I have been approached by few potential investors to explore on the possibility to setup new takaful company in certain countries. I always ask myself what is a simple yardstick to determine whether the investment to setup a new takaful company is really worthwhile or gives a reasonable ROI. Thus, I had formulated a simple formula to derive a simple result which can help to determine on a crude basis as follows:
TEP = {M x (1 - p%)} / (N + 1)
where,
TEP - Takaful Economic Potential
M - Total Moslem population in the desired country
p% - poverty rate of the desired country
N - existing Takaful operators in the desired country
Thus, High economic value for takaful if
TEP > 1 mil - for normal insurance/takaful market
TEP > 0.5 mil - for advance/matured market
For example,
Let's choose Nigeria as desired country therefore,
M = 75,728,000
p% = 47.9%
N = 1 (yet to be verified)
Thus, TED > 19 mil.
Therefore, Nigeria provides a huge market potential for takaful and it is strongly recommended for potential investors not to miss this golden opportunities. It means that there is easily 19 mil potential customers ready on average per takaful operator upon entrance of a new one to be penetrated. If success rate is say 1% (due to startup company in first year), avg case size is 1200 (annualised), this will lead to about 237 mil (local currency). Subsequently, when the infrastructure is in place and competitive products available with effective distribution channels, success rate may easily increase to 5% which will lead to an annuliased contribution of about 1.2 billion (local currency). These simple statistics should lure potential investors to pool their capital into this industry as soon as possible.
