Recently, the Government of Uganda passed the Insurance (Takaful and Retakaful Regulations), 2025 (the “Regulations”). Takaful is a mutual assistance scheme under Islamic law (“Shari’ah”), whereby participants contribute to a common fund to provide benefits payable to the participants or their beneficiaries upon the occurrence of a pre-agreed event. Accordingly, the Regulations define takaful as insurance conducted in accordance with Shari’ah principles. While conventional insurance emphasizes risk transfer from the insured to the insurer, takaful emphasizes risk sharing among participants.
Islamic scholars recognize Sudan as the birthplace of the modern takaful model, following the establishment of the first takaful company, Islamic Insurance Company, in 1979. Thereafter, takaful spread to the Middle East, North Africa, and Asia. The takaful industry has experienced exponential growth globally and is steadily being adopted in several sub-Saharan countries, including Uganda.
Even prior to the passing of the Regulations, Uganda had already embarked on a journey toward embracing Islamic insurance through several notable steps. In 2018, the Government passed the Financial Institutions (Islamic Banking) Regulations to regulate the conduct of Islamic financial business by financial institutions, creating a supportive environment for the emergence of other Shari’ah-compliant business models, including takaful. In 2021, the Government commenced the preparation of dedicated takaful regulations, and in the same year the Insurance Training College (ITC), which is responsible for training insurance professionals, introduced a module on takaful. In August 2022, the Institute of Certified Public Accountants of Uganda (ICPAU) published the Financial Reporting Guidance for Takaful Operators. In 2024, the Insurance Regulatory Authority of Uganda (the “Authority”) issued the Takaful and Retakaful Guidelines, 2024 (the “Guidelines”) as a stop-gap measure until the appropriate regulations on takaful were enacted. Following the enactment of the Regulations, the Guidelines now serve to illuminate the interpretation and application of the Regulations.
Nature of Takaful
Islamic law forbids gambling or speculation (“maysir”), excessive uncertainty (“gharar”), and interest (“riba”) in all forms. Riba refers to unequal transactions and is commonly associated with interest charged on loans. Under Islamic law, conventional insurance is considered to rest upon the forbidden tripod of maysir, gharar, and riba. In conventional insurance, the insured pays a premium to the insurer, and the premium is different from the sum or loss insured; this difference is viewed under Shari’ah as interest. Furthermore, the insurer’s obligation arises only in the event of loss, which Shari’ah considers excessive uncertainty. Lastly, the insurer’s profit is derived from speculation on the occurrence of a specified loss: if loss occurs, the policyholder is indemnified; if loss does not occur, the insured forfeits the premium. Islamic law views this as gambling.
On the other hand, takaful is established through two contracts: one among the takaful participants (known as tabarru) and another between the participants and the takaful operator. A takaful operator is a person licensed by the Authority to carry on takaful business. Tabarru involves a participant donating a sum to the takaful fund in fulfillment of their obligation of mutual support. Unlike a premium under conventional insurance, tabarru is treated as a gift. It is not given with commercial intent but as an expression of brotherhood, thereby making the takaful transaction permissible under Shari’ah.
The contract between the takaful participants and the takaful operator may take the form of either a profit-sharing contract (mudharabah) or an agency contract (wakalah). Under mudharabah, the operator manages the tabarru contributions and receives a share of the operating profit. Under wakalah, the operator receives a management fee. Other contractual arrangements between participants and operators may include a trust (waqf) or a hybrid model (mudharabah-wakalah), although these are less common. Regardless of the model, the contract must be approved by the Authority.
Retakaful & Takaful Window
Retakaful refers to reinsurance conducted in accordance with Shari’ah principles. A retakaful operator allows takaful operators to participate in a retakaful fund, just as a reinsurance company issues cover to an insurance company. While reinsurance is the foundation of conventional insurance, retakaful is the commercial backbone of takaful.
A takaful window is a part of an insurance company or any other licensed entity approved by the Authority to carry on takaful business. It is a dedicated branch established to conduct takaful and may include a retakaful window. An applicant seeking a license to operate a takaful window must identify the part of its business that will be conducted in accordance with Shari’ah takaful principles and must maintain policies and controls to ensure compliance. The principles governing takaful business likewise apply to retakaful business. Similarly, the requirements for a takaful operator apply mutatis mutandis to a retakaful operator and a takaful window.
