Prevoius Post Shariah Friendly SACCOs: Expanding Financial Inclusion in Kenya
Insurance in Kenya has long been viewed through a conventional, commercial lens; a space dominated by large firms, corporate clients, and standard risk models. Yet, beneath this mainstream layer, a quiet transformation is unfolding. The growing demand for ethical, community driven, and faith responsive insurance models has led to the rise of Takaful, a form of Islamic insurance that’s gaining traction not just among Muslim clients, but across Kenya’s diverse financial landscape. This shift reflects something bigger, an effort to make insurance more inclusive, accessible, and morally grounded.
Over the past decade, microfinance institutions have stepped into the insurance space, bridging the gap for lower income earners who remain largely uninsured. According to data from the Insurance Regulatory Authority (IRA), Kenya’s insurance penetration still hovers below 3%, one of the lowest in sub-Saharan Africa. Micro-insurance, often offered through SACCOs and MFIs, has emerged as a practical response providing low premium products tied to credit, savings, or even mobile based services. Takaful models naturally align with this spirit. Their emphasis on mutual assistance and shared responsibility fits well within the cooperative structures of microfinance. It’s not about charity it’s about fairness and collective security.
Kenya’s insurance industry operates under the Insurance Act, Cap 487, which defines and regulates all insurance business within the country. Under Section 2, insurance business is classified broadly but the Act’s language leaves room for innovation, allowing products that meet statutory requirements while still adhering to faith based or ethical principles. While Conventional insurers rely on risk transfer and profit driven models, faith compliant institutions like Takaful operate on risk sharing. This model’s potential lies in how it can expand financial inclusion, something Kenya’s Vision 2030 squarely aims at. Conventional Insurance models exhibits aspects of riba(interest), gharar(uncertainty)and Maysir(gambling) which consequently locks out Muslims from consuming such products.
The Insurance Act does not specifically mention “Takaful,” but several sections offer interpretive room for its operation. For instance, Section 3A (1) empowers the Insurance Regulatory Authority to promote the development of the insurance sector and protect policyholders’ interests. This mandate gives the IRA leeway to approve innovative products like Takaful, as long as they uphold
prudential standards. Similarly, the Act requires insurers to conduct business “in a prudent manner,” leaving open a path
for ethical models that align with both commercial and religious expectations. The Kenyan government through the finance minister gave some exemption to the takaful operator in the country especially from the provisions of Section 153 of the Insurance Act. The insurance exemption was issued in a legal notice NO. 128 on 31 st August, 2009. As such Kenya’s approach to regulation is not exclusionary. Takaful does not exist outside the law; it thrives within it, interpreted through the broader aims of consumer protection and market development.
Takaful originates from Arabic word kafalah, which means “guaranteeing each other” or “joint guarantee”. The concept of takaful had already existed during the time of Prophet Muhammad (P.B.U.H) where the Muslims contributed to a fund under the System of Aaqilah for the purpose of helping members of their own community who were liable to pay diyat (blood money). ". In principle, the takaful system is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. It is a form of mutual insurance Takaful involves each participant giving away as donation or tabarru a certain proportion of the full amount of the contributions (premium) required to be paid. The financial assistance paid to a participant facing a loss or damage is from a fund that is contributed by all participants by way of donation.
After the takaful claims and benefits are paid, the remaining surplus is paid back to the participants.
Thus, there is no element of gambling or unjust enrichment in this arrangement. As the defined
fund belongs to the participants, the practice does not aim at deriving undue advantage at the expense of other individuals. Under the takaful system, the insured form a community based on the principles of co-operation, a form of mutual assistance and shared responsibilities of all members with a common interest. Contributions are invested, through the Participants takaful Fund, according to strictly Islamic principles (interest is prohibited and sectors such as gambling or alcohol is excluded). Most of the profits are shared among the scheme members. The Takaful company (known as the Takaful Operator) receives a fee or share of the investment income for managing the business that included underwriting the operations and investing the funds in accordance with Shari’ah principles. This model is not merely about religious compliance. It is about ethics, transparency, accountability, and fairness. The idea that everyone contributes to everyone’s security resonates deeply even beyond
Islamic faith.
In Kenya, Takaful Insurance of Africa (TIA) stands as the pioneer in this space. Founded in 2011, TIA became the first fully fledged Takaful operator in the country, licensed by the IRA. It offers both general and life (family) Takaful products and has demonstrated that faith friendly insurance can be commercially viable and socially impactful. Jubilee Insurance, UAP Insurance, Cannon Insurance and Metropolitan Life, are conventional insurance companies who have opened takaful windows in Kenya. Kenya-Re has also established a Retakaful Department that deals with reinsuring Takaful operators’ risks.
As Kenya’s financial sector continues to expand, inclusivity must go hand in hand with innovation. The Insurance Act already provides the skeleton; it is the interpretation and implementation that must evolve to support diverse models like Takaful.
In the spirit of Section 3A(1)(b), promoting the development of the insurance sector regulators should continue to encourage Sharia-compliant and community-based insurance products. Beyond
compliance, what Takaful really represents is a moral recalibration of the industry. One that reminds us that insurance is not just a financial tool, but a collective promise of care.
By Swaleh K.Yusuf
Advocate of the High Court and Islamic Investment Consultant