PERCEPI10N ON TAKAFUL BUSINESS: A CASE OF SEKOLAH MENENGAH KEBANGSAAN LUNDU

.. Siti Srikuntanti Bt. Mohamad Askar

Corporate Master in Business Administration

2013

Pusat Khidmat Maklumat Akademik UNlVERSm MALAYSIA SARAWAK

~.KHIOMAT MAKLUMAT AKAOEMIK

III II' 1111 rllii~ 111111111 1000246867

PERCEPTION ON TAKAFUL BUSINESS: A CASE OF SEKOLAH MENENGAH KEBANGSAAN LUNDU

Siti Srikuntanti Bt.Mohd. Askar

A thesis submitted In fulfillment of the requirements for the degree of

Corporate Master in Business Administration

Faculty of Economics and Business UNIVERSITI MALAYSIA SARA WAK

2013

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APPROVAL PAGE

I certify that I have supervised and read this study and that in my opinion it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a research paper for the degree of Corporate Master in Business Administration.

Prof. Dr. Shazali Abu Mansor Supervisor

This research paper was submitted to the Faculty of Economics and Business, UNlMAS and is accepted as partial fulfillment of the requirements for the degree of Corporate Master in Business Administration.

Dr. Mohamad Affendy Arif Dean, FEB .. UNlMAS

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DECLARATION AND COPYRIGHT

Name : Siti Srikuntanti Bt. Mohamad Askar

Matric Number : 11-03-1889

I hereby declare that this research is the result of my own investigations, except where otherwise stated. Other sources are acknowledged by footnotes giving explicit references and a bibliography is appended.

Signature

Date

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pusat Khidmat Maklumat Akademik UNlVERSlTI l\WAYSlA SARAWAK

TABLE OF CONTENTS

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PageTitle

Title Page 1

Approval Page 11

Declaration and Copyright Page III

IVTable of Contents

viiiAcknowledgements

IXList of Tables

List of Figures Xl

XllAbstract

XlllAbstrak

1CHAPTER 1 - INTRODUCTION

11.0 Introduction

21.1 Research Background

31.2 Problem Statement

41.3 Research Questions

1.4 Research Objectives 5

1.5 Significance of the Research 6

1.6 Limitation of study 7

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1.7 Definition of Key Concept

1.7.1 Takaful

1.7.2 Perception

1.7.3 Awareness

1.7.4 Shariah

1.7.5 Interest (Riba)

1.7.6 Gambling (Maisir)

1.7.7 Uncertainty (Gharar)

CHAPTER 2 - LITERATURE REVIEW

2.0 Introduction

2.1 Concept of Takaful

2.2 Growth of takaful

2.3 Awareness of takaful

2.4 Diffeences between conventional insurance and takaful

2.5 Summary

CHAPTER 3 - DATA AND METHODOLOGY

3.0 Introduction

3.1 Research Conceptual Framework

3.2 Hypothesis

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3.3 Research Design 24

3.4 Research Site 24

3.5 Samples and Sampling 25

3.6 Instrumentation - Type of Questionnaire 26

3.7 Data Collection Procedures 27

3.8 Data Analysis 28

3.9 Statistical Design 29

3.9.1 Descriptive Statistics - Percentage 29

3.9.2 Pearson Correlation 29

3.9.3 Exploratory Factor Analysis 29

3.10 Summary 29

CHAPTER 4 - FINDING (ANALYSIS AMD EVALUATIONS) 30

4.0 Introduction 30

4.1 Respondent's Demographic Characteristics. (Section A) 31

4.2 Know ledge on Takaful (Section B) 33

4.3 Awareness of Needs and Interest of Takaful (Section C) 40

4.4 Requirements for Saving and Protection Awareness (Section D) 43.' 4.5 Takaful Information Resources (Section E) 45

4.6 Perception of Services Satisfaction (Section F) 47

4.7 Overview of Price Perception (Section G) 49

4.8 Exploratory Factor Analysis (EFA) 53

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4.9 Pearson Correlation Analysis 55

4.10 Summary 56

CHAPTER 5 - CONCLUSIONS AND RECOMMENDATIONS 57

575.0 Conclusions

5.1 Recommendations 59

5.1.1 Distribution Strategy 59

5.1.2 Product Positioning 60

61BIBLIOGRAPHY

APPENDIX

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vii

ACKNOWLEDGEMENTS

First of all, Thank You Allah s.w.t and I would like to express my deepest appreciate and a

special thank to Prof. Dr. Shazali Abu Mansor, my supervisor, who worked well beyond the

call of duty discussing this project with me from its outset, helping me develop many of the

basic features and reading and commenting in detail on all related chapters. Without his

pel'sistent help and guideline this Corporate Business Project would not have been possible.

