By Frank Mutulu
Shelmith Mwangi, a self-professed Catholic, told guests at an insurance “refund” event in Nairobi of how shocked she was to be called for her refund check.
Takaful Insurance, her insurer based in Nairobi, told her that since she did not make any claims she was entitled to a share of premiums left after the payment of claims. This was “unheard of” to her.
“The efficient service and insurance policies I got accustomed to made me trust Takaful Insurance with not only my insurance need, but also my banking needs,” Mwangi said.
Her testimony opened the door to the a world of Islamic finance where fine print and other perils of the insurance industry are not allowed.
To understand Islamic finance one must look at its pillars which are based on Islamic law or Sharia’a.
Islamic finance forbids any product that charges interest or riba, that has an element of uncertainty or gharar and is not permissible under Sharia’a.
The former forbids financing or transactions in alcohol, arms, pornography, pork products and gambling.
Finance enthusiasts and practitioners say that eliminating interest and risk are some the main factors attracting consumers, even those who do not profess the faith.
“According to Islam, you are not supposed to lend money. You participate in the risk and earn profits, not interest or riba which is haram,” Johnson Nderi, a corporate advisory manager at ABC Capital told AFK Insider.
As in the lady’s case she shared in the rewards from claims.
International rating agency, Moody’s, also said that non-Muslims are beginning to understand how Islamic finance works and this is attributing to more issue of Islamic bonds also known as Sukuks.
“The increasing familiarity of both Islamic − and, most critically − ‘conventional’ [non-Islamic] investors with these instruments,” said Moody’s vice president and senior credit officer Khalid Howladar in a November report on the global growth of Sukuks.
Moody says that between 2002 and 2012 Islamic bonds grew from $2.3 billion to $81 billion.
The report further states that there are Christians, Hindus and followers of other religions who also would not want to invest in the alcoholic, arms or pornography industries.
Islamic insurance, which is technically referred to as takaful, works on the principle of shared risk and reward between the two parties.
When a consumer buys a takaful insurance policy, the premiums are split between the company and a fund specially created for the policy holder.
So for every dollar paid in a policy, 40 cents will go to the company and 60 cents to the policy holder’s fund.
In the event of an accident, holders are paid from their fund and at the end of the year, should there be a balance, it is redistributed equitably to the holders who did not make a claim in that year.
Pundits say that separation of the policy holders’ funds and those of the firm, they avoid the “devil in the detail” practice, which Shariah forbids, that has earned the insurance industry notoriety.
The practice of looking through the fine print is what has led to the high levels of fraud amongst holders and those uninsured from getting cover.
Data from the IMF indicates that Islamic finance is worth $1 trillion worldwide, which is partly due to the flood of petro dollars from oil exporting countries in the Middle East.
But while there is excitement that Islamic finances may be a panacea for the wild oscillating interest rates that have made bank borrowing risky and a source of funding for productive sectors of the economy rather than speculative ones, the seeds had been sown long ago.
Takaful insurance found its origins in Sudan, back then it was Africa’s largest economy,
At an Islamic conference held in the coastal city of Mombasa, Kenya mid this year experts said that the economic powerhouses of Africa are flirting with the idea of tapping the $1 trillion market to fund massive projects.
“South Africa completed changes to finance laws last year and plans to raise $5 billion in foreign debt over the next three years that may include a Sukuk issuance, National Treasury said in October,” Lamine Mbacke, the chairman of the Dakar-based African Institute of Islamic Finance (AIIF), Advisory and Training, said at the conference.
East Africa’s largest economy, Kenya, is also coming up with legislation that will allow the issue of Sukuk bonds.
On a larger scale, there has been a move to trade over aid, which is increasing due to fiscal pressures from traditional benefactors such as the US and Europe whose economies have been faced with crippling debt crises in the recent years.
“The on-going shift by African countries from being aid-dependent to increasing trade and investment ties with the Middle East, Islamic finance is set to play a key role in facilitating more trade and investment flows between Africa and the Middle East,” Adnan Ganiwalla, unit trust manager at Nairobi-based Genghis Capital told AFKInsider.
Adnan says that the big Muslim population coupled with a huge untapped market, speaks volumes of the opportunity in Africa.
“Recent reports indicate that over 65 percent of the total population in the continent is unbanked and that banking penetration stands at 60 percent in urban areas and less than 20 percent in the rural areas. This indicates a promising future for Islamic finance in Africa.”
The Global Religious Landscape report of December 2012 said that Africa had 248 million Muslims out of a population of around 1 billion.
As Islamic finance entrenches itself in the economy it will give Muslims a choice that does not infringe on their faith while not excluding others who share similar beliefs.
