Agile FINANCIAL TIMES

May
2009

Investment Management
Outlook
Middle East and Africa

CUSTOMER SPOTLIGHT
Increasing Market Share
for Apollo DKV

PERSPECTIVE

Islamic Insurance
in the Middle East

ARTICLE

The Aftermath of the

Economic Crisis
 May 2009

Editor’s Note
Greetings!

In our quest to serve those who conserve capital

and grow wealth, we are pleased to provide our
views on the investment and wealth management
outlook in the Middle East & Africa and a
perspective on Takaful Insurance in the Middle
East.

As I write, we are at the Annual BancAssurance

CONTENTS
Conference in Vienna, Austria to exchange views
with industry leaders on this growing channel. Agile FT is sponsoring the
Conference and presenting a paper on ‘Making BancAssurance Agile’! CUSTOMER SPOTLIGHT
What is most exciting about BancAssurance is how it brings bankers and
insurers together and this assembly is truly a meeting of minds as all sides
Increasing Market Share
unanimously agree on the role of technology as a key enabler. Our AGILIS for Apollo DKV 4
BancAssurance platform is being so well received that we decided to
feature the same in this month’s Solution Spotlight. COVER STORY

We are passionate about innovation and feel a sense of great pride when Investment Management
our clients use our technology to innovate a business model. Apollo-DKV Outlook: ME and Africa 7
Health Insurance Company shares its experience on the use of Agilis and
how they were able to leverage technology to increase their sales through ARTICLE
portals like MakeMyTrip.com.
The Aftermath of the
We invite you to read Vikas Tandon’s perspective on Customer Privacy in Economic Crisis 10
the face of increasing Anti-Money Laundering scrutiny. Vikas Tandon is the
Joint General Manager and Money Laundering Reporting Officer at ICICI
INSIGHT
Bank.
Customer Privacy
A new and exciting addition this month is a contribution from our Chairman, Regulation 15
Andrew Krieger, a well known luminary from the financial world. He shares
an insider’s view on the aftermath of the economic crisis. You will get a
PERSPECTIVE
sense of déjà vu as we are taken down memory lane right from the Great
Depression and are told that a cheery investment outlook awaits us in the Islamic Insurance in the
near future. Middle East 17
We hope that you enjoy this edition and continue to write in with your
feedback. Here’s wishing everybody a great month ahead. SOLUTION SPOTLIGHT

AGILIS Bancassurance 20
Be Agile!

Shefali Khera PARTNER SPOTLIGHT

Chief Marketing Officer Expansion in Sub-
Write to us at info@agile-ft.com
Saharan Africa 22

Apollo DKV Health Insurance
Company, the association
between Apollo Group and
Deutsche Krankenversicherung
(DKV) AG, is a strategic alliance
to meet common goals in
healthcare and health insurance.
It complements Apollo’s
philosophy of ‘prevention and
wellness’ and DKV’s dedicated
mission of ‘providing affordable
and innovative health insurance
solutions’.
4
CUSTOMER SPOTLIGHT
Increasing
Market Share
for Apollo DKV
This meeting of minds has given birth to a new era in health
insurance in India, bringing with it the double protection of
preventive health added to insurance cover. It is a venture to
bring in a paradigm shift in health insurance from ‘post care’
to ‘prevention and wellness’. This ultimately is the core of
the Apollo DKV’s unique brand positioning - ‘Lets Stay
Healthy’.
Towards this attempt, it has implemented AGILIS, an
integrated web-based software offered by Agile FT.
Through AGILIS, Apollo DKV has been able to sign up
new customers thereby gaining incremental revenue. It has
also achieved fast turn-around-time, a critical success factor
in the travel insurance industry.
Apollo DKV has provided Indian domestic/international
travellers a powerful on-line tool by which they can purchase
travel insurance in a variety of ways. Corporate customers
can issue policies at their end from the corporate portal.
Travellers can purchase their insurance policies either from
travel agents who have been given access to AGILIS or from
travel portals like MakeMyTrip.com. Branch office
employees of Apollo DKV at branch office can issue
insurance policies to walk in customers from the employee
portal. In all cases, the insurance policy is immediately
processed, can be printed and made available to the
customer in real time.
Health insurance is a highly competitive line of business
since it is a part of every general insurance company’s
portfolio. Travel insurance forms an integral part of the
health insurance portfolio. Travel is a high-growth segment
with international leisure travel expected to grow three times
while the domestic travel market is currently growing at
about 35%. The value of the Indian travel insurance
industry is estimated to be $236 million in 2009, according
 CUSTOMER SPOTLIGHT
to Euromonitor International.
Domestic and international air travellers typically buy
insurance cover after they have purchased their travel tickets.
This is usually at the proverbial last minute when they have
very little time to seek an agent and buy travel insurance.
Even if they find a travel agent or visit a general insurance
company, it normally takes a few hours before the policy
document is provided.
In addition, the application forms are time consuming with
details such as medical history, passport and other
identification details to be filled. This affects the turn-
around-time, a factor that is critical for the success of the
business, as well as the convenience of purchasing the
insurance cover.
Background
In its endeavour to become a first-choice partner in the
health care sector, Apollo DKV is determined to
increasingly automate processes, reduce human intervention
and increase quality and speed. Apollo DKV currently offers
several insurance plans - Easy Health Insurance, Personal
Accident Insurance and Easy Travel Insurance.
It chose Agile FT as its partner to automate its Easy Travel
Insurance Plan, a Short-Term travel insurance plan, with the
main target population being young people who are very
familiar with the existing travel insurance schemes available
in the market. The Individual Travel Insurance Plan covers
an individual of age between 6 months up to 70 years,
against any medical or non-medical emergency while
travelling and is valid for a specific number of days. Apollo
DKV offers the Easy Travel Insurance Plan in four different
ways:

A secure travel insurance portal through which
corporate customers can issue their own policies. The
issuing company has to maintain a deposit with
Apollo DKV, which gets debited every time a new policy
is issued.

Through the Agents Portal for travel agents.

Through travel ticketing websites like MakeMyTrip.com,
where travellers can buy the insurance policy along with
the air ticket by just click-checking a box.

Through branches which provide service to walk-in
customers.
The policy is valid either for the duration of the round trip
travel or 30 days from the date of booking. The decision to
use travel web sites as a distribution channel was to provide
an extended solution to airline clients. This has given the
company a new dimension to the already existing on-line
airline booking system.
Krishnan
Ramachandran,
Chief Operating
Officer, Apollo
DKV, shares
his views
exclusively with
Agile Financial
Times.
What is your vision for Apollo DKV?
Apollo DKV was licensed by the regulator in August 2007
and launched its first product in November 2007 on the
retail side. We now offer a bucket of products in areas
such as health, travel and personal accident insurance
for both retail and corporate and our goal is to become a
health insurer of choice.
At Apollo DKV, our core philosophy is ‘manage health’
and our vision is to become a significant player in the
health insurance industry, with our value proposition
being the ability to combine health care access and
delivery.
What is the rationale behind the on-line health
initiative?
Very few insurance companies currently offer on-line
health insurance with processes automated from
application to policy distribution. By providing this
service, we have actually been able to increase the
market size of the insurance industry as this user-friendly
facility has roped in many first-time customers, many of
whom have now made it a practice to purchase
insurance on-line whenever they travel, which is
something they would not have thought of earlier.
What was the main reason for selecting Agile FT?
We chose Agile FT as a partner as they possessed both,
the technology expertise as well as people who had a
deep knowledge of the insurance industry. Agile FT
offered us a blend of technology and domain expertise
Without AGILIS we would not have been able to enter
into a partnership with MakeMyTrip.com.
5

