Blockchain Revolutionising Insurance and Takaful Sector: Possibilities, Difficulties, Policy Roadmap for Pakistan

Abstract

Takaful is an alternative Shariah compliant insurance product which is being offered by more than fifty takaful companies in Pakistan. Currently takaful market is facing low penetration due to many challenges including regulatory or compliance, payment efficiency, fraud prevention, transparency. Blockchain technology, a decentralized, transparent and trust-based system, which could address these issues efficiently and effectively by offering smart contracts. This paper examines Blockchain's feasibility and its impact on Pakistan’s insurance market in general and takaful sector in particular, using a systematic literature review (SLR) and case studies from Malaysia, the UAE, and Indonesia. In Malaysia and the UAE, the success of using Blockchain in Islamic finance highlights potential efficiency and security benefits. However, in Pakistan's regulatory ambiguity, lack of Shariah-compliant frameworks, limited human expertise, and low industry readiness are few factors which needs to look at, by the Government of Pakistan, and this could lead to sustainable growth in Pakistan’s digital financial sector including takaful industry. The Policymakers, Ministry of science and technology and State of bank of Pakistan could benefits from this study by creating a regulatory sandbox and offer current takaful operators full IT and regulatory support to develop Shariah-compliant smart contracts. The results reveal that, Takaful operators should develop and test pilot digital projects focusing on cost reduction, fraud prevention, automation of standards claims where possible, streamline the insurance industry and takaful operations and this leads to not only increase takaful penetration but also help Pakistani takaful market to align with global digital trends.© The Author(s) 2025. Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited maintaining attribution to the author(s) and the title of the work, journal citation and URL DOI.