Exporting Takaful To Indonesia

Malaysian Islamic insurers are expanding into neighboring Indonesia to tap growth three times as fast as in their home market, where Standard & Poor’s predicts tighter rules will curb expansion.

Great Eastern Takaful Sdn Bhd, the Shariah-compliant subsidiary of Malaysia’s biggest insurer that already has a Jakarta-based unit, will target low-income people in Southeast Asia’s largest economy, Chief Executive Officer Mohamad Salihuddin Ahmad said in a Sept. 13 interview. Etiqa Takaful Bhd wants to buy an Indonesian Islamic insurer, Chief Commercial Officer Shahril Azuar Jimin said in an interview last week.

Shariah-compliant life insurance assets in Indonesia, which has the world’s largest Muslim population, rose by an average of 53 percent over the last five years to 7.3 trillion rupiah (US$760 million), finance ministry data show. That compares with 18 percent growth in Malaysia to RM14.4 billion (US$4.7 billion), according to central bank figures. Expansion in the so-called takaful industry in Malaysia could slow due to new rules on fees and investments, a Sept. 24 S&P report said.

“Malaysia has become very costly for takaful operators after the central bank released an operating framework,” Abdul Rauf Rashid, the country managing partner at Ernst & Young LLP in Kuala Lumpur, said in a Sept. 13 interview. “Companies that are more aggressive in their expansion are seeking green fields. Indonesia, especially, has a lot of growth potential.”
“What is tricky for companies going into Indonesia is that buying a company with a license is not cheap, because the market has already adjusted for the growth potential,” Ernst & Young’s Abdul Rauf said. “But has Indonesia ticked all the boxes required to realize that potential?