refers to Islamic Finance in general, and specifically the Takaful Insurance in Latin America. However, the metioned above is the central challenge in relation to Latin America and the countries of the Islamic world to collaborate and support the idea to introducing these and other financial products in Latin America region.

Finally, it is an excellent opportunity to expand the size of Takaful market by addressing the need of the customers who have preference for this product. In a market place such as Latin America, the attraction of Takaful business be perceived not just for the fact that it is based on Islamic Shariah -for Muslim inhabitants in Latin America- but because it is better and fair system -both Muslim and no-Muslim population-. This aspect should be attractive to everyone, irrespect of any religious basis upon which the system stands initially. Considering these aspects, Takaful players in the market like Latin America should take appropriate measures on urgent basis, in order that the opportunities are not missed by one or other reasons.

Bibliography

1. ANDRADE, Grabriel, E. (2001). Posibilidades del Crecimiento del Islam en América Latina : oportunidades y dificultades. Universidad del Zulia. Revista Opción, Venezuela.
2. ALDIB, B (2000). The Quran and the Sunna. En http:/www.unn.ac.uk/socities.islamic
3. GARCIA, N; Arenas, O. (1986). Algunas nociones acerca de la religión. Opción.5:106- 111
4. HAMMIDULLAH, M (1969). Introduction to Islam. Centre Culturel Islamique. Paris (Francia).
5. MORTUZA, Ali (2009). Present Scenario and Future Potentials of Takaful. Managind Director of Prime Islamic Life Insurance Ltd.
6. BANK Negara Malaysia (Central Bank of Malaysia). Takaful 2005 Annual Report. April 2006.
7. BILLAH, Mohammad Masum (2001). Conceptual framework & Growing Principles of Takaful - Seminar paper in Sanghai held in 2001.
8. BILLAH, Mohammad Masum. (1998). Islamic Insurance: Its origins and Development. Arab Law quarterly 1998
9. NAGARAN, Geetha y Richard L. Meyer (2005). “Rural Finance: Recent Advances and Emerging Lessons, Debates, and Opportunities.” (Finanzas Rurales: Avances Recientes y Lecciones Emergentes, Debates y Oportunidades) Versión traducida y reformateada del Documento de Trabajo Nº (AEDE-WP-0041-05), del Departamento de Agricultura, Medio Ambiente y Economía del Desarrollo, de The Ohio State University (Columbus, Ohio, USA).

Internet websites

 Organización Islámica para América Latina. http://www.webislam.com/?idn=3798

 http://www.islamerica.org.ar/oipal.htm

 http://www.hispanicmuslims.com/articles/spanishummah.html

 http://news.bbc.co.uk/hi/spanish/specials/newsid_4294000/4294241.stm

 http://www.prensalibre.com/pl/domingo/archivo/revistad/2005/junio05/050605/dfondo.shtml

 http://www.diariocolatino.com/reportajes/detalles.asp?NewsID=34

 http://spanish.nicaragua.usembassy.gov/rfp-nicaragua-2004.html

 http://www.islamhoy.org/principal/lugares/lugares/14_peru/23-peru.htm

 http://espanol.geocities.com/ommuruguay/inmigracionlibanesa.htm

 http://www.jamestown.org/terrorism/news/article.php?articleid=2369844

 http://spanish.irib.ir/elsur/noticias/islam-en-america-latina/item/75337-arabes-en-centroam%C3%A9rica-una-historia-de-inmigraci%C3%B3n-exitosa

 http://panama.aigpyme.com/Inicio_478_66076.html

 http://www.theislamicglobe.com/index.php?option=com_content&view=article&id=82:andale-arriba-arriba&catid=13:article&Itemid=38

 http://mundomicrofinanzas.blogspot.com/2009_11_01_archive.html

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