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Takaful opportunities in Europe: A global growing phenomenon

By Sohail Jaffer
Posted: 21st October 2011 09:34

While the financial sector is recovering slowly, Shari’ah compliant finance is rising as one of the fastest growing segments of global finance.  Estimated at USD1trillion currently, the alternative finance has been growing exponentially at double digit rates for over a decade and has spread across all financial components including insurance.  The nascent insurance segment known as Takaful has been enjoying a dramatic growth momentum, with annual growth rates exceeding 25% for the past 5 years, and has outperformed its conventional counterpart, growing at close to 10%.

As reported by the recently unveiled World Takaful Report 2011 from Ernst & Young, total contributions reached USD9.15 billion in 2010 compared to USD6.9billion in 2009 and remain on course to surpass USD11.9 billion by the end of 2011.  The GCC remains dominant with Saudi Arabia on the top, followed by the UAE that has managed to emerge as the most mature and developed market in the Middle East thanks to its conducive regulatory system.  In the Asian market, Malaysia is by far leading the industry, while Indonesia and Pakistan are showing great potential.

Takaful dynamics have also made considerable headway in the Levant growing at (40%) and Africa (26%), these rates are forecasted to remain on the rise fuelled by low insurance penetration, young demographics, strong economy growth and an increasing awareness of the need for protection within major Takaful markets.

Consequently, it is not surprising to see the increasing interest of industry giants in tapping into the promising Takaful market.  Allianz Takaful and Standard Chartered bank have announced a five year sales agreement to promote Takaful products in Bahrain, in 2009 while Generali, the Italian insurer, announced it was entering into a strategic partnership with Qatar Islamic Bank in order to access the GCC Takaful market.  Similarly, AIG, Prudential, Aviva and Fortis are now offering Takaful products, but also international reinsurers Munich Re, Swiss Re, Hannover Re, and SCOR have developed suitable retakaful solutions.  Major international banks such as HSBC Amanah, Standard Chartered Saadiq and Barclays have become important distribution partners.

Europe opens up to Sharia’h compliant finance:

In the wake of the global financial crisis, Europe has seen a growth of Socially Responsible Investment (SRI) activity.  As per Eurosif study in 2010, the total SRI (Socially Responsible Investing) assets under management (AuM) have increased from €2.7 trillion to €5 trillion as of December 31, 2009.  This represents a spectacular growth of about 87%.

The renewed interest in ethical investing reflects consumers’ demand for enhanced transparency, security and equitable approach that extends beyond “profit maximization”, and creates consequently an appeal to Shari’ah compliant investments and Takaful insurance which fundamental principles rest on mutual protection, solidarity, risk sharing and contribution to the well being of society.

The interest in Islamic finance has been spreading across Europe in the past few years, with the UK taking the lead with 5 operating Islamic banks and one Takaful operator.  France is committed to taking a position into the Shari’ah compliant finance, and has been showing tremendous enthusiasm towards opening up to the young industry with an ambition to compete for the title of ‘European hub for Islamic Finance’.

A number of reforms have been adopted to advance Sharia’h compliant finance in France.  In mid-2007, the French Financial Market Authority (AMF) issued a recommendation for Sharia’h compliant funds and a year later, it published a statement approving the listing of sukuk in France.  The Euronext Paris soon followed, creating its own sukuk-listing segment.

In early 2009, France introduced tax status adjustments for Islamic finance contracts on murabaha (type of money market instrument) and Sukuk transactions.

In 2010 Qatar Islamic Bank signed a Memorandum of Understanding (MoU) with Banque Populaire Caisse d’Epargne, France’s second largest banking group, in order to gain access to the French retail banking and small medium-size business markets.  Some leading French financial institutions have already embraced Islamic finance, such as Societé Générale, and PNB Paribas, who has been active in the industry since early 1980s and established its own Islamic division, Najmah, in 2003 in Bahrain.

AMUNDI is another French player in Sharia’h compliant finance, the company issued a number of  Islamic funds (Amundi Islamic), domiciled in Luxembourg, another European country that has shown serious commitment to the integration of Sharia’h compliant finance since 1978 when the country hosted the first ever Islamic finance institution in the West.  With 16 sukuks listed in the Luxembourg stock exchange and valued at €5.5 billion, the country became the leading non-Muslim domicile for Shari’ah-compliant investment funds and one of the leading European centres for Islamic finance.

Germany has also shown interest in gaining a share in the industry, with the issuance of the first Islamic bank in 2010 and before that it pioneered by issuing the first Sukuk in a European market in 2006.  Also, major German banks such as Deutsche bank, are already well positioned in the sector although in overseas markets.  The German giant bank, for instance has co-lead managed MTN issuances for the Jeddah Islamic Development Bank, and pioneered the Islamic equity certificates with National Commercial Bank of Saudi Arabia.

These regulatory reforms across Europe coupled with  mandatory insurance and European passport instituted in 2002 that allows insurance providers registered in a member of the EU to provide their services to the whole European market, will speed up the expansion of Takaful products further.

The spread of new industry is also reaching secular markets although at a slower pace, Turkey, one of the most promising economies for the development of Takaful counts four Sharia’h compliant banks called “Participation Savings Banks” with a share of some 5% of the local banking market, and its Kuveyt Turk has formed a General Takaful Company in 2009.


Considerable challenges continue to stand in the way of the globalisation of Takaful as a viable alternative to conventional insurance. But it is clear that the foundations have been laid across the globe and the outlook looks promising.

Product innovation, with a customer centric approach, consumer education, easy access to fair and ethical investment vehicles, as well as corporate governance, are key factors that can contribute to Takaful gaining critical mass in Europe, the experience and skills gained by European major insurers, reinsures and banks will play a major role in facilitating the inclusion of Takaful in the western market.

Sohail Jaffer is a Partner and Head of International Business Development for “white label” Bancassurance and investment services within the FWU Group, an international financial services group focusing on innovative and customised product design in the field of unit-linked investments and family takaful investment-linked plans for international markets.  Mr. Jaffer has successfully originated, negotiated and won several major bancassurance deals in the GCC region, Pakistan and Malaysia.


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