While the primary focus of travel agents is on overseas
travellers, the focus of MakeMyTrip.com is on domestic as
well as international travellers.
Supplier Selection
During the launch of the Easy Travel Insurance Plan,
Apollo DKV had time constraints and was unable to
custom-build a solution to cater to the travel insurance
product. The company was therefore seeking an ‘off-the-
shelf ’ product. “We already had a system in place which we
customised to suit our business needs. We decided to go for
AGILIS since there was no time to add a separate module to
the existing one,” says Ravinder Zutshi, Chief Technology
Officer, Apollo DKV.
“We chose Agile FT as they
possessed both, the technology
expertise as well as people who
had a deep knowledge of the
insurance industry.”
- Krishnan Ramachandran
Chief Operating Officer
Apollo DKV
A key differentiator that separates Agile FT from its
competitors is its domain knowledge. Apollo DKV selected
AGILIS over similar products because of Agile FT’s proven
expertise and domain knowledge of the insurance sector.
Technology
AGILIS is an integrated on-line IT solution designed to
automate all the functions of a general insurance company.
It acts as a decision support system for underwriting, claims,
reinsurance and accounting and, as a result, directly
enhances the business processes of an insurance company.
The solution is flexible in terms of defining new or revising
existing insurance products and facilitates dynamically
altering the process in time with the market conditions.
AGILIS has the ability to cater to all classes of the general
insurance business.
The front end interface is used to provide a choice to
travellers booking through MakeMyTrip.com of whether or
6
CUSTOMER SPOTLIGHT
not they would like to purchase an insurance policy. It also
includes the facility of emailing the policy to the subscriber’s
email address.
The back end runs a validation engine and checks the
information (such as age, length of travel, countries of
travel) of the traveller. Most of the information is picked up
from the data provided on the tickets and compared to set
values. For example, the Easy Travel Insurance Plan is only
provided to customers who are less than 70 years old.
Anyone at and above the age has to go through the
underwriting process by visiting an Apollo DKV office.
After the validation, the application is passed through a
payment gateway, where the payment is extracted from the
customer’s credit card. In case of cancellation of a policy,
the refund is made to the customer using the same forms,
while the final transaction is settled between the travel
agents or MakeMyTrip.com and Apollo DKV at the
company’s website.
Business Benefits
Within a few months of the launch of AGILIS, Apollo
DKV received encouraging feedback from travel agents as
they found the product easy to use. Their feedback has been
that AGILIS is customer friendly, easy to integrate into the
existing system, cost-effective and performs well on
underwriting and claims.
AGILIS also helped Apollo DKV decrease the turn-around-
time for issuing a policy to 2 minutes as compared to 15
minutes earlier. Purchasing travel insurance was suddenly
made very simple for travellers who were earlier used to
filling out lengthy application forms. For travellers who fit
the policy underwriting criteria, all they have to do is to fill
in their personal information on-line and the policy
document is sent to their email account, without any human
intervention.
Apollo DKV garnered significant incremental business with
the addition of MakeMyTrip.com as a sales and distribution
channel, especially because it was one of the early movers.
The unique feature of this channel is that it creates an
impulsive buying decision for the travel portal user who can
avail an insurance policy by just click-checking a box.
Conclusion
Apollo DKV gained significant benefits due to the AGILIS
implementation. In addition to simplifying internal
processes, using AGILIS also reduced the turn-around-time
for the issuance of policies, thereby setting an industry
benchmark which few insurance companies have achieved.
Being one of the early movers in providing travel insurance
policies in real time gave the company a substantial
advantage over competition and helped it to increase
incremental revenues significantly.
It seems ironical to talk about
investment and wealth
management, when so many
mammoth organisations have
collapsed and high net worth
individuals (HNIs) have seen
their net worth eroded in the
span of just a few months.
As we all know, the US
downturn triggered a global
slowdown during the second
half of 2007, which quickly
spread to the other developed
regions as well. At the same
time, emerging economies
continued to grow, albeit at a
slower pace.
Investment
Management
Outlook
Middle East and Africa
In early 2008, large US corporations began filing for bankruptcies, which severely
impacted their global operations. With mass unemployment across the globe, the
scenario worsened in the second half of 2008 and as yet, 2009 does not appear
to be doing any better.
Countries within the Middle East and Africa were relatively well sheltered during
the second half of 2007 largely on account of the then-rising prices of
commodities and natural resources. Africa additionally benefited from a
liberalised economy attracting higher foreign direct investment (FDI) to propel
growth. Wealth creation in both these regions reached record highs. According
to a 2008 BCG report on Wealth Management, assets under management (AUM)
in Middle East and Africa grew at a rate of 8.6 per cent versus the worldwide
growth rate of 4.9 per cent in 2007. The World Wealth Report published by
Capgemini and Merrill Lynch in 2008 mentions that the HNI population within
Middle East and Africa experienced the highest growth rates of 15.6 per cent and
10 per cent respectively in 2007. Compared to this, the worldwide HNI
population in 2007 grew only by 6 per cent in that year.
While the financial crisis took its toll on most countries, the impact on emerging
7

nations was especially significant, since they were highly
dependent on the US and other developed countries for
foreign investments as well as exports. The impact on wealth
markets in Middle East and Africa has been quite severe.
The Gulf Co-operation Council (GCC) stock markets
collectively lost more than $600 billion in market
capitalisation during 2008. Local exchanges in Dubai and
Egypt were down more than 50 percent in 2008. The wealth
erosion across both regions was primarily led by:

Declining commodity prices: In July 2008, crude oil
prices declined by almost 70 per cent from a peak of
$147 per barrel. The Middle East region with the largest
crude oil reserves in the world, had to cut production
due to decline in demand. Many mines in Africa closed
down operations as the demand for commodities
declined significantly. Prices of copper and cobalt
dropped to one-third of their peak-2007 prices.

Declining foreign investments: There has been a
decline in FDI in these regions owing to the economic
slowdown and a current negative outlook towards the
region. According to UNCTAD, FDI in the Middle East
fell by 21 per cent in 2008, resulting in delays and
cancellations of infrastructure projects that were heavily
dependent on FDI. In six of the largest countries in
North Africa, FDI fell by 5.2 per cent in 2008 to $21.3
billion.

