Agile Financial Times - May Edition

1. Agile May
2009
FINANCIAL TIMES
Investment Management
Outlook
Middle East and Africa
CUSTOMER SPOTLIGHT
Increasing Market Share
for Apollo DKV
PERSPECTIVE
Islamic Insurance
in the Middle East
ARTICLE
The Aftermath of the
Economic Crisis

3. May 2009
Editor’s Note
Greetings!
In our quest to serve those who conserve capital
and grow wealth, we are pleased to provide our
views on the investment and wealth management
outlook in the Middle East & Africa and a
perspective on Takaful Insurance in the Middle
East.
CONTENTS
As I write, we are at the Annual BancAssurance
Conference in Vienna, Austria to exchange views
with industry leaders on this growing channel. Agile FT is sponsoring the
Conference and presenting a paper on ‘Making BancAssurance Agile’! CUSTOMER SPOTLIGHT
What is most exciting about BancAssurance is how it brings bankers and
Increasing Market Share
insurers together and this assembly is truly a meeting of minds as all sides
for Apollo DKV 4
unanimously agree on the role of technology as a key enabler. Our AGILIS
BancAssurance platform is being so well received that we decided to
feature the same in this month’s Solution Spotlight. COVER STORY
Investment Management
We are passionate about innovation and feel a sense of great pride when
Outlook: ME and Africa 7
our clients use our technology to innovate a business model. Apollo-DKV
Health Insurance Company shares its experience on the use of Agilis and
how they were able to leverage technology to increase their sales through ARTICLE
portals like MakeMyTrip.com.
The Aftermath of the
Economic Crisis 10
We invite you to read Vikas Tandon’s perspective on Customer Privacy in
the face of increasing Anti-Money Laundering scrutiny. Vikas Tandon is the
Joint General Manager and Money Laundering Reporting Officer at ICICI
INSIGHT
Bank.
Customer Privacy
Regulation 15
A new and exciting addition this month is a contribution from our Chairman,
Andrew Krieger, a well known luminary from the financial world. He shares
an insider’s view on the aftermath of the economic crisis. You will get a
PERSPECTIVE
sense of déjà vu as we are taken down memory lane right from the Great
Islamic Insurance in the
Depression and are told that a cheery investment outlook awaits us in the
near future. Middle East 17
We hope that you enjoy this edition and continue to write in with your
SOLUTION SPOTLIGHT
feedback. Here’s wishing everybody a great month ahead.
AGILIS Bancassurance 20
Be Agile!
PARTNER SPOTLIGHT
Shefali Khera
Chief Marketing Officer Expansion in Sub-
Write to us at info@agile-ft.com
Saharan Africa 22

4. CUSTOMER SPOTLIGHT
Increasing
Market Share
for Apollo DKV
This meeting of minds has given birth to a new era in health
Apollo DKV Health Insurance insurance in India, bringing with it the double protection of
preventive health added to insurance cover. It is a venture to
Company, the association bring in a paradigm shift in health insurance from ‘post care’
to ‘prevention and wellness’. This ultimately is the core of
between Apollo Group and the Apollo DKV’s unique brand positioning - ‘Lets Stay
Healthy’.
Deutsche Krankenversicherung
Towards this attempt, it has implemented AGILIS, an
(DKV) AG, is a strategic alliance integrated web-based software offered by Agile FT.
to meet common goals in Through AGILIS, Apollo DKV has been able to sign up
new customers thereby gaining incremental revenue. It has
healthcare and health insurance. also achieved fast turn-around-time, a critical success factor
in the travel insurance industry.
Apollo DKV has provided Indian domestic/international
It complements Apollo’s travellers a powerful on-line tool by which they can purchase
travel insurance in a variety of ways. Corporate customers
philosophy of ‘prevention and can issue policies at their end from the corporate portal.
Travellers can purchase their insurance policies either from
wellness’ and DKV’s dedicated travel agents who have been given access to AGILIS or from
travel portals like MakeMyTrip.com. Branch office
mission of ‘providing affordable employees of Apollo DKV at branch office can issue
insurance policies to walk in customers from the employee
and innovative health insurance portal. In all cases, the insurance policy is immediately
processed, can be printed and made available to the
solutions’. customer in real time.
Health insurance is a highly competitive line of business
since it is a part of every general insurance company’s
portfolio. Travel insurance forms an integral part of the
health insurance portfolio. Travel is a high-growth segment
with international leisure travel expected to grow three times
while the domestic travel market is currently growing at
about 35%. The value of the Indian travel insurance
industry is estimated to be $236 million in 2009, according
4

5. CUSTOMER SPOTLIGHT
to Euromonitor International.
Domestic and international air travellers typically buy
insurance cover after they have purchased their travel tickets.
This is usually at the proverbial last minute when they have
very little time to seek an agent and buy travel insurance.
Even if they find a travel agent or visit a general insurance
company, it normally takes a few hours before the policy
Krishnan
document is provided.
Ramachandran,
Chief Operating
In addition, the application forms are time consuming with
Officer, Apollo
details such as medical history, passport and other
DKV, shares
identification details to be filled. This affects the turn-
his views
around-time, a factor that is critical for the success of the
exclusively with
business, as well as the convenience of purchasing the
Agile Financial
insurance cover.
Times.
Background
In its endeavour to become a first-choice partner in the What is your vision for Apollo DKV?
health care sector, Apollo DKV is determined to
increasingly automate processes, reduce human intervention Apollo DKV was licensed by the regulator in August 2007
and increase quality and speed. Apollo DKV currently offers and launched its first product in November 2007 on the
several insurance plans - Easy Health Insurance, Personal retail side. We now offer a bucket of products in areas
Accident Insurance and Easy Travel Insurance. such as health, travel and personal accident insurance
for both retail and corporate and our goal is to become a
It chose Agile FT as its partner to automate its Easy Travel health insurer of choice.
Insurance Plan, a Short-Term travel insurance plan, with the
main target population being young people who are very At Apollo DKV, our core philosophy is ‘manage health’
familiar with the existing travel insurance schemes available and our vision is to become a significant player in the
in the market. The Individual Travel Insurance Plan covers health insurance industry, with our value proposition
an individual of age between 6 months up to 70 years, being the ability to combine health care access and
against any medical or non-medical emergency while delivery.
travelling and is valid for a specific number of days. Apollo
DKV offers the Easy Travel Insurance Plan in four different What is the rationale behind the on-line health
ways: initiative?
A secure travel insurance portal through which Very few insurance companies currently offer on-line
corporate customers can issue their own policies. The health insurance with processes automated from
issuing company has to maintain a deposit with application to policy distribution. By providing this
Apollo DKV, which gets debited every time a new policy service, we have actually been able to increase the
is issued. market size of the insurance industry as this user-friendly
facility has roped in many first-time customers, many of
Through the Agents Portal for travel agents. whom have now made it a practice to purchase
insurance on-line whenever they travel, which is
Through travel ticketing websites like MakeMyTrip.com, something they would not have thought of earlier.
where travellers can buy the insurance policy along with
the air ticket by just click-checking a box. What was the main reason for selecting Agile FT?
Through branches which provide service to walk-in We chose Agile FT as a partner as they possessed both,
customers. the technology expertise as well as people who had a
deep knowledge of the insurance industry. Agile FT
The policy is valid either for the duration of the round trip offered us a blend of technology and domain expertise
travel or 30 days from the date of booking. The decision to
use travel web sites as a distribution channel was to provide Without AGILIS we would not have been able to enter
an extended solution to airline clients. This has given the into a partnership with MakeMyTrip.com.
company a new dimension to the already existing on-line
airline booking system.
5

