Uganda Government counts on Islamic model to drive insurance penetration

The Insurance Regulatory Authority of Uganda (IRA) has introduced Takaful, an Islamic insurance model based on mutual support and ethical finance, as part of a broader strategy to deepen insurance penetration in the country.

With insurance uptake still below 1 percent of GDP, the Authority sees Takaful as a game-changer that could tap into underserved communities, particularly Uganda’s Muslim population, while promoting transparency and trust in the sector.

Speaking during a recent engagement with industry leaders, IRA Executive Director Ibrahim Kaddunabbi Lubega confirmed that at least one insurance company is close to completing the licensing process to offer Shariah-compliant insurance. He noted that regulatory discussions are also ongoing with other potential entrants, some of whom have prior experience operating Takaful models in international markets. “We expect Takaful to be operational before the end of this year, which will mark a significant milestone in making Uganda’s insurance industry more inclusive and responsive to diverse needs,” Mr. Kaddunabbi said.

Takaful is distinct from conventional insurance in that it operates on cooperative risk-sharing principles. Participants contribute to a shared fund used to compensate members who suffer losses, while any surplus is redistributed among contributors. Unlike traditional models, Takaful prohibits interest (riba), gambling (maysir), and excessive uncertainty (gharar), and it requires investments to be made in Shariah-compliant instruments. Though often associated with Muslim communities, IRA has emphasized that Takaful will be open to all Ugandans seeking ethical, community-based insurance alternatives.

The initiative comes at a time when Uganda’s insurance sector is growing but remains underdeveloped relative to regional peers. According to IRA’s latest performance report, the sector recorded UGX 1.79 trillion in gross written premiums in 2024—up 12 percent from the previous year. However, sector penetration remains low, and challenges around trust, awareness, and accessibility persist, especially in rural areas.

The IRA believes Takaful, alongside innovations like micro-insurance and bancassurance, can significantly improve this outlook. Micro-insurance, which targets low-income earners, was the fastest-growing segment in 2024, expanding by 67 percent. Meanwhile, premiums collected through bancassurance—insurance products sold via banks—rose from UGX 142.7 billion in 2022 to UGX 179.5 billion in 2023, highlighting its growing importance as a distribution channel.

To support the rollout of Takaful, the IRA is collaborating with the Insurance Training College to build capacity among local practitioners and will deploy supervisory teams to ensure compliance with both Shariah and national insurance regulations. Parliament has already passed enabling regulations, and the final ministerial approvals are expected soon.

Beyond Takaful, the IRA is encouraging mergers among smaller insurers to improve industry resilience and competitiveness. “We want to see strong, well-capitalized companies that can innovate and deliver value to the public,” Mr. Kaddunabbi said. The Authority is also calling for more trust and transparency across the industry, citing that a lack of clear pricing, opaque claims handling, and inadequate consumer education continue to hinder uptake.

Centenary Bank Managing Director Fabian Kasi echoed these concerns during the industry engagement, noting that insurance is fundamentally built on trust. “If people don’t understand what they are buying, or if they feel misled, they won’t renew or recommend the service to others,” he said.

Takaful’s launch is expected to address some of these gaps by providing a transparent, values-based model that aligns with ethical and religious beliefs. With high-level backing and regulatory readiness, industry experts believe the model could unlock new markets and stimulate growth, not just among Muslims but across Uganda’s diverse population. As the country pushes toward more inclusive financial systems, Takaful is being positioned as a vital tool in the national insurance reform agenda.