A combination of social and economic factors also called as socioeconomics while Family Takaful is known as life insurance by conventional insurance. Based on the studies by Berkem (2014) Islamic insurance known as Takaful and it is an alternative model to conventional insurance; which is forbidden in Islam. Takaful is established on the base of mutual assistance, responsibility, mutual protection and assurance, incorporated into the concept of tabarru (donation). According to Yazid, Arifin, Hussin, and Wan Daud (2012), countries that experienced further development of Takaful operation are concentrated in the Far East countries such as Malaysia, Indonesia, Singapore, and Brunei. Based on this scenario, it triggers doubtful question on why the demand of family Takaful is increased. The aim of this study is to examine the factor which can influence the demand of family Takaful in Malaysia. The values of total family contributions as the dependent variable. While used six socioeconomic factors for which data are available that could explain the demand for family Takaful in Malaysia has been identi?ed. Income and in?ation rate have been selected as the potential economic determinants whereby life expectancy, average dependency, education level and total Muslim population have been chosen to explain the social factors. Annual data is gathered over the period 1986 to 2017. The data is gathered from various Central Bank of Malaysia Takaful annual reports and ?nancial stability and payment systems reports and the department of statistics, Malaysia. The paper investigates the signi?cance of the identi?ed economic and socio-demographic factors in determining the consumption of family Takaful. Following Sherif and Azlina Shaairi, (2013) the paper using ordinary least square (OLS) and generalised method of moments (GMM) techniques. The expected finding is income, education, average dependency and Muslim population factors are positively related to Takaful demand. On the other hand, in?ation and life expectancy appear to be the signi?cant factors that adversely in?uence the total family Takaful consumption. Sherif and Azlina Shaairi (2013).
Alhamdulillah, thanks to ALLAH S.W.T, the Most Gracious and the Most Merciful for giving me strength on successfully completing this proposal. All the praises and thanks to Him for giving me the times, wills, guidance and strengths during the period of this project. This project’s proposal will not successfully complete without cooperation from many parties. They have contributes a lots in preparing this project’s proposal. I am thankful to many people who provide me the kind assistance or had contributed immensely to the success completion of this project’s proposal in due time. I wish to express my sincere gratefulness and gratitude to Madam Shashazrina Roslan who act as my advisor. Special thanks dedicated to the staff of Universiti Teknologi Mara, Segamat Library as well as my fellow classmates and friends for their helps, concerns, morals and materials support. I would like to grab this opportunity to express my deepest appreciation for those who had contributed a great deal towards the completion of this project’s proposal. I have learnt much about this subject. I wish to extend my appreciation to my family, especially to my parent for their moral support in completion this project paper. In conclusion, I am grateful to ALLAH S.W.T for his guidance and the continuous good health and wealth which without His blessed I might have not complete this project’s proposal.
This chapter will covers the background of the study which are the background of Takaful, and the Family Takaful. Another that is the problems statements of the study that try to fills the gap of the study conducted before by other researcher, research questions and research objectives, significant of the study which is to whom this study will be benefit. Scope of the study, limitation of the study which describe the obstruction during the study, the definition of key terms, and also provide a summary on this section of chapter.
In this world, everyone is exposed to the possibility of risk and disasters such as death, losses and damages through fire, accident, and business etc. Despite this, all the Muslims believe in Qadha and Qadr, but Islam requires that one must find ways and means to keep away from such troubles and adversities whenever such things occur, and one should try to minimize his/her or his/her family financial losses. One possible way out is to buy an insurance cover. Dictionaries define the risk in different meaning like possibility of facing loss or threat. It is a common element of life. Risk can be defined as the variability or volatility in unexpected outcomes. It can be defined as the chance of events happening that could put an impact on the outcomes of the event while Mushtaq Hussain and Tisman Pasha (2011) defines risk in insurance context and says, “risk is an element of uncertainty, as to whether an event occurs or not”.
