Transformative Trade Credit Takaful Model: A Progressive Alternative to Credit Insurance

Abstract

Trade credit insurance is a common method of risk management used by suppliers to safeguard themselves against non-payment by credit buyers. The manufacturer extending trade credit risks facing cash flow problems and potential customer non-payment. Manufacturers can increase sales with the aid of trade credit insurance and significantly reduce their default risk. A few companies in certain countries have introduced trade credit insurance as a relatively new service. However, they do not offer the Takaful model. Generally, people increasingly seek Shariah-compliant solutions, such as Islamic banking, to address their financial needs. Therefore, the government must bolster its presence in this domain. The overarching objective of this study is to propose an innovative Credit-related Takaful industry product for consideration. This study employed a qualitative approach, with unstructured interviews conducted to gather insights. The study sample comprises experts from the Shariah compliance department, Shariah scholars, and the Takaful industry experts, who were interviewed to gain a comprehensive understanding of Shariah principles. These interviews were conducted to gather insights into which Takaful model would be most suitable for Trade Credit in Pakistan. The majority of Shariah Scholars recommended the Waqf Wakalah model for the implementation of Credit Takaful in Pakistan. The findings of this study will help the Takaful industry of Pakistan to launch a new product for credit trading. This study will help further to know the importance of Credit Takaful and tap the gap in the Credit Takaful market, especially in Pakistan. Lastly, the findings will help the regulators of the Takaful industry to introduce new rules for the industry, providing a baseline for researchers to enhance their knowledge. Further investigation into Credit Takaful in Pakistan will build off the findings of this study to fill out the full circle of the Islamic financial system. It is a step in the right direction toward ending poverty and income inequality and increasing public awareness of the importance of Credit Takaful in today's world.