I would also like to express my special thank to Dr.Muhammad Khalique, who greatly

enriched my knowledge giving invaluable advice, sincere help and cooperation.

The endeavor of creating a research project involves the creative collaboration of many

inc4viduals. Although the extent of my debts cannot be fully acknowledged here, it is

nevertheless a joy to record my gratitude to many people who have helped, some without

realizing just how helpful they were.

I also want to delivered my thankful to my husband (Abang Musa B. Abg Abai ) , my

mother (Hjh.Pon bt.Deris) and all my children (Abang Muhammad Arsyad , Dayang Siti

Aisyah , and Dayang Siti Aqilah) as they have sacrificed a lot of their time together in

giving space for me to complete this research project.

And last but not least, I want to thank those of my lecturers and colleagues of Corporate

Master in Business Administration program, Faculty of Economics and Business for their

direct and indirect support and contribution in mak~ng this research project a reality. I

pray to Allah for a success in any of their future endeavors. Amin.

SITI SRIKUNTANTI BT. MOHAMAD ASKAR

Faculty of Economics and Business

University Malaysia Sarawak

June 2013

viii

LIST OF TABLES

Table 1 Personal Information

Table 2 Respondents' Knowledge on Takaful- takaful definition

Table 3 Respondents' Knowledge on Takaful- principle oftakaful

Table 4 Respondents' Knowledge on Takaful- takaful Arabic word means

Table 5 Respondents' Knowledge on Takaful- aspect assessed on takaful application

Table 6 Respondents' Knowledge on Takaful- roles oftakaful

Table 7 Respondents' Knowledge on Takaful- takaful principle basic

Table 8 Respondents' Knowledge on Takaful- advantages contribute in takaful

Table 9 Respondents' Knowledge on Takaful- differences between takaful and

conventional insurance.

Table 10 Respondents' Knowledge on Takaful ­ meaning of tabarru' concept

Table 11 Respondents' Knowledge on Takaful- privilege oftakaful

Table 12 Awareness of Needs and Interest of Takaful

Table 13 Statistics ­ Awareness of Needs and Interest of Takaful

Table 14 Takaful Information Resources

Table 15 Perception of Services Satisfaction

Table 16 Statistics - Perception of Services Satisfaction

Table 17 Overview of Price Perception

Table 18 Statistics - Overview of Price Perception

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Table 19

Table 20

Table 21

Table 22

Table 23

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Overview of Price Perception - What is the contribution that is

convenient to respondents if they saving :in takaful

KMO and Bartlett's Test

Rotated Component Matrixa

Correlation between Awareness of Needs and Interests of Takaful, and

Perception of Services Satisfaction.

Correlation. between Awareness of Needs and Interests of Takaful, and

Overview of Price Perception.

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LIST OF FIGURES

Figure 1 Saving Type

Figure 2 Saving Purpose

Figure 3 Overview of Price Perception

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ABSTRACT

( This research is done to study the perception on takaful business. This paper aims to

provide the experience and latest progress perception on takaful (Islamic insurance)

industries. Research sample is done at SMK Lundu. The main objective of this

research is to study the teachers, students and non-academic staffs on their

understanding of takaful elements and their awareness on the need and the

importance of takaful Quantitative method is used whereby 100 sets of

questionnaire had been distributed. Analysis is done in descriptive mode, Pearson

Correlation and Analysis Factor. The result of this research found that people

awareness is related to knowledge on takaful business. The hypothesis both can

accept with 0.99% significant level. The dependent variable of perception of takaful

business is influenced by two independent variables that is the level of people

knowledge and the people awareness. The two independent variables are also

interrelated. In this research, after factor analysis, there are three variable were

extractive. Question item were valid and reliable on the basis. The instrument is

good and acceptable.

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ABSTRAK

Kajian ini bertujuan mengkaji perkembangan semasa perseps~ terhadap

perniagaan takaful. Sampel kajian dibuat di SMK Lundu. Objektif utama kajian

ini adalah untuk mengkaji tahap pengetahuan warga sekolah yang terdiri daripada

guru, pelajar di tingkatan 6 dan staf bukan akademik terhadap pengetahuan

elemen takaful dan kesedaran mereka terhadap keperluan dan kepentingan takaful.