Although, as a concept, insurance does not contradict he requirement of Shariah, Muslim scholars have generally concluded that practice and operation of conventional insurance as currently practiced, do not conform to the rules and requirement of Shariah. According to Hashim, Shahidan, and Fadzim (2005) the generally accepted view of the muslim scholars is the operation of conventional insurance as an exchange transaction under a buy and sell agreement does not conform to Shariah as it embodies the elements of al Riba (interest), al-Gharar (uncertainty) and al-Maisir (gambling).
Thereofore, in June 1972 the Malaysia National Fatwa Council resolved that present-day life insurance as provided by the conventional companies was not in line with the principles of Shariah.
Takaful: historical background and developmental progress in Malaysia
According to Nahar (2015) the emergence and development of Takaful in Malaysia could be seen as a well-charted and gradually implemented Islamisation strategy in commerce. Following the MNFC decree in 1972 which ruled that life insurance in its present form is a void contract due to the presence of non-Shari’ah-compliant elements of riba, gharar and maisir, coupled with the promising future of the Takaful industry a Special Task Force (STF) was established by the Malaysian Government in 1982 to study the viability of setting up an Islamic insurance company. Pursuant to STF’s recommendations, the Takaful Act was passed by the Parliament and subsequently enacted in 1984 which was modelled after the existing Insurance Act for conventional insurance, with appropriate modifications to conform Shari’ah principles. Learning from the experience of other pioneers in the Islamic insurance industry abroad, the first Takaful Company was set up in 1984 – Syarikat Takaful Malaysia Berhad (STMB). In 1993, another Takaful company was established – Takaful Nasional Sendirian Berhad (TNSB, now Etiqa Berhad) – followed by Maybank Takaful Berhad in 2001 (merged with TNSB to become Etiqa Berhad) and Takaful Ikhlas Sendirian Berhad (TISB) in 2003. Following the liberalization policy, BNM, being the regulatory authority responsible for overseeing and monitoring the financial service sector in Malaysia, had granted additional eight Takaful licenses for both local and foreign operators. A sat June 2014, there are 12 Takaful operators in total, 3 of which are foreign-owned operators.
Nowadays, Takaful is not a new phenomenon as Takaful business is widened in many countries throughout the world today. According to Yazid, Arifin, Hussin, and Wan Daud (2012) countries that experienced further development of Takaful operation are concentrated in the Far East countries such as Malaysia, Indonesia, Singapore, and Brunei. In Malaysia, It was reported that the Takaful industry is consistently and rapidly improved over the past 30 years. The business performance of Takaful industry is measured by looking at their total contributions, total fund asset and benefits of payment. Table 1.1 below shows the business performance of Takaful industry from 2012 to 2016.
Table 1.1 shows that the contribution income of Takaful had increase from RM5, 887.8mill in 2012 to RM7,534.6mill in 2013. Based on Takaful fund assets, it had increased from RM 19,045.6 million to 26,792.0 million for the year 2012 until 2016. For family Takaful, their asset funds also increased from RM16,536.2 million to RM23,200.0 million while general Takaful had increased from RM2,755.9 million to RM3,593.0 million over the same period. In comparison of family Takaful and general Takaful, it show that family Takaful is a major contribution towards the Takaful business performance because it has a better contribution income, total funds asset and benefit of payments. Overall, the family Takaful,has improved over the year 2012 to 2016 which indicates that the demand for the family Takaful is keep on increasing from year to year. Based on this scenario, it triggers doubtful question on why the demand of family Takaful is increased. The aim of this study is to examine the socioeconomics factor that had or no relationships with the demand of family Takaful in Malaysia
While Takaful turns into a typical device in social solidarity, cooperation and mutual indemnification yet it is still clearly outsider to a few people. Henceforth, this study is led to advance a reasonable comprehension of the issues which emerges in corporate in chance administration these days. Plus, this study additionally gives a superior comprehension of the relationship among factors, for example, income (GDP per capita), inflation rate, life expectancy, average dependency, education and Muslim population in Malaysia.
