On February 29, "An introduction to Takaful and lessons from the experience of the DRIVE project" virtual webinar welcomed 22 participants to learn about Islamic Insurance. The session aimed to increase awareness around takaful, providing a greater understanding of its concepts, Shari’ah compliance, and implementation, as well as reflections on factors driving the increasing demand for inclusive climate takaful.  

Alwaleed Alatabani, Practice Manager for the Finance, Competitiveness, and Innovation (FCI) Practice Group for East Africa at the World Bank kicked off the session highlighting the importance of bringing awareness to takaful due to the significant growth in demand, particularly in the Horn of Africa, but also beyond that. The opportunity to showcase the work done so far can provide a greater understanding of the challenges of implementation beyond the concept.  

These opening remarks were followed with a further introduction by Sonia Plaza, Senior Economist in the FCI Global Practice of the World Bank and the person spearheading the implementation of the DRIVE project in Somalia. She emphasized the history behind the project and where it is now. Beginning with a feasibility study of Somalia in 2019, there was already demand for takaful even though Somalia did not even have an insurance law. Jump to five years later, and today there is a draft Takaful Bill, which has been adopted by the Cabinet, and is expected to be adopted into law by Parliament in 2024.  

Following the opening remarks, Prof. Dr. Younes Soualhi, Head of Islamic Banking Unit at ISRA RMC at INCEIF University, joins us to explain the concept of takaful. This Islamic insurance can be neatly described as a “cooperative system whereby people will try to cooperate,” in this case, to provide protection against certain risks. In 1985, conventional insurance was deemed Shari’ah non-compliant, and therefore a new Shari’ah compliant insurance had to be created. For insurance to be compliant, certain rules need to be applied such as contributions being made as donations, takaful operator segregation of funds, and how investments are made. There are two major takaful models, the pure Wakalah model and the Hybrid Wakalah-Mudarabah model. Under Wakalah the takaful operator is an agent managing the fund on behalf of participants. Under the hybrid model, in addition, the Takaful operator acts as an investment manager on behalf of the participants.  

Following the introduction into takaful, Abdulkadir Abdi Ali, Acting Director, and Head of NBFIs of Licensing & Supervision department, non-banking division at the Central Bank of Somalia, offered a country perspective into the introduction of takaful regulation. In Somalia, the takaful law is pending the final passage at the parliament and is anticipated to establish regulations for the functioning of takaful businesses throughout the nation. Although the demand is high, the country has, and is facing, many challenges such as the limited uptake of takaful products due to limited distribution channels and trust in the insurance sector. There is also a lack of adequate expertise and knowledge in the industry, followed by a lack of training and capacity building. However, the acting director is hopeful of the initiatives being taken to improve this situation, such as the establishment of a National Shari’ah Advisory Council (NSAC), the lobbying of Parliament to enact the Takaful Law, and the ongoing detailed capacity-building program for the takaful industry, among many others.  

The final speaker, Abdirahman Shariff, ZEP-Re DRIVE Somalia Country Manager, displayed an implementer's view into Islamic insurance in Somalia. ZEP-Re is the implementing agency for the De-risking, Inclusion and Value Enhancement of Pastoral Economies in the Horn of Africa (DRIVE) project. The project aims to enhance pastoralists' access to financial services for drought risk mitigation, include them in the value chains, and facilitate the livestock trade in the Horn of Africa. This is being done through a series of strong partnerships with public organizations, Islamic financial institutions including takaful operators, and international reinsurance and retakaful companies. Through DRIVE, in October 2023, Somalia accessed for the first time a Shari’ah compliant Index Based Livestock Takaful (IBLT) product, quickly expanding to the Somali region of Ethiopia. Additionally, the savings product is also fully Shari’ah compliant, as the bonus paid to pastoralists is considered a gift. Retakaful coverage currently stands at 43 percent, and the project is actively working towards obtaining further capacity to ensure complete Shari’ah compliance with a target of achieving 100 percent retakaful coverage. 

The insightful presentations took us through the journey of takaful, exploring its beginnings, its current use in the Horn of Africa DRIVE project, and culminating in a lively discussion on the future direction moderated by Qhelile Ndlovu, Financial Sector Specialist in the FCI Global Practice of the World Bank. A key takeaway was the importance of collaboration with the insurance regulator and the private sector for effective design and implementation of programs. Furthermore, the importance of gender inclusion was highlighted, evident by the high participation of women in DRIVE project (59 percent). Stay tuned for a follow-up webinar in the coming months for further insights. 

To learn more about Takaful, you can also visit our Takaful FAQ publication