INTRODUCING ISLAMIC INSURANCE SCHEME TO ETHIOPIA AS A FINANCIAL INCLUSION TOOL: OPERATIONAL MODELS AND REGULATORY FRAMEWORKS

Abstract

Human life is filled with uncertainty. The quest for certainty led to emergence of insurance. Historically, there have been mutual and commercial insurance models. However, certain Islamically prohibited elements entrenched therein have caused huge number of Muslims to shy away from using it. As a result, Islamic insurance emerged as a third model to provide alternative products to those who have reservations to conventional insurance. Nowadays, Islamic insurance is one of the world’s fastest growing segments in insurance. Countries that have introduced it to their financial system achieved remarkable success in their insurance sector’s density and contribution to national GDP. Despite strong public demand, this insurance scheme is not officially introduced to Ethiopia yet. Recently however, the country is taking some initiatives to introduce diverse and innovative financial products as part of its financial inclusion strategy. This study, thus recommends the need to introduce Islamic insurance scheme to help the country attain its target of boosting financial inclusion. For the successful operation of Islamic insurance, enabling regulatory and supervisory frameworks that accommodate manner of conducting the business are needed. This study is therefore a modest contribution to appreciate the operation and regulation of Islamic insurance in Ethiopia. In so doing, the study applied qualitative research method and data collection tool. After analyzing the international best practices and experiences of some jurisdictions, the study recommends the operational models and regulatory frameworks that fit for Ethiopia. Regarding regulatory framework, the study suggests the enactment of directive/guideline to provide for matters peculiar to the practice of Islamic insurance without the need to enact independent proclamation for the existing laws and rules governing conventional insurance can mutatis mutandis apply to Islamic insurance. Regarding the level of adoption, owing to scanty level of awareness and inexperience about the sector from the customers, practitioners and supervisor’s perspective, it is proper to start from window service and gradually move towards full-fledged Islamic insurance.