The contribution of this study is to reveal insight into the Takaful. Truth be told, there are numerous researchers who have directed studies on this particular field of Takaful use preceding our exploration. Be that as it may, those studies were done in certain countries as it were.
Aside from that, this study additionally adds to a few gatherings, for example, communities, Takaful companies, and investors. By doing this exploration, the communities, for example, business understudies can acquire learning on how importance of family Takaful usage against the death risk in order to protect their family members from great losses if the leader of family death. Besides that, this study will also be able to grab the attention of corporate managers to acquire learning on how and what are the components that related with the demand for family Takaful in Malaysia. In the meantime, it likewise gives helpful data to investors on the mindfulness that takes part in family Takaful use from undesirable conditions. Investors may take into consideration on investment to meet the potential in gaining returns.
Last but not least, this study turns into an important guideline or to other researchers who are intrigued and tend to lead a comparative research point. Higher education institutions may enhance their interest and attention with the reliability of the secondary data that was carried out from previous researches to conduct more of these kind of researches in different countries and instruments since there are few researches conducted in this field of study in some countries.
The main purpose of this study is to found out the determinants of demand on family Takaful in Malaysia and to analyse which factor that had or no relationship with the demand on family Takaful. The variable in this study is socioeconomics. The samples in this study are in yearly frequency. The analysis is observed in the range of 30 year in yearly observation start from 1986 to 2016 with total number of 30 observations for yearly sample. This study follows the previous literature by using several econometrics techniques which are ordinary least square (OLS) and generalised method of moments (GMM) techniques of regression to test the relationship between the dependent (demand on family Takaful in Malaysia) and explanatory variables (income, inflation rate, life expectancy, average dependency, education level and Muslim population. The statistical test applied in this study is Descriptive Statistic, Augmented Dickey Fuller (ADF) Unit Root Test, Philips-Perron (PP) Unit Root Test, Autocorrelation Test and Runs Test.
As researchers, there are several limitations that I must adhere to during the research is being conducted.
Poor internet connectivity and inconsistency.
The first limitation is poor internet connectivity and inconsistency around my residential areas especially in my houses’ area. It gravely takes my time away when searching for more journals and other online materials. Unfortunately, even certain data plan would not work as smooth during the need to use internet for online research.
The research variables availability.
Besides that, this study also has constraint to get the sufficient resources because some of independent variables do not have enough information. Initially, the planned independent variables of study is 9 variables. But due to the lack of data available as the wanted data for some independent variables do not exists and sufficient, the independent variables was adjusted to six (6) variables from nine (9) variables where almost data for the variables are sufficient for the study.
Definition of Key Terms
Defining the key terms which are the independent and dependent variables.
The basic forms of Takaful is the contract of Mudarabah which is Islamic way of partnership. When Takaful is an Islamic contract therefore requires acceptance of offer. Takaful also used systems of “Aaqilah” which involve mutual assistance arrangement. Holders of Takaful must pay a sum of money to help other members. They also receive a specific percentage of profit Khan, Alam, Ahmad, Sabeeh, and Ali (2011). For family Takaful that has a defined period of maturity, insured commonly make periodic level premium contributions that will be used primarily for meeting their individual savings target and in part for assisting financially the bereaved family of the decreased insured. When to claim death benefits, only proof of death needs to be submitted to the insurer. The cause of death, whether natural, accidental or unlawful.
Income (GDP per capita)
The income with the chosen proxy is the GDP per capita. An approximation of the value of goods produced per person in the country, equal to the country’s GDP divided by the total number of people in the country.
Inflation rate is the percentage increase in the price of goods and services, usually annually.
Life expectancy is the probable number of years remaining in the life of an individual or class of persons determined statistically, affected by such factors as heredity, physical condition, nutrition, and occupation.