6. CUSTOMER SPOTLIGHT
While the primary focus of travel agents is on overseas not they would like to purchase an insurance policy. It also
travellers, the focus of MakeMyTrip.com is on domestic as includes the facility of emailing the policy to the subscriber’s
well as international travellers. email address.
The back end runs a validation engine and checks the
Supplier Selection
information (such as age, length of travel, countries of
During the launch of the Easy Travel Insurance Plan, travel) of the traveller. Most of the information is picked up
Apollo DKV had time constraints and was unable to from the data provided on the tickets and compared to set
custom-build a solution to cater to the travel insurance values. For example, the Easy Travel Insurance Plan is only
product. The company was therefore seeking an ‘off-the- provided to customers who are less than 70 years old.
shelf ’ product. “We already had a system in place which we Anyone at and above the age has to go through the
customised to suit our business needs. We decided to go for underwriting process by visiting an Apollo DKV office.
AGILIS since there was no time to add a separate module to
the existing one,” says Ravinder Zutshi, Chief Technology After the validation, the application is passed through a
Officer, Apollo DKV. payment gateway, where the payment is extracted from the
customer’s credit card. In case of cancellation of a policy,
the refund is made to the customer using the same forms,
while the final transaction is settled between the travel
“We chose Agile FT as they agents or MakeMyTrip.com and Apollo DKV at the
company’s website.
possessed both, the technology
Business Benefits
expertise as well as people who
Within a few months of the launch of AGILIS, Apollo
had a deep knowledge of the DKV received encouraging feedback from travel agents as
they found the product easy to use. Their feedback has been
insurance industry.” that AGILIS is customer friendly, easy to integrate into the
existing system, cost-effective and performs well on
underwriting and claims.
- Krishnan Ramachandran AGILIS also helped Apollo DKV decrease the turn-around-
time for issuing a policy to 2 minutes as compared to 15
Chief Operating Officer minutes earlier. Purchasing travel insurance was suddenly
made very simple for travellers who were earlier used to
Apollo DKV filling out lengthy application forms. For travellers who fit
the policy underwriting criteria, all they have to do is to fill
in their personal information on-line and the policy
document is sent to their email account, without any human
A key differentiator that separates Agile FT from its intervention.
competitors is its domain knowledge. Apollo DKV selected
AGILIS over similar products because of Agile FT’s proven Apollo DKV garnered significant incremental business with
expertise and domain knowledge of the insurance sector. the addition of MakeMyTrip.com as a sales and distribution
channel, especially because it was one of the early movers.
The unique feature of this channel is that it creates an
Technology
impulsive buying decision for the travel portal user who can
AGILIS is an integrated on-line IT solution designed to avail an insurance policy by just click-checking a box.
automate all the functions of a general insurance company.
It acts as a decision support system for underwriting, claims, Conclusion
reinsurance and accounting and, as a result, directly
enhances the business processes of an insurance company. Apollo DKV gained significant benefits due to the AGILIS
The solution is flexible in terms of defining new or revising implementation. In addition to simplifying internal
existing insurance products and facilitates dynamically processes, using AGILIS also reduced the turn-around-time
altering the process in time with the market conditions. for the issuance of policies, thereby setting an industry
AGILIS has the ability to cater to all classes of the general benchmark which few insurance companies have achieved.
insurance business. Being one of the early movers in providing travel insurance
policies in real time gave the company a substantial
The front end interface is used to provide a choice to advantage over competition and helped it to increase
travellers booking through MakeMyTrip.com of whether or incremental revenues significantly.
6

7. Investment
It seems ironical to talk about
investment and wealth
management, when so many
mammoth organisations have
Management
collapsed and high net worth
individuals (HNIs) have seen
their net worth eroded in the
Outlook
span of just a few months.
As we all know, the US
downturn triggered a global
Middle East and Africa
slowdown during the second
half of 2007, which quickly
In early 2008, large US corporations began filing for bankruptcies, which severely
spread to the other developed
impacted their global operations. With mass unemployment across the globe, the
regions as well. At the same scenario worsened in the second half of 2008 and as yet, 2009 does not appear
time, emerging economies to be doing any better.
continued to grow, albeit at a
Countries within the Middle East and Africa were relatively well sheltered during
slower pace.
the second half of 2007 largely on account of the then-rising prices of
commodities and natural resources. Africa additionally benefited from a
liberalised economy attracting higher foreign direct investment (FDI) to propel
growth. Wealth creation in both these regions reached record highs. According
to a 2008 BCG report on Wealth Management, assets under management (AUM)
in Middle East and Africa grew at a rate of 8.6 per cent versus the worldwide
growth rate of 4.9 per cent in 2007. The World Wealth Report published by
Capgemini and Merrill Lynch in 2008 mentions that the HNI population within
Middle East and Africa experienced the highest growth rates of 15.6 per cent and
10 per cent respectively in 2007. Compared to this, the worldwide HNI
population in 2007 grew only by 6 per cent in that year.
While the financial crisis took its toll on most countries, the impact on emerging
7

