Reimagining takaful: a new model for social banking

Some observers (‘purists’) lament the gap between the highest aspirations of the Islamic financial services industry and its track record. Others (‘pragmatists’) celebrate the industry’s limited gains on the premise that higher socioeconomic outcomes cannot be achieved without significant structural change. The authors of the chapter believe the strategic use of takaful can transcend this purist/pragmatist debate and introduce an element of social banking within the current market and regulatory environment. By setting up a takaful pool at the basic current account level with depositors alongside the bank’s existing corporate structure, the authors’ social banking model reduces the gap between depositor and shareholder without rewriting an Islamic financial institution’s corporate structure or Islamic financial services regulation. As banks experiment with alternative forms of banking within their existing corporate structure and regulatory environment, this paradigm shift may also create the success cases necessary to advocate more significant structural changes in the future.