The industry is starting to come into its own as seen in the widening suite of Takaful products now available. ABASS MOHAMMED looks into the challenges faced by Takaful operators in Africa.
Takaful as a concept refers to a principle of insurance that is based on mutual co-operation, solidarity and togetherness among the participants of a pool. Risk sharing and communal ownership of the pool by all members is the theme of Takaful.
Origin of Takaful
Takaful as we know it today started in Sudan in 1979. As a need driven concept, it was necessitated by the growth of Islamic banking and the objective to provide Shariah compliant and comprehensive insurance services. From these humble beginnings Takaful has grown to become a phenomenon in the global economy with estimated premiums of US$1.5 billion in 2010 and about 170 Takaful companies, 200 Takaful windows (conventional players offering Takaful) and also 20 re-Takaful players.
Takaful trends in Africa
Despite being considered the birth place of Takaful, the development of Takaful in African countries has been slow. This is a factor mostly attributed to a lack of regulatory environments, low purchasing power and poor perception of insurance.
Nonetheless the huge Muslim population in some of the countries, growth in technology and economies and the ideal principles of Takaful are predicted to bring a revolution in these nascent markets which are thus projected as a huge growth field for Takaful players.
Takaful in Sudan
As the birth place of Takaful, Sudan has been a pioneer of both Takaful regulations and developments. In 1992, the government decided to apply Shariah principles to the country’s economy, in sectors including insurance, hence becoming the first country to enact such blanket legislation in appreciation of the tenets of Islamic finance. The Takaful system operated in Sudan was the basic model of co-operative Islamic insurance.
Market structure
There are 15 local players in the market with Sheikhan Insurance and Reinsurance having an estimated 60% of the market share. National Reinsurance Company is the only reinsurer and is 55% government-owned. Additionally each insurance company has a Shariah advisory board.
The Sudanese insurance market, despite its historical position as a pioneer of Takaful, continues to face low penetration ratios and economic challenges. Low income levels, high inflation, lack of competent underwriting, among problems, continue to plague the market.
Overall, the challenges facing the Sudanese market are similar to those in other Arab and African markets, and will take some time to overcome. However, with the local Takaful industry experiencing a significant growth in recent years, the Sudanese market is poised to participate actively in international Takaful developments. Not surprisingly, Sudan was the country chosen to base the headquarters of the Federation of Islamic Insurance and Takaful Companies (FIITC).
Kenya
Kenya is the biggest economy in the east African market. With a Muslim population estimated at 10-20% of the total 40 million, Kenya has strong potential for Islamic finance. So far two fully fledged Islamic banks operate with a considerable number of other conventional banks offering Islamic banking windows.The first Takaful operator was launched in March 2011. With a capitalization of close to US$8 million, Takaful of Africa has a stable outlook and is one of the best capitalized companies in Kenya.
Mauritania
Mauritania is a Muslim country with a population estimated at around four million. SMAI Islamique and Taamin Assurances Islamique are the main Takaful players with estimated gross contributions of US$2 million. Agricultural and livestock insurance products are also key insurance necessities in an economy that is currently supported by these sectors.
Senegal
Senegal, another Muslim majority country, has an estimated population of 15 million. It has seen significant interest and growth in the Islamic finance framework through partnerships and close working relationship with countries in the Middle East.
So far, Sosar Al Amane is the only Takaful company in Senegal, with an annual gross contribution estimated at US$10,000 in 2009. Salama among other international companies is also eyeing the Senegalese market as a potential region for expansion.
Gambia
Gambia is the smallest country in Africa with an estimated population of two million, of which 90% are Muslim. Its insurance market has grown from two to about 13 companies presently.
The Takaful Gambia is the only Takaful operator in the market, launched in December 2007.
Algeria
Algeria has a Muslim majority population estimated at 35 million. Although Algeria has not yet fully authorized Islamic finance, it has permitted two players in the country. Salama, with an estimated gross premium of US$24 million in 2010, is the only Takaful operator in the country.
Libya
Libya is also one of the few MENA countries that has not fully appreciated the principles of Islamic finance. With a population of seven million, Libya is a relatively small country. Prior to the current war and the ongoing revolution in the country, Libya enjoyed stable economic growth. Takaful Insurance Company is the only Takaful operator in the country.
Eqypt
In Egypt, the total premium together with life and general insurance was about US$900 million in 2006, and this figure is the third largest among MENA countries following Saudi Arabia and the UAE. However the insurance penetration rate is less than 1% of the almost 85 million population.
South Africa
South Africa is a developing economy and a leading financial hub of the African continent. Its economy has grown significantly over the last decade and has become a major center for innovation and expansion by western companies. Thus, so far a number of Takaful operator have already established operations in South Africa including Takafol South Africa, and Al-Noor among other companies seeking licensing.
The potential of Takaful
The common denominator in the African economies is poor masses and need for community and society/welfare improvement. As seen recently, African economies have been growing significantly as shown by the interest from both eastern and western countries.
Microfinance has been identified by many as a key framework and program to end poverty and provide livelihood to many. Since its beginning in Bangladesh by the Grameen founders, microfinance has changed many lives and has been lauded as the best tool for support and self sustenance.
Takaful, and micro-Takaful in particular, refers and relates to the mutual concept of safeguarding each other and ensuring support and indemnification at the moment of need. This is done in the spirit of mutual cooperation and solidarity among members.
This concept of Takaful and tailormade products of micro-Takaful has the potential to significantly contribute to growth of the African economies and support to the masses. This is through effective and efficiently priced products that identify and meet the needs of the low-end and poor.
Takaful thus resonates with insurance, where the bottom line is not profits for shareholders and poor servicing of claims but one of clarity and transparency with the welfare of members at heart coupled with surplus sharing and distribution.
Thus, if properly packaged and presented to even the poorest, Takaful is a great concept that is set to promote the safety and security of the people who need it most. This is just the reason why Takaful is the best alternative method for insuring the poor and uninsured in Africa.
Abass Mohammed is the product development manager at Takaful Insurance of Africa and he can be contacted at
[email protected]