The Islamic insurance industry in Malaysia has the potential to outgrow the conventional one within a decade, says the CEO of HSBC’s Malaysian takaful arm, but it has a tougher time finding the assets it needs to expand.

While the insurance market in Malaysia has around 43% penetration overall, takaful (insurance complaint with Islamic shariah rules) sits at 10%. On top of that, takaful has only 8% of the insurance industry’s total assets despite Islamic banking representing 20% of the Malaysian banking market. Prohibitions on investment in industries connected with alcohol, gambling, pork or excessive speculation limits opportunities, and the comparatively illiquid sukuk (Islamic bond) market leaves takaful insurers overly dependent on regional equities and real estate for assets.

HSBC Amanah Takaful Malaysia CEO Zainudin Ishak said the industry can overcome these hurdles, and that takaful growth had ‘always outpaced’ conventional insurance. As interest in Islamic financial products continued to increase and more players entered the field, this would continue.

Malaysia currently has eight licensed takaful providers, including CIMB Aviva Takaful, Syarikat Takaful Malaysia Bhd and Prudential BSN Takaful Bhd. Last month four new family takaful licenses were issued to international joint ventures featuring companies like American International Assurance; Alliance Bank Malaysia; AMMB Holdings; Friends Provident Group (UK) and ING Management Holdings.

source & article: Business Times