As Uganda’s insurance sector evolves, a new chapter is unfolding with the introduction of Takaful-an Islamic insurance model rooted in mutual support and inclusivity.
This article explores the benefits and challenges of this model, and its potential impact on individuals and the broader economy.
Takaful holds immense promise for Uganda’s insurance landscape, particularly in addressing financial exclusion. With the right investment in awareness, regulation, and skills development, Uganda can indeed be ready, not just to embrace Takaful, but to lead in inclusive insurance innovation in East Africa.
Once a tool for social cooperation, insurance is coming full circle as Takaful reintroduces community-based risk sharing. But this shift requires more than just policy change. It calls for public education, mindset transformation, and the establishment of a dedicated fund to enhance understanding of Islamic finance.
Takaful operates on the principle of tabarru, where participants contribute to a shared pool, supporting each other in times of need. As Uganda prepares to roll out these products, the question remains: Is the country ready to embrace this model?
When asked if Uganda is ready for Takaful, Dr Twaha Ahmed Kasule, a senior lecturer at the Islamic University in Uganda (IUIU) specialising in Islamic banking, finance, and economics, expressed optimism.
‘Yes, we are ready because the Ugandan government has taken the necessary steps toward legal reforms, which have now been completed,’ he says.
Dr Kasule notes that the legal reforms finalised by the Insurance Regulatory Authority (IRA) will be signed soon. ‘We have trained more than 200 students in Islamic finance and banking at IUIU, which means there is already a foundation of knowledge regarding Islamic insurance in the market,’ he explains.
He emphasizes that companies intending to offer Takaful insurance should establish Shariah committees to ensure compliance with Shariah principles in investments and resource handling. ‘This will broaden the scope of the insurance business. There are always groups that are excluded from traditional insurance, but Takaful can enhance insurance inclusion and improve penetration within the industry,’ he adds.
Alternative way of insuring
As Takaful is a new model, players in the industry must pay attention to several key factors.
Dr Kasule points out that, as an alternative insurance method, companies must understand that they will not own the resources but act as agents for the resource owners. This will require structural reforms and a deep comprehension of operational dynamics.
Furthermore, Shariah governance will be crucial at the company level. Each company will need to have a Shariah committee comprising at least three members to ensure compliance with Shariah regulations.
The business model will also need to adhere strictly to ethical considerations in investments and resource management. While these tasks are significant, they are achievable.
Advantages of Takaful
Dr Kasule notes that while there are many advantages to implementing Takaful, substantial efforts are required to educate the public and industry stakeholders.
‘We are still in the process of educating the market. People will need to learn this alternative method of insurance,’ he states.
He highlights that Takaful can address issues of exclusion.
‘By introducing Takaful, we are promoting insurance inclusion, which parallels inclusion in the banking sector. This will enhance the penetration rate of the insurance industry and create greater employment opportunities, increase premium collections, and facilitate the expansion of the insurance sector in the country,’ he says.
Differences between Takaful and traditional insurance
Unlike traditional models, Takaful prohibits interest (riba), gambling (maysir), and excessive uncertainty (gharar), and requires investments to be made in Shariah-compliant instruments.
Traditional insurance often charges high premiums, one of the factors that have kept insurance penetration in Uganda at less than 1 percent.
However, how does Takaful differ in this aspect?
Kasule explains that premiums in Takaful are not set precisely. Participants in the Takaful system will collectively determine the premiums they can afford.
Since they are the owners of the pool of funds, they come together to support one another. If individuals with limited financial means decide to participate, they will unite to agree on a premium rate that suits their budget. While Takaful companies may provide advice on viable rates, the decision lies with the participants.
‘Takaful takes care of the poor. If those with limited resources can only afford a lower premium, they will collaborate to establish a rate that works for everyone involved,’ Kasule comments.
Mr Bernard Obel, the director of supervision at the Insurance Regulatory Authority of Uganda (IRA), says the Authority is in the advanced stages of licensing the first Takaful insurance service provider.
He emphasizes that the structure allowing policyholders to share in the profits generated by a Takaful insurer at the end of a specified period is a significant advantage of this product.
‘This feature is expected to expand and enhance the insurance market, particularly among the uninsured populace that has been wary of conventional insurance,’ he says.
Takaful is an ethical financial model rooted in the principles of cooperation, shared responsibility, and social solidarity.
It is based on Shariah law which emphasizes fairness, transparency, and ethical investments, distinguishing it from traditional insurance models.
‘Takaful operates as a cooperative system in which participants contribute to a shared pool of funds which are used to support group members in times of need, embodying the principle of collective care,’ he says.
Insurance regulators
Uganda’s insurance sector is growing but remains underdeveloped relative to regional peers.
According to IRA’s latest performance report, the sector recorded Shs1.79 trillion in gross written premiums in 2024, up 12 percent from the previous year.
However, sector penetration remains low, and challenges around trust, awareness, and accessibility persist, especially in rural aeas.
Ms Francesca Kakooza, the director of legal at IRA Uganda, states that as insurance regulators, they are studying the ecosystem and encouraging all insurance players to enhance it.
‘At the IRA, we began this journey three years ago by benchmarking and examining our approach. While Takaful may have a slow start, it will gain momentum,’ Kakooza notes.
She also advocates for the introduction of Takaful windows to attract more clients and promote growth within the insurance sector.
Takaful, in addition to innovations like micro-insurance and bancassurance, can improve this outlook.
Micro-insurance, which targets low-income earners, was the fastest-growing segment in 2024, expanding by 67 percent.
Meanwhile, premiums collected through bancassurance-insurance products sold via banks-rose from Shs142.7 billion in 2022 to Shs179.5 billion in 2023, highlighting its growing importance as a distribution channel.