The Arab Monetary Fund (AMF) said that the Takaful sector, a Shariah-compliant form of insurance, remains a small player within Islamic finance, accounting for less than 2% of the total market.
Though the sector accounts for less than 2% of the Islamic finance market, it surpassed $30 billion in 2023.
A report that was released by the fund projects a continued annual growth of 5-8% for the Takaful sector in the coming years, which is considered robust growth compared to conventional insurance market.
The AMF attributes this positive outlook to rising consumer awareness of Islamic finance, supportive government policies in many countries, and ongoing technological advancements.
However, the report also acknowledges the challenges facing the Takaful industry. Internal hurdles include difficulty in pricing risks, the potential for adverse selection due to limited information, and the need for a standardised framework for governance and risk management.
External challenges arise from economic slowdowns caused by monetary tightening policies. This puts pressure on the entire insurance sector, including Takaful, due to factors like increased claims from business losses, lower investment returns, and limited Sharia-compliant investment options.
The AMF emphasises the need for regulatory and supervisory authorities in Arab countries to actively support the Takaful sector. This includes providing effective oversight, identifying key legal and technical challenges, and fostering a conducive business environment.