Kaedah kuantitatif digunakan di mana 100 set soalan diedarkan. Analisis dibuat

dalam bentuk diskriptif, Korelasi Pearson dan Faktor Analisis. Hasil kajian ini

mendapati kesedaran indiuidu berkaitan dengan pengetahuan terhadap perniagaan

takaful. Analisis dibuat menunjukakn hipotesis diterima dengan tahap signifikan

0.99%. Pembolehubah persepsi bersandar dipengaruhi oleh dua pembolehubah tidak

bersandar iaitu tahap pengetahuan dan kesedaran. Kedua-dua pembolehubah tidak

bersandar juga saling berkaitan. Tiga komponen dalam faktor analisis juga sah

dan boleh dipercayai. Instrument juga baik dan diterima.

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CHAPTERl

INTRODUCTION

1.0 Introduction

Takaful or Islamic insurance is part of well-growth Islamic finance industry today. This

research is aimed at getting feedback from the people on perception of takaful business

within Lundu town. This research wants to find out how far the respondents awareness is

and understand about takaful and what their perceptions about it are. Furthermore, this

research also discussed about the takaful history, its basic concepts, principles which

applied and the differences with conventional insurance. This paper also aims to provide

the experience and latest progress of the takaful (Islamic insurance) industries. The

industry has become challenging and evolving thus inducing the business operators to

keep themselves abreast with people needs and wants.

Takaful, which is meant to foster Islamic brotherhood, stresses the importance of

solidarity among those participants who have agreed to bear each other's specified loss,

such as death or disasters that befall a member, especially by donating part of the

contributions made. Takaful is different from conventional insurance in that the premium

(contribution) paid by each participant should be made with intention of giving a

donation, gift, or .contribution (tabarru ') and not an exchange of goods, because if

tabarru' is involved, the Shariah considers the transaction to be permissible.

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1.1 Research Background

This research focuses mainly on how the people in general perceive the concept of ..

takaful, especially in modern days where there are lots of insurance offered. Takaful has

been established in its modern form for more than 25 years and firms that offer Shariah­

compliant insurance protection have grown significantly in both number and scale.

Obviously, there are many choices of insurance provided by conventional insurance

company to cover their health or losses in accidents. But when it comes to the need of the

religion, for example, Islam, the Muslim customers need to find an alternative to meet the

need. In Islam, takaful is seen as a form of financial protection, similar to insurance,

which is designed to be compliant with Islamic principles and is based on the principles

of solidarity and mutual guarantee. In order to be acceptable to Islam, insurance must

avoid the payment or receipt of interest (riba) amongst other requirements. For instance,

gambling (maisir) or uncertainty and unclear terms (gharar) are not permitted.

It cannot be denied that promoting takaful to non-Muslims is a big challenge to all the

takaful operators especially in a multi-racial country like Malaysia. The takaful company

has to have good strategy in order to ensure the non-Muslims to buy their product and at

the same time increase the sales of takaful among Muslims. Not only good strategy but

also good agents !hat can persuade potential customers to buy their takaful product, buy it

for themselves or their family. Most of the companies use agents to market their product

(Mohamad Abdul Hamid, 2011).Having said that, it is obvious that takaful agents are

important players in making sure that the people, Muslims or non-Muslims, will buy

takaful for their own benefits. The role of takaful agent is crucial in attracting the non­

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Muslims to take up takaful. They must possess excellent persuasive skills and able to

explain what is takaful in language that the customers can understand. Mohamad Abdul

Hamid also said that the weakness of takaful among potential buyers depends on the

agent itself whether they are full time agent or part-time. He goes on saying that "The

obvious weakness ofpart time agents is less skill to attract and maintain their customer.

They also do not know how to communicate, give a brief explanation and convince the

customer about Takaful products. These problems will lead to low sale productivity,

decrease agents motivation to give full commitment as a good agent and it is not

impossible they tend to leave this industry" (2011).

1.2 Problem Statement

We often hear that Islam is not merely a religion, but it is also a way of life. This notion

somehow proved accurate when it comes to takaful business. Takaful business now,

especially in Malaysia is not something new anymore. Many banks, including insurance

companies have adopted takaful, which originally means Islamic insurance business, to

cope with the latest trends in insurance business. Up till now, there are many people out

there from all walks of life still not sure what takaful is. Is it a brand? Or is it a name of

an insurance company?

