Awash Insurance Company (AIC) has become the second firm in the industry to enter the growing takaful market, a Sharia-compliant insurance product.

The oldest private insurance firm, Awash has begun offering its "Selam Takaful" service at a fifth of its branches beginning July 1, 2021. This enables the company to provide customers with the platform to a pool of funds that is used to cover risks incurred by participants.

Regulators at the National Bank of Ethiopia (NBE) have given their nod for Awash, which was given permits two months ago. Al-Huda Centre of Islamic Banking Economics, a Dubai-based Islamic banking and insurance service consultancy company, was hired to conduct a feasibility study. The regulators require insurance firms to commission studies when soliciting permits. According to executives of the company, the apparent lack of Sharia-compliant insurance services despite the size of the population adhering to the Islamic faith was the takeaway from the feasibility study.

"The study showed that the firm would be profitable if it provided products that meet the market's demand," said Firafis Dejene, strategic planning and research manager at Awash Insurance.

A directive regulating Takaful services surfaced last year, allowing insurance firms to open a window for the product. Insurance firms have since geared up to explore the opportunity, hiring international consultants to study the market and its potential.

Global Insurance was a pioneer in launching a Takaful service in September 2020. The feasibility study it commissioned showed 1.3 trillion Br could be mobilised in a few months by introducing a Takaful insurance scheme, amounting to a little less than two percent of the total deposits mobilised by commercial banks over the last fiscal year. Global provides all classes of business in its 22 branches, except family Takaful insurance, similar to conventional life insurance.

Community awareness about Takaful has increased, according to Assegid Gebremedhin, deputy CEO of Global. Although hesitant to disclose the number of customers won, the firm's clients have jumped by a monthly average of 20pc. The firm has already received claims in the fourth quarter of the fiscal year.

Nyala Insurance is another insurer set to jump on the Takaful bandwagon. Its executives commissioned a feasibility study a few months back.

"We're looking into it vigilantly," said Yared Molla, Nyala's CEO. "We'll join soon."

Insurance firms can pick from a few widely used models: Wakala, Mudharabah, and Hybrid.