Credit crunch and liquidity pressure: In both Middle
East and Africa, the lack of liquidity resulted in a loss of
confidence amongst lenders and borrowers. As lenders
became more stringent with respect to borrowing
norms, the number of loans accessed by the public
declined.
Recovery Expected Post-2009
However, the good news is that despite falling growth rates,
both regions are widely expected to still keep growing.
According to an IMF forecast, the GCC economy is
expected to expand by 3.5 per cent in 2009 as compared to
6.8 per cent last year. Another forecast by the World Bank
(report on Global Economic Prospects) pegs the regional
growth in the Middle East (including GCC and other
countries as well) to slow down to 3.9 per cent in 2009 from
5.8 per cent in 2008. The underlying assumption is that
commodity prices will definitely not go down further and
crude especially is expected to recover to $65-70 per barrel
by the end of 2009.
Looking beyond 2009, the prospects appear to improve
dramatically for these regions. While there is a general
consensus on the global economic environment improving
in 2010, indications are that the turnaround will be much
quicker in Middle East and Africa.
A recent MEED (Middle East Events) report titled ‘A Short,
8
COVER STORY
Sharp Shock’, forecasts a speedy recovery for the Middle
East during 2010. According to the report, the price of West
Texas Intermediate (WTI), which is a benchmark for oil
prices, will hover around approximately $60 per barrel in
2009 and the production of oil will drop by 3 million barrels
per day. In 2010, as the demand for oil increases and the
In the absence of a major
black swan event, the
demand-supply equation is
bound to ensure prosperity
within these regions.
global economy starts to recover, there will be a marginal
price recovery of oil, up to $75 per barrel. The report
reflects the consensus on a growth decline in 2009 for the
GCC countries - GDP growth in 2009 to decline by 20 per
cent over to $835 billion from $1.1 trillion in 2008, and the
current account surplus to fall to zero as compared to $350
billion in 2008. In 2010, however, the GDP is expected to
grow by 20 per cent to over $1 trillion.
Implications for Investment Management
The implications of all this for the investment management
industry in Middle East and Africa are far-reaching. Growth
in wealth is the leading indicator rather the leading driver for
the wealth management industry. Therefore, while 2009 will
be a watershed year for the industry globally, the key for
investment managers will be to maintain competitive
positioning to garner growth opportunities on market
recovery.
There is every reason to believe that the attractiveness of the
Middle East and Africa as destinations for wealth
management will continue post 2009. The prime reason is
the already-existing wealth base, both at the retail level as
well as at the sovereign level. The existing reserves of
financial assets can be leveraged effectively for fuelling
investments in prime projects, especially in infrastructure.
For instance, UAE alone has reserves of $350 billion versus
obligations of $10 billion in sovereign debt, and $70 billion
owed by affiliated companies.
The confidence in the African markets is evident from the
number of private equity (PE) companies which are
continuing to set up shop there. For instance, Kingdom
Zephyr Africa Management and Aureos Advisers (both PE
players) have announced that they will continue to raise
capital for their respective PE funds, as they continue to see
 COVER STORY
opportunities in the African continent. They expect Africa
to recover more quickly than the other emerging countries,
as Africa has been one of the fastest growing regions within
the emerging economies. As for the Middle East, in the
recent past, several international investment outfits (such as
ING IM, Insparo Asset Management, Australia’s Macquarie
Group among others) have either set up or are in the process
of setting up offices in the Middle East.
Further, there are several strong fundamental drivers which
will help these economies recover and grow:

Diversification of sources of income: The countries
within Africa and ME have been investing in other
sectors to diversify and reduce dependence on a single
commodity or natural resource. For instance, tourism
has been a growth sector in the GCC and its share in the
GDP is expected to go up further. As these economies
diversify, there will be significant growth opportunities
which will be tapped by investors.

Rapid growth of Islamic finance: Financial services
in the Middle East and some parts of Africa will be
driven by growth in Islamic finance. Shari’a compliant
financial services are expected to grow due to several
factors such as high availability of sophisticated Shari’a
compliant products, increase in the number of
institutions offering these products and the formation of
regulatory bodies to provide the necessary regulatory
oversight. According to a report by Oliver Wyman,
Islamic finance (worldwide), although in its nascent
stage, has grown by over 20 per cent over the last few
years. Its current assets are estimated to be in the range
of $700 billion to $1 trillion. The report estimates these
assets to grow to over $1.6 trillion by 2012, with a
significant chunk of the contribution expected from the
Middle East and Africa.

Liberalisation of financial markets: The opening up
of both the Middle East and the African markets has
spurred growth in these regions. Africa is continually
introducing reforms to make the environment business
friendly and attractive to foreign investment.

Growing maturity of investor culture: The investor
culture is gaining ground in these regions. Mature
investors have a better understanding of the
complexities of wealth products and services, which acts
a driver for further growth of the investment
management industry.
Some of the inherent challenges that countries within these
regions face and will have to ultimately overcome to sustain
and increase growth, include:

Scarcity of experienced local finance professionals:
Finance professionals are needed for the growth of
investment management within these regions. Due to the
geopolitical risks in these countries, professionals from
developing nations are often unwilling to relocate to the
Middle East.

Nascent stage of some African markets: Although
the African region opened up its economy to foreign
investment and trade in 2007 to an extent (and as a result
experienced significant economic growth), it still has a
long way to go in relaxing norms that erstwhile did not
allow foreign inflows. By doing this the region will attract
hefty foreign investments. Further, the turbulent political
landscape in various parts of Africa could significantly
impede growth.

High expectations of HNI investors: HNIs have
become very sophisticated in terms of their financial and
investment needs and seek comprehensive wealth
management services from trusted advisors. Clients not
only expect advice on investments but also expect
advisors to be able to understand the larger picture
which encompasses personal and professional
investment goals. Wealth managers therefore have to
gear up to ensure these demands are adequately serviced.
The long-term outlook on commodities, which is a key
economic driver in both these regions, is positive. Especially
given that the take-up on alternative energy sources is still
low, the dependence on non-renewable energy sources will
continue to be high. Therefore, in the absence of a major
black swan event, the demand-supply equation is bound to
ensure prosperity within these regions.
According to a Standard and Poor’s survey of fund
managers in the Middle East and North Africa, although a
continued downward pressure on markets is expected in the
short term, fund managers are very positive about the
medium to long term outlook for these markets. They
expect growth to be driven by domestic investors such as
sovereign wealth funds. Further, the increase in investments
in infrastructure-related projects will see more foreign
capital flowing in. The result of the increase in individual
and state-owned wealth will see an increase in demand for
investment management.
9

Having been violently shoved to the edge of the abyss, the
global financial system has gone through an amazing two-
year period. During the summer of 2008, the world’s
financial markets were becoming progressively unstable as
the magnitude of the balance sheet problems among leading
banks, brokerage firms and insurance companies was
starting to sink in. One firm after another announced multi-
billion dollar losses resulting in plummeting investor
confidence. The entire system was already in a very
vulnerable condition when talk of major liquidity issues at
Lehman Brothers started to filter through the market. When
it became apparent that Lehman’s problems were real, the
U.S. authorities surprisingly decided not to step in and
intervene.
Their decision was clear -- Lehman was not too big to fail -
- and on September 15, 2008 Lehman Brothers announced
that it would seek Chapter 11 bankruptcy protection. The
already unstable markets became uncontrollable. The
brewing crisis took on a new dimension once this venerable
institution, formed in 1850, was forced to close down.
Lehman was a major player in essentially all the global
markets and their bankruptcy sent violent shockwaves
around the world and brought the global financial system to
its knees.
Whatever remaining trust banks held for one another
evaporated as they worried about what toxic time bombs
might lay hidden in their counterparties’ balance sheets.
Interbank lending shut down and credit markets froze.
Global liquidity dried up and the system was teetering at the
edge of a bottomless ravine. The U.S. authorities had made
10
ARTICLE
The Aftermath
of the
Economic
Crisis
Andrew Krieger
Chairman, Agile Financial Technologies
a huge blunder and they knew it almost immediately. Leaders
of the G20 were then faced with a daunting choice - either
sit by idly and watch the demise of the global financial
system or take drastic measures to forestall its final death by
throwing vast amounts of money at the problem. It was a
big gamble, but the leaders didn’t really have much of a
choice except to start pumping in money. They needed to try
to buy enough time for the world’s biggest financial
institutions to get back on their feet and start operating in a
more healthy fashion.
The gamble seems to be working so far, but the long term
ramifications of these measures will last for generations.
Therefore it is incumbent on us to understand more fully the
consequences of the policy shifts that have taken place.
In order to get a handle on the magnitude of the current
economic weakness let’s consider some of the following
facts. The U.S. economy, far and away the largest in the
world, shrank by 6.3% and 6.1% in the last quarter of 2008
and the first quarter of 2009, respectively. These are the
worst numbers in over fifty years. U.S. unemployment now
stands at 8.5% and is on its way to double-digit levels, but
this number grossly understates the true state of affairs.
Roughly 5% of the workforce is considered permanently
unemployed, which means they are no longer even seeking
jobs so they don’t even show up in the statistics. The
economy’s weakness has been widespread, with a collapse in
consumer demand, manufacturing, inventories, and home
sales all showing up in the data. Optimists look at the drop
in inventories as a sign that growth will bounce back in the
form of increased production when sales demand finally
 ARTICLE

picks up. But when will this demand pick up, and how strongly? The pace of
the decline in manufacturing, housing, exports, and factory orders is slowing,
but the numbers are alarming. Property values continue to drop. In many areas
the pace of decline has slowed, but in others, such as New York City, the drop
is actually accelerating. Prices in New York City have fallen by about 25% in the
past several months and more weakness is predicted.

