TAKAFUL-GROWTH NEXUS BEFORE AND AFTER THE IMPLEMENTATION OF IFSA 2013: EMPIRICAL EVIDENCE FROM MALAYSIA
Keywords:
Takaful, Industrial Production Index, Pearson Correlation Coefficient.
Abstract
The expanding Takaful industry, together with the remarkable economic development has drawn attention to explore the impact of Takaful on economic growth, especially in Malaysia as it has been retaining its position as the leader in Islamic finance as well as maintaining its position to be in top for the Global Islamic Economy Indicator (GIEI) Score for the 9th consecutive years. Although many challenges have been faced by Takaful successfully, there are still some issues that need to be improved especially in terms of the legal, supervisory, and institutional framework, and the directions for future research by focusing on statistical analysis and economic significance, and its primary objective to serve the society. Hence, this paper examines the association between the Malaysian Takaful sector and real economic growth pre and post-IFSA 2013 for the period of 2007 – 2019. This study employs both quantitative and qualitative analysis, in which Pearson Correlation Coefficient is adopted for the quantitative analysis, while an interview session with 5 experts is employed for the qualitative analysis. The quantitative findings show that Takaful is positively linked to real economic growth significantly pre-IFSA 2013 but insignificantly post-IFSA 2013, supporting the supply-leading hypothesis. Meanwhile, the qualitative findings suggest that IFSA 2013 does assist the Takaful sector to improve the real economic growth in Malaysia via its rules and regulation, and the Takaful industry has contributed its own humble quota to economic growth by creating jobs the society and adding value to both participants and businesses.
JEL Classification Codes: G2, O4.
References
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Alhassan, A. L., & Fiador, V. (2014). Insurance-growth nexus in Ghana: An autoregressive distributed lag bounds cointegration approach. Review of Development Finance, 4(2), 83-96. https://doi.org/10.1016/j.rdf.2014.05.003
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Azman‐Saini, W. N. W., & Smith, P. (2011). Finance and growth: new evidence on the role of insurance. South African Journal of Economics, 79(2), 111-127. https://doi.org/10.1111/j.1813-6982.2011.01258.x
Beenstock, M., Dickinson, G., & Khajuria, S. (1986). The determination of life premiums: An international cross-section analysis 1970–1981. Insurance: Mathematics and Economics, 5(4), 261-270. https://doi.org/10.1016/0167-6687(86)90020-X
Bhattacharya, S., & Thakor, A. V. (1993). Contemporary banking theory. Journal of financial Intermediation, 3(1), 2-50. https://doi.org/10.1006/jfin.1993.1001
Curak, M., Loncar, S., & Poposki, K. (2009). Insurance Sector Development and Economic Growth in Transition Countries. International Research Journal of Finance and Economics, 34, 29-41. Retrieved from https://www.researchgate.net/publication/281603856_Insurance_Sector_Development_and_Economic_Growth_in_Transition_Countries
Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of political economy, 91(3), 401-419. https://doi.org/10.1086/261155
Dusuki, A. W., & Abozaid, A. (2007). A critical appraisal on the challenges of realizing maqasid Al-Shariaah in Islamic banking and finance. International Journal of Economics, Management and Accounting, 15(2). Retrieved from https://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/133
Eldaia, M., Hanefah, M. B. M., Marzuki, A. B., & Shatnawi, S. (2020). Takaful in Malaysia: emergence, growth, and prospects. In Handbook of Research on Theory and Practice of Global Islamic Finance (pp. 681-702). IGI Global. https://doi.org/10.4018/978-1-7998-0218-1.ch035
Eldaia, M., Hanefah, M., & Marzuki, A. (2023). Moderating role of Shariah committee quality on relationship between board of directors’ effectiveness and the performance of Malaysian Takaful. Competitiveness Review: An International Business Journal, 33(1), 62-84. https://doi.org/10.1108/CR-09-2021-0123
