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Investment Management

Outlook Middle East and Africa

Increasing Market Share

for Apollo DKV

Islamic Insurance

in the Middle East

AgileFINANCIAL TIMES

May

2009

AARRTTIICCLLEE

The Aftermath of the

Economic Crisis

Greetings!

In our quest to serve those who conserve capitaland grow wealth, we are pleased to provide ourviews on the investment and wealth managementoutlook in the Middle East & Africa and aperspective on Takaful Insurance in the MiddleEast.

As I write, we are at the Annual BancAssuranceConference in Vienna, Austria to exchange viewswith industry leaders on this growing channel. Agile FT is sponsoring theConference and presenting a paper on ‘Making BancAssurance Agile’!What is most exciting about BancAssurance is how it brings bankers andinsurers together and this assembly is truly a meeting of minds as all sidesunanimously agree on the role of technology as a key enabler. Our AGILISBancAssurance platform is being so well received that we decided tofeature the same in this month’s Solution Spotlight.

We are passionate about innovation and feel a sense of great pride whenour clients use our technology to innovate a business model. Apollo-DKVHealth Insurance Company shares its experience on the use of Agilis andhow they were able to leverage technology to increase their sales throughportals like MakeMyTrip.com.

We invite you to read Vikas Tandon’s perspective on Customer Privacy inthe face of increasing Anti-Money Laundering scrutiny. Vikas Tandon is theJoint General Manager and Money Laundering Reporting Officer at ICICIBank.

A new and exciting addition this month is a contribution from our Chairman,Andrew Krieger, a well known luminary from the financial world. He sharesan insider’s view on the aftermath of the economic crisis. You will get asense of déjà vu as we are taken down memory lane right from the GreatDepression and are told that a cheery investment outlook awaits us in thenear future.

We hope that you enjoy this edition and continue to write in with yourfeedback. Here’s wishing everybody a great month ahead.

Be Agile!

Shefali KheraChief Marketing OfficerWrite to us at info@agile-ft.com

CONTENTS

Editor’s Note

CUSTOMER SPOTLIGHT

Increasing Market Sharefor Apollo DKV 4

COVER STORY

Investment ManagementOutlook: ME and Africa 7

ARTICLE

The Aftermath of theEconomic Crisis 10

INSIGHT

Customer PrivacyRegulation 15

PERSPECTIVE

Islamic Insurance in theMiddle East 17

SOLUTION SPOTLIGHT

AGILIS Bancassurance 20

PARTNER SPOTLIGHT

Expansion in Sub-Saharan Africa 22

May 2009

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

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

Increasing

Market Share

for Apollo DKV

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.

5

CUSTOMER SPOTLIGHT

KrishnanRamachandran,Chief OperatingOfficer, ApolloDKV, shareshis viewsexclusively withAgile FinancialTimes.

What is your vision for Apollo DKV?

Apollo DKV was licensed by the regulator in August 2007and launched its first product in November 2007 on theretail side. We now offer a bucket of products in areassuch as health, travel and personal accident insurancefor both retail and corporate and our goal is to become ahealth insurer of choice.

At Apollo DKV, our core philosophy is ‘manage health’and our vision is to become a significant player in thehealth insurance industry, with our value propositionbeing the ability to combine health care access anddelivery.

What is the rationale behind the on-line healthinitiative?

Very few insurance companies currently offer on-linehealth insurance with processes automated fromapplication to policy distribution. By providing thisservice, we have actually been able to increase themarket size of the insurance industry as this user-friendlyfacility has roped in many first-time customers, many ofwhom have now made it a practice to purchaseinsurance on-line whenever they travel, which issomething 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 adeep knowledge of the insurance industry. Agile FToffered us a blend of technology and domain expertise

Without AGILIS we would not have been able to enterinto a partnership with MakeMyTrip.com.

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.

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

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.

6

CUSTOMER SPOTLIGHT

“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

7

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

Investment

Management

Outlook

It seems ironical to talk aboutinvestment and wealth

management, when so manymammoth organisations havecollapsed and high net worthindividuals (HNIs) have seentheir net worth eroded in the

span of just a few months.

As we all know, the USdownturn triggered a global

slowdown during the secondhalf of 2007, which quickly

spread to the other developedregions as well. At the same

time, emerging economiescontinued to grow, albeit at a

slower pace.

