History, problems, and prospects of Islamic insurance (Takaful) in Bangladesh
Overview of Bangladesh’s financial sector and history of insurance in Bangladesh
The financial sector plays an important role for the further development of a country (Ahmad and Malik 2009). Bangladesh’s financial sector comprises money market, credit market, capital market, Islamic and non-Islamic insurance companies, several financial institutions, and microfinance (Khan 2015, p. 106). The banking sector comprises 48 banks including 30 private commercial banks, nine foreign commercial banks, and nine nationalised commercial and specialised banks (Rahman and Ara 2009). The Central Bank of Bangladesh (Bangladesh Bank) controls and monitors all banking activities including government, non-government banks, and all other financial institutions (Masum 2012, pp. 17–18). The Securities and Exchange Commission (SEC) of Bangladesh regulates the stock market and related activities (Uddin and Suzuki 2011). The insurance sector including Islamic and non-Islamic insurance companies is regulated by the Ministry of Commerce in Bangladesh (Chowdhury 2014).
Although the genesis of insurance can be traced from ancient times, it is difficult to predict when insurance was introduced in the world civilisation (Rispler-Chaim 1991). In the Indo-Pak subcontinent, the first Insurance Act was enacted in 1938 (Samarth 2003). Insurance in Bangladesh and its organisation is based on the Insurance Act 2010 (IDAR 2013). From 1947 to 1970, several insurance companies were introduced while Bangladesh was known as East Pakistan (Rahim 2013). There were 47 insurance companies including local and foreign companies operating in East Pakistan until 1972 and the entire industry was run by the non-government companies. However, on March 26, 1972, all insurance companies, including life and general insurance, except the foreign insurance companies were nationalised by the Presidential Order titled the Bangladesh Insurance Order, 1972 (Ali 2000, pp. 22–23).
Post nationalisation of insurance companies on August 8, 1972 (Islam 1985), an ordinance promulgated by the Bangladesh government divided all insurance companies into four insurance companies and formed four corporations; two for life insurance, i.e. Rupsa Life Insurance Corporation and Surmah Life Insurance Corporation, and for general insurance business, Karnaphuli Insurance Corporation and Tista Insurance Corporation (Bachchu 2007, p. 58). Furthermore, on May 14, 1973, the provisions of the Bangladesh Insurance Corporation Ordinance were amended and the previous organisations were made into two organisations i.e. Jiban Bima Corporation and Sadharan Bima Corporation (Chowdhury and Huda 2014). These corporations dominated insurance in Bangladesh until 1984 (Samina 2012) excluding a few foreign life insurance companies. However, because of public demand and necessity for the private sector, the insurance companies were forced to authorise new insurance companies under the Insurance Ordinance 1984 (Chowdhury and Huda 2014). From 1984 until now, more than 62 private sector insurance companies have been established (Chaudhrui 2008, p. 9).
In the pre-liberation period of Bangladesh, insurance was under the authority of West Pakistan and the government did little to develop insurance (Rahim 2013) leading to limited professionally trained personnel. To develop and meet the demands of the insurance industry, the Government of the People’s Republic of Bangladesh established the Bangladesh Insurance Academy in November, 1973 (Chaudhrui 2008, p. 15). The academy offers professional certificates and diplomas, conducts research on the insurance industry, offers in-service training for officers and employees of public and private sector insurance organisations, trains insurance officers of other organisations, publishes research on insurance, establishes close contacts with local and foreign academic institutions, organises joint courses, and invites students and trainees from abroad (BIA Bangladesh Insurance Association 2016).