BACKGROUND
Economic Inequality is one of the most concerned areas in economics. The worldwide popularity of Thomas Piketty Book on the Inequality shows the concern of the people about the expanding gap between the rich and poor. A vast literature on economic inequality is available that has compared the inequality around the globe. This debate is further pushed to justice in the distribution of outcomes. As a result, a number of normative theories have been presented. However, the concept of distributive justice that has been presented several decades ago; in Islam Economics it is still new. Hence, there is a need to supplement the concept of equity in the distribution of wealth and income in Islamic Economics.
Financial inclusion is one of the most talked about agendas towards holistic development of a country. Access to financial services provides critical investment opportunities for the poor who have been traditionally shut out of mainstream financial markets. With the thrust towards financial inclusion by many governments to achieve all round growth of society, microtakaful is poised to play an important role in it.
Microtakaful is essential to ensure financial support for the large portion of rural and urban poor population, especially when it comes to protecting their lives or property for a small quantum of premium. Microtakaful also provide for their future unforeseen and unexpected financial needs.
While these products offer help to low income households in the rural areas, it helps providers increase penetration in the rural markets. For example, a recent study done by Malaysian Takaful Association and EY revealed that the global takaful industry is expected to grow by 10.8% CAGR and to reach near USD20 billion by 2017. However, the market penetration rate of takaful industry is low as percentage of GDP. It shows that higher percentage of the population is not covered by takaful and this creates a bigger opportunity to tap the underserved market. This is where the role of microtakaful becomes prominent.
There are challenges too. Providers are constantly working on ways to reduce the operational costs for microtakaful products on a regular basis. Given the small amount of premium and higher risks due to erratic income, providers end up spending more on providing takaful cover. Absence of financial literacy and awareness of the benefits of takaful make it difficult to convince people on how takaful is essential for assured financial security in the event of a death or major loss. Innovative ways need to address these issues.
New distribution channels can be looked at to improve the level of service and reach out to more people. Awareness campaigns can be run through the use of innovative mediums. These will help in explaining concepts of takaful in a simple, engaging and interactive manner. Creating new processes for underwriting large number of policy holders and improving service delivery procedures will go a long way in making the microtakaful business cost effective and both the provider and the beneficiary of takaful will mutually benefit.
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