By KT Reporter
Uganda has got its first operator of Takaful Insurance, the insurance practices based on Islamic Principles, a development expected to further improve insurance inclusiveness in the country.
Insurance Regulatory Authority Head Legal, Francesca Nakaggwa Kakooza, says the Takaful licensing of Tamini General Insurance Ltd builds on Uganda’s steady embrace of Shari’ah-compliant products, following the introduction of Islamic banking in 2018.
Takaful prohibits practices that violate Islamic values like interest, gambling, and haram investments, and is often described as Islamic Insurance.
It is structured around risk-sharing, as opposed to the traditional model of risk transfer from insured to insurer.
Under this type of insurance, parties or policyholders agree to guarantee each other and make contributions to a takaful fund or mutual fund (Takaful fund) instead of paying premiums.
Each participant’s contribution is based on the type of coverage they require and their personal circumstances.
A takaful contract is signed specifying the nature of the risk and the length of the coverage, similar to that of a conventional insurance policy.
Dr Abdulhafiz Walusimbi, Head of the Department of Shariah at the Islamic University in Uganda and Board Chairman at the Insurance Training College, explains that the main principle distinguishing Takaful from conventional insurance is the avoidance of interest in the operations. He says it does not entertain practices that are prohibited by Islamic Law, that is, Interest-based dealings, uncertainty, and gambling; rather, it is based on ethical values like transparency (disclosure, trust, and truthfulness), and approved haram investments.
Because of the complexity in determining whether one is complying with the provisions of Sharia, Walusimbi says, there had to be a specialized committee to specifically guide this.
Kaddunabbi Ibrahim Lubega, the Chief Executive Officer at the Insurance Regulatory Authority, says that in developing the Takaful Insurance regulations, they have benchmarked African countries that already have it in practice, including Sudan, Egypt, Kenya, Nigeria, and Senegal.
This was aimed at ensuring that the regulations not only comply with the global sharia, but that fit within the African and Ugandan insurance terrain without injuring the Islamic values.
Contrary to the notion that Islamic Insurance targets Muslims, Walusimbi and Kaddunabbi say that it is designed for whoever feels safer or more comfortable dealing with it as opposed to conventional insurance.
The Takaful insurance licensing framework also provides for two types of licensing, with one providing for an insurance company established to provide Islamic insurance, and the other providing a window for a conventional insurance company to have a Takaful insurance section.
Kaddunabbi says the main difference is that while the conventional insurance companies are all about interest, Takaful insurance prohibits it and cannot earn the company or the policyholder any interest.
Instead, it is a shared risk and mutual guarantee between the policyholders and the company operator.
How it works. A prospective client who has an asset to insure approaches a Takaful insurance operator to find out the available products.
The client then decides on how much to contribute and agrees to a contract with the other contributors to the risk. When the risk materializes, they are compensated from those poor funds.
When the period or product duration is reached, and the client has no claim to make, the money is invested in a business or asset that is acceptable under sharia (non-haram).
The profit that is realized from such investments is then shared between the operator and the clients.
This is different from conventional insurance, where when the insurance product period elapses without any incident, the premium paid by the client is lost, while any investment made by the insurance company returns profits only for the owner of the insurance company.
In effect, under takaful, the client becomes a part owner who may share in the profit and/or losses made by the company. This guarantees more certainty to the client, unlike in the conventional insurance business.
In Uganda, Takaful was legislated for under the Financial Institutions (Amendment) Act of 2016, which allowed for Islamic Banking and Islamic Insurance, among others.
However, the development of regulations and the formation of the specialised committees delayed the take-off.
Kaddunabbi says that he is sure this will lead to more deepening of insurance as well as increase the available resources for financing long-term projects.
Islamic insurance is also said to enhance market confidence since the insurer is assured that they collectively own the Takaful Fund, and that they are assured of not entirely losing their money if the risk insured does not materialise.
In 2018, the Government passed the Financial Institutions (Islamic Banking) Regulations to regulate the conduct of Islamic financial business by financial institutions, creating a supportive environment for the emergence of other Shari’ah-compliant business models, including takaful.
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