Apr 10 , 2021

Nyala Insurance S.C. is the latest firm to announce plans to join Takaful, a Sharia-compliant form of insurance business. It has hired AlHuda Centre for Islamic Banking & Economics, a UAE-based insurance and banking consultant, to conduct a feasibility study to implement Takaful.

It is a risk-sharing insurance scheme whereby clients contribute to a pool of funds that are considered premiums in conventional insurance terms. The pool of funds is then used to cover payments in the event of any unfortunate circumstances in accordance with Islamic laws. Takafulhas been gaining popularity in Ethiopia, with Global Insurance pioneering in the industry last year. More insurance companies are jumping on the bandwagon, with firms such as Nile Insurance and Ethiopian Reinsurance (Ethio-Re) having inked similar deals with AlHuda.

In February this year, AlHuda CEO, Zubair Mughal, and Ethiopian Reinsurance CEO, Fikru Tsegaye, entered into a Memorandum of Understanding (MOU) in Addis Abeba, hoping to promote the Takafuland Re-Takafulindustry in the East African and Ethiopian insurance markets.

Several others, such as Hibret, Awash and Oromia insurance firms are also waiting on the wings.

The National Bank of Ethiopia (NBE), in charge of supervising insurance activities, issued a directive last year governing Takafulwindow services' business. The directive requires insurance companies to apply for permits from the central bank and submit their feasibility studies.

Nyala Insurance is the latest in the line of firms interested in capturing a market segment that wants risk-sharing insurance services, according to Yared Molla, CEO of Nyala Insurance.

"It's not to be fashion-forward," he told Fortune.

Nyala Insurance, the highest capitalised firm with 530 million Br in capital, plans to conclude the feasibility study by July and apply for approval to begin operation in the coming fiscal year, Yared disclosed.

Although the service's proliferation is commendable, experts raise their concerns about the lack of skill in the Takafulinsurance business.

Ebsa Mohammed, Alpha Certification Consultancy manager, sees the emergence of Takafulas long overdue, and the absence of competent and experienced staff and advisors as the biggest hindrance to promoting Takafulin Ethiopia.

Aware of the challenges to be faced ahead, Nyala Insurance has been conducting a series of trainings for its management.

"The training will continue," Yared said.

The expert suggests that capacity-building training should extend to practical learnings on top of theoretical instruction.

The recruitment of advisory board members will remain a challenge, according to Ebsa.

The directive from the central bank requires a Takafuloperator to have a three-member advisory board, one of which must be experienced in insurance, the other a scholar in Sharia principle, while the third is expected to have expertise in financial services.

PUBLISHED ON Apr 10,2021 [ VOL 22 , NO 1093]

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