- A beacon of ethical unity in Pakistan’s financial horizon
- 5th Pillar Family Takaful introduces Hajj Saving Takaful Plan for a secure pilgrimage journey
Interview with Muhammad Nasir Ali Syed — Executive Director Operations, 5th Pillar Family Takaful Limited
Muhammad Nasir Ali Syed is a seasoned professional with over 29 years of rich experience in Pakistan’s Life Insurance and Family and General Takaful industry. He is a vision-oriented individual possessing extensive experience in the foundational development and establishment of life insurance entities. This includes pivotal roles in establishing reputable firms such as American Life Insurance Company (ALICO) in Pakistan, Commercial Union in Pakistan, NJI Life in Pakistan, and the establishment of Pak-Qatar Family Takaful Limited.
Mr. Nasir has been affiliated with 5th Pillar Family Takaful Limited and before his tenure at 5th Pillar, he held various positions at American Life Insurance Company (ALICO – Pakistan), Commercial Union (Pakistan), NJI Life (Pakistan), and Pak-Qatar Family Takaful Limited, where he served as the Chief Executive Officer for over 7.5 years. Additionally, he held the position of Chief Executive Officer at Pak-Qatar General Takaful and later served as the Executive Director for Health and Emerging Lines at Salaam Takaful Limited.
He has participated in numerous national and international forums as a recognised leader of Takaful, and his research work has been published in prominent global publications.
Education: Master’s Degree in Biochemistry from Karachi University
Professional certifications: ALMI qualification from LOMA, USA and a post-graduate diploma in Islamic Banking & Takaful from Centre of Islamic Economic (CIE, a division of Jamia Darul Uloom Karachi).
Pakistan & Gulf Economist had an exclusive conversation with Mr. Nasir Ali Syed about the Takaful sector in Pakistan. Following are the excerpts of the conversation:
Takaful is a beautiful example of how people can come together to support one another in need. This Islamic insurance model operates on the principles of Islamic finance, where members contribute to a pool of funds based on the concept of mutual aid. Unlike traditional conventional insurance based on a premium system and risk-transferring mechanism, Takaful promotes shared risk and mutual guarantees between participants. Through the concept of Tabarru’, participants donate a portion of their contributions to support those in need, creating a system of ethical investment and solidarity. Takaful emphasises the importance of risk sharing and ethical investment, distinguishing it from its conventional counterpart. It’s a system that inspires us to come together, support one another, and invest ethically for the greater good.
The Takaful sector in Pakistan, which offers Shariah-compliant insurance options, consists of 33 operators. This includes seven family window Takaful operators, three dedicated family Takaful operators, 21 general window Takaful operators, and two dedicated general Takaful operators. The sector has garnered considerable interest, with family Takaful generating a premium of Rs. 41 billion, in CY-2022 accounting for 11% of the total life insurance industry premium. General Takaful has also significantly impacted, with a premium of Rs. 21 billion, representing 12% of the total non-life insurance industry premium. These figures underscore the growing footprint of Takaful in the Pakistani market and its potential for further expansion within the country’s financial services industry.
The insurance sector of Pakistan has played a pivotal role in contributing to the national economy, with a total fiscal impact of Rs. 34.3 billion. This sum comprises Rs. 11.7 billion in income tax, Rs. 7.5 billion in sales tax, Rs. 9.7 billion in Federal Excise Duty (FED), Rs. 3.3 billion in stamp duty and Rs. 2.1 billion in other contributions. In addition to its financial contributions, the industry has also been a significant provider of employment, with 21,565 employees on its payroll and a vast network of 199,210 sales agents. Furthermore, the insurance sector holds 6.8% of the Government of Pakistan’s marketable securities and accounts for 2.7% of investment in equity securities as a percentage of market capitalization. These figures underscore the insurance sector’s essential role as a key player in Pakistan’s financial landscape, contributing significantly to public revenue and employment while also being a noteworthy participant in the capital market.
The insurance industry in Pakistan has experienced significant growth, as evidenced by the increase in total assets from Rs. 2,114 billion in the previous year to Rs. 2,421 billion in 2022. Gross premium also saw a substantial rise to Rs. 553 billion, up from Rs. 432 billion, and claims paid by insurers increased from Rs. 218 billion to Rs. 276 billion. Despite these indicators of growth, insurance penetration remains modest, standing at 0.87%, with an insurance density of Rs. 2,776. The industry is dominated by 42 players, including 28 non-life insurers, 8 life insurers, 2 general Takaful operators, 3 family Takaful operators, and 1 reinsurer. The primary distribution channels are sales forces or agency channels, accounting for 99% of public sector premium and 33% of private sector premium in life insurance, and 52% of the total premium in non-life insurance. Bancassurance, or the Banca channel, contributes 1% of the public sector premium and 54% of the private sector premium for life insurance. Meanwhile, direct channels account for 32% of the total premium in non-life insurance. Although digital channels are emerging, they are still in the early stages, contributing only 0.5% to the total premium. This snapshot of the industry highlights the innovation potential, particularly in leveraging digital platforms to increase penetration and accessibility. Given that the majority of premiums are still being paid through traditional channels, there is a vast opportunity to expand into digital spaces to engage a younger and more tech-savvy demographic. Thus, the industry is ripe for innovative disruption and presents exciting opportunities for those willing to explore novel business models and distribution channels.