Goldsmith, Raymond W. Financial Structure and Development. New Haven, Conn.: Yale University Press, 1969. Retrieved from https://www.amazon.com/Financial-Structure-Development-R-Goldsmith/dp/0300011806
GuoChen, D. U., Ying, C. & Wei, Z. (2012). Effects of solid lubricants on hard turning. In 2nd International Conference on Electronic & Mechanical Engineering and Information Technology (pp. 1146-1149). Atlantis Press. https://doi.org/10.2991/emeit.2012.250
Haiss, P., & Sümegi, K. (2008). The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis. Empirica, 35(4), 405-431. https://doi.org/10.1007/s10663-008-9075-2
Ali, M. M., Hassan, R., & Hasan, S. M. (2015). An exploratory study of shari'ah issues in the application of tabarru'for takaful. Global Review of Islamic Economics and Business, 1(3), 164-174. https://doi.org/10.14421/grieb.2014.013-01
Hou, H., Cheng, S. Y., & Yu, C. P. (2012). Life insurance and Euro Zone's economic growth. Procedia-Social and Behavioral Sciences, 57, 126-131. https://doi.org/10.1016/j.sbspro.2012.09.1165
Hu X., Zhang C., Hu J. L., Zhu N. (2009). Analyzing efficiency in the Chinese life insurance industry. Management Research News, 32(10), 905–920. https://doi.org/10.1108/01409170910994123
Hussels, S., Ward, D., & Zurbruegg, R. (2005). Stimulating the demand for insurance. Risk management and insurance review, 8(2), 257-278. https://doi.org/10.1111/j.1540-6296.2005.00059.x
Jamil, S. N., & Jamal, J. (2016). Importance of Islamic Financial Services Act 2013 in takaful industry after the repelled Takaful Act 1984. Diponegoro Law Review, 1(1), 17-27. https://doi.org/10.14710/dilrev.1.1.2016.17-27
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717–737. https://doi.org/10.2307/2118406
Kjosevski, J. (2012). The determinants of life insurance demand in central and southeastern Europe. International Journal of Economics and Finance, 4(3), 237-247. https://doi.org/10.5539/ijef.v4n3p237
Lee, Y. H., Han, K., Ko, S. H., Ko, K. S., & Lee, K. U. (2016). Data analytic process of a nationwide population-based study using national health information database established by National Health Insurance Service. Diabetes & metabolism journal, 40(1), 79-82. https://doi.org/10.4093/dmj.2016.40.1.79
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726. Retrieved September 11, 2020, from http://www.jstor.org/stable/2729790
Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of monetary economics, 22(1), 3-42. https://doi.org/10.1016/0304-3932(88)90168-7
Masum Billah, M. (2007). Applied Takaful and Modern Insurance: Law and Practice. Retrieved from https://lawcat.berkeley.edu/record/265514?ln=en
McKinnon Ronald, I. (1973). Money and Capital in Economic. Development, Brookings Institution. https://doi.org/10.2307/1992568
Muhamat, A. A., Zulkifli, A. F., Ibrahim, M. A., Sulaiman, S., Subramaniam, G., Mohamad, S., & Suzuki, Y. (2022). Realising the Corporate Social Performance (CSP) of Takaful (Islamic Insurance) Operators through Drone-Assisted Disaster Victim Identification (DVI). Sustainability, 14(9), 5440. https://doi.org/10.3390/su14095440
Muye, I. M., & Hassan, A. F. S. (2016). Does Islamic insurance development promote economic growth? A panel data analysis. Procedia Economics and Finance, 35, 368-373. https://doi.org/10.1016/S2212-5671(16)00045-9
Nafti, S. (2022). Takaful and Micro Takaful: A Key Factor of Reduction of Poverty and Undernourishment. 4. Saudi J Econ Fin, 6(1), 7-10. https://doi.org/10.36348/sjef.2022.v06i01.002
Ojo, M. (2012). Pentecostal and Charismatic movements in modern Africa. The Wiley-Blackwell Companion to African Religions, 295-309. https://doi.org/10.1002/9781118255513.ch20
Omoke, N. I., Chukwu, C. O. O., Madubueze, C. C., & Egwu, A. N. (2012). Traumatic extremity amputation in a Nigerian setting: patterns and challenges of care. International orthopaedics, 36(3), 613-618. https://doi.org/10.1007/s00264-011-1322-7
Outreville, J. F. (1990). The economic significance of insurance markets in developing countries. Journal of Risk and Insurance, 57(30), 487-498.. https://doi.org/10.2307/252844