8. COVER STORY
nations was especially significant, since they were highly Sharp Shock’, forecasts a speedy recovery for the Middle
dependent on the US and other developed countries for East during 2010. According to the report, the price of West
foreign investments as well as exports. The impact on wealth Texas Intermediate (WTI), which is a benchmark for oil
markets in Middle East and Africa has been quite severe. prices, will hover around approximately $60 per barrel in
The Gulf Co-operation Council (GCC) stock markets 2009 and the production of oil will drop by 3 million barrels
collectively lost more than $600 billion in market per day. In 2010, as the demand for oil increases and the
capitalisation during 2008. Local exchanges in Dubai and
Egypt were down more than 50 percent in 2008. The wealth
erosion across both regions was primarily led by:
In the absence of a major
Declining commodity prices: In July 2008, crude oil
black swan event, the
prices declined by almost 70 per cent from a peak of
$147 per barrel. The Middle East region with the largest
demand-supply equation is
crude oil reserves in the world, had to cut production
due to decline in demand. Many mines in Africa closed
bound to ensure prosperity
down operations as the demand for commodities
declined significantly. Prices of copper and cobalt
within these regions.
dropped to one-third of their peak-2007 prices.
Declining foreign investments: There has been a
decline in FDI in these regions owing to the economic
slowdown and a current negative outlook towards the global economy starts to recover, there will be a marginal
region. According to UNCTAD, FDI in the Middle East price recovery of oil, up to $75 per barrel. The report
fell by 21 per cent in 2008, resulting in delays and reflects the consensus on a growth decline in 2009 for the
cancellations of infrastructure projects that were heavily GCC countries - GDP growth in 2009 to decline by 20 per
dependent on FDI. In six of the largest countries in cent over to $835 billion from $1.1 trillion in 2008, and the
North Africa, FDI fell by 5.2 per cent in 2008 to $21.3 current account surplus to fall to zero as compared to $350
billion. billion in 2008. In 2010, however, the GDP is expected to
grow by 20 per cent to over $1 trillion.
Credit crunch and liquidity pressure: In both Middle
East and Africa, the lack of liquidity resulted in a loss of Implications for Investment Management
confidence amongst lenders and borrowers. As lenders
became more stringent with respect to borrowing The implications of all this for the investment management
norms, the number of loans accessed by the public industry in Middle East and Africa are far-reaching. Growth
declined. in wealth is the leading indicator rather the leading driver for
the wealth management industry. Therefore, while 2009 will
be a watershed year for the industry globally, the key for
Recovery Expected Post-2009
investment managers will be to maintain competitive
However, the good news is that despite falling growth rates, positioning to garner growth opportunities on market
both regions are widely expected to still keep growing. recovery.
According to an IMF forecast, the GCC economy is
expected to expand by 3.5 per cent in 2009 as compared to There is every reason to believe that the attractiveness of the
6.8 per cent last year. Another forecast by the World Bank Middle East and Africa as destinations for wealth
(report on Global Economic Prospects) pegs the regional management will continue post 2009. The prime reason is
growth in the Middle East (including GCC and other the already-existing wealth base, both at the retail level as
countries as well) to slow down to 3.9 per cent in 2009 from well as at the sovereign level. The existing reserves of
5.8 per cent in 2008. The underlying assumption is that financial assets can be leveraged effectively for fuelling
commodity prices will definitely not go down further and investments in prime projects, especially in infrastructure.
crude especially is expected to recover to $65-70 per barrel For instance, UAE alone has reserves of $350 billion versus
by the end of 2009. obligations of $10 billion in sovereign debt, and $70 billion
owed by affiliated companies.
Looking beyond 2009, the prospects appear to improve
dramatically for these regions. While there is a general The confidence in the African markets is evident from the
consensus on the global economic environment improving number of private equity (PE) companies which are
in 2010, indications are that the turnaround will be much continuing to set up shop there. For instance, Kingdom
quicker in Middle East and Africa. Zephyr Africa Management and Aureos Advisers (both PE
players) have announced that they will continue to raise
A recent MEED (Middle East Events) report titled ‘A Short, capital for their respective PE funds, as they continue to see
8

9. COVER STORY
Growing maturity of investor culture: The investor
culture is gaining ground in these regions. Mature
investors have a better understanding of the
complexities of wealth products and services, which acts
a driver for further growth of the investment
management industry.
Some of the inherent challenges that countries within these
regions face and will have to ultimately overcome to sustain
and increase growth, include:
Scarcity of experienced local finance professionals:
Finance professionals are needed for the growth of
investment management within these regions. Due to the
geopolitical risks in these countries, professionals from
opportunities in the African continent. They expect Africa developing nations are often unwilling to relocate to the
to recover more quickly than the other emerging countries, Middle East.
as Africa has been one of the fastest growing regions within
the emerging economies. As for the Middle East, in the Nascent stage of some African markets: Although
recent past, several international investment outfits (such as the African region opened up its economy to foreign
ING IM, Insparo Asset Management, Australia’s Macquarie investment and trade in 2007 to an extent (and as a result
Group among others) have either set up or are in the process experienced significant economic growth), it still has a
of setting up offices in the Middle East. long way to go in relaxing norms that erstwhile did not
allow foreign inflows. By doing this the region will attract
Further, there are several strong fundamental drivers which hefty foreign investments. Further, the turbulent political
will help these economies recover and grow: landscape in various parts of Africa could significantly
impede growth.
Diversification of sources of income: The countries
within Africa and ME have been investing in other High expectations of HNI investors: HNIs have
sectors to diversify and reduce dependence on a single become very sophisticated in terms of their financial and
commodity or natural resource. For instance, tourism investment needs and seek comprehensive wealth
has been a growth sector in the GCC and its share in the management services from trusted advisors. Clients not
GDP is expected to go up further. As these economies only expect advice on investments but also expect
diversify, there will be significant growth opportunities advisors to be able to understand the larger picture
which will be tapped by investors. which encompasses personal and professional
investment goals. Wealth managers therefore have to
Rapid growth of Islamic finance: Financial services gear up to ensure these demands are adequately serviced.
in the Middle East and some parts of Africa will be
driven by growth in Islamic finance. Shari’a compliant The long-term outlook on commodities, which is a key
financial services are expected to grow due to several economic driver in both these regions, is positive. Especially
factors such as high availability of sophisticated Shari’a given that the take-up on alternative energy sources is still
compliant products, increase in the number of low, the dependence on non-renewable energy sources will
institutions offering these products and the formation of continue to be high. Therefore, in the absence of a major
regulatory bodies to provide the necessary regulatory black swan event, the demand-supply equation is bound to
oversight. According to a report by Oliver Wyman, ensure prosperity within these regions.
Islamic finance (worldwide), although in its nascent
stage, has grown by over 20 per cent over the last few According to a Standard and Poor’s survey of fund
years. Its current assets are estimated to be in the range managers in the Middle East and North Africa, although a
of $700 billion to $1 trillion. The report estimates these continued downward pressure on markets is expected in the
assets to grow to over $1.6 trillion by 2012, with a short term, fund managers are very positive about the
significant chunk of the contribution expected from the medium to long term outlook for these markets. They
Middle East and Africa. expect growth to be driven by domestic investors such as
sovereign wealth funds. Further, the increase in investments
Liberalisation of financial markets: The opening up in infrastructure-related projects will see more foreign
of both the Middle East and the African markets has capital flowing in. The result of the increase in individual
spurred growth in these regions. Africa is continually and state-owned wealth will see an increase in demand for
introducing reforms to make the environment business investment management.
friendly and attractive to foreign investment.
9

