Ethiopian Reinsurance S.C., aka Ethio-Re, has partnered with the AlHuda Centre of Islamic Banking & Economics, a UAE-based consultancy, to develop a Takafulreinsurance service, a scheme that covers risk through a risk-sharing procedure approved by Sharia law.

Risk is shared among participants who contribute to a pool of funds drawn from in times of crisis. Simultaneously, some of the amount can be invested in Sharia-compliant investments or distributed among participants, depending on the mode. The reinsurer collects a certain amount from the pool as a service charge. There are different subtypes of Takaful, such as the Wakala,Mudarabaand combined models.

Takafulreinsurance offers insurance to companies who are themselves providing Takafulinsurance services.

A memorandum of understanding signed between the two last week will initiate a Takafulreinsurance service. The duo will also collaborate in product development and through workshops.

Ethio-Re, established in 2016, is a pioneer in the reinsurance business. The company got off to a rocky start but has recorded positive growth for the last two years in a row, amassing 164 million Br in profit over the last fiscal year. With the commencement of this project, Ethio-Re will be the first Takafulreinsurance provider in Ethiopia.

AlHuda, which has previously partnered with Global Insurance to conduct a feasibility study for the establishment of Takafulinsurance, has 15 years of experience in consulting on interest-free banking. The firm has been operating in Europe, America and Africa. It provides research, product development and policy consulting for the banking sector.

AlHuda's former client, Global Insurance, became the first Ethiopian insurance company to launch a Takafulinsurance service last year. The company was granted a permit from the central bank in compliance with a directive that greenlit interest-free insurance in July 2020.

Fikru Tsegaye, an acting CEO of Ethio-Re, explains that interest-free insurance is gaining momentum, citing the establishment of the first Takafulinsurance company and hinting that three more are on the way. However, he was hesitant to name them.

Etho-Re and AlHuda are set to kick off their collaboration by hosting a conference on March 18, 2021, to provide an experience-sharing platform between foreign Takafulprofessionals and Ethiopians.

"We plan to organise frequent conferences on Takafulinsurance," commented Fikru, relating that the aim is to make Ethio-Re a regional hub for this sector of the insurance market.