Pradhan, R. P., Arvin, M. B., Bahmani, S., Hall, J. H., & Norman, N. R. (2017). Finance and growth: Evidence from the ARF countries. The Quarterly Review of Economics and Finance, 66, 136-148. https://doi.org/10.1016/j.qref.2017.01.011
Rawat, A. S., & Mehdi, S. K. (2017). The Impact of Islamic Banks and Takaful Companies on Economic Growth: A Case of Pakistan. Journal of Finance & Economics Research, 2(2), 130-43. https://doi.org/10.20547/jfer1702203
Robinson, J. (1952). The model of an expanding economy. The Economic Journal, 62(245), 42-53. https://doi.org/10.2307/2227172
Schumpeter, J. A. (1982). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (1912/1934). Transaction Publishers.–1982.–January, 1, 244. Retrieved from https://www.researchgate.net/publication/272398717_Schumpeter_JA_1934_2008_The_Theory_of_Economic_Development_An_Inquiry_into_Profits_Capital_Credit_Interest_and_the_Business_Cycle_New_Brunswick_USA_and_London_UK_Transaction_Publishers
Shaw, E. S. (1973). Financial deepening in economic development. New York: Oxford University Press. Retrieved from https://www.jstor.org/stable/2978421
Suharto, S., & Fasa, M. I. (2017). Sharea Issues in the Application of Takaful: Review on Islamic Law Perspective. HUNAFA: Jurnal Studia Islamika, 14(2), 347-376. https://doi.org/10.24239/jsi.v14i2.478.347-376
Trokic, A. (2017). An Analysis of Takaful: The Potential and Role in Financial Inclusion and Challenges Ahead. European Journal of Islamic Finance, (7). Retrieved from https://www.researchgate.net/publication/327221963_An_Analysis_of_Takaful_The_Potential_and_Role_in_Financial_Inclusion_and_Challenges_Ahead
Ullah, N., Dey, R., Shahriar, F., & Shahriar, S. (2023). A Review of Literature on Takaful and Conventional Insurance: Evidence from Bangladesh. Retrieved from https://mpra.ub.uni-muenchen.de/117463/1/6th%20Sem.pdf
Webb, D., & Collis, C. (2000). Regional development agencies and the'new regionalism'in England. Regional Studies, 34(9), 857-864. https://doi.org/10.1080/00343400020002985
Webb, I., & Martin, G. (2017). The effect of banking and insurance on the growth of capital and output. Retrieved from https://www.semanticscholar.org/paper/The-effect-of-banking-and-insurance-on-the-growth-Webb-Martin/94ef950063d72716216c534b35acaac67dd49add
Yinusa, O. & Akinlo, T. (2013). Insurance Development and Economic Growth in Nigeria, 1986 – 2011, Journal of Economics and International Finance, 5(5), 218-224. https://doi.org/10.5897/JEIF2013.0498
Alhassan, A. L., & Biekpe, N. (2016). Determinants of life insurance consumption in Africa. Research in International Business and Finance, 37, 17-27. https://doi.org/10.1016/j.ribaf.2015.10.016
Alhassan, A. L., & Fiador, V. (2014). Insurance-growth nexus in Ghana: An autoregressive distributed lag bounds cointegration approach. Review of Development Finance, 4(2), 83-96. https://doi.org/10.1016/j.rdf.2014.05.003
Arena, M. (2008). Does insurance market activity promote economic growth? A cross‐country study for industrialized and developing countries. Journal of risk and Insurance, 75(4), 921-946. https://doi.org/10.1111/j.1539-6975.2008.00291.x
Aziz, N. I. M., & Kassim, S. (2020). The Contributions of Takaful Industry towards Economic Growth, Savings and Investment in Malaysia. International Journal of Advanced Research in Economics and Finance, 2(3), 31-38. Retrieved from https://myjms.mohe.gov.my/index.php/ijaref/article/view/10798
Azman‐Saini, W. N. W., & Smith, P. (2011). Finance and growth: new evidence on the role of insurance. South African Journal of Economics, 79(2), 111-127. https://doi.org/10.1111/j.1813-6982.2011.01258.x
Beenstock, M., Dickinson, G., & Khajuria, S. (1986). The determination of life premiums: An international cross-section analysis 1970–1981. Insurance: Mathematics and Economics, 5(4), 261-270. https://doi.org/10.1016/0167-6687(86)90020-X
Bhattacharya, S., & Thakor, A. V. (1993). Contemporary banking theory. Journal of financial Intermediation, 3(1), 2-50. https://doi.org/10.1006/jfin.1993.1001
