The first Sharia-compliant insurance company in Kenya has been formed as the race for Islamic cash intensifies.
The firm, which will operate as Gulf Takaful Company Ltd, is being fronted by GulfCap Investments — the principal shareholder in Gulf African Bank.
Under the model, people seeking insurance cover will pay premiums to a collective fund from which payments will be made to members who suffer from the risks covered.
But unlike conventional insurance practice, any residual cash after all payments have been made in the financial year is paid out to members as profit.
This means that the new insurance model, known in Islamic parlance as Takaful, is both an investment offering as much as it covers members.
The investors say it offers a strong value proposition to consumers who also essentially act as shareholders.
“People will find it a prudent model. Normally, when one insures their house or car, they don’t get their money back. We are offering a possibility to the insured to get back some of their money,” said Mr Suleiman Shahbal, the chairman of GulfCap Investments.
The insurance firm is expected to begin operations in the next six months with a capital base of up to Sh1 billion.
It will offer general insurance cover, including motor and property covers, leaving out life insurance.
Gulf African Bank will act as the fund manager for the insurance company, earning fees for its services to the insurance scheme.
The bank’s chief executive, Mr Najmul Hassan, said introduction of the insurance company is a significant step towards offering and exploiting Islamic financial services.
According to the 2010 census, there are 4.3 million Muslims in Kenya.
“We still need Sukuk (Sharia-compliant government securities) where we can invest the surplus cash from our operations,” Mr Hassan said.
Muslims have shied away from most conventional financial services as their faith prohibits them from investments that earn interest.
Analysts say that by introducing Sukuk, the government could diversify the base of investors bidding for government debt papers, given the cash flush investors from the East who have shown interest in Africa as an investment destination.
Mr Hassan said the firm was also eyeing Islamic microfinance services.
Analysts say the Islamic finance model is a niche that is hugely unexploited and offers favourable returns to investors.
In the three months to March, Gulf African Bank registered 127 per cent growth to post a pre-tax profit of Sh25 million, marking its debut in the profit-making territory since it began operations over two years ago.