* Firms must have advisory boards with at least two scholars
* Scholars must meet eligibility criteria, code of conduct
* Regulator to set up central sharia advisory board of its
* Allows the use of takaful windows by conventional insurers
By Bernardo Vizcaino
SYDNEY, May 3 Nigeria has issued new guidelines
to oversee the operation of its takaful (Islamic insurance)
industry, favoring a centralised format that is gaining favour
across the Islamic finance world.
Africa's top oil producer and second biggest economy is
trying to establish itself as the African hub for Islamic
finance, having approved rules for issuing sukuk in March.
Nigeria, home to the largest Muslim population in
sub-Saharan Africa, hopes the guidelines will boost insurance
penetration. Its insurance sector had total assets of 621
billion naira ($3.9 billion) as of December 2011, according to
The guidelines, issued last month, require each takaful firm
to establish an advisory council of experts; at least two of the
experts must be sharia scholars appointed to four-year terms,
which are subject to renewal.
Nigeria's insurance commission will in turn establish a
takaful advisory council of its own to oversee industry products
and practices, mirroring the centralised approach favoured by
countries such as Malaysia and Oman.
Advisory council members must comply with eligibility
criteria and an internal code of conduct, and attend a minimum
75 percent of meetings or face disqualification.
Under the guidelines, sharia scholars can only be members of
one advisory council at a time and must undergo a formal
assessment to ensure appropriate training and experience.
Islamic scholars are experts in financial and religious law,
but they are not certified or accredited like other professions,
so regulators are increasingly developing ways to ensure the
hiring of experienced and financially literate scholars.
Conventional insurers in Nigeria will also be allowed to
offer services through takaful windows, as long as operations
are ring-fenced to avoid leakage and comingling with funds that
are not sharia-compliant.
The use of takaful windows has been limited to a few
countries such as Indonesia, Kenya and Pakistan. The latter
prompted a legal challenge from full-fledged takaful firms
against Pakistan's efforts to encourage competition.
Nigeria currently has a total of 58 insurance companies
which posted gross premiums of 233 billion naira in 2011, a 16.6
percent increase from a year earlier.
A separate circular sets a relatively low minimum capital
requirement for takaful firms, which need to place a deposit of
100 million naira with the central bank.
Regulators opted to allow three takaful operating models
under the new guidelines: mudaraba, wakala and hybrid.
Under the mudaraba model, a takaful firm acts as a managing
partner for a policyholder's money, working under a
profit-sharing contract with any losses borne by participants.
In wakala, the firm operates under an agency agreement,
managing funds on behalf of policyholders in exchange for a
management fee, which can also include a performance fee.
The hybrid model uses the mudaraba format for investing and
the wakala format for underwriting.
All takaful investments must be in sharia-compliant assets
but if these are limited, firms may engage with conventional
instruments subject to approval by their advisory councils.
Firms are also encouraged to consider guidelines issued by
the Malaysian-based Islamic Financial Services Board and the
Bahrain-based Accounting and Auditing Organization for Islamic
Financial Institutions, though they are not legally binding.
(Editing by Andrew Torchia)