The U.S. is hardly alone in its suffering. Global growth this year will be negative,
probably to the tune of 1.5%. Data from Asia is very weak, with export-
dependent nations showing the largest drops in export data in over half a
century. Japan’s economy, the second largest in the world, will be down
approximately 3.3% and China’s growth has slowed sharply despite massive
fiscal spending packages. Europe is likewise suffering, and in some instances, it
is actually in worse shape than the U.S.

Eastern Europe is performing terribly and Western Europe is posting very

weak numbers. For example, German GDP is growing at roughly -6%, and
Spain’s economy has fallen sharply, showing 17% unemployment today, on the
way to 20%+. Banks in Europe are under tremendous pressure and liquidity
remains very poor. In the bigger picture, bear in mind that Japan has now
suffered through nearly two decades of moribund economic activity and it is
only because of their extremely high personal savings and investments that they
have been able to cope with this extended economic malaise. This protracted
slowdown created a number of “zombie” banks and this is something the U.S.
and European authorities desperately want to avoid.

On the other hand, while the numbers are bad, they aren’t nearly as catastrophic
as those experienced by the U.S. during the Great Depression. From 1929 until
1933 total output in the economy dropped by 42%. Unemployment peaked at Andrew J. Krieger began his
roughly 25% and consumer prices dropped by about 25%. Hardship within the
U.S. was truly horrible, but the impact extended globally. European economies meteoric rise on Wall Street at
were weakened for years. The UK economy, for example, didn’t bottom out Salomon Brothers in 1984,
until 1932, and the French economy didn’t fully crater until 1935. then at Soros Fund
Management, after which he
In terms of understanding where we are today, however, we need to bear in
mind that most of the economic damage during the Depression was due to moved to Banker’s Trust in
severe weakness in the banking system - weakness largely due to the fact that 1986. He holds a BA in
many of these banks were not following sound lending practices and had Philosophy (Magna Cum
speculated too heavily in the 1920’s. As overall confidence collapsed, the banks Laude, Phi Beta Kappa,1978);
were not spared, and thousands of banks were forced to close. The entire
period from 1930 until 1933 was marred by runs on multiple banks. MBA in Finance from the
University of Pennsylvania; and
In January, February, and March of 1933 (the months leading up to the an MA in South Asian Studies.
inauguration of Franklin D. Roosevelt) the run on the U.S. banks reached Andrew has authored the book,
shocking proportions. By the time FDR took the oath of office on March 4,
1933, Americans were in a state of panic. Banks were failing every day and “The Money Bazaar” in 1992,
people clamored to withdraw their money. Ordinarily they would have accepted and has been a contributing
paper money in the form of gold certificates, but people feared that the Columnist for Forbes and
government might resort to printing worthless money to meet the massive Forbes Global. He co-chairs
withdrawal requests. They didn’t want paper. They wanted gold. To make
matters worse, people who had gold certificates rushed to redeem them for real the Microcredit Summit Council
gold. of Banks and Commercial
Financial Institutions and is
In 1933, the U.S. government defined the dollar as being worth precisely 23.22 Founder CEO of IMGE
grains of gold. Since there are 480 grains to a troy ounce, this works out to
about $20.67 per troy ounce. This meant that if you had a $20 gold certificate, Emergency Relief Fund and
you could redeem it for roughly 1 troy ounce of gold. Each certificate bore this MD of Access Capital
solemn statement: “This certifies that there have been deposited in the Management.
11