10. ARTICLE
The Aftermath
of the
Economic
Crisis
Andrew Krieger
Chairman, Agile Financial Technologies
Having been violently shoved to the edge of the abyss, the a huge blunder and they knew it almost immediately. Leaders
global financial system has gone through an amazing two- of the G20 were then faced with a daunting choice - either
year period. During the summer of 2008, the world’s sit by idly and watch the demise of the global financial
financial markets were becoming progressively unstable as system or take drastic measures to forestall its final death by
the magnitude of the balance sheet problems among leading throwing vast amounts of money at the problem. It was a
banks, brokerage firms and insurance companies was big gamble, but the leaders didn’t really have much of a
starting to sink in. One firm after another announced multi- choice except to start pumping in money. They needed to try
billion dollar losses resulting in plummeting investor to buy enough time for the world’s biggest financial
confidence. The entire system was already in a very institutions to get back on their feet and start operating in a
vulnerable condition when talk of major liquidity issues at more healthy fashion.
Lehman Brothers started to filter through the market. When
it became apparent that Lehman’s problems were real, the The gamble seems to be working so far, but the long term
U.S. authorities surprisingly decided not to step in and ramifications of these measures will last for generations.
intervene. Therefore it is incumbent on us to understand more fully the
consequences of the policy shifts that have taken place.
Their decision was clear -- Lehman was not too big to fail -
- and on September 15, 2008 Lehman Brothers announced In order to get a handle on the magnitude of the current
that it would seek Chapter 11 bankruptcy protection. The economic weakness let’s consider some of the following
already unstable markets became uncontrollable. The facts. The U.S. economy, far and away the largest in the
brewing crisis took on a new dimension once this venerable world, shrank by 6.3% and 6.1% in the last quarter of 2008
institution, formed in 1850, was forced to close down. and the first quarter of 2009, respectively. These are the
Lehman was a major player in essentially all the global worst numbers in over fifty years. U.S. unemployment now
markets and their bankruptcy sent violent shockwaves stands at 8.5% and is on its way to double-digit levels, but
around the world and brought the global financial system to this number grossly understates the true state of affairs.
its knees. Roughly 5% of the workforce is considered permanently
unemployed, which means they are no longer even seeking
Whatever remaining trust banks held for one another jobs so they don’t even show up in the statistics. The
evaporated as they worried about what toxic time bombs economy’s weakness has been widespread, with a collapse in
might lay hidden in their counterparties’ balance sheets. consumer demand, manufacturing, inventories, and home
Interbank lending shut down and credit markets froze. sales all showing up in the data. Optimists look at the drop
Global liquidity dried up and the system was teetering at the in inventories as a sign that growth will bounce back in the
edge of a bottomless ravine. The U.S. authorities had made form of increased production when sales demand finally
10

11. ARTICLE
picks up. But when will this demand pick up, and how strongly? The pace of
the decline in manufacturing, housing, exports, and factory orders is slowing,
but the numbers are alarming. Property values continue to drop. In many areas
the pace of decline has slowed, but in others, such as New York City, the drop
is actually accelerating. Prices in New York City have fallen by about 25% in the
past several months and more weakness is predicted.
The U.S. is hardly alone in its suffering. Global growth this year will be negative,
probably to the tune of 1.5%. Data from Asia is very weak, with export-
dependent nations showing the largest drops in export data in over half a
century. Japan’s economy, the second largest in the world, will be down
approximately 3.3% and China’s growth has slowed sharply despite massive
fiscal spending packages. Europe is likewise suffering, and in some instances, it
is actually in worse shape than the U.S.
Eastern Europe is performing terribly and Western Europe is posting very
weak numbers. For example, German GDP is growing at roughly -6%, and
Spain’s economy has fallen sharply, showing 17% unemployment today, on the
way to 20%+. Banks in Europe are under tremendous pressure and liquidity
remains very poor. In the bigger picture, bear in mind that Japan has now
suffered through nearly two decades of moribund economic activity and it is
only because of their extremely high personal savings and investments that they
have been able to cope with this extended economic malaise. This protracted
slowdown created a number of “zombie” banks and this is something the U.S.
and European authorities desperately want to avoid.
On the other hand, while the numbers are bad, they aren’t nearly as catastrophic
as those experienced by the U.S. during the Great Depression. From 1929 until
1933 total output in the economy dropped by 42%. Unemployment peaked at Andrew J. Krieger began his
roughly 25% and consumer prices dropped by about 25%. Hardship within the
meteoric rise on Wall Street at
U.S. was truly horrible, but the impact extended globally. European economies
Salomon Brothers in 1984,
were weakened for years. The UK economy, for example, didn’t bottom out
until 1932, and the French economy didn’t fully crater until 1935. then at Soros Fund
Management, after which he
In terms of understanding where we are today, however, we need to bear in
moved to Banker’s Trust in
mind that most of the economic damage during the Depression was due to
1986. He holds a BA in
severe weakness in the banking system - weakness largely due to the fact that
many of these banks were not following sound lending practices and had Philosophy (Magna Cum
speculated too heavily in the 1920’s. As overall confidence collapsed, the banks Laude, Phi Beta Kappa,1978);
were not spared, and thousands of banks were forced to close. The entire
MBA in Finance from the
period from 1930 until 1933 was marred by runs on multiple banks.
University of Pennsylvania; and
In January, February, and March of 1933 (the months leading up to the an MA in South Asian Studies.
inauguration of Franklin D. Roosevelt) the run on the U.S. banks reached Andrew has authored the book,
shocking proportions. By the time FDR took the oath of office on March 4,
“The Money Bazaar” in 1992,
1933, Americans were in a state of panic. Banks were failing every day and
and has been a contributing
people clamored to withdraw their money. Ordinarily they would have accepted
paper money in the form of gold certificates, but people feared that the Columnist for Forbes and
government might resort to printing worthless money to meet the massive Forbes Global. He co-chairs
withdrawal requests. They didn’t want paper. They wanted gold. To make
the Microcredit Summit Council
matters worse, people who had gold certificates rushed to redeem them for real
of Banks and Commercial
gold.
Financial Institutions and is
In 1933, the U.S. government defined the dollar as being worth precisely 23.22 Founder CEO of IMGE
grains of gold. Since there are 480 grains to a troy ounce, this works out to
Emergency Relief Fund and
about $20.67 per troy ounce. This meant that if you had a $20 gold certificate,
MD of Access Capital
you could redeem it for roughly 1 troy ounce of gold. Each certificate bore this
solemn statement: “This certifies that there have been deposited in the Management.
11

