A New Takaful Approach for Social Justice by Dr. Levent S. Mer

The executive summary presents a new Takaful model focusing on social justice and income-sharing with policyholders. It highlights the growth potential of the Takaful market globally and in Turkey, emphasizing the need for Sharia-compliant investments and professional fund management. The document also discusses the current status of Islamic finance in Turkey and the governmental support for Takaful initiatives.

• Takaful
• Social Justice
• Islamic Finance
• Turkey
• Sharia-Compliant

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1. A New Takaful Approach for A New Takaful Approach for Social Justice Social Justice Dr. Levent S MER Chairman November 10, 2021

2. Executive Summary Content Content The Size of Insurance & Takaful Markets Proposed Model Dr. Levent S mer 2

3. Executive Summary Content Content The Size of Insurance & Takaful Markets Proposed Model Dr. Levent S mer 3

4. Executive Summary The size of Islamic Finance is growing fastly Takaful market holds only 2% of the total Islamic Finance The percentage of Takaful Market in the global insurance industry is < 1% There is a great potential in Takaful Market both in the World and Turkey The regulations about Takaful in Turkey is currently updated There is a strong governmental support in Turkey Dr. Levent S mer 4

5. Executive Summary A new Takaful Model is proposed Sharing the income with policy holders from the first year Options for Karz- Hasen or Sadaka Professional fund management Directing the premiums to Sharia-Compliant Investments A great investment opportunity including the non-Muslims Dr. Levent S mer 5

6. Executive Summary Content Content The Size of Insurance & Takaful Markets Proposed Model Dr. Levent S mer 6

7. The Size of Insurance Market Gross Premiums in trillions USD (Statista, BusinessWire, 2020) 8 6.84 7 5.945.81 6 5.215.34 5.3 4.87 4.95 4.84 4.61 4.68 4.57 4.54 5 4.26 4.32 3.98 3.78 4 3.56 3.22 2.75 3 2.51 2.45 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (Est.) 2023 (Est.)

8. Average Real Net Investment Returns (%) Countries Australia Bolivia Brazil Chile Colombia Costa Rica Czech Republic Indonesia Latvia Lithuania New Zealand Russia Slovenia Spain Sri Lanka Sweden Switzerland Turkey United States Uruguay Life Non-Life Composite 11,5 1,8 -3,7 5,0 5,2 3,0 1,6 3,3 3,1 4,1 3,5 -1,8 3,0 -0,3 -1,4 4,4 -0,7 -0,5 0,6 3,0 6,7 6,9 1,4 0,8 -2,0 -2,6 4,1 -0,5 1,8 10,1 0,0 8,4 -3,8 0,1 2,3 -1,2 4,0 -2,6 1,3 3,6 4,9 3,0 1,9 1,8 Source: OECD, 2020 Dr. Levent S mer 8 1,5

9. Asset Allocations CIS (when look-through unavailable) Bills and bonds Cash and deposits Equity Others Uruguay Hungary Mexico Brazil Slovak Republic Greece Spain Colombia Portugal Lithuania Latvia 88,2 83,7 83,2 82,5 82,4 82,0 81,0 79,5 79,5 79,0 78,3 0,2 1,6 6,7 13,9 0,1 5,6 6,7 10,1 8,9 11,0 4,7 0,8 1,0 0,0 6,7 0,6 3,2 9,4 2,6 16,8 5,7 5,7 5,7 4,9 14,8 7,0 .. .. .. 0,6 6,7 6,6 4,7 6,7 6,2 11,9 .. .. .. .. .. .. .. 2,9 Dr. Levent S mer 9 Source: OECD, 2020

10. Asset Allocations CIS (when look- through unavailable) Cash and deposits Bills and bonds Equity Others Costa Rica Estonia Slovenia India Australia Paraguay Italy Norway Belgium Czech Republic Germany Bolivia Poland Sri Lanka Israel Austria United States Singapore 76,9 76,4 76,0 75,9 74,8 74,4 74,3 73,1 71,4 70,6 70,5 69,9 69,6 65,4 62,9 62,5 62,4 61,9 3,6 0,2 14,1 18,5 10,2 1,9 9,1 21,5 6,5 14,1 12,8 0,9 21,9 7,4 5,2 16,4 6,3 18,0 3,4 1,3 10,4 18,3 .. 13,2 1,4 6,5 3,3 4,6 5,4 2,3 4,2 19,4 9,4 15,0 24,4 4,9 9,5 24,2 17,7 20,5 4,4 4,1 .. 1,0 .. .. .. 14,3 1,2 2,7 5,9 1,8 4,8 3,6 17,7 7,7 3,3 3,9 4,5 .. .. .. .. .. .. .. .. .. .. Dr. Levent S mer 13,2 12,5 10 Source: OECD, 2020 16,7