Treasury of the United States Twenty Dollars in Gold Coin
payable to the bearer on demand.” There are two promises
here: First, the gold is there waiting for you. Second, you’ll
get the gold when you demand it. So in March of 1933,
thousands of people decided to make the government
honor its commitment, but they quickly learned that the
Treasury was not standing by its promise. Just two days after
his inauguration, President Roosevelt ordered a “bank
holiday”, closing all the banks in the country from Monday,
March 6 through Thursday, March 9. He proclaimed that
there was a “national emergency” caused by “heavy and
unwarranted withdrawals of gold and currency” for the
purpose of “hoarding.” In this case, “hoarding” simply
meant that people wanted to hold on to their own money,
but Roosevelt, eager to blame the government’s woes on the
people’s vices, used the term “hoarding” to make it seem like
evil behavior. After virtually no debate, on March 9 the
Senate passed the Emergency Banking Act, which gave the
Secretary of the Treasury the power to compel every person
and business in the country to relinquish their gold and
accept paper currency in exchange. The next day, Roosevelt
issued Executive Order No. 6073, forbidding people from
sending gold overseas and forbidding banks from paying out
gold. This was quite a first week in office, but there was
much more to follow. On April 5, Roosevelt issued
Executive Order No. 6102 which enabled the government to
confiscate everybody’s gold. The order commanded the
populous to deliver their gold and gold certificates to the
Federal Reserve Bank where they would be paid in paper
money. U.S. Citizens could keep up to $100.00 in gold, but
anything above that was illegal.
Gold had become a controlled substance. Possession was
punishable by a fine of up to $10,000 and imprisonment for
up to 10 years. Now the only people with a claim to gold in
the Treasury were foreigners holding dollars. Roosevelt
didn’t want foreigners to be treated any differently, so on
January 31, 1934, Roosevelt issued another Executive Order:
He declared that one gold dollar of 23.22 grains would
immediately be reduced by 59%, to 13.71 grains. Effectively
the dollar was devalued by more than 40% and everyone was
stuck. It used to cost only $20.67 to get a troy ounce of gold.
With the sweep of his pen, it shot up to $35.00 per troy
ounce.
The U.S. Government passed many laws to address the
problems of the Great Depression. One of these, the first
Glass-Steagall Act, was passed in February, 1932 in an effort
to stop deflation. Glass-Steagall enormously expanded the
Federal Reserve’s powers with regard to the rediscounting of
various forms of collateral. The second Glass-Steagall Act
was passed in 1933 in reaction to the collapse of the
American commercial banking system earlier in the year. It
was geared to control excessive speculation by U.S. banks
and eliminate their participation in the underwriting of
securities that caused so many of the problems in the first
place. Banking institutions were divided by their types of
activities, with commercial banking and investment banking
12
ARTICLE
being strictly separated from one another. Another reform
was the creation of the FDIC, the entity which insures banks
deposits in the U.S.
The Glass-Steagall Act survived for over sixty six years
before it was repealed in 1999. The basic premises
underlying the Act are important to consider. Among them
is the fact that conflicts of interest characterize the granting
of credit (lending) and the use of credit (investing) within
the same institution. Conflicts arise when the same
institution does both, so the law was designed to prevent
potentially abusive practices. In addition, depository
institutions are deemed to have great power by virtue of the
fact that they are handling other people’s deposits, and this
power must be held in check. In particular, it was felt that
bank managers must be required to be conservative,
prudent, and protective of the customers’ funds.
Encouraging - or even allowing - banks to engage in
speculative activities could potentially endanger the security
of the institution and imperil depositor’s cash. Securities
activities can be highly risky and volatile, so the logic was
that these activities belonged outside of the banking system.
Moreover, there was (and still is) no evidence that banks are
particularly good at taking speculative positions and
managing risky portfolios, so the separation seemed to be a
logical step. Thus, the wall between commercial and
investment banks was erected.
This separation was challenged may times, but not until the
passage of the Gramm-Leach-Blilely Act of 1999 was the
Glass Steagall Act repealed. It enabled commercial lenders
such as Citigroup, which at that time was the largest U.S.
bank by assets, to underwrite and trade instruments such as
mortgage-backed securities and collateralized debt
obligations and establish so-called structured investment
vehicles, or SIV’s, that bought these securities. (These were
just the kind of financial instruments Glass Steagall kept
away from commercial banks.) The year before the repeal of
Glass Steagall, sub-prime loans were just 5% of all mortgage
lending activities, but by the time of the crisis in 2008, they
had grown to 30% of the total. Although some maintain
that the seeds of the recent financial meltdown were sown
with the repeal of the Glass-Steagall Act, the real cause is far
more complex. The crux of the issue is that improper risk
management was prevalent in many of the world’s leading
banks. Greedy management and poorly thought out
compensation packages that rewarded risky short-term gain
drove much of the behavior that led to the global financial
system to the brink of disaster. By the time the Bear Stearns
mortgage back funds went bankrupt in the summer of 2007,
having burned through 100% of their capital, the
international banking system had put on the largest
leveraged bet in the history of modern society - that the
prices in the U.S. housing market in the United States had
only one way to go, up. Imprudent lending practices,
excessively leveraged balance sheets, overconcentration of
risk, inadequate risk management systems, and a host of
related issues all contributed to the problem. It is easy to
 ARTICLE
blame the problem on regulators, but history is strewn with
meltdowns and bubbles. Volatility has occurred for
thousands of years, and it is unlikely to stop any time soon.
Although there are significant differences between the
current environment and the conditions during the Great
Depression, there are enough things in common that we
need to pay close attention. As noted, both situations
stemmed from breakdowns in banks and financial
institutions. The recent collapse in the credit markets and
the general loss of liquidity in the global system has created
huge deflationary pressures. Today’s leaders are keenly aware
of the economic and social dangers of deflation and they
are using a wide array of tools to remedy the situation. The
U.S. alone, in the past two years, has already committed a
staggering $12.8 trillion towards the creation of money in
one form or another. Yes, that’s right, $12.8 trillion, and that
doesn’t include what is still to come. Nor does it include the
ongoing costs of debt service that will make this problem
increase over time. The magnitude of today’s situation can
be better grasped when one considers the scope of this vast
wave of monetary creation. Imagine where the economy
would be today without the loans, guarantees, financing
facilities, and bailouts by the Federal Reserve, the FDIC, and
the Treasury, not to mention the measures taken by central
banks and governments around the world.
Given these numbers, it is clear that the U.S. economy is in
shambles, and much house cleaning and restructuring needs
to be done. Prior to the credit crisis, the U.S. was already
debt-ridden. Domestic savings rates had collapsed from
roughly 12% to 0% since 1980. Irresponsible practices by
U.S. banks and financial institutions and the subsequent loss
of liquidity have now exacerbated what was already a
dangerously imbalanced system. The largest financial
intermediaries focused far too much on the riskier aspects of
their business, rather than tending to their more traditional
role of providing liquidity and safekeeping funds.
To address this problem the U.S. is taking a gigantic gamble.
The reality of persistent trillion dollar deficits has been
firmly established, yet nobody has mentioned an exit
strategy. To date, no one has challenged Congress on how
and when they are planning to repay these gigantic loans.
The American taxpayer is about to be crushed by multiple
generations worth of debt, yet those same taxpayers had
little to do with the creation of the problem.
Consider for a moment the adjacent charts, which reflect the
total debt in the United States and the public or national
debt.
The graphs show the national debt skyrocketing from 1980
to 2010 in both nominal terms and as a percentage of GDP
(and the situation is only getting worse).
As of April 7, 2009, the total U.S. federal debt was
$11,152,772,833,835 or about $36,676 per capita. Also,
remember that the $12.8 trillion recent commitment by the
U.S. is largely in the form of commitments by the Federal
Reserve ($7.76trillion). The balance of the commitments
comes from the FDIC ($2 trillion), the Treasury ($2.7
trillion) and HUD ($.3trillion). Although the Fed’s
commitments may not hit the nation’s balance sheet in the
same way, the risks to the U.S. taxpayers and the potential
costs are still very real and very, very large. The picture is
going to look a lot worse each year for the foreseeable future
as the growing debt burden continues to compound with no
reasonable prospects of debt reduction through budget
surpluses for the next decade or so.
So where do we go from here? First it is clear that this is a
very dangerous time. Credit markets are a mess and banks’
balance sheets need to be further healed before lending can
resume in a healthy manner. At the same time, the heavy
deficit position of the U.S. and many other nations, coupled
with dismal growth prospects, makes the deflationary
alternative far too dangerous from every perspective because
with deflation, every dollar of debt gets proportionately
larger. If deflationary pressures take hold, we could very
likely head into a frightening state of global social unrest
unlike anything the world has seen.
The Chairman of the Federal Reserve, Ben Bernanke, is an
accomplished scholar on the Great Depression. He is well
aware of the broader societal implications of deflation in a
debt-ridden society, so he is certainly going to use every
available tool to prevent this from happening. This means
that we should expect that Bernanke, like his predecessor
Alan Greenspan, will err on the side of inflation.
(Greenspan was also a scholar on the Great Depression and
he too wanted desperately to avoid deflationary
developments in the debt-ridden U.S.) Barnake’s willingness
13

