In today”s competitive financial market, strategic alliances have become one of the most important solutions to ensure the sustainability of Islamic financial institutions’ operations. As the smallest segment within Islamic finance, Takaful needs to form strategic alliances with other segments of the industry, especially Islamic banking. For example, Takaful operators can market their products using more developed channels of distribution through Islamic banks. This arrangement, known as bancaTakaful, is becoming increasingly popular with a growing numbers of deals across the world: including in Pakistan, Malaysia and the UAE.
In practice, there are two types of bancaTakaful models: namely direct and indirect bancaTakaful. Direct bancaTakaful means a Takaful operator and an Islamic bank make a deal where the Islamic bank includes the Takaful operator”s products into its range of products. The bank offers the products to its customers and receives premiums directly from them. The bank later forwards the premiums received from the customers to the Takaful operator at the net of commission.
On the other hand, in indirect bancaTakaful, the Islamic bank only agrees to promote the Takaful operator”s products to its clients in return for a commission. The bank will refer any client interested in the Takaful products to the operator, who will than issue the Takaful policy at a special rate. In indirect bancaTakaful, the Takaful products are normally attached to the Islamic bank”s financing schemes: such as home, project, personal and corporate financings.
BancaTakaful benefits all parties involved. For the Islamic bank, it is an effective and efficient means of product diversification and a new source of revenue. For the Takaful operator, this mechanism is a cost efficient distribution channel for its products. In addition, the operator also derives benefit from the reputation of the Islamic bank. This is because in general public are more aware about Islamic banking than about Takaful. For the customers, this arrangement offers convenient solutions to their financial needs since two products are now offered through the same distribution channel. For these reasons, it is believed that bancaTakaful will flourish in the near future, provided the products offered are customer-centered and the bank”s employees are aware of and able to promote the Takaful products.