Curak, M., Loncar, S., & Poposki, K. (2009). Insurance Sector Development and Economic Growth in Transition Countries. International Research Journal of Finance and Economics, 34, 29-41. Retrieved from https://www.researchgate.net/publication/281603856_Insurance_Sector_Development_and_Economic_Growth_in_Transition_Countries
Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of political economy, 91(3), 401-419. https://doi.org/10.1086/261155
Dusuki, A. W., & Abozaid, A. (2007). A critical appraisal on the challenges of realizing maqasid Al-Shariaah in Islamic banking and finance. International Journal of Economics, Management and Accounting, 15(2). Retrieved from https://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/133
Eldaia, M., Hanefah, M. B. M., Marzuki, A. B., & Shatnawi, S. (2020). Takaful in Malaysia: emergence, growth, and prospects. In Handbook of Research on Theory and Practice of Global Islamic Finance (pp. 681-702). IGI Global. https://doi.org/10.4018/978-1-7998-0218-1.ch035
Eldaia, M., Hanefah, M., & Marzuki, A. (2023). Moderating role of Shariah committee quality on relationship between board of directors’ effectiveness and the performance of Malaysian Takaful. Competitiveness Review: An International Business Journal, 33(1), 62-84. https://doi.org/10.1108/CR-09-2021-0123
Goldsmith, Raymond W. Financial Structure and Development. New Haven, Conn.: Yale University Press, 1969. Retrieved from https://www.amazon.com/Financial-Structure-Development-R-Goldsmith/dp/0300011806
GuoChen, D. U., Ying, C. & Wei, Z. (2012). Effects of solid lubricants on hard turning. In 2nd International Conference on Electronic & Mechanical Engineering and Information Technology (pp. 1146-1149). Atlantis Press. https://doi.org/10.2991/emeit.2012.250
Haiss, P., & Sümegi, K. (2008). The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis. Empirica, 35(4), 405-431. https://doi.org/10.1007/s10663-008-9075-2
Ali, M. M., Hassan, R., & Hasan, S. M. (2015). An exploratory study of shari'ah issues in the application of tabarru'for takaful. Global Review of Islamic Economics and Business, 1(3), 164-174. https://doi.org/10.14421/grieb.2014.013-01
Hou, H., Cheng, S. Y., & Yu, C. P. (2012). Life insurance and Euro Zone's economic growth. Procedia-Social and Behavioral Sciences, 57, 126-131. https://doi.org/10.1016/j.sbspro.2012.09.1165
Hu X., Zhang C., Hu J. L., Zhu N. (2009). Analyzing efficiency in the Chinese life insurance industry. Management Research News, 32(10), 905–920. https://doi.org/10.1108/01409170910994123
Hussels, S., Ward, D., & Zurbruegg, R. (2005). Stimulating the demand for insurance. Risk management and insurance review, 8(2), 257-278. https://doi.org/10.1111/j.1540-6296.2005.00059.x
Jamil, S. N., & Jamal, J. (2016). Importance of Islamic Financial Services Act 2013 in takaful industry after the repelled Takaful Act 1984. Diponegoro Law Review, 1(1), 17-27. https://doi.org/10.14710/dilrev.1.1.2016.17-27
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717–737. https://doi.org/10.2307/2118406
Kjosevski, J. (2012). The determinants of life insurance demand in central and southeastern Europe. International Journal of Economics and Finance, 4(3), 237-247. https://doi.org/10.5539/ijef.v4n3p237
Lee, Y. H., Han, K., Ko, S. H., Ko, K. S., & Lee, K. U. (2016). Data analytic process of a nationwide population-based study using national health information database established by National Health Insurance Service. Diabetes & metabolism journal, 40(1), 79-82. https://doi.org/10.4093/dmj.2016.40.1.79
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726. Retrieved September 11, 2020, from http://www.jstor.org/stable/2729790
Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of monetary economics, 22(1), 3-42. https://doi.org/10.1016/0304-3932(88)90168-7
Masum Billah, M. (2007). Applied Takaful and Modern Insurance: Law and Practice. Retrieved from https://lawcat.berkeley.edu/record/265514?ln=en
McKinnon Ronald, I. (1973). Money and Capital in Economic. Development, Brookings Institution. https://doi.org/10.2307/1992568
Muhamat, A. A., Zulkifli, A. F., Ibrahim, M. A., Sulaiman, S., Subramaniam, G., Mohamad, S., & Suzuki, Y. (2022). Realising the Corporate Social Performance (CSP) of Takaful (Islamic Insurance) Operators through Drone-Assisted Disaster Victim Identification (DVI). Sustainability, 14(9), 5440. https://doi.org/10.3390/su14095440
