Takaful standards and customer perceptions affecting takaful practices in Pakistan: a survey

Purpose – The purpose of this paper is to attempt to see the effectiveness of operational and transformational standards raised by joint working group of Islamic Financial Services Board (IFSB) and International Association of Insurance Supervisors (IAIS) as well as respondents' perceptions about Takaful (Islamic insurance) practices in Pakistan. Design/methodology/approach – A total of two questionnaires were designed for this purpose: one for Takaful operators in Pakistan and other for insurance customers. For the first questionnaire, three Takaful operators were visited at Karachi. For the second questionnaire, a sample of 150 insurance customers was surveyed at Rawalpindi. Descriptive statistics and Chi-square test was used to analyze the data. Findings – Reporting standards and internal controls were found to have low level of observance among Takaful operators in Pakistan. The survey of insurance customers revealed that majority of the respondents (91 percent) are unaware of Takaful concept. Education was found to be the single important factor affecting income of the respondents, their perceptions and level of Takaful awareness. Research limitations/implications – The survey is conducted at one major city of the country based on convenient sampling technique and its results have been generalized for the entire country. However, actual results might differ when a sufficiently large sample is taken from all the main cities of the country. Practical implications – The study would help the policy makers to focus on strengthening regulatory framework for Takaful. It will also help Takaful operators in understanding public perceptions about Takaful and devising strategies to promote Takaful business to the vast population of Pakistan. Originality/value – This is the first empirical research conducted on Takaful in Pakistan that analyzes the Takaful practices both from managerial perspective as well as from regulatory perspective.