Meezan Bank has shown interest in setting up a full-fledged Takaful company as a wholly-owned subsidiary to cater to the growing Islamic insurance market in the country, Meezan Bank Chief Operating Officer (COO) Ariful Islam told The Express Tribune in an exclusive interview.
“We are looking at potential areas to expand into, and setting up an insurance company is certainly one of them. We have also held talks with the regulators. But until now, our interaction with them has been informal,” he said.
Meezan Bank, which is listed on the Karachi Stock Exchange, was the first bank to receive the State Bank of Pakistan’s licence in 2002 to conduct commercial banking as a dedicated Islamic bank. Its deposits grew by 55% per annum between 2002 and 2010. As of December 31, 2011, the bank’s deposits were Rs170 billion, up by 30% compared to the preceding year.
“Sometimes, people get confused with the term insurance. Let me make it clear, whatever we will do, it will be Islamic and 100% Shariah-compliant,” he said. Islam added that Meezan Bank was working on the proposal for the establishment of an insurance company, but it was still far away from actually launching one because of some regulatory issues.
If Meezan Bank succeeds in getting a licence from the regulatory authorities, it will be the first bank to establish a wholly-owned insurance company in Pakistan.
When contacted by The Express Tribune, a spokesman for the Securities and Exchange Commission of Pakistan (SECP) – which is the regulator of the insurance sector – said the SECP will welcome Meezan Bank if it applied for an insurance licence. “However, the bank should follow the (relevant) banking ordinance and its related rules and regulations monitored and enforced by the State Bank of Pakistan (SBP),” the SECP said in a statement emailed to The Express Tribune.
“Subject to the clearance from the SBP, we have no issue in incorporating and registering the Takaful entity of any bank,” it said.
However, it is still unclear whether a banking company is permitted to undertake life insurance/Takaful business through a subsidiary under the Banking Companies Ordinance, 1962.
According to the SBP spokesman, Meezan Bank has indeed formally approached the central bank to seek permission for establishing an insurance subsidiary.
“When Meezan Bank approached the SBP for permission to establish a Takaful subsidiary, it was advised to obtain external legal opinion and submit the same to the SBP supporting their request,” the SBP spokesman said.
“However, the SBP has not yet received any formal external legal opinion from Meezan Bank. The SBP has already informed Meezan Bank that the decision of the SBP on the issue will be based on the relevant provisions of the Banking Companies Ordinance, 1962.”
The Islamic insurance sector in Pakistan is tiny compared to its conventional counterpart. There are only two family Takaful and three general Takaful companies in Pakistan. On the other hand, seven conventional life insurance companies and 30 general insurance companies operate in the country. The gross premiums of Takaful companies in 2011 were Rs3.3 billion, which was just 2.8% of the gross premiums of conventional insurance companies in the same year.
Islam says some awareness already exists among consumers about the difference between conventional and Islamic insurance because Takaful companies have operated in Pakistan for many years now. “We have done Shariah-complaint banking for 10 years. Meezan is a credible brand,” Islam said, referring to the bank’s bright prospects if it manages to get a licence from the regulatory bodies.
Published in The Express Tribune, September 15th, 2012.
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