to monetize; i.e. print money, should not be underestimated,
and this will have broad implications for the fixed income,
equity, foreign exchange, commodity and other markets for
many years to come. The enormous ocean of liquidity that
Bernanke is creating is held in check right now by a
dysfunctional global banking system, but once banks have
been recapitalized and credit starts to flow, the liquidity
streaming into the mainstream economy will need to be
controlled to prevent a tidal wave of cheap funding, which
in turn could start the dangerous cycle all over again. This is
a balancing act that will require great skill and a lot of luck,
because the alternative will be an inflationary surge that will
shock many by its speed and force.
Offsetting this massive creation of money will be a dizzying
set of new regulations, which are inevitable in the aftermath
of the U.S. bailout of so many major institutions. The new
regulations will be implemented in Europe and Asia and
well, so improved risk management tools will be required for
most financial institutions, along with improved controls
and sound practices. Such upgrades would be wise to
implement in any event, but they will probably be required
in the new regime. One might ask whether it makes sense to
burden banks and financial institutions with new regulations
now that the damage has already been done, but this reactive
process is simply the way of big government. Regulation will
keep the crowd’s speculative impulses under wrap for a
while, but eventually the pool of liquidity will make the
money-making opportunities too appealing to pass up.
Speculative forces will always find a way to express
themselves, but regulation will hopefully make banks less
active players in the business of excessive risk taking.
Economic recovery from the current recession will be
neither fast nor powerful. More likely, we should anticipate a
stabilizing of the current weakness over the balance of 2009
as the lingering excesses in the system are played out.
Growth will start to pick up modestly in 2010, but don’t
expect a robust v-shaped recovery. Banks still need to reduce
their leverage, and toxic assets on their balance sheets have
not yet been fully priced into the market. The IMF estimates
that total losses among U.S., European, and Japanese
financial institutions will be $4.1trillion (of which
$2.5trillion will be in U.S. institutions), which means that
more losses are coming and more capital will be required. As
noted, only after the banks’ balance sheets are fixed can the
economy really start to grow in a healthy sustained fashion.
In the meanwhile, we should expect the IMF to take a more
active role in the global economy henceforth, by providing
funding and much needed discipline to many countries and
institutions around the world. Trading and investment
opportunities will be fantastic for the next four or five years
as the world works through its problems. Volatility in the
markets will be high, which suits most traders, and lending
opportunities will be almost unlimited. The profit potential
from this period will be very high, but we will need to bear
in the mind the bigger picture so that we don’t lose sight of
the underlying forces and pressures that are driving the
policy makers.
14
ARTICLE
Global
Update
A quick review of industry news from
around the world
World’s Largest Islamic Bank: Saudi billionaire Sheikh
Saleh Kamel, Chairman of Al Baraka Banking Group, is
heading an alliance to launch the world’s biggest Islamic
bank before the end of this year, with an initial public
offering of $3 billion. The ‘mega bank’ will have an initial
capital of $10 billion through a number of initial public
offerings and private stock options. Al Baraka is
controlled by Saleh Abdullah Kamel who owns a 28.10
percent stake. Saudi conglomerate Dallah Albaraka,
founded by Kamel, owns a 42.32 percent stake in the
bank. Al Baraka, which has a market capitalisation of
$1.46 billion, recently posted full-year net income of $201
million.
Overseas Banks in India May Have to Sell Stakes in
Local Units: Overseas banks in India may have to sell at
least a 26 per cent stake in their local subsidiaries and
meet government targets for lending, under proposals
made by a joint central bank and finance ministry panel.
A committee that included Central Bank Deputy
Governor Rakesh Mohan and Economic Affairs
Secretary Ashok Chawla released a report stating that
foreign banks should list their subsidiaries on Indian
stock exchanges, capping their ownership at 74 per cent,
and that overseas lenders should meet targets for
lending to farmers in line with local banks. The Reserve
Bank of India is due to review rules for overseas banks
from next month. India, which limits the number of
branches that overseas banks can operate and restricts
investments abroad by Indian lenders, has mostly
avoided the write-downs and losses by global financial
firms as the world economy entered a recession. The
global credit crisis has helped India’s state-run banks,
which account for more than half of the nation’s banking
assets, gain market share as depositors shunned private
and overseas banks. India’s central bank limits the ability
of local lenders to extend credit to high-risk sectors such
as real estate, trading in exotic derivatives and
expanding overseas.
 INSIGHT
Customer
Privacy
Regulation
In conversation with Vikas Tandon, Joint
General Manager & MLRO, ICICI Bank
Vikas Tandon, Joint General
Manager and Money Laundering
Reporting Officer, ICICI Bank,
discusses emerging privacy
protection concerns and spells
out the measures which financial
institutions need to adopt to
gear up their privacy compliance
framework.
Handling data protection and privacy of personally
identifiable information has always consumed vast
resources. What is the reality behind the rhetoric and how
important are the stakes for banks in protecting such
information?
Stakes are pretty high indeed! Banks generally collect some
specific personal information of their customers, like
customer identification numbers, income, personal
references, employment history etc and they have a legal
responsibility to keep that information safe.
Concerns over privacy of such personal information exist
from several perspectives. In some cases these concerns
refer to how data is collected, stored, and associated. In
other cases the issue is who is given access to the
information. Other issues include whether an individual has
any ownership rights to data about him/her, and/or the
right to view, verify and challenge that information.
All these concerns are critical from a legal and reputational
standpoint for any financial institution. Thus stakes are very
high with immediate legal and business ramifications.
One of the foremost principles of privacy law is ‘If you
don’t need it, don’t collect it.’ Why do businesses today ask
for so much personal information on their clients?
There is nothing wrong with collecting necessary
information. A lot of times, the regulatory guidelines insist
on obtaining Know Your Customer (KYC) information on
specific areas like identity information, tax status, risk
15

appetite etc to assess customer profile, product suitability for
the customer and continuously review the customer’s
portfolio. That is understandable! However, at times,
businesses also collect more information for better
customer service and promotion of their product suite
across industries they operate in. In such scenarios, one
needs to appreciate the regulatory requirements of obtaining
customer consent when sharing information across internal
units. It should also be ensured that such internal units also
respect the privacy obligation in a consistent manner.
What are the biggest challenges in ensuring customer
privacy regulation today?
For a long time, privacy has meant baseline legal compliance.
Now, the operational sides within the organisations are also
seeing the strategic impact of private information.
From a legal perspective, privacy is a very rigid idea, while
from a business point of view, privacy is a flexible and day-
Financial institutions will have to
develop internal controls and
policies to ensure compliance
with these regulations. Non-
compliance can lead to
significant fines and penalties
and even revocation of business
license in extreme cases.
to-day issue. It is an exciting challenge, especially with a
discipline that continues to mature.
I think the broad spectrum of levels on which privacy
is to be protected is the biggest challenge where we
will have to rise from privacy protection to privacy
management. This clearly goes beyond traditional
concepts of privacy and requires an effective integration in
the way information technology is developed and used. As a
result, financial institutions will have to develop internal
controls and policies to ensure compliance with these
regulations. Non-compliance can lead to significant fines
and penalties and even revocation of business license in
extreme cases.
Organisations will have to respond to this increasing
complexity of law and regulation by emphasising privacy
16
INSIGHT
impact assessments and corporate management of
information at the planning stages of systems, technology
development and service offerings with particular emphasis
on cross-border transfers, breach incident responses and
consent thresholds.
It is widely understood that privacy protection begins and
ends with installation of new technology. What
responsibility does new technology place upon bank as a
deployer?
We must understand that technology is only a means to
effectuate the intent behind privacy laws! Accountability for
data protection actually rests with the deployers of
technology rather than technology providers.
Data protection laws are typically addressed to responsible
users (banks) of technology or ‘data controllers’ as they are
often referred to.
Having an internal privacy compliance framework is a
mandatory regulatory requirement to ensure that financial
institutions are providing increased protection to consumer
information in their technology databases.
In spite of preparedness there is always the probability of a
privacy breach. What should be an organisation’s approach
in such an event of privacy breach?
Privacy breach calls for a privacy breach protocol. Once a
privacy breach is detected, the front-line staff should
internally report it to senior authorities as early as possible.
After initial firefighting, root cause analysis should be
undertaken in order to plug the gap that resulted in such a
breach. Notification of the breach to impacted customers
and regulatory reporting on actions taken are the other steps
needed to handle privacy breach.
The lessons of a privacy breach incident should be
immediately fed into the organisation’s control framework to
ensure prevention of such instances in future.
Keeping in view the current financial scenario, how do you
see privacy initiatives surviving the budget scalpels everyone
else is facing?
Privacy protection is based on the cognisance that personal
information is a strategic asset and hence it needs to be
managed from a more strategically central and relevant place
in the corporation to optimise its value.
In the present and highly commercial consumer age,
personal information coupled with rational budget spends
has become a precious commodity especially when many
financial institutions’ business models thrive on utility of
such personal information. Senior management can
therefore no longer view data privacy and security as remote
risk that can be put off for a better day!
 PERSPECTIVE
Islamic
Insurance
in the
Middle East
Takaful has recorded significant growth
and is all set to grow further.
According to estimates by the National
Insurance Academy, the global Takaful industry
has been growing at 20 per cent compounded
annual growth rate, with 2008 global Takaful
premiums standing at $7.29 billion, and the
market share of Takaful within the Middle East
at 30 per cent, i.e. around $ 4.6 billion.
Takaful is derived from an Arabic word which
means solidarity where a group of participants
agree amongst themselves to support one
another jointly against a defined loss. It is
based on the principles of Ta-awun (mutual
assistance) that is Tabarru (voluntary).
In a sense, Takaful is similar to conventional
co-operative insurance where participants pool
their funds together to insure one another.
The emergence of Takaful has its roots in the non-
compliance of conventional insurance products to Shari’a
principles which has caused an inherent lag in the acceptance
of conventional products in the Middle East . Shari’a
principles prohibit the support of models that adopt
elements of Maysir (excessive risk taking), Gharar
(uncertainty, unclear terms in contracts, gambling), Riba
(interest)and haram (non-ethical businesses such as
gambling & pornography and prohibited items such as pork
& alcohol).
Thus, Shari’a compliant products based on the principles of
Ta-awun and Tabarru have given tremendous impetus to the
Middle East insurance market, which is arguably the largest
single potential market for Takaful globally.
Overcoming Regulatory Issues
The operation of Takaful models, vis-a-vis its conventional
counterpart, has several implications on the regulatory
aspects of Takaful. Some of these include:

Effective Shari’s governance: The setting up of a
Shari’a board is required from a supervisory perspective.
This is because the insurer is responsible for ensuring
that all aspects of the business are conducted under the
principles of the Shari’a, and would require the insurer to
present its compliance to the same on a regular basis.

