KARACHI, June 2: Pak Kuwait Investment Company (PKIC) is expected to set up an Islamic insurance company as a joint venture with some foreign investors from the Gulf and Far East. The initial paid-up capital of the proposed company would be Rs500 million. PKIC officials say it is difficult to say when exactly the company would come into being but they hope this should not take too long.

A senior PKIC official told Dawn that Securities & Exchange Commission of Pakistan (SECP) has agreed in principle to allow setting up of an Islamic insurance company the modalities for which are being worked out.

Pak Kuwait is the founder sponsor of Meezan Bank Ltd. — the first Islamic commercial bank in the country. Its asset management arm Al-Meezan Investment Management Ltd. has only recently got the SECP licence to launch Shariah compliant open-end mutual funds for the benefit of small investors.

The PKIC official said the proposed Islamic insurance company would be established according to the concept of Takaful. PKIC believes that a fairly significant portion of businesses and individuals do not insure themselves due to non-compliance of the conventional insurance contracts to Shariah principles. More importantly the Takaful company will cater to the needs of such institutions as banks, modarabas and leasing companies etc., that have currently no option but to insure through conventional means.

Further demand is likely to arise from commercial banks which have been permitted to operate Islamic finance windows. The company will complete a vital link in the development of Islamic banking system.

Pak Kuwait is currently negotiating with Takaful institutions in the Gulf and Far East for a joint venture technical collaboration. “The purpose of seeking a technical partner is to bridge the knowledge gap as well as to gain invaluable operational insights on the workings of a Takaful company,” says the PKIC official. There is also overwhelming support amongst overseas investors who have expressed their interest in taking up equity position in the new venture.

Apart from Pak Kuwait and Meezan Bank Limited other possible sponsors include Islamic Development Bank, Kuwait Auquaf Fund and some local banks and financial Institutions.

“The commitment of the investors is evident from the fact that the proposed new venture is likely to be initially capitalized at Rs500 million in paid up capital,” says the PKIC official. The concept of Islamic insurance is based on the principle of mutuality, cooperation and shared responsibility in compliance with the provisions of Islamic Shariah.

Takaful operates on the concept of Tabarru, or donation, through which a fund is established to cater to any losses which may occur to the members. This is basically to build up a fund from which any benefits may be paid with a provision to collect additional funds from the group members should this be insufficient (although this may not be done in practice). Also there is provision to distribute the surplus to the group members in relation to the contribution made to this fund.

The worldwide markets for Shariah based products are increasingly gaining market acceptability because of being an equitable system.