A mutual insurance scheme based on Islamic Sharia law has been launched to reduce the impact of extreme weather events on pastoral livelihoods in Kenya’s arid northern regions where perennial drought often decimates thousands of livestock.
The Islamic Takaful insurance, which is gaining acceptance by livestock keepers keen to operate under the religion’s precepts, is boosting risk management.
Prior to its introduction, livestock farmers here had not embraced conventional insurance schemes in great numbers, though IRIN reported on a pilot Index Based Livestock Insurance (IBLI) scheme in 2010.
"Many were either suspicious or ignorant. But a majority clearly indicated that it was against the tenets of Islam,” Hassan Bashir, Takaful insurance’s CEO, told IRIN.
Takaful (from Arabic kafalah “helping one another” or “mutual guarantee”) “refers technically to shared responsibility, shared guarantee, collective assurance and mutual undertakings by a group,” according to an explanation on the Takaful Insurance of Africa website.
Those insured under the Tafakul scheme are compensated for the loss, or reduction in value, of their livestock based on an index formulated by the International Livestock Research Institute (ILRI), and according to information gathered by satellites to measure vegetation coverage and thus the severity of drought.
Cushioning household assets
Recently, some 101 livestock farmers who subscribed to the Index Based Livestock Takaful (IBLT) pilot project in August 2013 in Wajir County, received their first pay-out. The payment approval in Wajir was triggered by satellite imagery of grazing land there. This information was then fed into an algorithm that predicts likely livestock losses, noted ILRI, which partnered with the UK Department for International Development in the project.
"This pay-out is critical for building confidence in the concept of insurance for the pastoral, drought-prone regions where life revolves around livestock and drought can bring disasters,” said Andrew Mude, ILRI’s IBLI project leader, in a press release.
Mude also noted that the success of the scheme is significant in a region where many thought protecting livestock assets with a simple insurance policy was impossible due to limited economic activity, and the remoteness of the areas inhabited by pastoralists.
According to ILRI, insurance can make livestock-keeping more effective, cushioning household assets and income in times of distress.
Indeed, according to ILRI experts droughts were less likely to damage household diets in regions with access to IBLI. The households also recorded a 50 percent drop in distress livestock sales as well as a 33 percent drop in reliance on relief food.
In Wajir, insurance pay-outs were made according to premium contributions and guided by religious principles to jointly manage and share risks, explained Bashir Shatri, the livestock scheme insurance manager.
The highest premium holder, Bashir Ibrahim, who had paid the equivalent of US$951, received a pay-out of $719. The payment was for losses incurred during the December 2013 to March 2014 dry season, according to the ILRI website. Ibrahim received a lower indemnity than his premium based on the market performance of the common risk fund.
The payment he received, due to the weakening body condition of his more than 70 cattle, will help him buy water, hay and food to sustain his family without selling his herd at a throw-away price. The Takaful scheme is not restricted to compensating livestock owners after the deaths of their animals.
In total, Wajir beneficiaries received $5,800, explained Shatri.
According to ILRI, the Takaful initiative “marks the first time in Africa that an insurance policy, which combines an Islamic-compliant financial instrument with innovative use of satellite imagery, compensated pastoralists for drought induced losses.”
"The [Takaful] system has been practised in Asia and in the Arab world for over 1,600 years. In our case, it’s a big opportunity to play a role to inform our community about climate change," said Takaful’s Shatri.
But challenges remain.
In the central-northern region of Marsabit for example, Balesa Hambule of the Rendille Development Programme said many herders there had received low pay-outs from the scheme due to taboos linked to quantifying household assets.
"Our people consider it as a taboo to give the correct number of animals they own. They believe sharing such information will attract a bad omen, [and] lead to loss of their livestock. They deserve to be told to change and ignore such beliefs,” said Hambule.
At present, at least 4,000 livestock owners in northern Kenya are registered under IBLI contracts.