12. ARTICLE
Treasury of the United States Twenty Dollars in Gold Coin being strictly separated from one another. Another reform
payable to the bearer on demand.” There are two promises was the creation of the FDIC, the entity which insures banks
here: First, the gold is there waiting for you. Second, you’ll deposits in the U.S.
get the gold when you demand it. So in March of 1933,
thousands of people decided to make the government The Glass-Steagall Act survived for over sixty six years
honor its commitment, but they quickly learned that the before it was repealed in 1999. The basic premises
Treasury was not standing by its promise. Just two days after underlying the Act are important to consider. Among them
his inauguration, President Roosevelt ordered a “bank is the fact that conflicts of interest characterize the granting
holiday”, closing all the banks in the country from Monday, of credit (lending) and the use of credit (investing) within
March 6 through Thursday, March 9. He proclaimed that the same institution. Conflicts arise when the same
there was a “national emergency” caused by “heavy and institution does both, so the law was designed to prevent
unwarranted withdrawals of gold and currency” for the potentially abusive practices. In addition, depository
purpose of “hoarding.” In this case, “hoarding” simply institutions are deemed to have great power by virtue of the
meant that people wanted to hold on to their own money, fact that they are handling other people’s deposits, and this
but Roosevelt, eager to blame the government’s woes on the power must be held in check. In particular, it was felt that
people’s vices, used the term “hoarding” to make it seem like bank managers must be required to be conservative,
evil behavior. After virtually no debate, on March 9 the prudent, and protective of the customers’ funds.
Senate passed the Emergency Banking Act, which gave the Encouraging - or even allowing - banks to engage in
Secretary of the Treasury the power to compel every person speculative activities could potentially endanger the security
and business in the country to relinquish their gold and of the institution and imperil depositor’s cash. Securities
accept paper currency in exchange. The next day, Roosevelt activities can be highly risky and volatile, so the logic was
issued Executive Order No. 6073, forbidding people from that these activities belonged outside of the banking system.
sending gold overseas and forbidding banks from paying out Moreover, there was (and still is) no evidence that banks are
gold. This was quite a first week in office, but there was particularly good at taking speculative positions and
much more to follow. On April 5, Roosevelt issued managing risky portfolios, so the separation seemed to be a
Executive Order No. 6102 which enabled the government to logical step. Thus, the wall between commercial and
confiscate everybody’s gold. The order commanded the investment banks was erected.
populous to deliver their gold and gold certificates to the
Federal Reserve Bank where they would be paid in paper This separation was challenged may times, but not until the
money. U.S. Citizens could keep up to $100.00 in gold, but passage of the Gramm-Leach-Blilely Act of 1999 was the
anything above that was illegal. Glass Steagall Act repealed. It enabled commercial lenders
such as Citigroup, which at that time was the largest U.S.
Gold had become a controlled substance. Possession was bank by assets, to underwrite and trade instruments such as
punishable by a fine of up to $10,000 and imprisonment for mortgage-backed securities and collateralized debt
up to 10 years. Now the only people with a claim to gold in obligations and establish so-called structured investment
the Treasury were foreigners holding dollars. Roosevelt vehicles, or SIV’s, that bought these securities. (These were
didn’t want foreigners to be treated any differently, so on just the kind of financial instruments Glass Steagall kept
January 31, 1934, Roosevelt issued another Executive Order: away from commercial banks.) The year before the repeal of
He declared that one gold dollar of 23.22 grains would Glass Steagall, sub-prime loans were just 5% of all mortgage
immediately be reduced by 59%, to 13.71 grains. Effectively lending activities, but by the time of the crisis in 2008, they
the dollar was devalued by more than 40% and everyone was had grown to 30% of the total. Although some maintain
stuck. It used to cost only $20.67 to get a troy ounce of gold. that the seeds of the recent financial meltdown were sown
With the sweep of his pen, it shot up to $35.00 per troy with the repeal of the Glass-Steagall Act, the real cause is far
ounce. more complex. The crux of the issue is that improper risk
management was prevalent in many of the world’s leading
The U.S. Government passed many laws to address the banks. Greedy management and poorly thought out
problems of the Great Depression. One of these, the first compensation packages that rewarded risky short-term gain
Glass-Steagall Act, was passed in February, 1932 in an effort drove much of the behavior that led to the global financial
to stop deflation. Glass-Steagall enormously expanded the system to the brink of disaster. By the time the Bear Stearns
Federal Reserve’s powers with regard to the rediscounting of mortgage back funds went bankrupt in the summer of 2007,
various forms of collateral. The second Glass-Steagall Act having burned through 100% of their capital, the
was passed in 1933 in reaction to the collapse of the international banking system had put on the largest
American commercial banking system earlier in the year. It leveraged bet in the history of modern society - that the
was geared to control excessive speculation by U.S. banks prices in the U.S. housing market in the United States had
and eliminate their participation in the underwriting of only one way to go, up. Imprudent lending practices,
securities that caused so many of the problems in the first excessively leveraged balance sheets, overconcentration of
place. Banking institutions were divided by their types of risk, inadequate risk management systems, and a host of
activities, with commercial banking and investment banking related issues all contributed to the problem. It is easy to
12

13. ARTICLE
blame the problem on regulators, but history is strewn with remember that the $12.8 trillion recent commitment by the
meltdowns and bubbles. Volatility has occurred for U.S. is largely in the form of commitments by the Federal
thousands of years, and it is unlikely to stop any time soon. Reserve ($7.76trillion). The balance of the commitments
comes from the FDIC ($2 trillion), the Treasury ($2.7
Although there are significant differences between the trillion) and HUD ($.3trillion). Although the Fed’s
current environment and the conditions during the Great commitments may not hit the nation’s balance sheet in the
Depression, there are enough things in common that we same way, the risks to the U.S. taxpayers and the potential
need to pay close attention. As noted, both situations costs are still very real and very, very large. The picture is
stemmed from breakdowns in banks and financial going to look a lot worse each year for the foreseeable future
institutions. The recent collapse in the credit markets and as the growing debt burden continues to compound with no
the general loss of liquidity in the global system has created reasonable prospects of debt reduction through budget
huge deflationary pressures. Today’s leaders are keenly aware surpluses for the next decade or so.
of the economic and social dangers of deflation and they
are using a wide array of tools to remedy the situation. The So where do we go from here? First it is clear that this is a
U.S. alone, in the past two years, has already committed a very dangerous time. Credit markets are a mess and banks’
staggering $12.8 trillion towards the creation of money in balance sheets need to be further healed before lending can
one form or another. Yes, that’s right, $12.8 trillion, and that resume in a healthy manner. At the same time, the heavy
doesn’t include what is still to come. Nor does it include the deficit position of the U.S. and many other nations, coupled
ongoing costs of debt service that will make this problem with dismal growth prospects, makes the deflationary
increase over time. The magnitude of today’s situation can alternative far too dangerous from every perspective because
be better grasped when one considers the scope of this vast with deflation, every dollar of debt gets proportionately
wave of monetary creation. Imagine where the economy larger. If deflationary pressures take hold, we could very
would be today without the loans, guarantees, financing likely head into a frightening state of global social unrest
facilities, and bailouts by the Federal Reserve, the FDIC, and unlike anything the world has seen.
the Treasury, not to mention the measures taken by central
banks and governments around the world. The Chairman of the Federal Reserve, Ben Bernanke, is an
accomplished scholar on the Great Depression. He is well
Given these numbers, it is clear that the U.S. economy is in aware of the broader societal implications of deflation in a
shambles, and much house cleaning and restructuring needs debt-ridden society, so he is certainly going to use every
to be done. Prior to the credit crisis, the U.S. was already available tool to prevent this from happening. This means
debt-ridden. Domestic savings rates had collapsed from that we should expect that Bernanke, like his predecessor
roughly 12% to 0% since 1980. Irresponsible practices by Alan Greenspan, will err on the side of inflation.
U.S. banks and financial institutions and the subsequent loss (Greenspan was also a scholar on the Great Depression and
of liquidity have now exacerbated what was already a he too wanted desperately to avoid deflationary
dangerously imbalanced system. The largest financial developments in the debt-ridden U.S.) Barnake’s willingness
intermediaries focused far too much on the riskier aspects of
their business, rather than tending to their more traditional
role of providing liquidity and safekeeping funds.
To address this problem the U.S. is taking a gigantic gamble.
The reality of persistent trillion dollar deficits has been
firmly established, yet nobody has mentioned an exit
strategy. To date, no one has challenged Congress on how
and when they are planning to repay these gigantic loans.
The American taxpayer is about to be crushed by multiple
generations worth of debt, yet those same taxpayers had
little to do with the creation of the problem.
Consider for a moment the adjacent charts, which reflect the
total debt in the United States and the public or national
debt.
The graphs show the national debt skyrocketing from 1980
to 2010 in both nominal terms and as a percentage of GDP
(and the situation is only getting worse).
As of April 7, 2009, the total U.S. federal debt was
$11,152,772,833,835 or about $36,676 per capita. Also,
13

