Africa Finance Forum Blog

Currently the posts are filtered by: Insurance
Reset this filter to see all posts.

Gravatar: Enrique Gelbard, Mumtaz Hussain, Rodolfo Maino, Yibin Mu, and Etienne B. Yehoue

Status and Development of Islamic Finance in Sub-Saharan Africa

09.03.2015Enrique Gelbard, Mumtaz Hussain, Rodolfo Maino, Yibin Mu, and Etienne B. Yehoue

The Islamic finance industry has been growing rapidly in various regions, and its banking segment has become systemic in some countries, with implications for macroeconomic and financial stability. While not yet significant in Sub-Saharan Africa (SSA), several features make Islamic finance instruments relevant to the region, in particular the ability to foster SMEs and micro-credit activities. In a recent paper, we provide a survey on Islamic Finance in SSA where on-going activities include Islamic banking, sukuk issuances (to finance infrastructure projects), Takaful (insurance), and microfinance. Should they wish to develop the market, policy makers could introduce Islamic financing windows within the conventional system and facilitate sukuk issuance to tap foreign investors. The entrance of full-fledged Islamic banks would require addressing systemic issues and adapting crisis management and resolution frameworks.

The financial sector in SSA has been growing rapidly in the past two decades. New products have been introduced and financial institutions are playing an increasing role in financial intermediation, including cross-border financial intermediation.

However, Islamic finance remains small, although it has potential given the region's demographic structure and potential for further financial deepening. As of end-2012, about 38 Islamic finance institutions-comprising commercial banks, investment banks, and takaful (insurance) operators-were operating in Africa. Out of this, 21 operated in North Africa, Mauritania and Sudan, and 17 in Sub-Saharan Africa.

Botswana, Kenya, Gambia, Guinea, Liberia, Niger, Nigeria, South Africa, Mauritius, Senegal and Tanzania have Islamic banking activities. There is also scope for development in Zambia, Uganda, Malawi, Ghana and Ethiopia, as all but Zambia has relatively large Muslim populations-Zambia is interested in using Islamic finance instruments to fund investment in the mining sector. In Uganda, the central bank has started the process of amending its banking regulations to allow for the establishment of Islamic banks and three Islamic banks have applied for a license.

Islamic finance is still at a nascent stage of development in SSA. The share of Islamic banks is small, and Islamic capital markets are virtually non-existent (there were small Sukuk issuances in Gambia and Nigeria). At the same time, the demand for Islamic finance products is likely to increase in coming years. At present, about half of the region's total population remains to be banked. Furthermore, the SSA Muslim population, currently at nearly 250 million people, is projected to reach 386 million in 2030 and financial activities are expected to rise as a share of GDP. Many countries are expected to introduce Islamic finance activities side-by-side conventional banking. Opportunities for the development of Islamic finance are expected to comprise retail products to small and medium-sized enterprises. The sub-continent's growing middle class, combined with its young population is an opportunity for Islamic finance to expand its services. SSA's large infrastructure needs will also provide an opportunity for Sukuk issuance to channel funds from the Middle-East, Malaysia, and Indonesia. For example, recent issuance of a Shari'ah-compliant bond by Osun state in Nigeria and South Africa could start a trend in favour of sukuk, especially if planned sukuk by Senegal.

Developing Islamic Finance in Sub-Saharan Africa

The development of Islamic Finance could increase the depth and breadth of intermediation, extending the reach of the system (e.g. extension of maturities and facilitation of hedging and risk diversification). At the same time, the much larger non-Muslim population could find Islamic financial instruments attractive in broadening the range of available options, particularly for SMEs and micro-credit. Moreover, financial deepening and inclusion could be further enhanced if new instruments are inspired from Islamic finance, but without necessarily being Shari'ah certified. The development of partial risk guarantees, as in Mauritius, could be seen as an example.

In addition, SSA countries could tap into growing Islamic financial markets to meet infrastructure financing needs. By opening doors to Islamic finance, SSA can seek to attract capital from Muslim countries whose savings rates are high and projected to grow. In particular, sukuk financing, which is expanding in other countries, could be a useful tool to finance infrastructure investments.

Lastly, Islamic financing can help develop small and medium enterprises and microfinance activities, given those African households and firms have less access to credit from conventional banks compared to other developing regions. Islamic banks can tap a segment of depositors that do not participate in interest-based banking. They can also promote SMEs' access to credit through expanding acceptable collaterals by extending funds on a participatory basis in which collateral is either not necessary or includes intangible assets.

Through its different forms-windows, full-fledged banking, investment banking, and Insurance-Islamic finance activities ensure appropriate leverage and help limit speculation and moral hazard. It should be noted, however, that they are also subject to constraints and risks, most notably the difficulties and costs involved in supervising and monitoring and the reputational risk implicit in some products that are not properly certified as compliant with Islamic principles.

For countries that want to develop Islamic finance in their jurisdictions, a strategy could contemplate the following steps: launching a public awareness campaign, providing the needed infrastructure (i.e. amending as needed laws and accounting and prudential frameworks), building capacity at the central bank (especially on supervision), and considering the need to set up an appropriate liquidity management framework and introduce adequate monetary operations instruments.

