Takaful: A financial model with human touch beyond religion

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OPINION

By Mariam Nalunkuuma

In today’s uncertain world, insurance is no longer a luxury but a necessity. We live in an era where financial security is paramount, given that risk is an inherent part of our daily lives.

Many individuals and business entrepreneurs are alive to the fact that insurance cushions against uncertainties. However, the question of fairness, ethics, and inclusivity have over the time been raised about the traditional insurance models. This has partly contributed to the low uptake of insurance in Uganda.

In response, the Insurance Regulatory Authority of Uganda (IRA) in December last year made a regulatory milestone, opening a new chapter in the financial and social fabric of our nation. It licensed the first Islamic insurance company -Tamini Insurance Company, operationalizing Sharia compliant insurance -Takaful.

Takaful insurance is rooted in mutual cooperation, shared responsibility and social solidarity, offering a refreshing alternative that combines financial protection with values of solidarity and trust.

It is a unique and ethical financial model, engraining its principles of mutual cooperation, shared responsibility, and social solidarity. It is grounded in Shariah law, emphasising fairness, transparency, and ethical investment.

The main principle that distinguishes Takaful from conventional insurance is the avoidance of interest/usury (riba), excessive uncertainty (gharar), and gambling (maysir), which are the core elements prohibited in Islamic financing. This therefore means that with the introduction of Takaful, the operations shall not entertain interest-based dealings, uncertainty, gambling and investment in haram ventures, which hitherto excluded a section of Ugandans. 

Takaful is still in its early stages across most of Africa. According to a 2023 report on the Islamic finance sector, in Africa, the Takaful market remains relatively nascent and fringe compared to conventional insurance. Many African countries have only recently adopted Takaful frameworks.

The region has some active Takaful markets, notably in countries such as Sudan (which has historically had a comprehensive Takaful sector), as well as emerging or partial presence in countries like Kenya, Tanzania, Nigeria, Senegal, Zambia, South Africa, Egypt, Tunisia, and others.

The global Takaful market was valued at about US$36.6 billion in 2024. According to one forecast, the global market is expected to grow to roughly US$75.3 billion by 2033, implying a compound annual growth rate (CAGR) of ~ 8- 9% over 2025–2033.

While there is growth, sometimes double-digit growth year-on-year in specific markets, the total volume remains modest. This growing evidence that Takaful is expanding insurance coverage among populations that prefer Shari’ah-compliant solutions -which are offering both a moral/ethical “fit” and, often, simpler risk-sharing mechanisms.

This growing regulatory interest and rising demand from the excluded population on traditional insurance suggests significant potential for expansion.

How Takaful works

Structured around risk-sharing, as opposed to the traditional model of risk transfer from insured to insurer, Takaful operates as a cooperative system where participants contribute to a pool of funds (Takaful fund) – depending on the desired coverage and personal circumstances. The funds are then used to support individuals within the group in times of need, embodying the principle of collective care. 

When the policy period matures and the client has no claim to make, the money is invested in a business or asset that is acceptable under sharia. The profit that is realized from such investments is then shared between the operator and the clients.

Unlike conventional insurance, under Takaful, the client becomes a part of the company and shares in both the profit and/or losses made. This guarantees more certainty to the client, unlike in the conventional insurance business.

To ensure compliance to Islamic principles, all companies offering Takaful are required to have sharia committees to enable them comply with sharia principles while undertaking investments and handling resources.

Takaful is for all, not only for Muslims

While Takaful is associated with Islamic finance, it is important to emphasize that the enshrined principles of fairness, transparency, and mutual support are relevant and beneficial to everyone, regardless of faith or background.

Universally, every individual and business faces risks like accidents, illness, property loss, or business interruption, and Takaful offers a logical, structured way to share such risks collectively.

In addition, the principles of fairness and transparency, unlike in conventional insurance, Takaful, avoids hidden costs and ensures that contributions are pooled for the benefit of all participants and not a few. Imagine being part of a system where your contributions not only protect you but also help or support others in times of crisis. This sense of shared humanity is appealing to anyone seeking ethical financial solutions.

Globally, non-Muslim countries like the UK, South Africa and Singapore have embraced and adopted Takaful products, which is proof that Takaful is universally accepted and applicable. We have also witnessed financial authorities worldwide recognising Takaful as a credible insurance model, and they are integrating it into mainstream financial systems.

In Uganda, the Bank of Uganda, did put in place Financial Institutions (Islamic Banking) Regulations operationalising Islamic banking and subsequently, in, licensed the first Islamic Bank - Salaam Bank in September 2023. We are also aware that the Capital Markets Authority of Uganda is in advanced stages to have the Islamic financial instruments like Sukuk, among others.

I thus implore all Ugandans to take advantage of this financing model and safeguard themselves, their assets, properties, businesses, families and loved ones. This will not only enable you as a person to remain financially resilient but will also support a more resilient Ugandan economy.

Embracing Takaful means embracing a system that protects not just individuals, but communities, regardless of who they are or what they believe.

The writer is Manager Corporate Affairs, Insurance Regulatory Authority of Uganda (IRA)