Takaful - VBI, VBIT and Moving Beyond Shari’ah Compliance

• Initiatives such as Value-Based Intermediation (VBI) and Value-Based Intermediation for Takaful (VBIT) can strengthen the role and impact of Islamic Financial Institutions (IFIs).
• These initiatives encourage Islamic finance and Takaful institutions to move beyond simply meeting the minimum requirements of Shari’ah compliance.
• Instead, institutions are encouraged to create positive and sustainable outcomes for:
• Customers
• Investors
• Businesses
• Communities
• Society
• The wider economy

1. Strengthening the Role of Islamic Financial Institutions

• VBI and VBIT encourage IFIs to consider the wider impact of their financial activities.
• Islamic financial institutions should not focus only on:
• Profitability
• Legal requirements
• Basic Shari’ah compliance
• They should also consider whether their activities contribute positively to:
• Society
• Economic development
• Environmental sustainability
• Financial inclusion

Example

• A Takaful operator could develop affordable Micro-Takaful for lower-income households.
• The product remains Shari’ah-compliant while also providing social benefits to underserved communities.

Simple Idea

Shari’ah compliance + Positive social impact = Stronger Islamic financial institution

2. Strengthening the Sustainability of the Financial Ecosystem

• VBI and VBIT can help create a more sustainable Islamic financial system.
• Sustainability means considering long-term effects rather than focusing only on short-term profits.
• Islamic financial institutions can support:
• Responsible businesses
• Sustainable projects
• Socially beneficial activities
• Environmentally responsible investments

Example

• A Takaful operator invests its funds in Shari’ah-compliant green Sukuk.
• The Sukuk finances renewable-energy projects.
• The operator earns a Shari’ah-compliant return while supporting environmental sustainability.

Simple Process

Takaful funds → Green Sukuk → Sustainable project → Financial return + Positive environmental impact

3. Transforming the Islamic Finance Industry

• VBI and VBIT can help transform Islamic finance from being viewed merely as an alternative to conventional finance.
• Islamic financial institutions can instead become institutions that actively create:
• Economic value
• Social value
• Environmental value
• Long-term stakeholder benefits

Simple Idea

Islamic finance should not only ask:

“Is this transaction Shari’ah-compliant?”

It should also ask:

“Does this transaction create beneficial and sustainable outcomes?”

4. Moving Beyond Compliance

• Shari’ah compliance remains essential.
• Moving beyond compliance does not mean reducing Shari’ah requirements.
• Instead, it means adding broader objectives on top of Shari’ah compliance.

Basic Approach

Shari’ah-compliant? → Yes

Then also consider:

• Does it benefit customers?
• Does it support society?
• Is it environmentally responsible?
• Is it economically sustainable?
• Does it contribute to the objectives of Shari’ah?

Simple Idea

Compliance is the foundation, not necessarily the final objective.

5. Creating More Business Opportunities

• A broader value-based approach can create new opportunities for Islamic banks and Takaful operators.
• Institutions can develop products for customers and markets that may previously have been underserved.

Examples

• Micro-Takaful for lower-income households
• Crop Takaful for farmers
• Green Takaful products
• Digital Takaful
• Protection for small businesses
• Sustainable investment products

Simple Idea

Wider social needs → New products → New business opportunities

6. Benefits Beyond Financial Consumers

• VBI and VBIT do not focus only on the direct customer.
• They consider a wider group of stakeholders.

Stakeholders May Include

• Participants
• Employees
• Investors
• Businesses
• Suppliers
• Communities
• Governments
• Future generations
• The environment

Example

• A Takaful operator finances environmentally sustainable projects.
• The benefits are not limited to the operator or participants.
• The wider community may benefit from:
• Cleaner energy
• Employment opportunities
• Better environmental conditions

Simple Idea

Islamic finance should create value for customers AND wider society.

7. Making Islamic Finance and Takaful More Proactive

• By combining:
• VBI
• VBIT
• Shari’ah compliance

Islamic financial institutions can become more proactive rather than reactive.

• Instead of waiting for customers to experience financial problems, institutions can develop products that help:
• Prevent hardship
• Improve resilience
• Support sustainable development
• Protect vulnerable communities

Example

• Instead of only compensating farmers after a disaster, a Takaful operator could combine:
• Crop Takaful
• Weather technology
• Risk-prevention education
• Digital monitoring

This can reduce losses before they occur.

Simple Idea

Proactive Takaful = Protection + Prevention + Sustainable support

8. Larger Investor Base

• A stronger emphasis on sustainability and social impact may attract more investors.
• Potential investors may include:
• Islamic investors
• Ethical investors
• Sustainability-focused investors
• Institutional investors
• International investors

Example

• A Takaful operator demonstrates:
• Strong Shari’ah governance
• Good financial performance
• Responsible investments
• Positive environmental and social impact
• This may attract investors who are interested in both financial returns and responsible investment.

Simple Idea

Shari’ah compliance + Sustainability + Strong performance → Wider investor interest

9. Greater Mainstream Relevance

• Islamic finance and Takaful should not only appeal to Muslim customers.
• Products based on:
• Ethical finance
• Mutual assistance
• Sustainability
• Social responsibility
• Financial inclusion

may also appeal to non-Muslim customers and investors.

Example

• A non-Muslim customer may choose a Takaful product because:
• It is competitively priced
• It is transparent
• It invests responsibly
• It promotes mutual assistance

Simple Idea

Takaful can appeal beyond the Muslim market.

Overall Relationship

Shari’ah Compliance

→ Ensures Islamic principles are followed

VBI

→ Encourages Islamic financial institutions to create wider positive value

VBIT

→ Applies similar value-based principles specifically to the Takaful industry

Together:

Shari’ah Compliance + VBI + VBIT

→ More sustainable institutions

→ More innovative products

→ Greater social and economic impact

→ Wider investor base

→ Greater mainstream relevance

Easy Way to Remember

Traditional Focus

“Is the product Shari’ah-compliant?”

Value-Based Approach

“Is it Shari’ah-compliant AND does it create positive value for society, the economy and the environment?”

Simple Formula

Shari’ah Compliance + Value Creation + Sustainability + Social Impact = Stronger Future for Islamic Finance and Takaful