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By Henry Uche
Amid widespread misconceptions and varying opinions surrounding Takaful and Islamic finance operations in Nigeria, the Commissioner for Insurance in Nigeria (CFI), Mr. Olusegun Ayo Omosehin, has reaffirmed the vital role of Takaful and Non-Interest (Islamic) Finance in the socioeconomic advancement of individuals, families, communities, and society at large.
He emphasised that these financial systems are particularly crucial in addressing the current economic challenges facing the nation.
According to Mr. Omosehin, Takaful, a system of cooperative insurance based on Islamic principles of shared responsibility and Non-Interest Finance, which operates without charging or paying interest, offers a unique approach to financial inclusivity and empowerment.
He aggregated his views recently while delivering a keynote address at the 2nd Edition of the African Takaful and Non-Interest (Islamic) Finance Conference held in Lagos.
At the event, the Commissioner stressed that in a Volatile, Uncertain, Complex, and Ambiguous (VUCA) business environment, everyone should have one form of cover for life and other properties to avoid an irreparable end when the unfortunate happens. Represented by the Deputy Commissioner (Technical), Dr. Usman Jankara, the CFI said as Nigerians continue to navigate an era marked by economic volatility, environmental challenges, and social upheavals, the need for innovative solutions is paramount. This solution could come from the stables of spring or insurance like Takaful products and services.
Put together by Noor Takaful with the theme: “Islamic Finance and Takaful; Building Resilience in a Volatile World,” Omosehin affirmed that while conventional financial systems often fall short in addressing the multifaceted risks faced by individuals and communities, gladly, Islamic finance offers a unique perspective rooted in ethical principles and social responsibility.
“Islamic finance is not merely a set of financial products; it is a comprehensive system promoting fairness, transparency, and risk-sharing. At its core, it encourages investors to consider the social, ethical, and environmental implications of their financial decisions.
“This holistic approach is particularly relevant today, where the consequences of financing extend beyond mere profit and loss. Driven by increasing demand for Shariah-compliant financial services, Islamic finance in Nigeria is growing rapidly. The sector accounts for approximately 2-3 percent of Nigeria’s total financial market, valued at $3.8 billion. Sukuk dominates the market at 59.3 percent, followed by non-interest banks at 39.8 percent, and Islamic funds and Takaful at 0.9 percent.”
The NAICOM boss explained that the Islamic financial industry comprises four non-interest finance banks, five Takaful companies, 15 microfinance institutions, and 10 non-bank financial institutions. Central to Islamic finance is the concept of Takaful, or Islamic insurance. Unlike conventional insurance, which often involves risk transfer and interest, Takaful is a Shariah-compliant form of insurance based on mutual cooperation and shared responsibility.
In this kind of insurance, participants contribute to a common fund, which is used to support those in need, fostering a sense of community and solidarity. In a world where climate change, health crises, and economic instability threaten livelihoods, Takaful offers a resilient framework that provides not only financial protection but also a safety net that empowers individuals and communities to recover from adversities. By promoting risk-sharing and collective responsibility, Takaful helps mitigate the impact of unforeseen events, enabling families and businesses to bounce back more effectively.
“The principles of Islamic finance and Takaful are especially pertinent in enhancing resilience through risk mitigation, social justice, and sustainable development. This contributes to risk mitigation, social justice, and sustainable development.”
“Islamic finance encourages diversification and ethical investment, reducing exposure to high-risk ventures. Takaful, specifically, spreads risks among participants, making it easier for individuals to access necessary financial support during crises. On Social Justice, the emphasis on fairness and equity in Islamic finance ensures that even the most vulnerable members of society are protected.
“Takaful promotes inclusivity, allowing individuals from various socioeconomic backgrounds to participate in risk-sharing, thereby fostering social cohesion. On Sustainable Development, Islamic finance aligns closely with the principles of Sustainable Development Goals. By prioritizing investment in ethical and socially responsible enterprises, it contributes to economic stability while addressing environmental and social challenges”
The Commissioner added that NAICOM has been instrumental in promoting the growth of the Takaful industry in Nigeria through several initiatives. Moreover, since issuing the Takaful Operational Guidelines in 2013, the Commission has licensed five Takaful operators, with the concept gradually gaining acceptance across board.
“Although Takaful currently represents 1-2 percent of the insurance market, the future outlook is promising, considering the average annual growth rate of over 34 percent in contribution generation recorded by the industry in the last four years. The Commission has undertaken several initiatives to support the Takaful industry. The initiatives include the application of risk-based capital system which affords takaful operators a more relaxed minimum capital requirements, the proportionate qualification requirements which facilitate new entrants into the Takaful market in Nigeria, and most importantly, the Market Conduct and Enterprise Risk Management Guidelines for Takaful and Retakaful operators which were issued to ensure best practices and effective risk management.
“Several stakeholder engagement and sensitization workshops have been conducted to raise awareness and educate the public about Takaful and its benefits. We have and continue to collaborate with international standard setting organizations like the Islamic Financial Services Board, and Accounting & Auditing Organization for Islamic Financial Institutions to provide requisite regulatory guidelines, technical training and support for the industry, among other initiatives.
“The Commission is working with other regulators in Nigeria to develop more Shariah-compliant investment opportunities for Takaful and other non-interest financial institutions in the economy. As we face global challenges such as pandemics, environmental hazards, and geopolitical uncertainties, the resilience offered by Islamic finance and Takaful becomes increasingly vital.
“The recent pandemic has highlighted the fragility of our existing systems and has shown that sole reliance on conventional models may not suffice in times of crisis. The Islamic financial sector has the potential to innovate, adapt and create products that cater to emerging needs”
Omosehin who believes in a resilient Islamic finance and Takaful sector in Nigeria, implored stakeholders to synergistically leverage on the principles of Islamic finance and Takaful to build a more resilient world and create a financial system that not only withstands volatility but also promotes prosperity for all. “Let us support policies that will foster partnerships that drive innovation, and educate our communities on the benefits and growth associated with Takaful and Islamic finance” he urged.
