Evolution and Revolution of Takaful in West Africa and Beyond

In the elementary study of insurance, we were taught that conventional insurance is different from wagering for various reasons among which was absence of uncertainty.

The critical minded students then knew this was not true, and on the part of the insuring public – to show their disbelief too, they would ask the insurance marketer supposing the loss did not happen what happens to the premium they have paid. Majority of us here know the answer to that query. It is this element of quasi-uncertainty in the insurance contract that adherents of Islam frown at, hence they prefer not to buy insurance products from the conventional market. In order to bring this set of people to the good family of risk protections that Africa through Sudan, as South Africa did with Critical Illness Insurance, gave the world Takaful insurance. The essence of this Sudanese gift is that majority of Moslems who would not have insured their risks as a result of their religious belief will now have a vehicle to do so.

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What then do we mean by Takaful insurance? To me, Takaful insurance is a form of insurance that took its root from the mutual insurance that was developed during the industrial revolution whereby the policyholders are not only the owners of the insurance company but also share in the fortunes of their insurance company. This is the reason insurance students were taught that mutual companies are owned by the policyholders. Another quality that made Takaful to be different from mutual insurance is its being Shariah compliant. I may not be that right hence I will like to see the views of Islamic financially experts on the subject. In this light, Prof Abdel-Rahman Yousri (2009) had argued that Takaful insurance should be perceived as co-operative and mutual insurance. He further posited that it must be Shariah compliant hence Shariah is the religious law of Islam. This by implication means that if it is not Shariah complaint, it should not be permissible for Moslem adherents. Similarly, Mohd Fadzli Yusof, et al (2015) revealed that in the field of finance, Moslems have been called upon to create institutions that can provide services free of un-Islamic elements like interest (riba), uncertainty, unfairness and imbalance or injustice. These scholars agreed that Takaful insurance has been adopted worldwide as the generic name for Islamic insurance, following a proposal from Malaysia at the summit of heads of state of the eight (D8) development Islamic countries in Dhaka Bangladesh in 1998. At this juncture, it is important to note that the first Takaful Company to be incorporated, which was known as Islamic Insurance Company Limited, was established in Sudan in 1979. The first Retakaful was established in Saudi Arabia (although it was a combination of Takaful and Retakaful, the real Retakaful company was first established in Malaysia). There is process in place to establish Retrotakaful in line with the Retrocessionnaires in the conventional insurance markets among other developments in the Takaful insurance model.

Permit me, at this juncture, to observe that in Nigeria, Takaful insurance had a very humble beginning at inception before growing as it is presently is and, on its way, to mature as the proverbial mustard tree. Takaful insurance was introduced in 2015 with the release of the Takaful Operational Guidelines by the National Insurance Commission. The Noor Takaful Insurance following the release of this operational guideline became the first company to sell Takaful products in the country in 2016. It was later followed by Jaiz Takaful Insurance Plc, which this author was its first managing director and chief executive officer. Today, there are four Takaful insurance companies in the market with more waiting for a nod of approval from NAICOM so that they could operate in the market. These companies sell general and family Takaful products to willing Nigerians. It is equally to note that the introduction of this model of insurance distribution has helped to improve both insurance density and insurance penetration in the country. A review of the financial performance of these companies in 2020, for instance, showed that all the Takaful insurance companies earned a total premium of N4 billion while in 2022 only Noor Takaful surpassed the same amount and the present management account of the company showed that the company would earned up to N10 billion by the end of this financial year.

The above notwithstanding, it is not yet Uhuru for the Takaful insurance companies in West Africa. There is still some strong regulatory and operational challenges facing these operators. In this regard, both the regulators and operators should critically look at their models, distribution channels among others to ensure efficiency and effectiveness of operations of this model of insurance business. Mores so, there are a huge untapped market of Takaful in the region. This reminds me of the premise of Mohd Fadzli Yusof et al (2015) (op cit) which rightly proposed that for Takaful insurance to remain competitive, the operators would need to expand the market by way of introducing new products and innovations. They added that this is necessary as the need to satisfy the market is a cardinal principle in any business. They noted that Takaful cannot merely ‘sell’ or market itself on ‘Islamicity’ alone. Thus the marketability and Islamicity would certainly give Takaful the edge in terms of competition in countries that are predominantly Moslems.
Conclusion

Takaful insurance has come to stay in Africa. This is a welcome development which will help in improving both insurance penetration and insurance density in the country. There is need however for the strengthening of this insurance business model through legislations as is the case in Malaysia (see Aliyu, Ahmad & Sandabe, 2021). Also, there is need for empirical studies on the impact of this model in the region.

On the part of the book, Joof has set a pace and others are following. At this juncture, it is important to note that the book that won the prestigious African Insurance Organisation Book Award this year was a book on Takaful written by an Ethiopian. This is clear evidence that Takaful is on its way to rule the African insurance airwave!

​Vanguard Nigeria