ABU DHABI: The Arab Monetary Fund (AMF) has reported that the Takaful sector, a Sharia-compliant form of insurance, remains a small player within Islamic finance, accounting for less than 2 percent of the total market. Despite this, the global Takaful market surpassed US$30 billion in 2023.

In a recent report launched during a Takaful insurance training course, the AMF predicts continued annual growth of 5-8 percent for the Takaful sector in the coming years. This is considered strong growth compared to general insurance markets.

The AMF attributes this positive outlook to rising consumer awareness of Islamic finance, supportive government policies in many countries, and ongoing technological advancements.

However, the report also acknowledges the challenges facing the Takaful industry. Internal hurdles include difficulty in pricing risks, the potential for adverse selection due to limited information, and the need for a standardised framework for governance and risk management.

External challenges arise
from economic slowdowns caused by monetary tightening policies. This puts pressure on the entire insurance sector, including Takaful, due to factors like increased claims from business losses, lower investment returns, and limited Sharia-compliant investment options.

The AMF emphasises the need for regulatory and supervisory authorities in Arab countries to actively support the Takaful sector. This includes providing effective oversight, identifying key legal and technical challenges, and fostering a conducive business environment.

Source: Emirates News Agency