Middle East and Africa

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,

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

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

8

In the absence of a major

black swan event, the

demand-supply equation is

bound to ensure prosperity

within these regions.

COVER STORY

9

COVER STORY

� 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.

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.

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

The Aftermath

of the

Economic

Crisis

Andrew Krieger

Chairman, Agile Financial Technologies

10

ARTICLE

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

Andrew J. Krieger began hismeteoric rise on Wall Street atSalomon Brothers in 1984,then at Soros FundManagement, after which hemoved to Banker’s Trust in1986. He holds a BA inPhilosophy (Magna CumLaude, Phi Beta Kappa,1978);MBA in Finance from theUniversity of Pennsylvania; andan MA in South Asian Studies.Andrew has authored the book,“The Money Bazaar” in 1992,and has been a contributingColumnist for Forbes andForbes Global. He co-chairsthe Microcredit Summit Councilof Banks and CommercialFinancial Institutions and isFounder CEO of IMGEEmergency Relief Fund andMD of Access CapitalManagement.

11

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

roughly 25% and consumer prices dropped by about 25%. Hardship within the

U.S. was truly horrible, but the impact extended globally. European economies

were weakened for years. The UK economy, for example, didn’t bottom out

until 1932, and the French economy didn’t fully crater until 1935.

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

severe weakness in the banking system - weakness largely due to the fact that

many of these banks were not following sound lending practices and had

speculated too heavily in the 1920’s. As overall confidence collapsed, the banks

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.

In January, February, and March of 1933 (the months leading up to the

inauguration of Franklin D. Roosevelt) the run on the U.S. banks reached

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

people clamored to withdraw their money. Ordinarily they would have accepted

paper money in the form of gold certificates, but people feared that the

government might resort to printing worthless money to meet the massive

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

gold.

In 1933, the U.S. government defined the dollar as being worth precisely 23.22

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,

you could redeem it for roughly 1 troy ounce of gold. Each certificate bore this

solemn statement: “This certifies that there have been deposited in the

ARTICLE

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

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

12

ARTICLE

13

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

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 SheikhSaleh Kamel, Chairman of Al Baraka Banking Group, isheading an alliance to launch the world’s biggest Islamicbank before the end of this year, with an initial publicoffering of $3 billion. The ‘mega bank’ will have an initialcapital of $10 billion through a number of initial publicofferings and private stock options. Al Baraka iscontrolled by Saleh Abdullah Kamel who owns a 28.10percent stake. Saudi conglomerate Dallah Albaraka,founded by Kamel, owns a 42.32 percent stake in thebank. Al Baraka, which has a market capitalisation of$1.46 billion, recently posted full-year net income of $201million.

Overseas Banks in India May Have to Sell Stakes inLocal Units: Overseas banks in India may have to sell atleast a 26 per cent stake in their local subsidiaries andmeet government targets for lending, under proposalsmade by a joint central bank and finance ministry panel.A committee that included Central Bank DeputyGovernor Rakesh Mohan and Economic AffairsSecretary Ashok Chawla released a report stating thatforeign banks should list their subsidiaries on Indianstock exchanges, capping their ownership at 74 per cent,and that overseas lenders should meet targets forlending to farmers in line with local banks. The ReserveBank of India is due to review rules for overseas banksfrom next month. India, which limits the number ofbranches that overseas banks can operate and restrictsinvestments abroad by Indian lenders, has mostlyavoided the write-downs and losses by global financialfirms as the world economy entered a recession. Theglobal credit crisis has helped India’s state-run banks,which account for more than half of the nation’s bankingassets, gain market share as depositors shunned privateand overseas banks. India’s central bank limits the abilityof local lenders to extend credit to high-risk sectors suchas real estate, trading in exotic derivatives andexpanding overseas.

15

INSIGHT

Customer

Privacy

Regulation

In conversation with Vikas Tandon, Joint

General Manager & MLRO, ICICI Bank

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

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.

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-

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

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!

16

INSIGHT

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.

17

PERSPECTIVE

Islamic

Insurance

in the

Middle East

Takaful has recorded significant growth

and is all set to grow further.

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

According to estimates by the NationalInsurance Academy, the global Takaful industryhas been growing at 20 per cent compounded

annual growth rate, with 2008 global Takafulpremiums standing at $7.29 billion, and the

market share of Takaful within the Middle Eastat 30 per cent, i.e. around $ 4.6 billion.

