Siti Fariha Adilah Ismail
(Shari'ah Management Trainee, ISRA)
People generally want to enjoy protection from all undesirable calamities, be they financial losses, deaths of family members, or accidents resulting in disabilities or death. Accordingly, they look for schemes like insurance or takāful that can protect them from the financial implications of such calamities. A question arises here: how about low-income groups who are unable to secure any protection scheme simply because they can’t afford to pay the premium? What options do they have? To overcome this issue and to promote greater financial inclusion, some service providers have offered micro-insurance to cater for the financial protection needs of low-income households. This article sheds light on how BIMA, a Swedish company which is locally incorporated as Milvik Malaysia Sdn. Bhd., has been able to penetrate its micro-insurance services among underprivileged groups in Malaysia. BIMA’s model could be replicated for micro-takāful―a Shariah-compliant alternative to micro-insurance.
Income Groups in Malaysia
There are three categories of income groups in Malaysia: T20 (Top 20―high income), M40 (Middle 40―middle income)) and B40 (Bottom 40―low income)). Households that earn RM 3,000 (USD 722) or less a month are categorized as B40.
According to Khazanah Research Institute’s report Demarcating Households: An Integrated Income and Consumption Analysis (2019), the estimated number of B40 households is 2.7 million out of a total of 6.65 million households in 2014. Hence, one-third of the total households in Malaysia are within the B40 category. Bumiputeras comprise the majority of this category, probably because they constitute the largest population (about 62%) in the country, followed by Chinese and Indians.
Malaysians in the B40 category living in cities like Kuala Lumpur, Johor Baharu and Penang are considered urban poor; they face difficulties in earning sufficient income for their needs. Some of them earn less than RM1,000 a month. With monthly expenses to be paid such as transportation cost, food, utility bills, children’s educational fees, etc., members of the B40 group struggle to sustain themselves. They are highly vulnerable during economic or financial difficulties as they barely have any savings.
In support of the B40 income group, the Government of Malaysia has rolled out various initiatives such as the mySalam National Health Protection Scheme that provides free takāful. There is also Bantuan Sara Hidup (Household Living Aid), which gives cash to certain categories of recipients who are also entitled for Skim Khairat Kematian (Death Benefit Scheme), and the RM40 electric rebate program whereby the government subsidizes monthly electrical bills up to RM40 for selected beneficiaries. These initiatives have provided financial assistance to these underprivileged groups and relieved their burdens.
Apart from government funding, there should also be concerted efforts from the private sector to provide services that can cater for the needs of the B40. One of them is micro-takāful, which will be explained next.
Micro-takāful for B40: Which Model to Adopt?
Like micro-insurance, micro-takāful is meant to provide financial protections to low-income earners, particularly to those who look for an Islamic instrument. In Malaysia, there are some service providers, such as U-Mobile (network provider), Grab (e-Hailing provider) and Celcom (network provider), that provide an option of access to micro-insurance as part of their product offerings to clients. However, none of them offers micro-takāful as an alternative to micro-insurance. The author believes that micro-takāful would be very appealing to B40 income earners as they are predominately Muslims who would prefer a Shariah-compliant instrument over the conventional one.
One of the models that micro-takāful providers can adopt is that offered by BIMA which currently has 31 million customers in 13 countries across three continents: Asia, Africa and Latin America.
BIMA offers two main micro-insurance products, namely:
Currently their mobile health services are only being offered in Ghana, Bangladesh, Paraguay, Pakistan and Cambodia. This service works as medical advice from qualified doctors to the patients through mobile phones before the participant gets to a hospital. This helps them get quick advice without the need to spend on transportation and medical consultant fees.
In Malaysia, BIMA collaborates with Celcom as its distributing channel and Allianz as its underwriter. Celcom users can subscribe to micro-insurance products offered by BIMA through their mobile account whereby the insurance premium will be deducted from their airtime balance. As at February 2020, BIMA offers different packages of life micro-insurance protections. For a minimum monthly premium of RM 5.30 (USD 1.28), including tax, a customer gets coverage of up to RM 20,000 (USD 4,816). BIMA’s model offers affordable products with a simple and hassle-free registration process through an SMS or call without any requirement of a medical check-up or waiting period. This has attracted many low-income groups to buy its products.
BIMA has succeeded in providing a micro-insurance product at a very affordable rate and has been able to sustain it for almost 10 years. This has proved that the structure is strong enough to be adapted and implemented as a micro-takāful product in Malaysia. Digital service providers and mobile networks, in collaboration with takāful operators, are among the entities that can potentially offer similar products through their platforms.