Diversification of Islamic Financial Insturments
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a) Inadequate regulation: There’s no separate regulatory body for overseeing Islamic
Insurance sector. An increased number of government policies and government intervention
in this sector can be proved as very beneficial for its growth and development.
b) Lack of awareness: The target group is unaware concerning this sector. Many believe that
Islamic Insurance is not compliant with Islamic Shariah and thus reluctant to subscribe.
c) Lack of industry knowledge: There is also a lack of training and knowledge regarding this
sector in our economy. Training must be provided to the new entrants of this sector so that
they can identify their future duties and responsibilities for performing their job.
d) No integration of financial technology in the sector: A very small amount of technologies are
being introduced by the practitioners of the Islamic Insurance.
In 1999, Bangladesh Islamic insurance companies were licensed under the Insurance Act 1938
which was not equipped to deal with Islamic insurance. This is because Islamic insurance is
based on Shariah rules and regulations, while conventional insurance is based on conventional
regulations. Although a committee was formed by the government of Bangladesh to draft
separate insurance laws for Islamic and conventional insurance in 2007, the outcome of the
effort has yet to materialize. Two insurance laws were passed in the parliament of Bangladesh
on March 3, 2010 which came into effect as an Insurance Act on March 18, 2010 and IDRA Act
2010. However, the act only mentioned rules for investment assets of Islamic insurance. The
lack of a legal and regulatory framework has stifled the Islamic insurance industry.
The biggest problem for the Takaful companies at present is that they have to invest 30% of
the investable funds with government securities and bonds. While the government securities
provide interest from 8% to 10% depending on their maturity period, the Bangladesh
Government Islamic Investment Bond (BGIIB) issued by the Central Bank in 2004 give Islami
insurance companies profit between 2% to 4% only. Another obstacle of Islamic insurance is
lack of Islamic capital market. Islamic insurance companies do not have any alternative for
investment as without Islamic banks all bonds and certificates are based on interest. Islamic
insurance companies cannot participate in this kind of investment or capital market. As a
result, Islamic insurance companies lag behind conventional insurance. To attain the desired
level by both the Islamic Bank and the Islamic Insurance, a strong relationship needs to be
built up between the Islamic Banks and the Islamic Insurance companies functioning in
Bangladesh. Regarding developing new financial products and services in Islamic insurance,
Islamic financial bond, investment in Islamic scheduled bank, share investment and pre-
placement in national and global Islamic financial institutions or banks may be allowed to the
Takaful companies.
Takaful companies should also diversify their Shariah based products, should introduce new
products to satisfy customers’ needs. But there is only one qualified actuary dealing with the
Shariah based new product and their valuations for both life and non-life Islamic Takaful
companies. Takaful companies have been facing extreme difficulties in getting certification
from the actuary for new products, and thus have not introduced any new products in the last
years.