Takaful Fund
A takaful operator is required to maintain a fund, known as a takaful fund, to facilitate the carrying on of takaful business. A takaful fund consists of contributions made by participants. Where a participant suffers a loss arising from a risk covered by the takaful contract, the takaful operator compensates that participant from the takaful fund. A takaful operator may maintain more than one takaful fund, each for a specific takaful product offered by the operator.
The law requires that a takaful operator manage the takaful fund in accordance with Shari’ah principles. A takaful operator must not mix its own funds with the takaful fund, and it is unlawful for a takaful operator to apply the takaful fund to transactions unrelated to that particular fund. A takaful operator may invest the takaful fund in assets or investment opportunities under two conditions: the investment must comply with Shari’ah takaful principles, and the venture must be approved by the Authority. Additionally, the operator is required to have a written agreement, approved by the Authority, that provides for the distribution of any surplus or deficit arising from the takaful business between the participants and the shareholders.
Classification of Takaful Business
The classifications of takaful business are highlighted in the Regulations and outlined in the Guidelines. Takaful business is broadly divided into general takaful and family takaful. A takaful operator may not conduct both general and family takaful. Accordingly, an applicant for a takaful license is required to indicate the class of takaful business they intend to conduct. This restriction mirrors the prohibition in conventional insurance against an insurance company conducting both general and life insurance.
Family takaful involves long-term contracts exceeding one year, and participants contribute towards needs of a social nature. It is divided into four categories: human life, marriage, birth, and incapacity due to accidents or illness. General takaful comprises short-term renewable contracts. It is divided into several categories including accident, sickness, land, vehicles, aircraft, ships, goods in transit, and property damage.
Entry Requirements
It is unlawful to carry on takaful business without a takaful operator license from the Authority. An applicant submits a certificate of incorporation, company constitution, corporate management structure, business plan, recent audited financial statements, and a security deposit of 10% of the company’s paid-up capital, among others. The applicant must also meet the minimum capital requirement (MCR) applicable to their desired class of takaful service. The current MCR is as follows: Family takaful operator: UGSH 4,500,000,000; Family retakaful operator: UGSH 6,000,000,000; General takaful operator: UGSH 6,000,000,000; General retakaful operator: UGSH 9,000,000,000.
Shari’ah Committee
A takaful operator is required to comply with Shari’ah takaful principles. Accordingly, the law requires the operator to establish and maintain a Shari’ah Committee with the approval of the Authority. A member of the Shari’ah Committee should possess relevant knowledge, skill, experience, and understanding of takaful, the application of Shari’ah takaful principles, and Islamic finance. The Committee plays an essential role in maintaining the sanctity of takaful business. It is responsible for establishing, implementing, and supervising the takaful operator’s Shari’ah governance and compliance framework.
The Shari’ah Committee reports annually to the Authority on Shari’ah compliance and is responsible for expressing a binding opinion on the extent to which the operations, transactions, and contracts of the takaful operator comply with Shari’ah. The Board of a takaful operator is required to regularly audit its compliance with the fatwas, rulings, directives, and guidance issued by the Shari’ah Committee. In exercising its functions and duties, the Shari’ah Committee is independent and not subject to control by management. However, management may provide assistance, access to necessary records, and any other support the Committee may request.
Conclusion
Takaful promises to widen and deepen insurance coverage in Uganda as an alternative to conventional insurance. This unique approach will not only fortify the financial protection of individuals and families but also foster a spirit of solidarity among participants, which is not present in conventional insurance. From global experience, the growth of takaful is usually limited by weak regulations, lack of awareness, and a chronic shortage of human capital. Looking ahead, Uganda’s successful implementation will depend upon a robust regulatory framework and enforcement, skilling of human capital, public awareness, and the commitment of takaful operators to upholding Shari’ah principles. Dentons is a global leader in insurance law strategically positioned to advise stakeholders interested in entering and operating in the insurance market. Beyond regulatory compliance services, we provide insights into market trends, operational considerations, and strategic opportunities to support sustainable growth in the insurance sector. We welcome discussions with industry players seeking guidance or collaboration in navigating and shaping the evolution of Islamic insurance in Uganda.
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