14. ARTICLE
to monetize; i.e. print money, should not be underestimated,
and this will have broad implications for the fixed income,
equity, foreign exchange, commodity and other markets for
many years to come. The enormous ocean of liquidity that
Bernanke is creating is held in check right now by a
dysfunctional global banking system, but once banks have
been recapitalized and credit starts to flow, the liquidity
streaming into the mainstream economy will need to be
Global
controlled to prevent a tidal wave of cheap funding, which
in turn could start the dangerous cycle all over again. This is
a balancing act that will require great skill and a lot of luck,
Update
because the alternative will be an inflationary surge that will
shock many by its speed and force.
Offsetting this massive creation of money will be a dizzying
set of new regulations, which are inevitable in the aftermath
A quick review of industry news from
of the U.S. bailout of so many major institutions. The new
around the world
regulations will be implemented in Europe and Asia and
well, so improved risk management tools will be required for
most financial institutions, along with improved controls World’s Largest Islamic Bank: Saudi billionaire Sheikh
and sound practices. Such upgrades would be wise to Saleh Kamel, Chairman of Al Baraka Banking Group, is
implement in any event, but they will probably be required heading an alliance to launch the world’s biggest Islamic
in the new regime. One might ask whether it makes sense to bank before the end of this year, with an initial public
burden banks and financial institutions with new regulations offering of $3 billion. The ‘mega bank’ will have an initial
now that the damage has already been done, but this reactive capital of $10 billion through a number of initial public
process is simply the way of big government. Regulation will offerings and private stock options. Al Baraka is
keep the crowd’s speculative impulses under wrap for a controlled by Saleh Abdullah Kamel who owns a 28.10
while, but eventually the pool of liquidity will make the percent stake. Saudi conglomerate Dallah Albaraka,
money-making opportunities too appealing to pass up. founded by Kamel, owns a 42.32 percent stake in the
Speculative forces will always find a way to express bank. Al Baraka, which has a market capitalisation of
themselves, but regulation will hopefully make banks less $1.46 billion, recently posted full-year net income of $201
active players in the business of excessive risk taking. million.
Economic recovery from the current recession will be
neither fast nor powerful. More likely, we should anticipate a Overseas Banks in India May Have to Sell Stakes in
stabilizing of the current weakness over the balance of 2009 Local Units: Overseas banks in India may have to sell at
as the lingering excesses in the system are played out. least a 26 per cent stake in their local subsidiaries and
Growth will start to pick up modestly in 2010, but don’t meet government targets for lending, under proposals
expect a robust v-shaped recovery. Banks still need to reduce made by a joint central bank and finance ministry panel.
their leverage, and toxic assets on their balance sheets have A committee that included Central Bank Deputy
not yet been fully priced into the market. The IMF estimates Governor Rakesh Mohan and Economic Affairs
that total losses among U.S., European, and Japanese Secretary Ashok Chawla released a report stating that
financial institutions will be $4.1trillion (of which foreign banks should list their subsidiaries on Indian
$2.5trillion will be in U.S. institutions), which means that stock exchanges, capping their ownership at 74 per cent,
more losses are coming and more capital will be required. As and that overseas lenders should meet targets for
noted, only after the banks’ balance sheets are fixed can the lending to farmers in line with local banks. The Reserve
economy really start to grow in a healthy sustained fashion. Bank of India is due to review rules for overseas banks
In the meanwhile, we should expect the IMF to take a more from next month. India, which limits the number of
active role in the global economy henceforth, by providing branches that overseas banks can operate and restricts
funding and much needed discipline to many countries and investments abroad by Indian lenders, has mostly
institutions around the world. Trading and investment avoided the write-downs and losses by global financial
opportunities will be fantastic for the next four or five years firms as the world economy entered a recession. The
as the world works through its problems. Volatility in the global credit crisis has helped India’s state-run banks,
markets will be high, which suits most traders, and lending which account for more than half of the nation’s banking
opportunities will be almost unlimited. The profit potential assets, gain market share as depositors shunned private
from this period will be very high, but we will need to bear and overseas banks. India’s central bank limits the ability
in the mind the bigger picture so that we don’t lose sight of of local lenders to extend credit to high-risk sectors such
the underlying forces and pressures that are driving the as real estate, trading in exotic derivatives and
policy makers. expanding overseas.
14

15. INSIGHT
Customer
Privacy
Regulation
In conversation with Vikas Tandon, Joint
General Manager & MLRO, ICICI Bank
Handling data protection and privacy of personally
Vikas Tandon, Joint General identifiable information has always consumed vast
resources. What is the reality behind the rhetoric and how
Manager and Money Laundering important are the stakes for banks in protecting such
information?
Reporting Officer, ICICI Bank,
Stakes are pretty high indeed! Banks generally collect some
discusses emerging privacy specific personal information of their customers, like
customer identification numbers, income, personal
protection concerns and spells references, employment history etc and they have a legal
responsibility to keep that information safe.
out the measures which financial
Concerns over privacy of such personal information exist
institutions need to adopt to from several perspectives. In some cases these concerns
refer to how data is collected, stored, and associated. In
gear up their privacy compliance other cases the issue is who is given access to the
information. Other issues include whether an individual has
framework. any ownership rights to data about him/her, and/or the
right to view, verify and challenge that information.
All these concerns are critical from a legal and reputational
standpoint for any financial institution. Thus stakes are very
high with immediate legal and business ramifications.
One of the foremost principles of privacy law is ‘If you
don’t need it, don’t collect it.’ Why do businesses today ask
for so much personal information on their clients?
There is nothing wrong with collecting necessary
information. A lot of times, the regulatory guidelines insist
on obtaining Know Your Customer (KYC) information on
specific areas like identity information, tax status, risk
15

