Micro-takāful is a Sharīah-compliant mode of protection for poor and underserved communities against risks and misfortunes. Regular takāful is business-oriented and targets participants with financial capabilities. Micro-takāful, on the other hand, is dedicated to low-income groups that are partly or wholly excluded from formal takāful products due to their financial constraints. Microtakāful faces the dilemma of balancing its social mission with market-based considerations of sustainability; i.e., the continued availability of funds to serve its target population. This conundrum has prompted micro-takāful to re-examine the identity of its target population. Should it target only the very poor or expand its focus to include the vulnerable non-poor?
Zakāh and waqf are Islamic instruments prescribed for socio-economic development. They would appear to be a natural fit with micro-takāful, given its social mission, and could potentially provide the necessary support to solve micro-takāful’s sustainability problem. However, the use of both zakāh and waqf are not free from Sharīʿah issues. This paper has addressed Sharīʿah issues related to the following matters:
•• Allocation of both zakāh and waqf to microtakāful;
•• Use of the two instruments within microtakāful;
•• The expected protection after subscription to the micro-takāful product.
The paper has identified three scenarios in which zakāh and waqf funds can be utilised in microtakāful. They can be used to:
(1) Support micro-takāful products;
(2) Finance micro-takāful products;
(3) Establish a micro-takāful operator.
The outcome of this paper supports one of the main agendas of Bank Negara Malaysia’s Financial Sector Blueprint 2011-2020, which stresses the paramount importance of financial inclusion for greater shared prosperity. The Blueprint urges financial services providers to expand the range of products and services in order to meet the distinct financial needs of all citizens, including the underserved. One of the roles of takāful operators is to develop affordable micro-takāful products against undesirable events for underserved people. Utilisation of zakāh and waqf funds in the micro-takāful model requires collaboration and cooperation between the government, zakāh and waqf authorities, and microtakāful operators. Non-governmental organisations also have a key role to play in the successful implementation of zakāh- and waqf-based microtakāful. The integration of these key social tools with micro-takāful will optimise the access of underserved people to the social safety net, reduce their risk burden, and elevate their standard of living.
Micro-takāful, Zakāh fund, Waqf fund, Zakāh beneficiaries (aṣnāf), Islamic micro-finance
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