Islamic insurance 'Takaful' will increase insurance penetration in Uganda

By Ndawula Yusuf Katerega

The one successful segment of insurance in Uganda is the mandatory third-party insurance. But usually the public is apprehensive about the operation of conventional insurance making it hard for companies to market, sell and gain consumer confidence in regard to policies other than the compulsory third party policy. In essence, insurance penetration remains at less than 1%. Can ‘Halal Takaful' tilt the scales?

Theoretically, takaful is perceived as cooperative or mutual insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profiting, but to uphold the principle of "bear ye one another's burden" Regulatory issues notwithstanding.

In countries where this kind of insurance is practiced like Nigeria, customers are rewarded by insurance companies by sharing the end of year company profits with those policy holders who have not made any claims in that particular year. This is meant to reassure clients that they can also benefit from their insurance policy even when they have no claim.  

The act of distribution of the surplus bonus distinguishes ‘Takaful' from the conventional insurance principle, which makes it difficult for those without any claim not to get anything at the end of the policy period. With Uganda's possession of Islamic Development Bank (IDB) membership, support from the World bank, its culture and history entailing a mixture of tribes and religions, this makes Uganda a particular case in embracing Islamic insurance and its vast benefits.

Despite universality of Islamic insurance, the primary customers of Islamic insurance are Muslim and Uganda's current Muslim population estimated to be at 13.7% (6 million), getting these Muslims into the insurance bracket will have a boost to our current insurance penetration of 0.85%.

Fill the financing gap by providing long-term asset base, funding infrastructure, and offer other insurance products to Muslims like saving for retirement, planning for prolonged illness and tragic misfortune

Insurance in conventional sense means a way to provide security and compensation of what is valuable in the event of a loss, damage or destruction. This is done based on the principle of risk taking, speculation and transaction all structured on risk mitigation basis.  But over the years, the concept of risk mitigation has been put to debate among Muslim scholars on whether insurance is allowed (Halal) or disallowed(haram) under the Islamic faith. From these debates, three schools of thought arouse, those who consider both the concept and practice of insurance as un-Islamic.

Those who are in agreement with the present concept and practice of conventional insurance led by sheikh Mustapha Alzalika, and those who accept the concept of insurance as being fine but disagree with the practice and find some prohibited elements within the conventional insurance practice, hence agitating for the current concept of Takaful (Islamic insurance).

Islamic insurance is a participatory form of insurance based on TA-AWUN (mutual assistance) and Tabarru (Voluntarism) in risk sharing, other than risk transfer to third party as practised in commercial insurance. Islam demands for fairness, joint guarantee, and brotherhood (Quran 5:2) And help one another in righteousness and piety, but help not one another in sin and transgression>. Islamic insurance is universal form of mutual guarantee, acceptable among many religious denominations like Muslims, Mennonites, Amish, Brethren in Christ, Hutterites, and Jewish rabbinical. Globally Islamic insurance has a compounded annual growth rate of 14%($14.9billion), with over 215 takaful companies, 93 takaful windows and an asset base $35 billion (World Takaful Report, 2017). In Africa takaful growth is at 22%(0.7billion), mainly in morocco, Sudan, Tunisia, Gambia, south Africa and Kenya.

Takaful is becoming the new hope for most countries acting as a means for mobilizing investment capital and helping, to mitigate risk for people's daily lives and tragic misfortunes. just like commercial insurance, Islamic insurance helps in Risk Coverage for most personal and commercial risks, it builds a habit of Prudence amongst participants, it is means for Capital formation in the economy and it's safe for profitable investment for participants especially when it comes to sharing the proceeds at the end of the financial year.

The principle of "fortunate many helping the unfortunate few" is a concept recognized by Islam; In one Hadith by the Prophet PBUH "Whosoever, reduces a burden of worldly calamity on a believe, Allah will reduce his burden of the hereafter on them". this concept formed a basis for insurance but with some shariah scholars having objections and reservation in the way conventional insurance is practised, specifically highlighting three major objections Gharar{uncertainty}, Riba {Interest} and Qimar{gambling}.

Muslims believe there is Gharar {Uncertainty} in conventional insurance contracts, these contracts are seen to be contracts with too much ambiguity and elusiveness of payoff which is forbidden in Islam. Qimar {Gambling} is seen when Insurers make bets on the probability of loss occurrence for example in Term Assurance, where payment is only made if death occurs in the agreed policy period. and Riba {Interest} where there is Excess on one side in case of exchange between the amount of premium and the sum insured.

with the Continued demand for sharia complaint finance products engulfing the Muslim population world over we see the growth of Islamic insurance from the traditional Islamic countries in Africa like Sudan, morocco Tunisia, Algeria to countries like Ghana, South Africa and Kenya. In the east African region, Kenya is moving at an admirable speed in operationalization of Islamic with one fully licensed insurance company and a number of Islamic insurance windows, Tanzania has already drafted the operation guidelines and the insurance regulatory authority in Uganda asserts that Islamic insurance is the next big project for them after the rolling out of bancassurance.

The writer is a lecturer with MUBS, financial economist and a consultant with IIU and Graviola Associates. ndaulayusuf@gmail.com