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1. Background

1.2 Takaful Mikro Indonesia

In 2005, the Yayasan Peramu formed a Working Group comprised of experts in Islamic insurance, microfinance, and accounting: Agus Haryadi, Amin Musa, and Andi Ihsan Arkam. In October 2005, the group undertook a desktop study of microinsurance case studies and experiences from around the world. By then, some of the MFI institutions under the Peramu umbrella were already sourcing insurance services to cover their members and staff with varied results. The concept of Takaful Mikro Indonesia (Takmin) emerged and the Takmin Working Group (Takmin WG), as it was named, prepared a proposal for funding of a microinsurance pilot for Oxfam-Novib to complement a larger development project submitted by Peramu. After an appraisal by Oxfam's Indonesianbased office, the proposal was accepted and became project number IDO 501559-0005248.

Although the project period was initially scheduled for July 2006 - June 2008, some of the activities were late in getting underway because initial funding arrived only in September 2006.

In the early years Peramu directly supported its target beneficiary groups. Later, to ensure long term sustainability of providing support services, it decided to shift focus to the development of independent intermediary organizations that would work directly with these groups.

Figure 1.4 : Takmin Working Group

Takmin Working Group

Most of the literature that the TWG had studied was with respect to conventional microinsurance as there was little information available on micro takaful at the time. The Takmin WG were committed to develop micro takaful and created a vision "To uplift welfare of low income households (men, women and children) through micro takaful development." The vision and mission are analyzed in section 4.

Figure 1.5 : Steps in the early stages of the microinsurance project

Figur 5

Figure 1.5 summarizes the main early stages of the program. First year activities were reported in the first year project report6 but are included here in brief for completeness. Most of the information is directly from that report.

1.2.1 Initial setup

The setup phase included these activities:

  1. Desk study of materials downloaded from internet
  2. Introduction of microinsurance to MFIs and others institutions (such as insurance companies and MFIs) and personnel expected to support development of microinsurance (like insurance experts and professional members of National Syari’ah Council, etc). Takmin decided not to introduce the program to the local government until the pilot project had been launched.

The selection of an insurer was also an early activity :

  • First, Takmin WG aimed to identify all insurance companies in Indonesia adopting a takaful system and with intention to develop microinsurance. Two life insurance companies and two general insurance companies were identified
  • Takmin WG personnel contacted Top Management of the identified companies and shared their ideas and vision on microinsurance, receiving positive responses
  • Takmin WG analyzed company profiles and Management responses and made a decision to partner with PT-ATK

Initial setup activities ended with a 5-day training and workshop facilitated by Mr. Toon Bullens (from MIAN) in Bogor and attended by Takmin WG, Board/Management of MFIs, and the rest of the project team. It covered the philosophy of insurance, opportunity and capacity of MFI in microinsurance, products, and communication strategies.

1.2.2 Preparation for launch

After the workshop, the following activities were undertaken :

  • Partnership with the insurer - a series of negotiations culminated in a Memorandum of Agreement between ATK, ATU and Peramu
  • Market research/survey - A survey covering ten MFIs in Bogor was conducted to identify their problems and insurance needs at the levels of MFI and customers (six of them already had insurance from PT-ATK or other insurance companies). The survey found the following :
    • All of them confirmed that credit life was important
    • The MFIs that had insurance stated that the main problems they faced is poor service, lengthy claims payment, and improper data collection
    • Those without insurance were critical of the extra cost to their clients
    • All expected that the program would improve over the experience with insurers if it were managed by Takmin as agent or broker
    • Some BPRS suggested that TAKMIN would launch an Education Saving Plan with Insurance Coverage (Endowment Insurance) product for MFIs customers
  • Product design - This process was undertaken by Takmin WG acting as a representative for MFIs with a working group of PT-ATK. The results of this 6-month process (June-Nov 2006) was delivered to the MFIs and discussed with Mr. Toon Bullens during the 5-days workshop in Bogor. At the end, some revisions were made to further simplify the product
  • Institutional preparation - During this first year, Takmin WG conducted a series of activities for institutional preparation as follows :
    • Set up an agency : An individual agent was the simplest to set up under the regulations, with official certification from the insurance company (therefore restricted to only that insurance company). The agent's main function is to sell insurance products, however, in reality, Takmin today plays the role of a broker who not only sells but also designs and services the products
    • Human resource preparation : At the MFI level, management and operational staff were trained to promote and provide direct services for customers/members. Agency staff was also trained. Takmin WG developed the modules and facilitated the trainings covering Philosophy of Insurance and Microinsurance Systems, Product Information on Insurance and Takaful Mikro Sakinah, Administration & Communication Techniques of Takaful Mikro Sakinah. A total of 31 people from 20 MFIs around Bogor (20 male, 11 female) attended three training sessions from December 2006 to February 2007
    • Standard operational procedure (SOP) was set up : information systems were set up to implement detailed tasks / responsibilities of involved parties (MFIs, Takmin Agency and PT-ATK) by an expert team from PT-ATK. The completion of SOP and IT system took place during the pilot testing period and into the second year. Generally, this SOP/IT consists of: (1) intranet and internet, (2) business processes between MFIs, Takmin, PT-ATK, and (3) Takmin application system as an agent. Takmin also launched a website (www.takmin.org) with the purpose of disseminating information on Takmin and its activities
    • Setting up the Takmin office : Working facilities were rented and office furniture procured

1.2.3 Pilot testing

Due to limited resources, pilot testing was delayed. When it was finally completed in October 2007, 11 MFIs with 3,980 participants had taken took part. During this time, the SOP and IT systems were fine tuned, training modules completed, etc.

Pilot testing sought to answer the following main questions :

  • Has the product been properly understood by LKMS/MFIs, its benefits, premium (expensive or not), claim procedures (simple or not)?
  • What are obstacles faced by LKMS/MFIs in explaining this product to customers?
  • What are administrative problems aroused when presenting the report and claim and at which level? (MFIs, Takmin Agency or at the insurer)?
  • Is the time limit for report submission, premium payment and claim disbursement reasonable?

For evaluation of the pilot testing, a local research team assisted Takmin WG. The qualitative approach showed that the product was on the right track and almost fulfilled customers’ needs and expectations. Some improvements were still required to make the product better fit customers’ expectations. Testing also showed that improvements were needed to perfect the business processes, socialization and training, monthly reporting format, claims, and others.

1.2.4 Wider rollout and evaluation

After the pilot test and evaluation, the Takaful Mikro Sakinah product was finalized and the processes and systems improved. A wider rollout has now been conducted. The experience and performance to date is described in section 3.