Capital adequacy norms and disclosure: There is a
difference in the risk profile between both types of
(conventional and Takaful) life insurance. Family Takaful
17

(the Islamic counterpart of life insurance) is based on a
defined contribution whereas conventional life insurance
is based on a defined benefit that is paid out upon
maturity, surrender or death. Hence there are
implications for capital adequacy and disclosure to
consumers. In case of a deficit in the Takaful fund, there
is no norm that advises how this deficit is to be covered
i.e. whether it would be taken from investor accounts or
through a loan taken by the insurer.

Profit-sharing standards: Determination of the
method of calculation of shares of profit/surplus to
each investor. There is no set standard on this but it is
being followed differently by different insurers.
Except for a few common regulations, those governing the
conventional insurance industry globally issued by
International Association of Insurance Supervisors (IAIS)
do not apply to the Takaful industry. The Islamic
counterpart of IAIS is the Islamic Financial Services Board
(IFSB) that was set up to provide global standards and
guiding principles for the Islamic financial services industry.
In December 2008, the IFSB came up with an exposure
draft on Guiding Principles on Governance for Takaful
Operations which complemented the principles already
existing in the conventional insurance industry.
The principles set out by IFSB encompass three points:

Ensuring good governance practices for Takaful-related
products
 Increase awareness about good governance practices
for ensuring the interests of the public.
 Provision of relevant guidance and important
options to ensure appropriate corporate governance.

Safeguarding the interests of all stakeholders
 Design a good governance structure to safeguard the
interests of all stakeholders
 Nurture an environment which can make available
large, adequate information based on the substance
and relevance of the information.

Setting up of a more comprehensive prudential
framework for Takaful undertakings
 Provision for other relevant standards in the future
 Ensure sustainability of Takaful undertakings with
sound risk management and solvency
Although these principles are very basic, their
implementation will lay a foundation for the future evolution
of the Takaful regulatory space and will play the role of a
driver for the Takaful industry.
Distribution Channels
The most popularly used channel in the Middle East is direct
sales with the major contributors of the Takaful fund being
18
PERSPECTIVE
shareholders themselves. Other commonly used channels
are brokers, agents and banks to a certain extent. With
brokers focused typically on high value customers, there is a
need to have a well-trained force of sales agents as Takaful
products are more complex than conventional ones. Also,
though BancaTakaful is currently lower in the pecking order
of channels, its popularity is increasing rapidly and is poised
to become an important channel for the Takaful industry,
especially as products get progressively simple and
standardised.
Developments Within Key Takaful Markets
Bahrain

The International Takaful Association is being formed
and is expected to play an important role in the
promotion of the Takaful industry, increase cooperation
between members and increase the level of education
and awareness of the public about Takaful products.

One of the responsibilities of the Bahrain-based
Accounting and Auditing Organisation for Islamic
Financial Institutions (AAOIFI) is the development of
standards for Takaful.

The issuance of an insurance rule book, in 2005, was
done by the Bahrain Insurance Association, which was
responsible for developing this sector.

Bahrain’s insurance legal framework is one of the most
established ones in the region, which was confirmed by
the Financial Sector Assessment Program (FSAP), a
joint venture between IMF and the World Bank.
Saudi Arabia

The Cooperative Insurance Companies Law that came
into force in 2003 required all insurance companies to
operate under the Shari’a compliant model.

The legal framework in the country is in its nascent stage
and has a long way to go in terms of design and
implementation.

The region is in a transitory phase where the
implementation of the licensing process is ongoing.
United Arab Emirates

The existence of a dual court system that includes a
Shari’a court (responsible for family and religious
matters) and a new insurance commission (responsible
for setting up standards and policies).

Mandatory pre-conditions are required to offer Takaful
products such as:
- Specification of products and contracts.
- Clarity and complete understanding of the
implementation process.
- The appointment of a Shari’a supervisory board.
- Practice of risk management related to Shari’a activity.
- Setting up of sound accounting, auditing and
regulatory standards.
 PERSPECTIVE
Takaful Models
Differences between regulation of conventional
insurance products and Takaful products lies within the
structure of the different Takaful models which are
formed so as to ensure Shari’a compliance.
There are four primary models:

Mudharaba: In this model there are two parties in
contract - the Takaful operator (TO) and the capital
providers.
The TO is responsible for the management of the
Takaful investments made by the capital providers.
The TO brings to the table a set of business skills
which he uses for managing the fund. When there is
a profit, it is shared between the TO and the capital
investors in a pre-decided manner.
This model is commonly used in the Asia Pacific
region and is typically used for family (life) Takaful
products. The Mudharaba model is popularly used for
investment purposes.

Wakala: Here the TO company is distinguished from
the capital providers and the TO is paid a
predetermined fee which is deducted from the
contributions made by the capital providers. This fee
is related to the level of performance so as to entice
the operator into performing better. The surplus
belongs to the capital providers and the operator
does not have a share in it.
This model is widely used in the ME and is popularly
used for the risk-sharing/underwriting aspects of
Takaful.

Hybrid: A combination of Mudharaba and Wakala
models, this involves the payment of a fixed
proportional fee (off the total contribution) as well as
a part of the profits to the TO.
This model has adopted the strengths of both models
by using the Mudharaba model for investment
activities of the Takaful fund and the Wakala model
for underwriting activities.

Waqf: In this model the operations are based on non-
profit where the contributions are 100% provided by
investors who are willing to contribute to the less
fortunate of the society.
This operates as a public foundation. In this case the
fund does not belong to any one person and profits or
surplus are not distributed to the contributors.

The Dubai International Financial Centre (DIFC) has
further contributed to the development of Takaful.
Key Drivers for Takaful in the Middle East
Apart from the fact that the market is currently under-
insured, there are other systemic factors which will drive
growth of Takaful in the Middle East:
Mandatory Classes of Insurance: Mandatory insurance
for automotive and health in the region will act as a major
driver for the demand for Takaful products in the region.
This will drive the growth of the retail Takaful market.
Favourable Demographics: The demographics of the
population in the Middle East is very favourable for growth
of insurance, especially as a large part of the population is
young, leading to short-term demand for life insurance and
medium-to-long term demand for other classes of
insurance. The population is also growing at a significantly
high rate.
Privatisation Initiatives of Government Pensions and
Programs: The shrinking role of the state in providing
pensions will increase the demand for life insurance within
the region.
Economic Impact of the Crisis: The global economic
crisis being faced across geographies today can be principally
attributed to excessive risk taking, greed and unethical
practices. Takaful insurance companies and Islamic financial
institutions would steer away from these practices by
definition and would see a surge in even the non-Muslim
members placing their confidence on financial institutions
founded on ethical principles.
Conclusion
There is no doubt that the Takaful industry will grow further
in the Middle East, especially given that the insurance
market is still under-developed in the region. Despite a
current lull in economic conditions, the long-term economic
outlook for the Middle East insurance industry continues to
be positive. In addition to favourable demographics, there
has been significant growth in the number of companies
that have set up Takaful operations over the last few years.
Many of the new market participants are equipped with
global best practices and are well capitalised. Thus, the new
entrants are expected to spur competition while at the same
time increasing Takaful acceptance and awareness.
Takaful today is widely regarded as an innovation in the
insurance industry. While Takaful lends itself very well to
personal lines of business, the corporate risk market is much
more complex. We believe that the next round of innovation
will come from large-scale risk coverage for large businesses,
especially those which are funded by Islamic banks.
19