Average dependency ratio is a measure of the portion of a population which is composed of dependents (people who are too young or too old to work). The dependency ratio is equal to the number of individuals aged below 15 or above 64 divided by the number of individuals aged 15 to 64, expressed as a percentage. A rising dependency ratio is a concern in many countries that are facing an aging population, since it becomes difficult for pension and social security systems to provide for a significantly older, non-working population.
Education level with the selected proxy is the total population enrolled at tertiary level. Education tertiary level is at a level above that of secondary or high school.
The number of Muslim population in Malaysia.
In chapter one, the researcher focus on the basic information about the research and make a reader to be more understand about the topic because in this chapter, the background of study, the problem statements, research questions and objective, significance of study, scope of study, limitation of study and definition of terms are already explained. So that in the next chapter, the reader will be more clear about this research and they will be able to adapt the information faster.
A literature review is an evaluative report of information found in the literature related to researcher selected area of study. The review should describe summaries, evaluate and clarify this literature. It explains the process of reading, analysing, evaluating and summarising the scholarly materials about a specific topic.
Typically, literature review includes scholarly journals, books and frequently includes newspapers, magazines, brochures and images of the event. The purpose of the literature review keeps on the same regardless of the research according to the selected topic. The relationship between dependent variable and independent variables will be discovered from this research either they are significant or not.
Most empirical work Akhter, Pappas, and Khan (2017), Alhassan and Biekpe (2016) Yazid et al. (2012), Sherif and Azlina Shaairi (2013), Gustina and Abdullah (2012) Redzuan, Rahman, Sakinah, and Aidid (2009) and Lim and Haberman (2001) on the demand for life insurance takes a demand as a function for life insurance derived from the maximization of utility function of the consumer would depends on wealth, income stream, a vector of interest rates, a vector of prices (including insurance premium) and the consumers’ utility functions for consumption and wealth, which can be affected by the level of the market financial development.
Based on studies by Yazid, Arifin, Hussin, and Wan Daud (2012) family Takaful plans are generally used for family solidarity in place of conventional life insurance which provides protection, long-term savings and an investment instrument. It provides a mutual guarantee of financial assistance in the event of death to the participant.
According to Sherif and Azlina Shaairi (2013) income is a central variable in insurance demand models that positively affects the life insurance consumption. Early theoretical studies highlight that the demand for life insurance, as a long-term consumption decision, should be positively related to anticipated income or permanent income Sherif and Hussnain (2017), Akhter, Pappas, and Khan (2017), Alhassan and Biekpe (2016), Chee Chee (2013), Yazid, Arifin, Hussin, and Wan Daud (2012), Gustina and Abdullah (2012), Ye, Li, Chen, Moshirian, and Wee (2009), Redzuan, Rahman, Sakinah, and Aidid (2009) and Lim and Haberman (2001). As income increases, life insurance products become more affordable and, indeed, there is a greater need to protect dependants against the loss of expected future income due to premature death or permanent disability of the wage earner
In?ation is assumed to affect the demand for life insurance by altering the consumption pattern of the industry’s products, and the negative effect of in?ation on savings through life insurance has been largely documented by numerous studies Sherif and Hussnain (2017), Akhter, Pappas, and Khan (2017), Alhassan and Biekpe (2016), Sherif and Azlina Shaairi (2013) Yazid, Arifin, Hussin, and Wan Daud (2012), Gustina and Abdullah (2012), Redzuan, Rahman, Sakinah,and Aidid (2009) Ye, Li, Chen, Moshirian, and Wee (2009) and Lim and Haberman (2001). In?ation and its volatility is found to have a signi?cant negative relationship with the insurance expenditure as life insurance products are mostly savings products that provide monetary bene?ts over the long-term. Therefore, any monetary uncertainty such as in?ation has a substantial negative impact on the expected returns of these products.
