The Islamic Financial Services Board (IFSB) has issued the Exposure Draft of its joint paper with the International Association of Insurance Supervisors (IAIS).

The ‘Issues in Regulation and Supervision of Microtakaful (Islamic Microinsurance)’ paper has been issued for public consultation until August 6, said a statement.

It has invited comments from regulatory and supervisory authorities, international organisations, market players, academics and other interested parties, it said.

The regulators and supervisors in jurisdictions where Takaful (Islamic insurance) providers offer their services have relatively little experience or empirical data to support their role in creating a conducive environment for the Microtakaful market that could work effectively for the lower income segments.

Therefore, the main objective of the Joint Paper is to highlight and identify regulatory issues prevailing in the Microtakaful sector and outline the role this sector can play in enhancing financial inclusion.

Its objective include to identify the current practices and models used for offering Microtakaful products, and the challenges and potential issues arising from Microtakaful transactions; to review the current regulatory framework for the Microtakaful sector in various jurisdictions and suggest initiatives to strengthen the framework and thus enhance financial inclusion through the Takaful sector; and to provide guidance to the regulatory and supervisory authorities in putting in an enabling environment for the overall development and growth of the Microtakaful sector.

The paper highlights the distinguishing features of various models used for offering Microtakaful products which, despite being similar to the models used for Takaful products in many respects, pose various unique supervisory challenges.

Backed by a survey from the regulatory authorities and Microtakaful operators, it delineates the main features of Microtakaful from various aspects including types of participants, product features and contributions as well as distribution channels.

It also examines critical issues that require the attention of regulatory and supervisory authorities pertaining to the Microtakaful sector. These include the requirements of separation of funds, solvency and capital adequacy framework, investment framework and shari`ah compliance.

Other pivotal aspects covered include customer education and awareness, consumer protection, licensing requirements and supervisory review process. Additionally, the Joint Paper illustrates the relevance of IAIS’ Insurance Core Principles in the practice of Microtakaful. - TradeArabia News Service