Takaful is derived from an Arabic word whichmeans solidarity where a group of participants

agree amongst themselves to support oneanother jointly against a defined loss. It is

based on the principles of Ta-awun (mutualassistance) that is Tabarru (voluntary).

In a sense, Takaful is similar to conventionalco-operative insurance where participants pool

their funds together to insure one another.

(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

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.

18

PERSPECTIVE

� 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

PERSPECTIVE

Takaful Models

Differences between regulation of conventionalinsurance products and Takaful products lies within thestructure of the different Takaful models which areformed so as to ensure Shari’a compliance.

There are four primary models:

� Mudharaba: In this model there are two parties incontract - the Takaful operator (TO) and the capitalproviders.

The TO is responsible for the management of theTakaful investments made by the capital providers.The TO brings to the table a set of business skillswhich he uses for managing the fund. When there isa profit, it is shared between the TO and the capitalinvestors in a pre-decided manner.

This model is commonly used in the Asia Pacificregion and is typically used for family (life) Takafulproducts. The Mudharaba model is popularly used forinvestment purposes.

� Wakala: Here the TO company is distinguished fromthe capital providers and the TO is paid apredetermined fee which is deducted from thecontributions made by the capital providers. This feeis related to the level of performance so as to enticethe operator into performing better. The surplusbelongs to the capital providers and the operatordoes not have a share in it.

This model is widely used in the ME and is popularlyused for the risk-sharing/underwriting aspects ofTakaful.

� Hybrid: A combination of Mudharaba and Wakalamodels, this involves the payment of a fixedproportional fee (off the total contribution) as well asa part of the profits to the TO.

This model has adopted the strengths of both modelsby using the Mudharaba model for investmentactivities of the Takaful fund and the Wakala modelfor underwriting activities.

� Waqf: In this model the operations are based on non-profit where the contributions are 100% provided byinvestors who are willing to contribute to the lessfortunate of the society.

This operates as a public foundation. In this case thefund does not belong to any one person and profits orsurplus are not distributed to the contributors.

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

Banks consider technology to be a key

business driver.

20

Bancassurance has grown to become one ofthe largest distribution channels for insurance

companies across the globe. Earlier,bancassurance activities were handled

manually under one roof by a few players witha limited clientele and geographic coverage.

However, with competitive pressure onproductivity, efficiency and customer service

standards rising, bancassurance providershave increased their adoption of technology,

and now consider it a key business driver.

The alignment and integration of variousprocesses have resulted in connecting the

banks’ network and have helped themsignificantly to achieve seamless integration

with insurers’ systems and processes. Theadoption of integrated technology has led

banks to achieve improved efficiency by way ofdecreased operational costs, decreased turn

around time, increased revenue, scalability,integrated and aligned business processes

resulting in creation of true value forstakeholders.

AGILIS

Bancassurance

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

SOLUTION SPOTLIGHT

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.

22

PARTNER SPOTLIGHT

RPC Data Ltd (www.rpcdata.com)

Expansion in

Sub-Sarahan

Africa

A profile of RPC Data Ltd, Agile FT’s

business partner for Sub-Saharan Africa

RPC Data Ltd, the largest integratedinformation technology services company in

Botswana, specialises in softwaredevelopment, management consulting and

systems integration. The company is the onlyIT firm listed on the Botswana Stock Exchange

since 1999. RPC Data also has operations inZambia, 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 privatesector enterprises in Botswana and the Sub-

Saharan region servicing industry verticalssuch as banking and financial services,

manufacturing and defence.

The company specialises in its systemsintegration practice, project managing

installations that involve multiple vendors andsuppliers of specialist skills not easily available

in the region.

www.agile-ft.com

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.

Agile Financial Technologies

808-A, Business Central Towers

TECOM, Dubai Internet City

P.O. Box 503007

Dubai

United Arab Emirates

Tel: +971-4-4331825

Fax: +971-4-435-5709

Agile Financial Technologies Pvt Ltd

701-A, Prism Towers

Mindspace, Malad (West)

Mumbai 400064

India

Tel : +91-22-42501200

Fax: +91-22-42501234

Agile Financial Technologies Pte Ltd

20 Cecil Street, #14-01

Equity Plaza

Singapore 049705

Tel: +65-64388887

Fax: +65-64382436