Many observers say that the advantages of the co-operative structure in servicing the poor diminish as the organisation grows larger. Solidarity, member participation, member driven services, flexibility and concern for the community are not evident once the organisation expands beyond the local village. Additionally, the co-operative structure is seen as prohibiting the growth of the organisation due to its lack of access to technical and financial resources. However, the membership of the International Co-operative and Mutual Insurance Federation (ICMIF) show that co-operative insurance companies are successful and competitive in developing and developed countries. The ICMIF has 122 member companies operating in 65 countries, serving sectors from farming, fishing, trade unions, teachers, civil servants, doctors, credit unions and co-operatives. The size of the members range from some of the world’s largest international insurance organisations to small start up operations serving a small niche in local markets (ICMIF 2001a). Whilst maintaining certain co-operative principles becomes more difficult as the organisation grows it is definitely not impossible as demonstrated by ICMIF members (Appendix Five).
Despite the conventional premise that starting up insurance operations require a huge financial commitment and access to capital, many have started without share-capitals and have developed with a low net worth (Ripoll 1996). The German, Japanese and Korean insurance systems originated in small schemes of employed people (Creese & Bennett 1997). In 1997 six of the ten largest insurance companies in the world and almost half of the top fifty were mutuals, overall global market share by mutuals was around 40% (Birkmaier 1999). The growth of these large co-operatives and mutuals and their adherence to their co-operative principles mean they can give the socially excluded a greater voice in government policies and practices. As well as achieving size many large co-operatives have been able to use their structure to give them a competitive advantage. In its study of 97 companies in 11 countries in Europe, ACME found that mutuals were showing to be more successful in market performance than their plc competitors during the late 1990s. They paid higher claims ratios (i.e. paid more back to the members) and maintained lower costs ratios, demonstrating their continued drive for efficiency of operations and value for members (ACME 2000).
Co-operatives have succeeded in providing insurance products and maintaining its social objectives by adhering to the following principles:
1. Good corporate governance.
2. Proper form of accounting and transparency
3. Practising an open, voluntary and non-discriminating membership.
4. A high degree of autonomy and self-reliance.
5. Clear focus or objective to hold members together, such as access to affordable insurance products.
6. Ensure that everybody has access to and can afford to join the co-operative.
(Blomqvist & Böök 2000, Ledbeater & Christie 2000, Ullrich 1997).
3.6 - Islamic Insurance
World-wide the Muslim population in 2001 stood at 1,433.71 million or 23 percent of the total population, of which 1,385.45 million are based in Asia and Africa. Muslims account for 47% of the population in Africa, 27% in Asia, 7% in Europe and 2% in North America (Felahi 2001).
The well-being of the Muslim population
wide Muslim population (%)
2001 HDI value
1998 GDP per capita
1998 Population without access
Under-weight children under age five
To safe water (%)
1990-98 To sani-tation
South Asia 36 38 0.56 16,765 0.542 18 65 49
South Asia (excluding India) 84 28 0.55 25,314 0.533 15 49 41
Arab countries 94 18 0.635 4,140 0.612 17 23 19
Sub-Saharan Africa 36 16 0.464 1,607 0.459 46 52 31
South East Asia and Pacific 40 14 0.691 13,111 0.688 29 - -
East Asia 3 3 0.716 20,987 0.710 32 - -
East Asia (excluding China) 0 0 0.849 17,719 0.846 8 - -
HDI (Human development index) – composite index based on life expectancy, educational attainment and standard of living. A HDI value equal to or more than 0.800 has high human development, 0.500-0.799 HDI has medium human development and a HDI below 0.500 reflects low human development and well being.
•GDI (Gender-related development index) – composite index using same variables as HDI but adjusted in accordance with the disparity in achievement between women and men. A GDI of less than 0.500 show that women in these countries suffer the double deprivation of low overall achievement in human development than men.
Source: UNDP (2000), Felahi (2001)
There is a comparatively very low ratio of Muslims in developed countries, the majority reside in medium to low human development countries. From the 35 low human development countries as defined by the Human Development Report 2000, eighteen have a majority Muslim population ( >50 percent) and a further five have a Muslim population of over 20 percent (Appendix Six). Muslims around the world are commonly faced with low-income levels, and lack access to social security systems, healthcare, education, sanitation and employment opportunities. There is growing inequality in Islamic countries even in the rich Arab nations, due to increasing populations and a wave of cheap immigrant labour . It is therefore important that some risk protection mechanism is available to lower the vulnerability of the Muslim population.
“Takaful is the second most important social institution in the Islamic community to counter poverty and deprivation ” (Fisher 1999)
Whilst conventional insurance companies do operate in Islamic countries these are limited to commercial needs and to the elite sector of the population. Insurance penetration in Islamic countries is low (Appendix Six), this is because conventional insurance contains elements contradictory to Islamic principles, namely uncertainty (Gharar), gambling (maisir) and interest (riba) (Sigma 2001, Bhatty 2001). However, insurance in Islam has existed since the early second century of the Islamic era when Muslim Arabs expanding trade into Asia mutually agreed to contribute to a fund to cover mishaps or robberies along the numerous sea voyages. Muslim jurists concluded that insurance in Islam should be based on principles of mutuality and co-operation and encompass the elements of shared responsibility, joint indemnity, common interest and solidarity (Yusof 1999, Shakir 1999).
Takaful is the form of insurance deemed permissible for Muslims under Shariah Law (Islamic Law). The fundamental philosophy of Takaful is the same as that of the co-operative, with added restrictions on investments and more flexibility on capital formation. The takaful is operated as an enterprise providing services on a self sustaining model rather than as a charity (Fisher 1999). Since the first takaful insurer, the Islamic Insurance Company of Sudan, was established in 1979, there are now almost 50 takaful companies around the world. However the growth of the Takaful movement has not been profound, in 2000 takaful premiums represented approximately 0.02 percent of world insurance premiums .
Estimated figures of Takaful business in 2000
Country/region Takaful premium
2000 (US$ million) % of total
Malaysia 143 27
Other Asia Pacific 50 9
Europe, USA 6 1
Arab countries 340 63
Total 538 100
Source: Bhatty (2001)
In addition to the problems outlined earlier in providing insurance to the poor there are a number of specific issues obstructing the spread of takaful to the Muslim population. Firstly, there is a shortage of adequately trained and qualified insurance personnel in Islamic countries and on the takaful concept. Secondly, there is a lack of knowledge on the principles of takaful by the general public and scepticism on its permissibility (particularly on life insurance). Thirdly, there is no existing insurance culture in Islamic countries, in fact there is an indifference towards risks reflected by their low insurance density and penetration (Appendix Six). Fourth, there are no regulatory models in place that governments can use to monitor and encourage takafuls . Fifth, the demand for takaful products, both life and non-life has been huge, however takaful providers have had difficulty in managing the explosive growth and are unable to fulfil its potential . The lack of distribution channels is a major difficulty in ensuring that access can be provided to the needy. With so few players and with such small capital bases there is also a lack of available reinsurance from within the takaful movement, limiting the coverage available to policyholders. Finally, there are no concrete moves or motivation to expand the takaful movement globally or an international takaful body to facilitate this (Bhatty 2001).