Business

Issues Facing Institutions offering Takaful in Maldives.

Published

3 years ago

14/07/2021

Dr. Aishath Muneeza, Associate Professor at INCEIF

Takaful is the first type of Islamic financial service provided in Maldives. In 2003, Amana Takaful Maldives began as an agency operation offering takaful services and later it began as an incorporated company established for the purpose by obtaining a conventional insurance license from Maldives Monetary Authority (MMA). Though it has been 18 years since then, still Amana Takaful Maldives is operating under the same conventional insurance license given to them and there is no separate framework applicable to them. Apart from Amana Takaful Maldives, Ayady Takaful which is the Islamic window of Allied Insurance Maldives offers takaful services since 2014. In terms of takaful products, Amana Takaful Maldives offers general takaful products while Ayady takaful provides both general and family takaful products.

What is Takaful?

Takaful is also known as Islamic insurance. The term takaful is derived from the Arabic word “Kafalah” which means responsibility or guarantee. Takaful is derived from the Muslim historic system of ‘aqilah where the blood money that needs to be paid by the murderer to the family of the deceased with be jointly paid by the family of the murderer. Researchers such as ISRA (2011)[1] has divided the developments of takaful into four phases where: phase one is in 1979 when the first takaful model based on ta’awuni model (cooperative) was developed in Sudan; phase two is in 1984 when mudharabah model was developed in Malaysia; phase three is in the same year where wakalah model was developed in gulf for takaful; and the final phase is in 1996 when waqf model was developed in South Africa. In takaful, takaful operator is not the insurer insuring the participants and it is the persons participating in the scheme who are known as takaful participants that mutually insure one another by mutually guaranteeing each other. As such, the role of takaful operator is to act as administrator of the takaful fund whose responsibility includes managing and investing the fund according to the shariah principles. The main differences between takaful and conventional insurance are provided below.

Source: ISRA (2011)

Issues facing Takaful Institutions in Maldives

There are number of issues facing the growth of takaful industry in Maldives. Below explained are the most critical issues faced in this regard.

Lack of separate legal framework to govern Takaful: At the moment in Maldives, the same rules applicable to conventional insurance is applied to takaful. There are no separate legal requirements for takaful making takaful service offering institutions to have no difference in this regard with the existing conventional insurance players in the market. It is stated in the official website of MMA that insurance industry is regulated by MMA under the powers provided in the MMA Act 1981 and it is the Insurance Industry Regulation (2004) and insurance guidelines that set out specific criteria for authorization and other regulatory requirements to undertake business as insurers and insurance intermediaries in the Maldives. Article 1 of the Insurance Industry Regulation (2004) also states that in accordance with the provisions of the Presidential Decree no 2002/6 dated 16^th January 2002, MMA as the designated competent authority has sole responsibility for the regulation and supervision of the insurance industry in the Republic of the Maldives. Since takaful is different from conventional insurance, the modus operandi of takaful need to be regulated within the parameters of Shariah rules applicable to it and regulatory clear guidance in the operational aspects of takaful offering institutions are essential to ensure that there is no breach of Shariah rules in offering of the service while safeguarding the rights of the customers and other stakeholders.
Lack of Shariah governance standards for Takaful: Adoption of Shariah governance standards are important to achieve shariah compliance. The Shariah internal control functions that ought to be implemented within a takaful service offering institution need to be crystalized and standardized uniformly by the regulatory authority as without these internal control functions, managing Shariah non-compliance risk within the takaful service offering institutions will be a challenge. Likewise, there is also need for the regulatory authority to establish adequate mechanisms to report and disclose Shariah non-compliance events happening within the takaful service offering institutions.
Lack of Short-term Shariah compliant investment avenues: Unlike conventional insurance companies, takaful service offering institutions cannot participate in the interest-based investment activities. Since there are limited Shariah compliant investment opportunities in Maldives, there is need to find ways to provide diversified investment opportunities for the takaful offering institutions to invest their funds. In this regard, it is imperative to introduce a well-regulated Islamic money market in the country where short-term liquidity management opportunities could be made available to all Islamic financial institutions.
Absence of opportunity for Amana Takaful Maldives to place mandatory deposit kept with MMA in a Shariah compliant way: At the moment, there is no mechanism to keep mandatory deposits of Amana Takaful Maldives in a shariah compliant manner which has resulted in the company being unable to use the return received as the return received in this regard is considered as “tainted income” that needs purification. According to Guideline on Prudential Requirements for Insurance Undertakings 2010, all authorized insurance undertaking, whether life or general insurance shall at all times maintain a deposit of MVR 2 million with MMA, for each type of insurance (life or general insurance) the undertaking is authorized to engage in and all deposits placed with MMA for this purpose will be remunerated. Therefore, it is important for MMA to ensure that there is a Shariah compliant mechanism to place this deposit for takaful offering institutions to ensure that the return from these deposits could be used by the takaful offering institutions. In the Annual Report of Amana Takaful Maldives of 2020, following statement is found in the report of the Shariah Advisory Council the company:

