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South Africa's Muslim community is one of the most affluent in Africa yet has been poorly served by financial services providers. Things are changing as insurers and banks roll out products meeting the stringent requirements of Islamic law
Life, health and general insurance that complies with Islamic law - takaful - has its origins in the founding of the Islamic Insurance Company of Sudan in 1979. It was only in 2003 that the potential presented by South Africa's large Muslim population prompted Old Mutual to become the first domestic life insurer to introduce Sharia-compliant product solutions.
Spearheaded by divisional manager Ikhraam Osman, the first aim was to develop a group benefits product. Speaking to LII, he stressed the challenges of creating products that meet the differing requirements of Muslim and secular legal systems.
"Another major task was to eliminate any form of usury (ribah) or interest which is not permitted in Islam," said Osman. "Designing a product that does not rely on interest to provide or enhance returns is no easy task."
He explained that the interest problem in respect of cash was overcome with the aid of the joint venture partner Frater Asset Management, which with banking group Nedcor created a "synthetic cash" instrument akin to a zero coupon bond in which all income accrues as a capital gain.
The first product, the Pristine Islamic Retirement Scheme, incorporating life and disability insurance, was launched in August 2005 with the Symmetry Islamic Fund, comprising equity and the synthetic cash instrument, as its underlying investment vehicle.
Osman explained that takaful follows the Islamic principle of caring for one another by...