It was an African invention, first developed in Sudan in the 1970s. An Arabic word roughly translated to "shared responsibility," Takaful is an insurance policy introduced to Ethiopia by a company in the United Arab Emirates (UAE). In a country where the concept of insurance remains underdeveloped - 62pc of rural Ethiopians reported having not heard of the word "insurance" - a particular policy like Takaful is unfamiliar territory even to those working in the industry.

Samir Fuad, a young economics graduate, is unaware of Takaful insurance, despite his stint in the insurance industry working for one of Ethiopia's 18 insurance firms for a couple of months. Many are unaware, if not dumbfounded, that such a concept is out there.

It is an insurance product that has been the market since the first Takaful was established in Sudan in 1979. A year later, the General Council of Islamic Scholars certified Takaful as an Islamic alternative to conventional insurance, a product compliant with Sharia Law. It is a scheme that stands out from standard insurance products primarily through its risk-sharing characteristics compared to the conventional mode of risk transfer practiced for three centuries.

Conventional insurance is considered incompatible with Sharia Law as premiums paid by users go into a fixed-term deposit, from which the insurance companies make money off of interest. If the insurer fails to pay out claims, the premium collected from clients is taken as a profit. In the case of Takaful, the surplus gained annually after paying off claims gets distributed back to participants in accordance with their contributions.

A subscriber to an insurance policy pays a "premium"; in Takaful, it is a "contribution," a payment that goes into a pool of funds. Although it is used mostly by followers of the Islamic faith, anyone can subscribe to Takaful.

Not even one-third of the insurance firms in the market offer this product.

Global Insurance is the pioneer of Takaful in Ethiopia, with its senior executives planning to develop a Sharia-compliant insurance product for a long time. The firm's corporate strategy developed several years ago identified Sharia-compliant services as an area with great potential for growth.

Back then, the executives were challenged due to the absence of a legal framework that governs the business. While following up and hoping that the regulatory agency, the National Bank of Ethiopia (NBE), would issue a directive to address this, Global continued its venture towards developing a Takaful product, Asseged Gebremedhin, deputy CEO, told Fortune.

The first feasibility study was kicked off over a decade ago in collaboration with Al-Huda Centre for Islamic Banking & Economics, a UAE-based insurance and banking consultant. This company is taking the market by storm now, partnering with several insurance companies queued to go into the market, including Ethio-Re, the only reinsurance company in Ethiopia.

The feasibility study analysed the country's regulatory landscape, the potential size, financial requirements, and the types of products suitable for the Ethiopian market. The main revelation from the study was the potential Takaful promises, a staggering 1.3 trillion Br to banks in a matter of a few months, from segments of society that would have otherwise remained unbanked. For the experts involved in the feasibility study, this eyebrow-raising amount represents 1.5pc of the total deposit the banks mobilised last year.

Yet, Ethiopia is a country with low bank service penetration. Only close to 35pc of the people aged over 15 years have bank accounts, the Global Index Database for 2017 discovered. It is a finding consistent with a study the World Bank conducted two years later; 65pc of the country’s population was unbanked. Although financial inclusion is one of the key focus areas of the National Bank of Ethiopia, the World Bank's study shows a long way left to go. The majority are not accessing basic financial services in Ethiopia.

Experts see that the expansion of interest-free banking, alongside micro-finance institutions and Takaful insurance products play a huge role in boosting national savings. The proliferation of interest-free window banking and Takaful insurance go hand in hand, many believe. An interconnectedness is created as contributions collected from clients of Takaful insurance need to go into interest-free accounts and interest-free banks are supposed to insure themselves through Takaful. These banks are permitted to use conventional insurance in the absence of Takaful, according to Ibrahim Dawud, who has more than a decade of experience in banking and insurance consultancy.

"It'll create end-to-end compliance to Sharia law, which was not the case before," he said.

How initiatives similar to allowing full-fledged interest-free banking, Sharia-compliant insurance, and micro-finance services contribute to financial inclusion is seen positively by experts. However, some, like Abdulmenan Mohammed, a finance expert, suggest that further steps should be taken.

"Brick-and-mortar branches normally provide these products," he told Fortune. "This makes financial inclusion slower. Encouraging digital, mobile and other forms of electronic banking will accelerate financial inclusion."

It was only last year that the directive that gave the green light to insurance companies to commence Takaful window services came about. It details requirements for setting up a dedicated Sharia advisory council. Insurers are required to have an advisory board made up of three members, one of whom must be experienced in insurance, the other a scholar in Sharia principles, while the third is expected to have expertise in financial services for their Takaful window. The council is supposed to oversee all Takaful operations.

Global Insurance was the first to seize this opportunity in making Takaful products available to clients in September 2020. The insurer started onboarding clients at all of its 22 branches across the country three months ago, providing more than 25 types of general insurance schemes to its Takaful customers.

"The market seems promising so far," Asseged told Fortune.