An amount of money credited to the Waqf fund from mandatory interest based placement with the MMA has been designated to be paid to charity. Management has been advised to continue to canvass the MMA to convert this placement to a Shariah Compliant placement

Conclusion

There is no doubt that takaful industry has seen exponential development over the years in Maldives. However, to take the local takaful industry to the next level, there is need to eliminate the issues facing the takaful institutions operating in the country. The most important action in this regard is to introduce a distinct takaful legal and governance framework to the country. By doing so, a favorable environment for the existing market players will be created while attracting new players to the industry.

Dr. Aishath Muneeza is an Associate Professor at the International Center for Education in Islamic Finance.

[1] International Shari’ah Research Academy for Islamic Finance (ISRA), (2011). ‘Islamic Financial System Principles & Operations’, (Kuala Lumpur, ISRA; Malaysia).

Business

STO opens showroom in Hulhumale’

Published

2 days ago

24/04/2024

State Trading Organization (STO) has opened a showroom specialized for construction in Hulhumale’.

The showroom was inaugurated by Construction Minister Dr. Abdulla Muthalib during a special ceremony held on Tuesday night.

Speaking at the ceremony, STO’s Managing Director Shimad Ibrahim stressed the role of the company’s former managements and board members in carrying forward the company and therefore extended them gratitude.

Situated at the same location as STO’s Hulhumale’ shop – next to STO’s Smart Store near Hulhuamle’ Hospital – the construction solutions showroom was opened following renovations up to modern standards.

STO reports that all construction-related products sold by the company will be available at the showroom including some of the most renowned brands sold by the company; Makita tools, Nippon paint and concrete from prominent mix designing brands among others.

The state-owned company is prominent in the local construction industry as STO’s constructions solutions is the largest importer and seller of construction-related products in the Maldives.

STO noted that customers can now place orders for construction-related products including Makita tools and Nippon paint via the Hulhumale’ showroom which would eliminate the need to travel to Male’ to make the purchases. Arrangements have been made in the showroom to prepare the colors of Nippon paint ordered by the customers on demand.

Henceforth, they attributed the opening of the new showroom as something which would bring easements to the lives of Hulhumale’ residents and construction industry partners operating in the suburb.

Source(s): sun.mv

Business

Economy thrives, projects speed ahead despite challenges

Published

1 week ago

18/04/2024

Before President Dr. Mohamed Muizzu assumed office, the economic condition of the Maldives was significantly deteriorating. Experts attribute the primary reason for the depreciation of the Maldivian currency to the excessive printing of money by the previous administration.

According to statistics from the Maldives Monetary Authority (MMA), more than USD 518.04 million was printed over the last three consecutive years, marking a historic high compared to USD 388.53 million printed over 40 years.

Additionally, upon assuming office, President Muizzu inherited a heavy debt burden. The total debt amounted to over USD 7.71 billion, with a significant portion owed to companies for upcoming parliamentary elections and previously initiated projects, totaling USD 584.88 million.

Despite these challenges, President Muizzu has been proactive in rejuvenating the Maldives’ economic status. Within three months of his tenure, USD 35 million has been deposited into the sovereign development fund. The President estimates that more than USD 100 million will be deposited into the fund by the end of the year.

discontinuation of printing money has been regarded as a pivotal step towards economic progression for the Maldives

President Muizzu’s commitment to revitalizing the Maldivian economy without resorting to the printing of money is indeed a significant pledge. By discontinuing the practice of printing money, the government aims to address economic challenges while ensuring fiscal responsibility and long-term sustainability.

The decision to immediately halt the printing of money upon assuming office underscores President Muizzu’s determination to prioritize sound monetary policy. This move reflects an acknowledgment of the risks associated with excessive money printing, including inflation and currency devaluation, and signals a commitment to addressing these challenges through prudent financial management.