Muye, I. M., & Hassan, A. F. S. (2016). Does Islamic insurance development promote economic growth? A panel data analysis. Procedia Economics and Finance, 35, 368-373. https://doi.org/10.1016/S2212-5671(16)00045-9
Nafti, S. (2022). Takaful and Micro Takaful: A Key Factor of Reduction of Poverty and Undernourishment. 4. Saudi J Econ Fin, 6(1), 7-10. https://doi.org/10.36348/sjef.2022.v06i01.002
Ojo, M. (2012). Pentecostal and Charismatic movements in modern Africa. The Wiley-Blackwell Companion to African Religions, 295-309. https://doi.org/10.1002/9781118255513.ch20
Omoke, N. I., Chukwu, C. O. O., Madubueze, C. C., & Egwu, A. N. (2012). Traumatic extremity amputation in a Nigerian setting: patterns and challenges of care. International orthopaedics, 36(3), 613-618. https://doi.org/10.1007/s00264-011-1322-7
Outreville, J. F. (1990). The economic significance of insurance markets in developing countries. Journal of Risk and Insurance, 57(30), 487-498.. https://doi.org/10.2307/252844
Pradhan, R. P., Arvin, M. B., Bahmani, S., Hall, J. H., & Norman, N. R. (2017). Finance and growth: Evidence from the ARF countries. The Quarterly Review of Economics and Finance, 66, 136-148. https://doi.org/10.1016/j.qref.2017.01.011
Rawat, A. S., & Mehdi, S. K. (2017). The Impact of Islamic Banks and Takaful Companies on Economic Growth: A Case of Pakistan. Journal of Finance & Economics Research, 2(2), 130-43. https://doi.org/10.20547/jfer1702203
Robinson, J. (1952). The model of an expanding economy. The Economic Journal, 62(245), 42-53. https://doi.org/10.2307/2227172
Schumpeter, J. A. (1982). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (1912/1934). Transaction Publishers.–1982.–January, 1, 244. Retrieved from https://www.researchgate.net/publication/272398717_Schumpeter_JA_1934_2008_The_Theory_of_Economic_Development_An_Inquiry_into_Profits_Capital_Credit_Interest_and_the_Business_Cycle_New_Brunswick_USA_and_London_UK_Transaction_Publishers
Shaw, E. S. (1973). Financial deepening in economic development. New York: Oxford University Press. Retrieved from https://www.jstor.org/stable/2978421
Suharto, S., & Fasa, M. I. (2017). Sharea Issues in the Application of Takaful: Review on Islamic Law Perspective. HUNAFA: Jurnal Studia Islamika, 14(2), 347-376. https://doi.org/10.24239/jsi.v14i2.478.347-376
Trokic, A. (2017). An Analysis of Takaful: The Potential and Role in Financial Inclusion and Challenges Ahead. European Journal of Islamic Finance, (7). Retrieved from https://www.researchgate.net/publication/327221963_An_Analysis_of_Takaful_The_Potential_and_Role_in_Financial_Inclusion_and_Challenges_Ahead
Ullah, N., Dey, R., Shahriar, F., & Shahriar, S. (2023). A Review of Literature on Takaful and Conventional Insurance: Evidence from Bangladesh. Retrieved from https://mpra.ub.uni-muenchen.de/117463/1/6th%20Sem.pdf
Webb, D., & Collis, C. (2000). Regional development agencies and the'new regionalism'in England. Regional Studies, 34(9), 857-864. https://doi.org/10.1080/00343400020002985
Webb, I., & Martin, G. (2017). The effect of banking and insurance on the growth of capital and output. Retrieved from https://www.semanticscholar.org/paper/The-effect-of-banking-and-insurance-on-the-growth-Webb-Martin/94ef950063d72716216c534b35acaac67dd49add
Yinusa, O. & Akinlo, T. (2013). Insurance Development and Economic Growth in Nigeria, 1986 – 2011, Journal of Economics and International Finance, 5(5), 218-224. https://doi.org/10.5897/JEIF2013.0498
Published
2023-06-22
How to Cite
Kamarudin, A. A., Duasa, J., Kassim, S., & Imon, R. A. (2023). TAKAFUL-GROWTH NEXUS BEFORE AND AFTER THE IMPLEMENTATION OF IFSA 2013: EMPIRICAL EVIDENCE FROM MALAYSIA. International Journal of Islamic Banking and Finance Research, 11(1), 50-60. https://doi.org/10.46281/ijibfr.v11i1.2029
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2023 Ainatul Aqilah Kamarudin, Jarita Duasa, Salina Kassim, Riasat Amin Imon
This work is licensed under a Creative Commons Attribution 4.0 International License.