16. INSIGHT
appetite etc to assess customer profile, product suitability for impact assessments and corporate management of
the customer and continuously review the customer’s information at the planning stages of systems, technology
portfolio. That is understandable! However, at times, development and service offerings with particular emphasis
businesses also collect more information for better on cross-border transfers, breach incident responses and
customer service and promotion of their product suite consent thresholds.
across industries they operate in. In such scenarios, one
needs to appreciate the regulatory requirements of obtaining It is widely understood that privacy protection begins and
customer consent when sharing information across internal ends with installation of new technology. What
units. It should also be ensured that such internal units also responsibility does new technology place upon bank as a
respect the privacy obligation in a consistent manner. deployer?
What are the biggest challenges in ensuring customer We must understand that technology is only a means to
privacy regulation today? effectuate the intent behind privacy laws! Accountability for
data protection actually rests with the deployers of
For a long time, privacy has meant baseline legal compliance. technology rather than technology providers.
Now, the operational sides within the organisations are also
seeing the strategic impact of private information. Data protection laws are typically addressed to responsible
users (banks) of technology or ‘data controllers’ as they are
From a legal perspective, privacy is a very rigid idea, while often referred to.
from a business point of view, privacy is a flexible and day-
Having an internal privacy compliance framework is a
mandatory regulatory requirement to ensure that financial
institutions are providing increased protection to consumer
Financial institutions will have to information in their technology databases.
develop internal controls and In spite of preparedness there is always the probability of a
privacy breach. What should be an organisation’s approach
policies to ensure compliance in such an event of privacy breach?
with these regulations. Non- Privacy breach calls for a privacy breach protocol. Once a
privacy breach is detected, the front-line staff should
compliance can lead to internally report it to senior authorities as early as possible.
After initial firefighting, root cause analysis should be
significant fines and penalties undertaken in order to plug the gap that resulted in such a
breach. Notification of the breach to impacted customers
and even revocation of business and regulatory reporting on actions taken are the other steps
needed to handle privacy breach.
license in extreme cases.
The lessons of a privacy breach incident should be
immediately fed into the organisation’s control framework to
ensure prevention of such instances in future.
to-day issue. It is an exciting challenge, especially with a
discipline that continues to mature. Keeping in view the current financial scenario, how do you
see privacy initiatives surviving the budget scalpels everyone
I think the broad spectrum of levels on which privacy else is facing?
is to be protected is the biggest challenge where we
will have to rise from privacy protection to privacy Privacy protection is based on the cognisance that personal
management. This clearly goes beyond traditional information is a strategic asset and hence it needs to be
concepts of privacy and requires an effective integration in managed from a more strategically central and relevant place
the way information technology is developed and used. As a in the corporation to optimise its value.
result, financial institutions will have to develop internal
controls and policies to ensure compliance with these In the present and highly commercial consumer age,
regulations. Non-compliance can lead to significant fines personal information coupled with rational budget spends
and penalties and even revocation of business license in has become a precious commodity especially when many
extreme cases. financial institutions’ business models thrive on utility of
such personal information. Senior management can
Organisations will have to respond to this increasing therefore no longer view data privacy and security as remote
complexity of law and regulation by emphasising privacy risk that can be put off for a better day!
16

17. PERSPECTIVE
Islamic
Insurance
in the
Middle East
Takaful has recorded significant growth
and is all set to grow further.
According to estimates by the National The emergence of Takaful has its roots in the non-
compliance of conventional insurance products to Shari’a
Insurance Academy, the global Takaful industry
principles which has caused an inherent lag in the acceptance
has been growing at 20 per cent compounded
of conventional products in the Middle East . Shari’a
annual growth rate, with 2008 global Takaful principles prohibit the support of models that adopt
premiums standing at $7.29 billion, and the elements of Maysir (excessive risk taking), Gharar
(uncertainty, unclear terms in contracts, gambling), Riba
market share of Takaful within the Middle East
(interest)and haram (non-ethical businesses such as
at 30 per cent, i.e. around $ 4.6 billion.
gambling & pornography and prohibited items such as pork
& alcohol).
Takaful is derived from an Arabic word which
means solidarity where a group of participants Thus, Shari’a compliant products based on the principles of
Ta-awun and Tabarru have given tremendous impetus to the
agree amongst themselves to support one
Middle East insurance market, which is arguably the largest
another jointly against a defined loss. It is
single potential market for Takaful globally.
based on the principles of Ta-awun (mutual
assistance) that is Tabarru (voluntary). Overcoming Regulatory Issues
In a sense, Takaful is similar to conventional The operation of Takaful models, vis-a-vis its conventional
counterpart, has several implications on the regulatory
co-operative insurance where participants pool
aspects of Takaful. Some of these include:
their funds together to insure one another.
Effective Shari’s governance: The setting up of a
Shari’a board is required from a supervisory perspective.
This is because the insurer is responsible for ensuring
that all aspects of the business are conducted under the
principles of the Shari’a, and would require the insurer to
present its compliance to the same on a regular basis.
Capital adequacy norms and disclosure: There is a
difference in the risk profile between both types of
(conventional and Takaful) life insurance. Family Takaful
17

18. PERSPECTIVE
(the Islamic counterpart of life insurance) is based on a shareholders themselves. Other commonly used channels
defined contribution whereas conventional life insurance are brokers, agents and banks to a certain extent. With
is based on a defined benefit that is paid out upon brokers focused typically on high value customers, there is a
maturity, surrender or death. Hence there are need to have a well-trained force of sales agents as Takaful
implications for capital adequacy and disclosure to products are more complex than conventional ones. Also,
consumers. In case of a deficit in the Takaful fund, there though BancaTakaful is currently lower in the pecking order
is no norm that advises how this deficit is to be covered of channels, its popularity is increasing rapidly and is poised
i.e. whether it would be taken from investor accounts or to become an important channel for the Takaful industry,
through a loan taken by the insurer. especially as products get progressively simple and
standardised.
Profit-sharing standards: Determination of the
method of calculation of shares of profit/surplus to Developments Within Key Takaful Markets
each investor. There is no set standard on this but it is
being followed differently by different insurers. Bahrain
Except for a few common regulations, those governing the The International Takaful Association is being formed
conventional insurance industry globally issued by and is expected to play an important role in the
International Association of Insurance Supervisors (IAIS) promotion of the Takaful industry, increase cooperation
do not apply to the Takaful industry. The Islamic between members and increase the level of education
counterpart of IAIS is the Islamic Financial Services Board and awareness of the public about Takaful products.
(IFSB) that was set up to provide global standards and One of the responsibilities of the Bahrain-based
guiding principles for the Islamic financial services industry. Accounting and Auditing Organisation for Islamic
In December 2008, the IFSB came up with an exposure Financial Institutions (AAOIFI) is the development of
draft on Guiding Principles on Governance for Takaful standards for Takaful.
Operations which complemented the principles already The issuance of an insurance rule book, in 2005, was
existing in the conventional insurance industry. done by the Bahrain Insurance Association, which was
responsible for developing this sector.
The principles set out by IFSB encompass three points: Bahrain’s insurance legal framework is one of the most
established ones in the region, which was confirmed by
Ensuring good governance practices for Takaful-related the Financial Sector Assessment Program (FSAP), a
products joint venture between IMF and the World Bank.
Increase awareness about good governance practices
for ensuring the interests of the public. Saudi Arabia
Provision of relevant guidance and important
options to ensure appropriate corporate governance. The Cooperative Insurance Companies Law that came
into force in 2003 required all insurance companies to
Safeguarding the interests of all stakeholders operate under the Shari’a compliant model.
Design a good governance structure to safeguard the The legal framework in the country is in its nascent stage
interests of all stakeholders and has a long way to go in terms of design and
Nurture an environment which can make available implementation.
large, adequate information based on the substance The region is in a transitory phase where the
and relevance of the information. implementation of the licensing process is ongoing.
Setting up of a more comprehensive prudential United Arab Emirates
framework for Takaful undertakings
Provision for other relevant standards in the future The existence of a dual court system that includes a
Ensure sustainability of Takaful undertakings with Shari’a court (responsible for family and religious
sound risk management and solvency matters) and a new insurance commission (responsible
for setting up standards and policies).
Although these principles are very basic, their Mandatory pre-conditions are required to offer Takaful
implementation will lay a foundation for the future evolution products such as:
of the Takaful regulatory space and will play the role of a - Specification of products and contracts.
driver for the Takaful industry. - Clarity and complete understanding of the
implementation process.
- The appointment of a Shari’a supervisory board.
Distribution Channels
- Practice of risk management related to Shari’a activity.
The most popularly used channel in the Middle East is direct - Setting up of sound accounting, auditing and
sales with the major contributors of the Takaful fund being regulatory standards.
18