11. Asset Allocations CIS (when look- through unavailable) Cash and deposits Bills and bonds Equity Others United Kingdom Guatemala Chile New Zealand Netherlands Iceland Argentina Switzerland Russia Finland Luxembourg Sweden Denmark Turkey Indonesia Honduras 57,1 56,9 56,4 56,0 53,1 48,5 47,1 47,0 44,4 41,7 37,9 34,2 34,1 29,5 22,2 6,0 4,3 1,8 8,6 3,6 3,0 20,5 6,3 6,9 6,1 13,3 4,4 38,5 42,3 3,6 29,1 63,2 18,7 24,2 4,7 13,0 3,9 0,5 2,1 4,5 22,3 13,6 4,6 2,4 3,5 64,0 13,6 9,0 .. .. .. 19,9 17,1 30,2 0,6 33,1 10,1 14,7 41,6 27,1 12,5 53,1 12,0 14,8 0,0 3,6 21,9 26,8 6,9 20,4 29,8 .. 0,2 18,9 .. 12,9 5,3 2,9 31,5 .. Dr. Levent S mer 11 Source: OECD, 2020

12. The Size of Takaful Market Source: ICD-Refinitiv, 2019 Dr. Levent S mer 12

13. Timeline Timeline & Market & Market Shares Shares of of Takaful Takaful Timeline Market Share Market Share 15% 1979: Sudan 1980: UAE 1983: Saudi Arabia 1989: Bahrain 1995: Qatar 38% 6% 7% 34% Saudi Arabia Iran Malaysia UAE Others Source: IFSB, 2018 Dr. Levent S mer 13

14. Insurance Market in Turkey Size of the Industry Non-Life Life Total Total Premium (End of 2019) - Billion TL 57,9 11,4 69,3 Total Premium (End of October 2020) - Billion TL 52,5 12,2 64,7 Number of Companies (Inc. Pension and reassurance) 38 22 63 Total Damages Paid (End of 2019) - Billion TL 35,9 3,6 39,5 Damage/Premium (End of 2019) 70,20% 33% 63,60% Source: TSB, 2020 Dr. Levent S mer 14

15. Takaful Market in Turkey Total Premium: 3,44 billion TL (end of 2019) (non-life 94%, life: 6%) Total Premium: 3,41 billion TL (end of October 2020) Total share in the insurance market: 5% 12 companies (4 full takaful companies, 8 opeate as window under conventional insurance) Source: TSB, 2020 Dr. Levent S mer 15

16. Executive Summary Content Content The Size of Insurance & Takaful Markets Proposed Model Dr. Levent S mer 16

17. The New Takaful Model Modified Modified Hybrid Hybrid Model Model The policyholders (participants) sign a contract with the takaful company and contribute to the policyholders fund. Each participant has a minimum contribution limit that covers the potential damages. The claims for each participant are paid from his/her contribution. The takaful operator is paid a management fee. After the claims and management fees are paid, if there is any surplus from the participant s contribution, the participants chose one of the three options: donating the remaining part (sadaka), giving an interest-free loan to those who have deficits (qarz- hasen) or direct it to Sharia-compliant investments. There is also an option for paying a success fee to the takaful operator. Dr. Levent S mer 17

18. Participants The New Takaful Model Modified Hybrid Modified Hybrid Model Model Claim Request/Payment Contributions Policyholder's Fund Insurance Company/Operator Investors Claim Request/Payment Management Fee Invest Donate Give Qarz- Islamic Hasen/Interest FreeLoan Donations/Sadaka Investments/Funds Invest VCIF, REIF, Sukuk, Islamic REIT, Direct RE Dr. Levent S mer 18

19. The New Takaful Model Modified Modified Hybrid Hybrid Model Model The new model developed works like a pension fund mechanism, but the main difference is that, instead of waiting until the retirement age to get a monthly income through pension fund, the damages are paid from the yearly contributions of the participants and the surplus are directed to donation, interest-free loan or Sharia-compliant investments such as venture capital investment funds, sukuk, real estate investment funds, Islamic real estate investment trusts, direct real estate, etc. This new model also creates an investment ecosystem where other Islamic tools are also included. The takaful operator who manages the process works as a professional fund management company. The model developed can be applied for any type of insurance including health, life, car, home, construction, professional indemnity, travel, traffic, transportation, fire, machinery and equipment, etc. While the right side of the model stresses more on the humanitarian part, the left side is focused on increasing the returns of the contributions of the participants. Dr. Levent S mer 19

20. Dr. Levent SMER, PMP, MRICS levent.sumer@smrstrategy.com THANK YOU