Sherif and Azlina Shaairi (2013) argue that if an individual has no dependant on his earnings for support, then there would be less need for life insurance or it may not exist at all. However, as the number of dependants grows, the economic loss caused by premature death carries greater impact and the justi?cation for insuring becomes stronger. This positive relationship between the number of dependants and the life insurance consumption is also captured in the empirical works by Akhter, Pappas, and Khan (2017), Sherif and Hussnain (2017), Alhassan and Biekpe (2016), Chee Chee (2013), Yazid, Arifin, Hussin, and Wan Daud (2012), Ye, Li, Chen, Moshirian, and Wee (2009) and Ward and Zurbruegg (2002) and Lim and Haberman (2001).
According to Akhter, Pappas, and Khan (2017), Sherif and Hussnain (2017) and Sulaiman et al. (2015), Sherif and Azlina Shaairi (2013), and Lim and Haberman (2001) the longer people expect to live, the greater their demand for life insurance will be as a long life span decreases the price for insurance but also leads to greater incentives for human capital accumulation. Yazid, Arifin, Hussin, and Wan Daud (2012) stated that the increasing number of dependents shows that the person needs to buy more life insurance.
A number of studies have suggested that the level of education is related to insurance demand which are Sherif and Azlina Shaairi (2013) and Yazid et al. (2012). Education level is identi?ed by and Akhter et al. (2017), Sherif and Hussnain (2017), Alhassan and Biekpe (2016) and Chee Chee (2013), Sherif and Azlina Shaairi (2013), Yazid, Arifin, Hussin, and Wan Daud (2012), Gustina and Abdullah (2012), Hawariyuni and Salleh (2010) and Hwang and Gao (2003) as having a positive relation with the life insurance consumption.
The effect of religion on the demand for life insurance products has been tested by Sherif and Hussnain (2017) and Gustina and Abdullah (2012) who studied the effect of religion on life insurance consumption using an international data set. The results of the studies indicate that, ceteris paribus, consumers in Islamic nations purchase less life insurance than those in non-Islamic nations. Therefore, it is suggested in these studies that life insurance consumption is less in predominantly Islamic countries than in countries that are not predominantly Islamic.
Theoretical framework will help to identify if there is a relationship between the dependent variable and independent variables. The dependent variable in this study is the demand on family Takaful with the selected proxy is the values of total family contributions. The first independent variable is the income with the chosen proxy is the GDP per capita. The other independent variables are inflation rate, life expectancy, average dependency, education with the selected proxy is the total population enrolled at tertiary level and the last independent variables is the Muslim population.
Chapter two discuss about the previous literature review related with the topic which is the research conducted by other researcher in a various countries. This includes literature review on the total contribution family Takaful, income, inflation rate, life expectancy, average dependency, education level and Muslim population.
This chapter will include the data collection, research design, hypothesis statement, research methodology and summary of the chapter. In order to study the determinants of demand on family Takaful in Malaysia, there are few test that can be considered to determine whether the data support the hypothesis developed or not. This chapter discuss the specific test that can be used and summarize the result of the tests.
This study follows the previous literature by using several econometrics techniques which are ordinary least square (OLS) and generalised method of moments (GMM) techniques of regression to test the relationship between the dependent (demand on family Takaful in Malaysia) and explanatory variables (income, inflation rate, life expectancy, average dependency, education and Muslim population. The tests used are, Augmented Dickey Fuller (ADF) Unit Root Test, Breusch-Godfrey Test Serial correlation on error term, Breusch-Pagan-Godfrey Test Heteroskedasticity, Ramsey RESET Test incorrect Fuctional Form and Variance Inflation Factor(VIF). Correlation Matrix Test, Regression Test.
Data collection refers to how and in what way the data used in this study was collected. In this research, the data collected are secondary data which are from:
This research paper concentrate on secondary data obtained from one source. The reason for using secondary data from the same source is because it is more reliable compared to obtaining quality data from different sources. This paper utilizes time-series data. The sample of this study comprises of observations each of the independent and dependent variables on a yearly basis over an 18 year period from 1986 to 2016. For easy reference, Table 6 below illustrates the Data Sources.
