Advancing Takaful and Islamic Finance in the Horn of Africa: Insights from a Knowledge Exchange in Malaysia
From February 23 to 28, 2025, a delegation of 13 representatives from financial sector authorities from Djibouti, Kenya, and Somalia, along with representatives from the DRIVE implementing partner ZEP-RE, participated in a targeted knowledge exchange visit to Kuala Lumpur, Malaysia. Organized by the FCI Crisis and Disaster Risk Finance and East Africa teams, the study tour deepened understanding of Islamic finance, particularly Takaful and Islamic capital markets, as part of a broader effort to strengthen financial resilience in the Horn of Africa. This visit marked the culmination of a two-year-long capacity building program for the Central Bank of Somalia under the Horn of Africa De-risking, Inclusion and Value Enhancement of Pastoral Economies (HoA DRIVE) project.
The study tour gave participants a chance to explore Malaysia's leading dual finance system. It included technical sessions on Islamic banking, trade finance, and capital markets with a focus on strengthening the takaful sector. Regulatory dialogues with Bank Negara Malaysia and other financial authorities highlighted the role of enabling regulations in driving market growth, including in nascent markets. Private sector engagements highlighted market initiatives for last mile distribution and consumer protection. Lastly, discussions with international financial services providers like Bursa Malaysia and Labuan showed how the DRIVE project could leverage their services to address retakaful capacity and access to shariah-compliant investments.
The progressive development of Islamic Finance in Malaysia has been driven by an enabling regulatory environment, a robust Shariah governance framework, an ecosystem wide market development approach supported by close collaboration between regulators and industry players and sustained training and capacity building.
Both the participants and the host institutions in Kuala Lumpur noted the strong positive impact of peer-to-peer learning. Participants returned equipped with actionable knowledge and a collaborative network of experts.
The participants left Malaysia with a list of concrete next steps. These involved strengthening foundations for strategic long-term partnerships to accelerate project implementation and market development:
- Establishing a Shariah Governance Framework to crowd-in partners and funders onto the DRIVE platform
- Rolling out Somalia’s national insurance roadmap with a focus on market development initiatives with MTA support on development of Somalia’s takaful association
- Institutionalizing a long-term regulatory and supervision capacity building program with support from Malaysia’s global academic institutions and the WBG’s FCI Malaysia Hub
Nearly a year later, we can see the results of this visit:
The Central Bank of Somalia strengthened its regulatory role in insurance and were able to present to the Parliament the importance of the Takaful Bill. As a result, the National Takaful Law, was enacted in May 2025, which introduced the first insurance law in the country and established a Shariah-compliant framework for all insurance activities in Somalia. After the passing of the law, CBS issued Takaful Licensing Regulations 2025, which formalized licensing procedures for both local and foreign operators. In addition to mandating the regulation and supervision of all takaful affairs. The law mandates:
- Protection of customer rights.
- Promotion of professional development and competition among takaful operators.
- Prohibition of conventional insurance, requiring all insurance to comply with Islamic principles.
As of January 2026, seven takaful operators and one broker have applied for licenses while a takaful association has been established to advance professionalism and collaboration between the market and the regulator. Two more regulations, (i) financial reporting and (ii) capital adequacy and solvency, have been approved, and implementation is being rolled out.
The National Takaful law is a major milestone in modernizing Somalia’s financial sector and is helping rebuild public trust in insurance after decades of regulatory vacuum. It has attracted interest from Islamic finance institutions across the Middle East, Asia, and the Horn of Africa, as reflected in recent coverage from outlets such as BusinessWorld Africa and Hiiraan Online. This momentum underscores the importance of continued collaboration between regulators, industry leaders, and development partners.
The study tour was funded through the Risk Finance Umbrella (RFU) Multi Donor Trust Fund and the DRIVE project is co-financed by the Global Shield Financing Facility (GSFF).