19. PERSPECTIVE
The Dubai International Financial Centre (DIFC) has
further contributed to the development of Takaful.
Takaful Models
Differences between regulation of conventional Key Drivers for Takaful in the Middle East
insurance products and Takaful products lies within the
Apart from the fact that the market is currently under-
structure of the different Takaful models which are
insured, there are other systemic factors which will drive
formed so as to ensure Shari’a compliance.
growth of Takaful in the Middle East:
There are four primary models:
Mandatory Classes of Insurance: Mandatory insurance
for automotive and health in the region will act as a major
Mudharaba: In this model there are two parties in
driver for the demand for Takaful products in the region.
contract - the Takaful operator (TO) and the capital
This will drive the growth of the retail Takaful market.
providers.
Favourable Demographics: The demographics of the
The TO is responsible for the management of the
population in the Middle East is very favourable for growth
Takaful investments made by the capital providers.
of insurance, especially as a large part of the population is
The TO brings to the table a set of business skills
young, leading to short-term demand for life insurance and
which he uses for managing the fund. When there is
medium-to-long term demand for other classes of
a profit, it is shared between the TO and the capital
insurance. The population is also growing at a significantly
investors in a pre-decided manner.
high rate.
This model is commonly used in the Asia Pacific
region and is typically used for family (life) Takaful Privatisation Initiatives of Government Pensions and
Programs: The shrinking role of the state in providing
products. The Mudharaba model is popularly used for
pensions will increase the demand for life insurance within
investment purposes.
the region.
Wakala: Here the TO company is distinguished from
Economic Impact of the Crisis: The global economic
the capital providers and the TO is paid a
crisis being faced across geographies today can be principally
predetermined fee which is deducted from the
attributed to excessive risk taking, greed and unethical
contributions made by the capital providers. This fee
practices. Takaful insurance companies and Islamic financial
is related to the level of performance so as to entice
institutions would steer away from these practices by
the operator into performing better. The surplus
definition and would see a surge in even the non-Muslim
belongs to the capital providers and the operator
members placing their confidence on financial institutions
does not have a share in it.
founded on ethical principles.
This model is widely used in the ME and is popularly
used for the risk-sharing/underwriting aspects of Conclusion
Takaful.
There is no doubt that the Takaful industry will grow further
in the Middle East, especially given that the insurance
Hybrid: A combination of Mudharaba and Wakala
market is still under-developed in the region. Despite a
models, this involves the payment of a fixed
current lull in economic conditions, the long-term economic
proportional fee (off the total contribution) as well as
outlook for the Middle East insurance industry continues to
a part of the profits to the TO.
be positive. In addition to favourable demographics, there
has been significant growth in the number of companies
This model has adopted the strengths of both models
that have set up Takaful operations over the last few years.
by using the Mudharaba model for investment
Many of the new market participants are equipped with
activities of the Takaful fund and the Wakala model
global best practices and are well capitalised. Thus, the new
for underwriting activities.
entrants are expected to spur competition while at the same
time increasing Takaful acceptance and awareness.
Waqf: In this model the operations are based on non-
profit where the contributions are 100% provided by
Takaful today is widely regarded as an innovation in the
investors who are willing to contribute to the less
insurance industry. While Takaful lends itself very well to
fortunate of the society.
personal lines of business, the corporate risk market is much
more complex. We believe that the next round of innovation
This operates as a public foundation. In this case the
will come from large-scale risk coverage for large businesses,
fund does not belong to any one person and profits or
especially those which are funded by Islamic banks.
surplus are not distributed to the contributors.
19

20. SOLUTION SPOTLIGHT
AGILIS
Bancassurance
Banks consider technology to be a key
business driver.
Companies active in strategic Bancassurance partnerships
Bancassurance has grown to become one of
continue to seek technology which can provide the
the largest distribution channels for insurance
necessary fuel to enhance agility in adopting, integrating and
companies across the globe. Earlier, implementing change. Technology that can provide all this
bancassurance activities were handled without locking-in companies in heavy investments is clearly
the way to move forward.
manually under one roof by a few players with
a limited clientele and geographic coverage.
AGILIS Bancassurance is a comprehensive solution for
However, with competitive pressure on banks that sell insurance products, both life and non-life, to
productivity, efficiency and customer service their clients. AGILIS Bancassurance manages the bank’s
entire insurance broking back-office operations, leaving its
standards rising, bancassurance providers
staff to focus on procuring more business and spending
have increased their adoption of technology,
more time in the front office.
and now consider it a key business driver.
The product is capable of handling:
The alignment and integration of various
Life
processes have resulted in connecting the
Motor
banks’ network and have helped them
Health (including medical and travel)
significantly to achieve seamless integration Property and Fire
with insurers’ systems and processes. The Marine, Mortgage and Engineering
adoption of integrated technology has led
Functionally rich, the product integrates with insurance
banks to achieve improved efficiency by way of
companies’ systems seamlessly and also allows for greater
decreased operational costs, decreased turn accuracy while providing speedy transactions, leading to
around time, increased revenue, scalability, improved customer satisfaction.
integrated and aligned business processes
Every bank providing bancassurance looks for a system that:
resulting in creation of true value for
stakeholders. caters to all classes of insurance
is specifically created for the bancassurance industry
enables cross selling and up selling to existing bank
20