Journal is a written research in a selective study write by the researcher either in completing course requirement or based on personal factors. Journal can be either academic or professional journal. In this research, the selected journals and research paper focus on the topic determinants of demand on family Takaful in Malaysia.
Nowadays, everyone can get an easy access to the any websites and this made the data collection easier because of the amount of the information and data using the internet is limitless. In this research, the internet sources comes from online database included Datastream, data from department of statistics Malaysia and few databases subscribed by the UiTM library.
Majority of the books provide information from trusted resources. The main advantage of books is that it can provide information that covered a broad range of topic. In this research, the example data comes from the textbook is Research Methods For Business: A Skill Building Approach, 7th Edition Sekaran and Bougie (2016).
The elements involve in the research design is purpose of the study, types of investigation, researcher interferences, study setting, unit of analysis and time horizon.
Purpose of the study
The purpose of this study is to found out the determinants of demand on family Takaful in Malaysia then it is test on the relationship between the information about the annual total family Takaful contribution and the determinants factors in terms of whether the demand on family Takaful have positive or negative relationship with the determinant factors.
Types of investigation
The type of the investigation used in this research is causal study. In other words, causal study also called hypothesis testing that explained the nature of certain relationship or differences. These studies investigate the relationship between the information about the annual total family Takaful contribution and the determinants factors in terms of whether the demand on family Takaful have positive or negative relationship with the determinant factors.
Research interferences means to what extent the researcher interferes with the normal flow of work in workplace that has direct bearing of any research decisions. There are three types of researcher interferences which are minimum, moderate and maximum. This study only involved in minimum interferences which is studying events as they normally occurs.
There are two types of study settings which are contrived and non-contrived. This study involved in a non-contrived because of this study is done using the secondary data which is the annual total family Takaful contribution that can be found in the annual Takaful report of Bank Negara Malaysia. This research is conducted in the natural environment where the work proceeds normally.
Unit of analysis
The unit of analysis consists of individuals, dyads, groups, organizations and others. In this study, the unit of analysis involved is individuals. Individuals is the one to one interactions. Because of this study want to investigate if the demand on family Takaful have positive or negative relationship with the determinants factors such as income, inflation rate, life expectancy, average dependency, education and Muslim population then, it involved in investigate of one to one interactions.
To analyse the determinants of demand on family Takaful in Malaysia, this study use Time Series Data which is the time period start from 1986 until 2016 with the total numbers of 30 observations in yearly.
Unit Root Test
The purpose of unit root test is to examine whether the data is stationary or non stationary. Stationary is a condition with a constant mean, constant variance, and constant autocovariances for each given lag. Augumented Dickey-Fuller (ADF) is applied in this test. The data is stationary when the P-value of ADF is below than 5%. Thus, the null hypothesis is rejected. The hypothesis for this test is:
Ho: Data is non-stationary
H1: Data is stationary
Normality test is use to test whether the data is normally distribute or not normally distribute. Jarque-Bera test is use as the normality test. If the P-value of Jarque-Berra is more than 5%, it indicates that the data is normally distributed.
Thus we accept the null hypothesis.
Ho: Error term is normally distributed.
H1: Error term is not normally distributed.
Autocorrelation – Serial Correlation Test
Autocorrelation test is to investigate whether there is serial independence for the error term. Breush-Godfrey Serial Correlation test is the test applied for autocorrelation. If the p-value of Obs*R-squared is more than the 5% significance level, it indicates that the error term is serially independent. Thus we accept the null hypothesis.
Ho: Error term is serially independent. (No autocorrelation problem)
H1: Error term is not serially independent. (Have autocorrelation problem)
Heteroscedasticity is a situation where there is unequal spread or unequal variance in the error term. Breusch-Pagan-Godfrey is used in this test. If the the p-value is less than a 5% significant level, we reject the null hypothesis. It indicates that the error term is heteroscedasticity.