Bancassurance has grown to become one of
the largest distribution channels for insurance
companies across the globe. Earlier,
bancassurance activities were handled
manually under one roof by a few players with
a limited clientele and geographic coverage.
However, with competitive pressure on
productivity, efficiency and customer service
standards rising, bancassurance providers
have increased their adoption of technology,
and now consider it a key business driver.
The alignment and integration of various
processes have resulted in connecting the
banks’ network and have helped them
significantly to achieve seamless integration
with insurers’ systems and processes. The
adoption of integrated technology has led
banks to achieve improved efficiency by way of
decreased operational costs, decreased turn
around time, increased revenue, scalability,
integrated and aligned business processes
resulting in creation of true value for
stakeholders.
20
SOLUTION SPOTLIGHT
AGILIS
Bancassurance
Banks consider technology to be a key
business driver.
Companies active in strategic Bancassurance partnerships
continue to seek technology which can provide the
necessary fuel to enhance agility in adopting, integrating and
implementing change. Technology that can provide all this
without locking-in companies in heavy investments is clearly
the way to move forward.
AGILIS Bancassurance is a comprehensive solution for
banks that sell insurance products, both life and non-life, to
their clients. AGILIS Bancassurance manages the bank’s
entire insurance broking back-office operations, leaving its
staff to focus on procuring more business and spending
more time in the front office.
The product is capable of handling:

Life

Motor

Health (including medical and travel)

Property and Fire

Marine, Mortgage and Engineering
Functionally rich, the product integrates with insurance
companies’ systems seamlessly and also allows for greater
accuracy while providing speedy transactions, leading to
improved customer satisfaction.
Every bank providing bancassurance looks for a system that:

caters to all classes of insurance

is specifically created for the bancassurance industry

enables cross selling and up selling to existing bank
 SOLUTION SPOTLIGHT
customers

reduces paperwork to a large extent

has built-in reports that offer intelligent and meaningful
reporting to various hierarchies in the Organisation

is flexible and can be customised easily and quickly
Given the fact that financial services operate in a highly
competitive and regulated environment, Agile FT brings to
the table sound domain expertise and significant scalable
processing capabilities in the knowledge services space.
In addition, Agile FT helps clients define products, align
them to organisational goals, build flexible and scalable
systems and processes and deliver service levels at an
optimum cost.
Platform enabled outsourcing is emerging as the definitive
model for many banks as they strive to lower operational
costs to ensure a high return on investment. This can be
defined as the ability of an outsourcing vendor to provide its
services around functionality rich application software
platforms that are used for fulfilment and dissemination.
Platform enabled outsourcing is likely to experience
tremendous uptake in the coming months, especially in the
wake of the current liquidity crisis. Financial institutions
should, therefore, take advantage of the benefits that can be
sought from this model in order to stay ahead of the
competition and drive innovation.
Features
AGILIS Bancassurance allows creation and maintenance of
comprehensive profiles of clients as well as Insurance
companies/ branches. It is geared to manage a bank’s
insurance business ranging from assigning revenue targets to
its channels to tracking incentive earned by the sales staff
and ultimately total commissions earned by the bank.
The system allows business transactions to be recorded
from the bank’s branch offices with built-in secure and
controlled access rights.
Client Management
The system allows creation of individual and corporate
clients and captures the relevant personal and official details,
including a facility to attach corporate clients to a group
company. It assists bank staff to capture the essential
underwriting details required to generate a proposal. Mass
mailing and policy reminder facilities are available to remind
customers about upcoming renewals well before the expiry
date.
Insurance Company Management
This module enables the bank to create insurance company
profiles including the attachment of specific products to
each insurance company.
It also provides the facility to import policies directly by
interfacing with the insurance companies’ database as well as
to compare different insurance products from various
insurance companies across multiple parameters.
Reconciliation
The system effectively allows for the reconciliation of
proposal data with the issued policy data between the bank
and the insurance company. This ensures that there is no
gap, and that the insurance company has processed all the
proposals that have been generated by the bank.
Sales Management
This module allows the definition of business sources such
as bank employees, brokers, consultants and tele-marketers.
It also enables the definition and monitoring of targets and
remuneration for each source of business and supports the
management on finding out the most productive and
profitable source.
Commission and Brokerage
The system offers a commission and brokerage calculation
module that can be parameterised.
Sales commission, incentives, brokerage and consulting fees
can be calculated either as a percentage or on a fixed fee
basis for all sources of business.
Processing Renewals
This module enables the issue of renewal notices to clients
well in time before the renewals are due. It also allows for
endorsements with or without change of premium.
In addition to the front end staff using it, this functionality
is also useful for back office bank employees to calculate
commissions and charges with the insurance company.
Administering Users
AGILIS Bancassurance allows for robust and multi-layered
administration of users through a centralised console. Every
member of the bancassurance staff in the bank has a login
id to the system and access to the system is defined based on
his function, role and status in the organisation.
Generating MIS reports
AGILIS Bancassurance has the ability to generate a variety
of reports that are required by different layers of
management from time to time, with granularity of detail
possible upto a single transaction level.
21

RPC Data Ltd (www.rpcdata.com)
RPC Data Ltd, the largest integrated
information technology services company in
Botswana, specialises in software
development, management consulting and
systems integration. The company is the only
IT firm listed on the Botswana Stock Exchange
since 1999. RPC Data also has operations in
Zambia, Uganda, Kenya and an offshore
development centre in India.
One of the oldest Oracle Partners in Africa,
RPC Data has implemented and supported
systems at most of the large public and private
sector enterprises in Botswana and the Sub-
Saharan region servicing industry verticals
such as banking and financial services,
manufacturing and defence.
The company specialises in its systems
integration practice, project managing
installations that involve multiple vendors and
suppliers of specialist skills not easily available
in the region.
22
PARTNER SPOTLIGHT
Expansion in
Sub-Saharan
Africa
A profile of RPC Data Ltd, Agile FT’s
business partner for Sub-Saharan Africa
RPC Data has also built and supported a number of
bespoke applications that meet unique application
requirements in the public sector such as taxation systems,
registration systems, management systems; and in the private
sector such as telecommunication management systems and
financial services industry systems.
RPC Data’s management believes that in the medium term
the upward trend for local software development will be
maintained and that the company is in a strong position to
capture significant market share. Mompati Nwako, the
Executive Director of RPC Data group notes that, by
partnering with Agile FT, RPC will be able to strategically
service the Insurance and Financial sector in Africa.
This relationship is a demonstration of Agile FT’s intent to
create a sustainable and strong support base for its clients in
Africa’s BFSI sector.
Agile FT was recently chosen by Zimbabwe’s Optimal
Insurance Company (Pvt) Ltd, a subsidiary of one of
Zimbabwe’s largest and diversified financial services
institution - CBZ Holdings Limited - to implement AGILIS
Core Insurance Software. The new system, whose
implementation is scheduled to complete shortly, will allow
Optimal Insurance to not only automate all its existing
operations but also enable them to quickly create new
insurance products thereby reducing time-to-market.
Both RPC and Agile FT hope to replicate the successful
implementation in Zimbabwe with similar projects in the
BFSI sector in sub-Saharan Africa.
 www.agile-ft.com

Agile Financial Technologies Pvt Ltd Agile Financial Technologies Agile Financial Technologies Pte Ltd
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Views expressed in this publication do not necessarily represent the views of Agile FT and the information contained herein is only a brief synopsis of the issues discussed herein. Agile FT makes
no representation as regards the accuracy and completeness of the information contained herein and the same should not be construed as legal, business or technology advice. Agile FT, the authors and
publishers, shall not be responsible for any loss or damage caused to any person on account of errors or omissions.