Islamic insurance in offing - IRA

Kampala. Islamic faith is known for prohibiting believers from engaging in businesses that are too much profit driven, to the extent that a section of Muslims, including those in Uganda, do not acquire loans that require paying back with interest and buy only those insurance policies that are mandatory by law.
In response to the religion-based restrictions in the financial sector, Bank of Uganda recently gave a green light to the introduction of Islamic Banking in the country to enable Muslims and whoever is interested in benefiting from that financial revolution.

In one of the most lenient doctrines of Islamic banking, the loans are interest free and in case a borrower is unable to pay back, the losses are shared between borrower and the bank.
There happens to be a business agreement between the bank and the borrower, the latter runs the business while the bank oversees operations.
The profit of the business is shared between the bank and the borrower in a prefixed rate documented in the loan agreement.
In the same respect, the Insurance Regulatory Authority (IRA) is considering opening up for Islamic insurance, also known as takaful to ensure Muslims barred from the conventional insurance are brought on board, and also serve others that may have interest in joining the new form of insurance.
This new move is seen as an undertaking set to turn around the struggling local insurance industry.

Addressing members of the Islamic faith during the Iftar dinner organised by the Insurance Institute of Uganda (IIU) in Kampala recently, IRA chief executive officer Ibrahim Lubega Kaddunabbi, said the authority’s move to consider other types of insurance will create more options for customers, boost competition and lead to improved service delivery.
“We are concerned that a reasonable number of you are not interested in the conventional banking and insurance; now that the Central Bank opened up for Islamic banking, in the first quarter of next year, we plan to follow suit and work on the process of ensuring we begin Islamic Insurance,” he said.

Adding value
The IIU chairman governing council, Mr Ronald Zaake, said the Institute is in the process of developing capacity in continuously training human resource to cope with the changing job demands of the insurance industry profession.
“Islamic Insurance will add value to the industry, as the Institute, we shall ensure that we broaden our training scope in line with the changes in the industry,” he said.
Mr Kiganda Nooh Ssonko, a real estate company managing director who neither borrows nor lends money on interest and doesn’t buy voluntary insurance, said Islamic Insurance is a welcome development in Uganda since the model squarely allows shared responsibility, joint protection and common interest between the insurer and the insured.

About the product
In contrast with the conventional insurance where companies sell policies and invest the proceeds from premiums for the profit of its owners who are not necessarily policy holders, Islamic Insurance is founded on a mutual co-operative principle where all contributors of the premiums are shareholders such that in case of risks against a given member, compensation is paid out from the pool such that the risk is spread and shared between members.

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