Ho: Error term is homoscedastic. (error term have constant variance)
H1: Error term is heteroscedastic. (error term do not have constant variance)
Correlation Test-Covariance Analysis
To test whether there is any linear relationship or correlation of the dependent variable with the independent variable. The indicator here is to observe the p value of the t-statistic of the respective pairs of dependent and independent variables. If the p-value of the t-statistic is less than 5% significance level, the null hypothesis is rejected. It indicates that there is correlation between the two variables.
Ho: There is no correlation
H1: There is correlation
Multicollinearity is a situation where the independent variables are highly correlated with each other. Centered Variance Inflation Factor (VIF) is applied in this test. A VIF of 1 means that there is no correlation. If VIFs exceeding 10 there is serious multicollinearity and it requiring correction.
Ho: That is no multicollinearity problem.
H1: There is multicollinearity problem.
3.5.7 RAMSEY Reset Test
RAMSEY is used to determine that there is no misspecification of functional form and the data fit multiple linear regressions. The probability value to be used can either be t-statistic, f-statistic, or likelihood ratio. If the p-value is greater than 5% significance level in any of these three statistics, it means that we fail to reject the null hypothesis. Thus, it indicates that there is no misspecification of functional form.
Ho: No misspecification
H1: Error in specification
F-test provides an indication whether any of the independent variables is useful in explaining the variance of the dependent variable. If the p-value of F-test is less than the 5% significance level, it indicates that the null hypothesis is rejected. Thus, it concludes that at least one of independent variables is affects the dependent variable. The hypothesis is as follow:
H0: No independent variable affects the dependent variable.
H1: At least one independent variable affects the dependent variable.
Multiple Regression Analysis
Multiple regressions analysis is done to examine the simultaneous effects of several independent variables on a dependent variable. This model is to measure the type of relationship exists between two or more variables. The relationship is expressed in a mathematical equation, which gives the basis of estimating the value of dependent variables based on the value of independent variables. In addition, the researcher create the equation model based on the hypothesis which relate with Y= Demand on family Takaful. The model derived from the Multiple Linear Regression Model analysis as follow:
Yit = ß0 + ß1 X1t + ß2 X2t + ß3 X3t + ß4 X4t+ ß5 X5t + ß6 X6t +Ut…….. (equation 1)
Where: Y = Demand on family Takaful
X1 = Income
X2 = Inflation rate
X3 = Life expectancy
X4 = Average dependency
X5 = Education level
X6 = Muslim population
ß0 = Intercept or Constant
ß1- ß4 = Regression coefficients for X1….X4
Uit = Errors in the model
Coefficient of Determination R²
R² is a test of goodness of fit and is used to determine how good the regression fits the data. R² measure the proportion of total variation of dependent variable as explain by the regression. When R² equal to 1, it indicates the regression fit the data perfectly. When R² equal 0, it means the regression is no better than guessing the sample mean.
“Adjusted R-squared” make an adjustment to R² to take into account of the number of right hand side variables (independent variables) in the regression. R² measure what fraction of the variation in the left hand side variable is explained by the regression. The When the value of adjusted R-squared is closer to 1, it indicate a better fit.
Durbin Watson Test
This is the classic test for serial correlation as to whether there is serial independence in the error term. A Durbin Watson statistic close to 2.0 is consistent with no serial correlation, while a number closer to 0 means there probably is serial correlation.
This chapter already discuss about the research methodology of the research. This include introduction of chapter three, sampling which are population and sampling frame, data collection, variables of the study, research design which are purpose of the study, types of investigations, researcher interferences, study settings, unit of analysis, and time horizon. Besides, the hypothesis statement to be tested in this study also has been stated and lastly is the research methodology applied in these researches which are unit root test, correlation matrix test, regression test, Serial correlation on error term, Heteroskedasticity test, incorrect Fuctional Form and Multicollinerity.