News MiddleEast11 Jan 2018

Indonesia:Lack of capital hampers spin-off of takaful units

| 11 Jan 2018

The lack of capital is the main obstacle that is hampering insurance companies with takaful windows from spinning off the Islamic insurance units into independent takaful operators, according to the OJK's Director of Non Bank Financial Industry, Mr Mochamad Mukhlasin.

The OJK encourages Shariah Business Units (SBUs) of insurance companies to be spun off into their own entities. This is in accordance with the insurance law passed in 2014. This stipulation requires the separation of SBUs into separate companies by no later than 2024, reported Republika.

According to Mr Mukhlasin, an initial capital of IDR50 billion (US$3.7 million) is required to form an SBU. In comparison, the initial capital to set up a Shariah insurance company separate from the parent insurer is IDR100 billion.

Other constraints include human resources (HR). This is because a takaful company, once formed, would need its own staff, he said.

"It's a constraint, especially for companies that are generally not part of big companies," he said.

He added that the OJK and the Association of Indonesian Shariah Insurance (AASI) encourage insurers to formulate a road map immediately to turn their takaful operations into separate companies.

Currently, there are 43 SBUs in insurance companies in the country. In the meantime, there are still insurance companies which want to establish SBUs, a move which is not prohibited, Mr Mukhlasin said.

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