Thus. this gives good opportunity for the researcher to investigate the people's

knowledge on takaful. Of course, the gist ' of this research is to study the people's

perception towards their awareness on the need and importance of takaful business in

Lundu. First and foremost, we can ask people, what takaful means to them. Do the people

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know what the real purpose of takaful compare to other conventional insurance

companies? Questions like these are important for us to answer as business nowadays

merely not depend on business solely but also catering the needs of sharing the burden

faced by unfortunates policy holders.

1.3 Research Questions

l. How deep is the people's knowledge on takaful business

To know how takaful is really accepted here in Malaysia, we have to know the kind of

problems that we faced. And it is wise enough to start with questions regarding the

matter. For example, how deep is the people's knowledge on takaful business. Before a

takaful agent ready to embark on his mission to get potential buyers for their takaful

product, that is the question that he or sh~ need to answer. Despite all these efforts of

Islamic financial markets, many consumers are still unaware of the concept of Takaful.

orne of them do not even know that there is takaful. Many consumers are still stick to

conventional insurance, and they adopt more than takaful which is Islamic insurance

(Abdirahman Sh. Mohamed Orner, 2011). Hence, the purpose of this research is to find

the answer for the research question mentioned above.

2. What is the level of awareness among teachers, students, and non-academical staffs on

the need and importance of takaful business.

Another question remains to be answered is, what is the level of awareness among people

on the needs and importance of takaful business? Do people need takaful? Do they think

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Pusat Kllidmat i\laklumat Akademik UNIVERSm MALAYSIA SARAWAK

that having takaful is important? It is a yes if they do know that takaful is also a type of

insurance. But because of the word itself sounds like an Arabic word, the non-Muslims

tend to choose the other conventional insurance product which they familiar with. Of

course, all of us need insurance for protection, not only for ourselves but also for our

famiJy. And this insurance comes in various types, such as health insurance, car

insurance, life insurance and many more. All of these insurances are all covered through

takaful. The only problem that lies is whether the non-Muslims willing to take up takaful

or not. Abdul Aziz Abdullah, Rokiah Sidek and Ahmad Azrin Adnan (2012) stresses that

actually Islamic banking services and products are apparently popular among non-

Muslims in Kuala Lumpur. This is evidence in their study that also mentioned "Non-

Muslim respondents with higher education level strongly thought that Islamic banking

will dominate the banking scenario in Malaysia. This is due to their easy access to

information on Islamic banking. "

1.4 Research Objectives

The purposes of the study are:

1. To know the level of people's knowledge on insurance elements and saving in

takaful business.

11. To measure people's awareness on the need and importance oftakaful.

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Significance of the Research

The development of the takaful industry in Malaysia in the early 1980's was inspired by

the needs of the Muslim in Malaysia for shariah-compliant alternative to conventional

insurance due to some prohibitions in Islam regarding the conventional insurance. The

Malaysian National fatwa committee issued that conventional insurance is haram due to

the presence of the elements of Gharar (uncertainty), Riba (interest), and Maisir

(gambling).

This takaful industry is having significant expansion during the past two decades,

specifically in Islamic countries and countries with large Muslim community. In the

Middle East, takaful operations have developed in Saudi Arabia, Bahrain, Iran, and Qatar

as well as with new operation opening up in Egypt, United Arab Emirates and Kuwait in

recent year. In Southeast Asia region, Malaysia has been at the forefront of takaful

development with Bank Negara taking the lead with the introduction of separate takaful

regulations allowing the takaful business to flourish in that country (Taylor, 2005).

Indonesi~ Brunei, Singapore have all followed with the development of takaful

operations.

Since it has gained so much popularity nowadays, takaful is not seen as something that

only belongs to the Muslim society but as a product where anybody regardless of their

faith and beliefs can use. Hence, it is important to know what is the people real

perception of the masses now regarding takaful. People tend to think that takaful only

caters to Muslim. It is important now to change that perception as the world now also

acknowledges the importance oftakaful as one of the most important products in today' s

banking landscape.

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1.6 Limitation of Study

The research conducted was not short of limitations. The following were those governing

the research. First and foremost, is regarding the respondents for the research. The

participants of the research were the teachers of SMK Lundu, non-academical staffs and

also the Upper 6 students of SMK Lundu who resides in Lundu area of Sarawak. Due to

time and work constraints, the research could not be conducted throughout the nation to

provide a bigger picture of the real scenario of takaful perception. According to Brown

and Peterson (1993), individual-related factors include both demographic and

dispositional variables related to individual salespeople. Hence, the researcher only

focused on the population in Lundu town to make sure the research could be done within

the time given and without interfering the researcher's primary job.

