KARACHI, Sept 12: Islamic financial instruments will soon gain currency and will be competing with the conventional banking products in Pakistan, observed speakers at the concluding session of the third Dawn Asia Finance Conferences here on Wednesday.

The two-day conference was mostly devoted for the Islamic banking and mode of financing in Islamic system and the speakers found the country having vast potential for the growth of Islamic banking.

However, the last day dominated by the newly emerging Islamic insurance called “Takaful” and the representatives of this sector found the country a virgin land for its growth.

They said insurance was very close to Islamic system as it provided protection to traders and businesses but it should be done without involving interest, which is prohibited in Islam.

Since the issue of Islamic insurance is quite new in Pakistan, the speakers also explained the structure of Takaful built to fulfill the requirements of an Islamic financial system.

Presently, two Takaful companies are functioning in the country while many others are in process to start their operations in the near future.

Speakers informed the audience that currently two types of Islamic insurance – General Takaful and Family Takaful – were being offered for which the State Bank had fixed paid-up capital requirement at Rs300 million and Rs500 million, respectively, till 2011.

However, till December 31, 2007, Rs120 million required as paid-up capital for General Takaful.

Under the Takaful participants form a pool of fund which is used to meet the losses in case of damage is done to a participant. However, several pool of funds for separate sectors could be formed which was more appropriate.

The speakers and the less aware audience about the concept of Islamic insurance however agreed that there existed potential for the growth of Takaful.

During the question answer session, the audience found Takaful more acceptable than Islamic banking products mainly because the banking was deeply rooted into the interest-based system.

CEO of Pak-Qatar General Takaful Waqaruddin made a presentation on the structure of Takaful and said that serious efforts had been made to popularise the Takaful as an Islamic alternate insurance but a number of issues were still under research to find solutions.

Insurance companies used to get re-insured in the prevailing financial system. The Takaful representatives said they would follow the same re-insurance for Takaful.

They said Islamic re-insurance companies were working in Dubai and Malaysia.

Both the speakers and audience observed that unlike Islamic banking, which is just 2.3 per cent of the conventional banking, Takaful has better chance to grow rapidly in the country.