Kenya's regulator has introduced new takaful (Islamic insurance) rules which will allow the entry of conventional players into the sector, part of efforts to boost capital markets in East Africa's biggest economy.
Takaful is seen as a bellwether of consumer appetite for Islamic finance products. It is based on the concept of mutuality; the takaful company oversees a pool of funds contributed by all policy holders.
Islamic finance, which follows religious principles such as bans on interest payments, accounts for roughly 2 percent of total banking business in Kenya, where Muslims make up about 15 percent of the population of 40 million.
The rules will come into effect in June with firms required to adhere to the requirements by December, according to a document from Kenya's Insurance Regulatory Authority.
This would see Kenya join the countries such as Pakistan and Indonesia in allowing takaful windows, which enable firms to offer sharia-compliant and conventional products side by side.
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The rules require separate financial reporting requirements for takaful windows from their parent firm, and their operating model must be approved by a board of religious scholars.
Operators must also maintain separate takaful funds for their general and life businesses.
Kenya's first full-fledged takaful firm was launched in 2011, Takaful Insurance of Africa. Islamic lender First Community Bank also operates a takaful scheme while Kenya Reinsurance Corp has developed a sharia-compliant reinsurance product of its own.