Microtakaful, also known as Islamic microinsurance, is a form of insurance that is based on the principles of mutual assistance and cooperation. Unlike conventional insurance, which is based on the principle of indemnity, microtakaful operates on the principle of shared responsibility. The goal of microtakaful is to provide protection and financial assistance to low-income individuals and small businesses, who often do not have access to traditional insurance products. The microtakaful industry is still relatively new, and it is still developing in many countries, including Pakistan. Despite its potential to provide much-needed protection and financial assistance to low-income individuals and small businesses, microtakaful has yet to reach its full potential in Pakistan.?
The growth of microtakaful, or Islamic insurance, in underdeveloped Muslim countries like Pakistan, has been hindered by a number of factors such as lack of research, limited information and awareness, lack of trust in microtakaful companies, high cost of contributions, lack of tailor-made products for specific needs, lack of customer service, and lack of government incentives. In this article, we will explore these factors in greater detail and examine ways in which they can be addressed in order to promote the growth of microtakaful in Pakistan and other similar countries.?
- Lack of or inadequate research: There is a lack of research on microtakaful in Pakistan, which has led to a lack of understanding about the market and the needs of low-income individuals and small businesses. Without adequate research, it is difficult to develop appropriate products and distribution channels for the microtakaful market. This issue can be addressed by increasing investment in research and development of microtakaful in Pakistan. This can be done through government funding, partnerships between universities and microtakaful companies, and collaborations between industry players and researchers. Another way is to establish a research facility or a research unit within the companies or the regulator to conduct research on customer needs and product development. In addition, digital platforms and tools can be used to gather data on customer needs and preferences, and also to conduct research on the market. This can help to reduce the costs of research and make it more accessible to microtakaful companies, especially those operating in underdeveloped areas.?
- Limited information and awareness about microtakaful: Microtakaful is still a relatively new concept in Pakistan, and many people are not familiar with it or how it works. This lack of information and awareness makes it difficult to promote microtakaful and to attract customers. One way to address the limited knowledge and awareness of microtakaful in Pakistan is to launch educational campaigns and public awareness programs. These can be conducted through various channels, such as television, radio, print media, and social media, and can include the distribution of informational materials, such as brochures and pamphlets. Partnering with organizations that work with low-income individuals can also be effective in raising awareness. Additionally, organizing workshops and seminars for insurance providers and encouraging research and development on microtakaful can help to increase understanding of the product. Another approach is to utilize digital means such as mobile apps, websites, and online portals to provide real-time information, educate customers, and simplify the process of buying and making claims. Finally, promoting the concept of Microtakaful through the existing network of Islamic Financial Institutions and Islamic Banks can also be helpful in increasing the awareness. ?
- Lack of trust in microtakaful companies: Many people in Pakistan are skeptical of takaful companies and may not trust them to provide adequate coverage or to pay out claims. This lack of trust makes it difficult to promote microtakaful and to attract customers. One way to address this issue, the takaful companies can also consider partnering with microfinance institutions and other intermediaries who can provide customers with a sense of trust and security, as well as providing them with access to information and education about microtakaful products and services. This can help to increase trust and understanding among customers and make it more likely that they will purchase and retain microtakaful policies.?
- High cost of takaful contributions: Microtakaful contributions in Pakistan are often perceived as being too high, making it difficult for low-income individuals and small businesses to afford coverage. One way to address the issue of high microtakaful contributions in Pakistan is to provide subsidies or incentives to insurance companies that are willing to offer these products and services to low-income individuals and small businesses. Another strategy is to develop more tailored microtakaful products that are specifically designed to meet the needs of these groups, which could help to reduce the overall cost of coverage. Additionally, promoting the concept of Microtakaful through the existing network of Islamic Financial Institutions and Islamic Banks, and through digital means such as mobile apps, websites and online portals can also increase the awareness and trust among customers. Furthermore, research and development of new microtakaful products and services that are more affordable and accessible to low-income individuals and small businesses could also help to address this issue.?
- Lack of tailor-made products for specific needs: The microtakaful products available in Pakistan are often not tailored to the specific needs of low-income individuals and small businesses, making it difficult for them to find coverage that meets their needs. Hence, such products that are not suitable for those who need them normally become commercially unviable for the takaful companies. ?
- Lack of customer service: Many microtakaful companies in Pakistan do not provide adequate customer service, which can lead to dissatisfaction and mistrust among customers. One way to address the issue of inadequate customer service in microtakaful companies in Pakistan is to invest in digital technologies that can improve customer service. This can include implementing digital channels for customer communication and support, such as SMS service, online chat, email, and social media. This can enable customers to contact the company at their convenience and receive a timely response. Additionally, companies can also use customer feedback to identify areas where customer service can be improved and take steps to address those areas.?
- Negative marketing of takaful: In early years of takaful launch in Pakistan, when a very few companies were offering takaful products, some insurance agents have been using negative marketing tactics to discourage customers from purchasing takaful products by equating them with conventional insurance. This had a negative impact on the overall acceptance of the takaful and microtakaful products being a Sharia compliant alternative to insurance. Takaful/Insurance companies and SECP can also use consumer education campaigns to raise awareness about takaful and its benefits, which could encourage more customers to consider takaful and microtakaful products.?
- Lack of government incentives: The government of Pakistan has not provided many incentives to promote the growth of microtakaful, which has hindered its development. This can include lack of tax exemptions, subsidies or other regulatory support from government.?
In conclusion, while microtakaful has the potential to provide much-needed insurance coverage to low-income individuals and small businesses in Pakistan, there are several challenges that must be overcome in order for it to gain widespread acceptance and growth. These challenges include lack or inadequate research, limited information and awareness about microtakaful, lack of trust in microtakaful companies, high cost of contributions, lack of tailor-made products for specific needs, lack of customer service, and lack of government incentives. However, by addressing these challenges through research and development, public awareness campaigns, partnerships with organizations that serve low-income individuals, providing subsidies and incentives, and utilizing digital means for customer education and engagement, microtakaful can be promoted and adopted in Pakistan. Additionally, using zakat funds can be an effective way of providing financial support to the microtakaful industry and promoting its growth.?
