Dar es Salaam: Firms bid for Islamic insurance

Tanzania will soon start offering insurance services after three firms with roots in the East African nation submitted applications to the industry regulator.

The firms, Azam, Zanzibar Insurance and Mo Assurance confirmed Monday having submitted their proposals to the Tanzania Insurance Regulatory Authority (TIRA), paving way for Islamic-based services or takaful business.

Tanzania is a multi-religious and a multi ethnic society with a common law legal structure. The Islamic Banking system emerged in 2008 in Tanzania and is growing very fast

Takaful is a mutual insurance concept that abide with Islamic rules, and precludes a takaful insurer from earning interest on its investments. The wakalah model which is popular, allows operators to charge a management fee to cover expenses as well as cost of capital in addition to taking share of investment returns.

Push for Islamic insurance is fast gaining ground in the region with Kenya particularly warming up to such possibilities with its government through Insurance Regulatory Authority (IRA) believed to be readying new regulations.

The long-awaited establishment of the new law by IRA seeks to provide licensing and regulation of Takaful insurance business to attract foreign investment in the sector, even though it is still subject to a tedious regulatory and Sharia’h process by National treasury, with the industry regulator –optimistic that the regulation will be ready this year.

Takaful and Retakaful business is seen as essential to building a participatory financial ecosystem in the country as Kenya positions itself as an Islamic financial hub in the region.

The new development by IRA follows the enactment of the Insurance (Amendment) Act of 2016 which came to force in January 1, 2017 but had faced numerous conflicts from stakeholders involving the law or Sharia’h compliance as well as lack of the model’s ‘acceptance’ by regulatory bodies, prompting delay in its launch.

In July last 2016 for instance, the Capital Markets Authority (CMA) sharply differed with a report published by International Monetary Fund (IMF) which had indicated that Kenya’s Islamic finance market lacks sound regulatory framework. The capital markets regulator instead jumped into the defense of the country’s efforts citing recent developments such as adjustments by the Treasury as well as the amendment of Capital Markets Act among others.

If allowed to pass the regulatory checks and balance, experts believe that the law could immensely open the country’s financial market in its pursuant in consolidating the industry to challenge the dominance of conventional banks as well as boost efforts by the State in the issuance of Islamic bonds or Sukuks and further boost insurance penetration levels currently below 3 per cent.

Earlier in the year Kenya said it had commenced talks with both foreign and local lenders on a possibility to issue a $2.5billion Eurobond to be issued either in euros or dollar denominated currencies.

The new revelation came in the wake of the government’s pledge last year by Treasury Cabinet Secretary Henry Rotich is his 2018/19 budget read that had set a net external financing target of Sh287billion to partly cover the shortfall and settle its huge debts.

It is believed that a number of banks have already submitted their interest as well as their technical capabilities in taking part in the process.

Kenya’s third Eurobond issuance had been in the pipeline for some time now, this is after the success in the receipt of the first Eurobond proceeds of Sh175.1billion in 2014 this is after investors had offered to buy Sh774billion against the government’s target of Sh175billion, which at the time marked the largest ever debut Eurobond achieved by an African country.

The National treasury had issued a Sovereign Bond in June, 2014 for what it termed as ‘purposes of general budget support’ that was meant to fund infrastructure projects and for the repayment of the Syndicated Loan amounting to US$ 600 million plus accrued interest of US$ 4.6 million.

The first Eurobond’s fundraising was conducted in two notes of $500million five-year bond with an interest of 5.9 per cent and another $1.5billion 10 year note at an interest rate of 6.9 per cent.

The government is also keen to debut entry into the Islamic bond (Sukuk) market – a move that has continued to face hurdle and has taken longer due to absence of liquidity management by the Central Bank of Kenya. Sukuks are bonds structured in such a way to generate returns to investors without infringing on Islamic law – which prohibits Riba or interest.

Sukuk bonds afford investors the opportunity of direct participation in the projects and Sukuks have the potential to be a source of funding for long term projects. They can also be used by an institution to unlock funs tied up in assets through monetization for the purpose of reinvestment.