An Analysis of the Investment Portfolio Composition of Takaful Undertakings in the GCC and Malaysia

Abstract

The Islamic finance industry has witnessed a remarkable growth during the last decade. The total shari'ah compliant assets worldwide were estimated at US150 billion in the mid 1990s. The industry is expected to continue its strong growth trend fuelled by increase in oil prices. One of the fastest-growing segments in Islamic finance is the Islamic insurance (takaful) industry which is expected to continue its strong growth rate in the future. This research concerns the Islamic insurance industry and particularly the asset management aspect. This research aims at exploring the investment portfolio compositions for takaful companies in both the Gulf Cooperation Council Countries (GCC) and Malaysia. The exploration was conducted for each type of fund under the takaful structure which are: shareholders, general and family funds. Moreover, the research aims to explore the gaps between actual and desired investment portfolio for takaful- operating companies for each of the above-mentioned funds. The research was conducted by using a multi-strategy research approach which is known as "triangulation". The study was confined to two geographical groups, namely the GCC and Malaysia. Eleven takaful companies in both regions were covered in the research, eight from the GCC and three from Malaysia. However, these companies represented 90% of the GCC market and 95% of the Malaysian market when the research conducted. The data were collected through emailed questionnaire survey followed by a mix of structured and unstructured interviews with individuals from the industry. The conclusion of the study pointed out that there is a divergence between takaful companies in the GCC and Malaysia in the actual investment portfolio composition. The main difference between takaful operating companies was observed in long term investment portfolio whereby the GCC companies invested mainly in equities and real estate while the Malaysian companies invested mainly in sukuk However, a convergence was noted in the desired investment portfolio composition in both regions and in particular toward investment in sukuk The convergence is expected once the primary and secondary markets for sukuk develops in the GCC and international regulatory framework is practiced.