Furthermore, President Muizzu’s plans to boost the country’s prosperity and income by reducing reliance on loans and settling debts owed to both foreign and domestic entities demonstrate a holistic approach to economic revitalization.

attracting a vast pool of investors

The efforts of the present administration to attract a wide range of investors reflect a strategic approach to addressing the significant development needs of the Maldives. By engaging in investment forums both domestically and abroad, the government has been successful in showcasing the diverse investment opportunities available in the country.

The decision to host investment forums in countries like China and the UAE demonstrates a proactive approach to international investment promotion. These forums serve as platforms for highlighting the potential for investment in key sectors such as infrastructure, tourism, and hospitality. By creating awareness about these opportunities, the government aims to attract investors who are interested in contributing to the development of critical projects, including the establishment of bridges, domestic airports, and resorts.

Over 500 projects underway

The continuation of 527 projects, including those that faced interruptions due to non-payment to companies during the government transition, underscores the commitment of President Muizzu’s administration to ensure continuity and progress in ongoing initiatives. Despite the challenges encountered, efforts have been made to address issues such as delayed payments and optimize project expenses to keep important projects on track.

It’s notable that the current year’s budget, initially approved by the prior administration, may not have fully aligned with President Muizzu’s priorities and rules for project implementation. This misalignment may have resulted in some projects not receiving adequate budget allocations or not being included in the budget at all. However, the administration has taken steps to optimize expenses and prioritize projects that align with President Muizzu’s vision for development

Initiatives to enhance economic growth and foster sustainable growth

The International Monetary Fund (IMF) has recognized President Muizzu’s initiatives as some of the strongest implementations seen among world leaders, emphasizing their potential for substantial progression. The IMF applauded the government’s decision not to overdraw the government’s account and expressed its readiness to provide any assistance needed. This endorsement from the IMF underscores the effectiveness of President Muizzu’s economic policies and strategies.

Additionally, the Maldives National Chamber of Commerce and Industries has voiced support for the government’s initiatives, recognizing them as favorable for the Maldivian future as a growing economy. Despite challenges such as a shortage of dollars for small businesses, the Chamber remains optimistic that the government’s decisive actions will lead to economic growth and stability in the value of the dollar.

The government has projected a 5.5 percent economic growth rate for this year, indicating confidence in the trajectory of the economy under President Muizzu’s leadership. Furthermore, President Muizzu revealed a significant reduction in the country’s primary debt balance, from USD 103.61 billion last year to USD 8.68 million in the current year. This reduction in debt, achieved within just four months, demonstrates the government’s commitment to fiscal responsibility and its ability to effectively manage the country’s finances.

Overall, these developments indicate that the government’s economic rejuvenation efforts have been successful, earning the confidence of global financial institutions in the Maldives’ future economic prospects.

Source(s): PsmNews

Business

Council to issue 14 plots in Hanimaadhoo for tourism development

Published

2 weeks ago

15/04/2024

Haa Dhaalu atoll Hanimaadhoo island council has announced a 50-year lease on 14 plots from the island for tourism development purposes.

In the announcement put on gazette by the council, it has opened bid opportunity for interested bidders to lease the plots from Hanimaadhoo’s tourism zone.

The council has announced lease of 5,000 square feet plots for a 50-year lease period, for which interested proponents are required to register for the bids before 13:00hrs on April 30th, 2024.

For proponents wishing to mail the bid registration form, they can mail it to info@hanimaadhoo.gov.mv.

Proponents must furnish a bid registration, non-refundable, fee of MVR 1,000 for the 5,000 square feet plots. If proponents wish to acquire more than one plot, then they must pay MVR 1,000 per plot.

If the council annuls the announcement, it said the registration fees will be refunded to the proponents, and added the proponents will receive bid books upon registration.

Bid acceptance and opening are scheduled for April 30th, 2024 as well.

While the Hanimaadhoo International Airport is under an expansion project, the island has been putting efforts to increase its local tourism activities as well.

During his last month visit to Hanimaadhoo, President Dr. Mohamed Muizzu said the airport’s expansion will contribute towards increased tourism activity in the island.

He also said sustainable development cannot be achieved without individual development of key regions which include Hanimaadhoo as well.

Source(s): sun.mv