Risk Management in
Islamic Financial Instruments
11
characteristics that allowed Islamic banks to avoid the severe setbacks during the global
financial crisis included: domestic credit portfolios, high consumer loyalty and deposit
stability, and high liquidity. In addition, Islamic banks saw net profits increase by 9%,
compared to the 64% decline of net profits of conventional banks. Another indicator of the
sagacity of Islamic banks was their decision to avoid trading in debt-based instruments and
speculative defaults swaps, which were contributing factors for the European debt crisis (GIFF
2012 6-7).
However, Islamic banks did suffer from the European Debt crisis. Islamic banks have
investments in European stock markets and real estate markets. The investments are now
vulnerable to currency fluctuations caused by the crisis and downgrades from ratings
institutions due to exposure. Further research will have to be conducted to determine whether
the resiliency of the Islamic banks was truly due to the principles upon which Islamic finance
relies upon, or other factors, such as the lesser degree of integration of Islamic finance
institutions with the global economy.
1.4.3 Recent Regional Trends
Trends in Asia: The takaful industry in the Asian region is concentrated in Malaysia,
Indonesia, and Brunei and account for USD2.1 billion in gross takaful contributions. The
Malaysian takaful industry has grown at a CAGR of 25.7% from 2006 and 2011. In Malaysia,
only 54.0% of the population has a life insurance or family takaful policy, which represents a
large potential market for Takaful in the country. Indonesia is another rapidly growing
important takaful market. Known as the largest Muslim population in the world, Indonesia also
provides a large potential market for takaful players as the current penetration rate is than
2.0%.
Trends in MENA: The GCC accounts for gross takaful contributions worth USD8.3 billion, or
69.4% of the global takaful industry in 2011. Among the MENA member countries, Saudi
Arabia emerged as the largest takaful industry with contributions of totaling 38.7% of the
region. Zitouna Takaful, which was set up in Tunisia in 2011, is the latest institution
established in the region.
Trends in Sub-Sahara Africa: Among the countries in Sub-Sahara Africa, the first Takaful
operator has commenced in Sudan in 1979. Since then, the Takaful industry has grown to
include Mauritania, South Africa, Gambia, and Kenya, with total contributions reaching
USD387.1 million.
1.5. CURRENT STATUS OF THE ISLAMIC MICROFINANCE
Islamic microfinance is a burgeoning field with the potential to have great economic and social
impact. There is a high level of poverty and lack of access, both voluntary and involuntary, to
traditional finance in many highly populated Muslim countries. Islamic microfinance provides
the potential to narrow income gaps. CGAP surveys found that 20-40 percent of respondents in
Jordan, Algeria and Syria stated religious values to be the reason why they did not participate