Secondly, the researcher has to take into account that all the respondents involved in the

research were mainly those who are coming from middle class, who are not too rich, nor

to poor to get takaful for themselves or their family. For family that comes from a middle

class category, they might think that having insurance for themselves and also members

of their family is important. But this all boils down to their monthly income. Those who

afford to have higher income will surely buy the insurance they need but for those who

have average income with big size family to cater to, they might having a second thought

of buying insurance. Surely, when it comes to safety, everyone knows that they have to

prepare for any unforeseen circumstances that might occur. With that notion, it will

motivate them to buy insurance for the one they care about. For example, the major

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function of life insurance is to protect against financial loss from loss of human life, as

mentioned by Hofstede (1995).

Researcher also aware that the respondents' acknowledge on insurance is divided into

two parts. One is for the individual itself and the second one is for family. According to

Juliana Arifin, Ahmad Syukri Yazid, Zunaidah Sulong (2012) there are two types of

takaful; general takaful and family takaful. Normally, we are aware that the products

offered by takaful company are referring to personal takaful and also family-oriented

takaful. Malaysian Takaful Association defines general takaful as "a means of protecting

financial losses arising out or caused by events that give rise to damage to physical

property, legal liability, and/or to cause death or bodily injury by accident". This means

that the insurance covers health and life insurance that emphasizes only to the individual

itself. Meanwhile, family takaful shares the same functions but focuses more on family

members. To buy family takaful, one must consider various factors before opting to buy

the product. For instance, according to Redzuan, Rahman and Aidid, before buying any

takaful product, one must consider his or her income, interest rates of the product,

inflation, savings and stocks to examine the demand of family takaful (2009). As for the

researcher it is a big task to identify among the respondents who really know about

takaful, how much do they know about takaful and which takaful is better for them.

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7 Definition of Key Concepts

1.7J. Takaful

The origin of takaful is derived from several practices from ancient Arab tribal

custom and the companions of the Prophet. For example, under the custom of "al­

aqilah", it is mutually agreed among the tribes that if a person is killed

unintentionally by a person of a different tribe, the accuser's paternal relatives

will take the responsibility to make a mutual contribution for the purpose of

paying the blood money to the victim's relatives. (Enguku Rabiah Adawiah

Engku Ali, Hassan p.Odierno, 2008)

1.7.2 Perception

According to Dowler, E, Green, J, Bauer, M, Gasperoni, G (2006), perception

involves understanding (or misunderstanding) and discernment, and includes an

element of volition and action: people choose to "see" things in certain ways, and

the social and cultural determinants of those choices differ with time and place.

Perception is different from one person to another person even if they are to

discuss the same topic. Perception mainly is a subjective matter. The way we

view a cer,tain topic may differ from the others. This for sure will creates different

ideas thus resulted in variety of ideas and thoughts. In case of takaful, for Muslim,

they may know basically what is takaful but for non-Muslim, they may have

different perception or no idea at all what takaful is all about.

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1.7.3 Awareness

Awareness is state or ability to perceive, to feel, or to be conscious of events, or

" sensory patterns. In this level of consciousness, sense data can be confirmed by an

observer without necessarily implying understanding.

1.7.4 Shariah

According to Rahman (1979), Shariah is the way that directs man's life to the

right path which means 'law' (Denny, 1985). This means that those who practice

Shariah could help them to make the correct choice in life as a guide. It is

correlated with the 'din', which means 'submission' or 'following'. The proper

subject as Shariah is God where as man is the subject of 'din'. It is related to one

another in such a way that shariah is the ordination of the way and din is the

following of that way.

1.7.5 Interest (Riba)

Riba is an Arabic word which literally means 'increase' and 'growth'. Riba and

interest are the same thing and can used interchangeably. Sudin Haron and Bala

Shanmugam (2001) have stated that, Muslims are totally prohibited from dealing

with riba. Islam condemns those who associate themselves with the practice of

riba. The Qur' an an explicitly states that the charging of interest will draw a ,

declaration of war from Allah and His Messenger and promises total destruction

of an economy which allows interest-based transactions. An insurance contract

wherein the policyholder expects to obtain a fix amount of profit that is greater

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