Kenya’s Sole Shariah-Compliant Insurer to Expand in Region

Takaful Insurance of Africa Ltd., Kenya’s only Shariah-compliant insurer, plans to expand its operations into five East African nations, Chief Executive Officer Hassan Bashir said.

Under Takaful’s five-year plan spanning 2013-2017, it will expand into Ethiopia, Tanzania, Uganda, Somalia and the autonomously governed enclave of Somaliland, where it was granted a license this year, he said. Islamic insurance is known as takaful.

“The intention is to grow the tafakul model both in the country as well as into the Eastern Africa region,” Bashir said in an April 12 interview in the Kenyan capital, Nairobi.

The global market for Shariah-compliant financing is set to double to $3 trillion by 2015, according to Standard & Poor’s. Kenya has two companies doing Islamic finance and lending, Gulf African Bank Ltd. and First Community Bank Ltd.

CIC Insurance Group, Kenya’s second-biggest insurer by premiums, is one of the largest investors in Takaful with about 22 percent, while four investment companies also have stakes.

In Kenya, Takaful Insurance has four outlets and 80 agents in Nairobi and Mombasa, two of the 47 counties in East Africa’s biggest economy. The company plans to add at least two more outlets this year and double the number of agents, he said.

Most agents are lenders including the two Islamic finance banks, Nairobi-based Chase Bank Ltd., African Banking Corp. and Equatorial Commercial Bank Ltd., Bashir said. Barclays Bank of Kenya Ltd., Kenya Commercial Bank Ltd., Equity Bank Ltd., Co-operative Bank of Kenya Ltd. and National Bank of Kenya Ltd., will be among those recruited this year, he said.

Selling Shareholding

The company will raise as much as 300 million shillings ($3.56 million) this year by selling a third of its stock to investors as it plans to expand. Currently, 70 percent of the company’s share capital has been paid up and the rest will be sold before the year is over, Bashir said.

Takaful has faced challenges including a regulatory requirement that 10 percent of premiums be invested in Treasury bills and bonds, both of which are not Shariah-compliant, Bashir said. The interest earned from that is now put in a charity account while the company awaits approval to invest the 10 percent in the two Islamic banks, he said.

The company does not invest premiums collected on the Nairobi Securities Exchange. Most investments are in the two Shariah-compliant banks, real estate and short-term lending to oil companies importing crude oil, Bashir said.

Equity Investments

“We are studying about 10 companies,” including those involved in tea, coffee and cement manufacturing, and Kenya Electricity Generating Co., he said. They must go through Shariah council evaluation for approval, Bashir said.

Takaful’s premiums totaled 430 million shillings last year, compared with 178 million shillings in the eight months through December 2011, he said. The company expects to return a surplus to clients that made no claims after the year’s end.

Kenya’s Retirement Benefits Authority licensed the company last month to start providing the country’s first Shariah-compliant pension plan, he said. It is being run on a trial basis and will be introduced in June.

“It is our expectation that there will be Shariah-compliant stocks and bonds that will provide a pool of investments for companies both in Kenya as well as in the region,” Bashir said. “Kenya is quickly developing as an important hub for Islamic finance.”

Kenya Reinsurance Corp., which by law takes 18 percent of Kenyan insurers’ premiums, introduced Retakaful to provide Islamic reinsurance, he said. The company’s risks are also spread over several companies including units of African Reinsurance Corp., Zep Re (Pta Reinsurance Co.) Ltd., MNRB Holdings Bhd of Malaysia and Islamic Arab Insurance Co.