Pakistan is a nation with a significant proportion of young people, with over 241 million individuals in this demographic. The average median age of the Pakistani population is approximately 20 years, significantly lower than the global average median of 32 years. The youthfulness of the population presents an opportunity for the country since a larger percentage of the working-age population can lead to increased savings and investment opportunities. With more time to save and invest and a willingness to take risks, young people can drive economic growth and increase the national savings rate, which is beneficial both to individuals and the country. However, Pakistan must provide education, skill development, and job opportunities to its youth to achieve this. In addition, effective money management skills are necessary for young people to plan for the future and achieve their long-term financial goals.
Pakistan’s gross savings rate stood at 3.8% in June 2022. This rate was the lowest observed in the last 23 years, showing a significant decline from the previous year when it was 6.0%. The gross savings rate is the ratio of gross domestic savings to nominal GDP, indicative of a country’s capacity to invest and grow without relying on external financing. Pakistan’s low gross savings rate implies that its domestic consumption expenditure is high relative to its income, and it may face challenges in financing its development needs. Regrettably, Pakistan has one of the lowest savings rates globally, with people saving only 12.3% of the country’s total income in 2019, which is notably lower than the global average of 24.69%. The Takaful industry, which is a mutual assistance and ethical saving system, can address this issue by providing savings and protection plans that align with the values and long-term financial objectives of young people in Pakistan.
5th Pillar Family Takaful Ltd is all set to launch its flagship product – the Hajj Saving Takaful Plan. This innovative offering will provide an end-to-end value chain for Pakistanis and enable them to fulfill their lifetime dream of performing Hajj with ease. This long-term saving plan is designed to enable access to the masses across Pakistan and to ensure that the customers’ Hajj savings are secure and reliable. The product’s distinctiveness lies in its comprehensive Takaful cover, which will provide customers with peace of mind while they save for their Hajj pilgrimage. The Hajj Saving Takaful Plan is a game-changer in the industry and marks a significant milestone for 5th Pillar Family Takaful Limited.
The insurance sector must prioritise investment in innovative product offerings, embrace cutting-edge technology, expand its branch network, and bolster its digital capabilities to stay competitive. It is particularly crucial to tailor products that cater to the needs of the technologically adept demographic, notably those aged 25-35, who increasingly seek protection coverage online. Additionally, there’s a compelling need to conduct educational seminars and awareness programmes targeted at the younger generation to enhance their understanding of the protective benefits and fundamental principles of Takaful.
The Security Exchange Commission of Pakistan, as an insurance industry regulator, is committed to addressing challenges and fostering innovation in Pakistan’s insurance industry through collaboration with stakeholders. The passage emphasises the importance of resilience, stakeholder cooperation, technological adoption, and attracting skilled human resources for the industry’s advancement.
In Pakistan, the Takaful industry’s advancement is contingent upon a regulatory environment that is accommodating and conducive to innovation. Modernising regulatory frameworks in alignment with the dynamic nature of Islamic finance is essential for ensuring Shariah compliance while integrating contemporary financial methodologies. A regulatory infrastructure that delineates clear parameters for product innovation, risk management, and consumer safeguards and simultaneously provides incentives for adopting technology will be vital in propelling service efficiency and market penetration. Moreover, encouraging collaborative ventures among Takaful entities, tech innovators, and financial bodies is critical. Such a concerted effort in driving research and fostering a competitive edge will spur the Takaful industry’s growth within Pakistan and bolster its stature in the international Islamic financial arena.
The Islamic finance industry comprises Islamic banking, Islamic capital markets, and Islamic insurance or Takaful. Despite being the most minor contributor in terms of assets, Takaful’s emphasis on ethical principles such as transparency, fairness, and wealth distribution for social welfare has made it an attractive option. The industry also prioritizes environmentally friendly practices and discourages the creation of money from money, promoting a symbiotic relationship between deposits, investments, and real underlying assets. These principles have helped Islamic financial institutions to maintain consistent returns, even during economic downturns. To further promote the Islamic finance industry, it is recommended that Islamic Banks cover their assets through Takaful companies, and Islamic capital markets should follow suit. Overall, the Islamic finance industry has emerged as a viable alternative to traditional finance by prioritizing ethical practices, social welfare, and environmental sustainability and has demonstrated its ability to generate consistent returns, even in challenging economic times.
Encouraging the younger generation to engage in long-term savings is of utmost importance, particularly in light of inflationary pressures. To instill a culture of protection and savings, the Takaful industry must elucidate the complexities of financial planning, presenting it as an indispensable life strategy rather than a discretionary option. Educating young individuals about the deleterious effects of inflation on their future purchasing power can serve as a compelling motivator. Takaful operators should leverage digital platforms that are relatable to young adults, offering user-friendly tools that visualize the growth of their investments over time. By streamlining enrollment procedures and providing personalised Takaful plans that adapt to their long-term goals such as education, homeownership, or retirement, confidence in Takaful can be bolstered. Additionally, integrating gamification elements can transform the act of saving from a monotonous task to an engaging and gratifying experience. Above all, by demonstrating the tangible benefits of early investment and the peace of mind that comes with protection coverage, Takaful can become a cornerstone of financial well-being for the younger generation.