KARACHI: The insurance companies have resolved a legal dispute with Securities and Exchange Commission of Pakistan (SECP) which allows them to offer takaful, or Islamic insurance, a move expected to attract new players and boost competition in the sector, ARY News has learnt.
The new takaful rules has been introduced in 2012, allowing the use of takaful windows, which enables insurers to offer sharia-compliant and conventional products side by side, provided client money is segregated.
This prompted a legal challenge by the country's five takaful firms claiming the rules gave conventional insurers an unfair advantage, leaving the industry in limbo.
This has now been cleared up after a mutual agreement was reached this month, Muhammad Kashif Siddiqee, Joint Director at the Securities and Exchange Commission of Pakistan (SECP), sources revealed.
Under the agreement, insurers will have to allocate 50 million rupees ($506,100) in capital to their window operations, from no capitalisation requirement in the original rules.
The takaful rules will be applicable after a three-month period and the regulator would also amend them to allow takaful firms to co-insure risks alongside conventional players, which the initial rules had forbidden.
Takaful is seen as a bellwether of consumer appetite for Islamic finance products. It is based on the concept of mutuality; the takaful company oversees a pool of funds contributed by all policy holders, but does not necessarily bear risk itself.
Takaful has operated without conventional competitors in Pakistan since the first rules were introduced in 2005, but regulators have been keen to increase insurance penetration.
Takaful's share of the total insurance market is estimated at less than 3 percent and the entry of conventional players would help boost this figure.