This blogpost is based on the academic study "Islamic Finance in Sub-Saharan Africa: Status and Prospects", prepared by Enrique Gelbard, Mumtaz Hussain, Rodolfo Maino, Yibin Mu and Etienne B. Yehoue.

Microinsurance in Africa: Dramatic growth but still challenges ahead!

03.06.2013Claudia Huber

The importance of risk management mechanisms and with it microinsurance has grown tremendously over the past couple of years. Whereas all different stakeholders involved in financial sector development have focused on credit in the earlier days and later on as well on savings and payments, nowadays insurance is generally mentioned at the same time with the more traditional financial services and products. Its importance for poor people’s lives and in the alleviation and prevention of poverty has been recognized widely.

The emerging stage of development of microinsurance and its complexity make it difficult to get an overview of what is happening in microinsurance in Africa. The Landscape of Microinsurance in Africa 2012, a new study by Making Finance Work for Africa (MFW4A) and the Munich Re Foundation, supported by the African Development Bank, ILO’s Microinsurance Innovation Facility and the Microinsurance Network, is an effort to take stock of the current state of and recent trends in the microinsurance market in Africa. The study identifies gaps in the access to and the supply of microinsurance, an emerging industry in Africa that involves many stakeholders ranging from insurers to delivery channels, policy makers, regulators, and donors.

The research finds that at the end of 2011 more than 44 million people or properties are covered by microinsurance products. Compared to 2008, the African microinsurance industry has grown by 200%. In other words, microinsurance products were accessed by 4.4% of all Africans. Still, a huge challenge remains: 38 million insured people are concentrated in Eastern and Southern Africa, while in Central and North Africa the microinsurance sector remains rather limited. South Africa alone accounts for 60% of coverage and only eight more countries cover more than one million lives each. Together, these nine countries account for approximately 90% of total coverage in Africa. West Africa has experienced the highest growth rate since 2008, growing by more than 250% to cover 4.4 million.

Due to the culturally-rooted widespread use of funeral insurance in Southern Africa, life insurance still dominates the market, covering 34 million people. Additionally, credit life products cover almost 9 million lives, showing some growth, although slower than before. Health microinsurance coverage has mostly stagnated with just 2.4 million Africans covered. Though still in a nascent stage covering 1 million people only, property and agriculture products have experienced important innovations. Contrary to the supply analysis, focus group studies show that the demand people express centers around health, agriculture, accident and property—demand that is largely unmet.  

More than three quarters of all microinsurance risk carriers are community-based organizations. However, they only account for 9% of all covered lives and properties identified. The second most common type of microinsurance providers are regulated commercial insurers (13% of organizations identified). Yet, they account for 78% of all covered lives and properties. These numbers show that massive growth in the microinsurance sector will need to come from the commercial insurance industry, whereas member groups remain the largest channel assuring outreach to otherwise uncovered customers.

The major growth experienced in microinsurance in Africa, should however not hide the fact that over 650 million Africans live in countries where microinsurance products are either absent or coverage is below 1% of total population. There is massive potential for microinsurance to expand across the continent, not just in terms of volumes but also in terms of innovative products offering both real value to clients and a business case for insurers. The research carried out shows that:

·         New distribution channels, such as life insurance products embedded into savings accounts or bundled into mobile phone subscriptions, have helped microinsurance to grow in terms of covered lives in the past two years. These types of developments hold great potential to dramatically increase coverage, but also raise questions from the perspectives of consumer education, protection, and regulation.

·         While the collected data do not allow for sophisticated client value analysis, the reported loss ratios seem to offer ample room for improved products if the microinsurance industry is truly to serve the low-income population effectively.

·         Although microinsurance regulation does not seem to have driven market development, the absence of clear legal frameworks has been identified as a barrier for expansion. Some African countries are currently developing legal frameworks specific to microinsurance, however, there is room for increased attention to this area. Clarity in the microinsurance legal framework is an important component to insurers’ having the confidence to invest in the paradigm shift needed for microinsurance success. Legal ambiguity is holding back innovative expansion.

·         Microinsurance providers were confident about the past and future short-term growth of the sector but expressed concern regarding consumer knowledge, their own knowledge of the low-income population’s needs, and product affordability.

·         The maturation of the microinsurance “industry” is evolutionary. Good examples are seen by others. They get copied, sometimes improved. Slowly but surely the industry progresses, more people are covered, better products are offered, and clients, insurers, distribution channels and others benefit. Continued and expanded inputs from donors, governments and others should help to accelerate the rate of microinsurance expansion – in terms of volumes, products and value.

If you want to find out more about microinsurance in Africa check out the interactive map and the Comprehensive Study as well as short Briefing Notes in English and French on or

Claudia Huber is advisor in Financial Systems Development at the Gesellschaft für Internationale Zusammenarbeit (GIZ), where she is responsible for the microinsurance component within the team managing the German contribution to the partnership Making Finance Work for Africa (MFW4A). Claudia is a member of the Advisory Committee of the Access to Insurance Initiative (A2ii) and a member of the Joint Working Group on Regulation, Supervision and Policy of the IAIS and the Microinsurance Network.


What do renowned economists, financial sector practitioners, academics, and activists think about current issues of financial sector development in Africa? Find out on the blog - and share your point of view with us!