Developing a Conceptual Framework of Microtakaful as a Strategy towards Poverty Alleviation

Abstract

Many researchers suggest that access to insurance services is an important strategy for poverty alleviation. However, the poor are often ignored or inadequately serviced by the private insurance market and social insurance schemes because the premiums are unaffordable. A specific type of insurance particularly developed to protect the poor is microinsurance, or a shari’ah-compliant form of microinsurance known as microtakaful. In essence, microtakaful has the same technical apparatus as takaful but it focusing on providing the poor with opportunities to protect themselves against specific risks in exchange for affordable premiums. Therefore, this paper considers microtakaful as an effective tool to provide protection for the poor and enable achievement of sustainable poverty alleviation. The objective of this paper is to propose a conceptual framework of microtakaful integrating the scheme with financial supports form the government, Islamic institutions of zakat and waqf, contributions from the international zakat organisations, donations and grants from Non-Governmental Organisations (NGOs) and donor agencies. This paper is expected to provide a basis for further study on designing microtakaful products and pricing modeling based on cooperative principles as a means of poverty alleviation.

Keywords: Microinsurance, microtakaful, microtakaful model, poverty alleviation