Strengthened Regulatory Oversight: A two-year-long capacity building program for the Central Bank of Somalia to play a leading role in developing the insurance focusing on the takaful market

May 01, 2025

Strengthened Regulatory Oversight: A two-year-long capacity building program for the Central Bank of Somalia to play a leading role in developing the insurance focusing on the takaful market

It is undeniable that we are seeing more extreme weather events that lead to disastrous consequences for communities and economies around the world. Building financial resilience can protect many from these potential hardships, enabling them to cope and recover when disaster strikes. Insurance is one of the financial tools that can play a vital role in increasing resilience.

Although the concept of insurance or takaful – the Shari’ah compliant variation - is not new in Somalia, as there was a government-run national insurance company before the war, the market is underdeveloped. Penetration of insurance remains extremely low, estimated at less than 1% of GDP. In the absence of an insurance law, the government has allowed the insurance industry to self-regulate, with the Central Bank of Somalia playing an oversight role and government working closely with the private sector to ensure the development of the insurance market.

The implementation of the Horn of Africa De-risking, Inclusion and Value Enhancement of Pastoral Economies (DRIVE) project, supported the introduction of a new product - Index Based Livestock Takaful (IBLT). In this context, in 2022, the Central Bank of Somalia (CBS) sought technical assistance from the World Bank to develop a legal framework to regulate Takaful^[1] and to strengthen its technical capacity through the development of regulatory and supervisory tools.

This capacity building program sought to strengthen the enabling environment (laws, regulations, supervision, and private sector technical capacity) and enhance data collection. It was delivered through a series of virtual, hybrid and in-person training workshops in Mogadishu, Nairobi, and Addis Ababa between October 2023 and December 2024. Training comprised modules on licensing, supervision, and operations of re/takaful businesses. This two-year capacity building program culminated in a week-long study tour to Malaysia, during the last week of February 2025, which exposed officials to the leading edge and frontier of Islamic finance focused on Takaful and Islamic capital markets.

Discussions during the capacity building programs

Sustained, practical and inclusive

A multiphase approach was critical to ensure sustained engagement and to allow officials to balance commitment to the program alongside their multiple day-to-day commitments.

The training was practical and interactive, including combined case studies, comparative analysis, and applied exercises such as the calculation of the surplus fund. Hands-on sessions were imparted, for example, through short work visits to the Kenya Insurance Regulatory Authority’s office.

Including both the public and private sector was crucial. In the case of Somalia, the same cohort of officials was targeted throughout the program, whilst different modules of the training were attended by different stakeholders from the Ministry of Finance of Somalia, Somaliland National Insurance Authority, Ministry of Finance of Djibouti, Insurance Regulatory Authority and the Capital Market Authority of Kenya, alongside officials from insurance companies and takaful operators, including the Association of Ethiopian Insurers and ZEP-RE,^[2] and Shari’ah scholars and leaders. Including takaful market players was critical, as these players are essential to translating regulations into practice and fostering good market conduct.

Built on partnerships

The training was possible due to partnership with Zep-Re Academy and the International Shari’ah Research Academy for Islamic Finance (ISRA) consulting, a subsidiary of the International Center for Education in Islamic Finance (INCEIF) University of Malaysia. Financial support of the Risk Finance Umbrella Multi Donor Trust Fund was also critical.

Outcome oriented and output focused

The recent enactment of the National Takaful Bill into law in Somalia in April 2025 demonstrates the program’s drive to generate tangible outcomes based on concrete outputs. This included the drafting of a comprehensive set of regulations, guidelines, and supervision tools on both market conduct and prudential supervision covering among others, establishment and maintenance of takaful funds, public disclosures, transfers, mergers and acquisitions, Qard-Hasan,^[3] group-wide supervision, and macroprudential supervision.

Central Bank of Somalia is ready to apply the acquired knowledge to effectively foster the development of a robust takaful market. The recent enactment of the Takaful Bill into Law will allow the Central Bank to regulate and supervise the market, which is crucial to build both consumer and investor’s confidence. Takaful regulations can encourage market expansion by creating legal certainty, attracting investment, and fostering industry competition and consumer protection. The financial sector is currently experiencing other positive developments, including the roll out of the national digital ID system which will facilitate accession to correspondent banking.

Looking ahead

The Federal Government of Somalia cantake advantage of this momentum to accelerate financial inclusion efforts and ensure communities across the nation have access to a wide menu of financial products in the banking and insurance sector alongside other financial services to enhance their resilience to future risk.

A key lesson from Malaysia is that the progressive development of Islamic Finance is 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. The additional unique feature of Malaysia is that its financial sector offers both conventional and Islamic products, which is aligned with Somalia’s vision to grow its financial sector.

If you would like to know more about the DRIVE Takaful product, you can download our FAQ here and on the HOA DRIVE Project.

To learn more from our experience in implementing parametric Takaful for climate risk see our lessons learned note here.

https://projects.worldbank.org/en/projects-operations/project-detail/P176517

[1] Takaful is a Shari’ah compliant form of mutual insurance that operates in accordance with Islamic principles, which are based on mutual cooperation, fairness, transparency, and social responsibility
[2] The regional implementer of the DRIVE project and a specialized institution of the Common Market for Eastern and Southern Africa (COMESA) to promote trade, development, and integration in the insurance and reinsurance sector across the COMESA region.

[3] Qard-Hasan are interest free loans within Islamic finance system

Qhelile Ndlovu

Financial Sector Specialist

World Bank Group

Qhelile Ndlovu is a financial sector specialist in the World Bank Crises and Disaster Risk Finance team where she works on strengthening financial resilience in developing countries. Qhelile has extensive private sector experience having previously worked for Zimbabwe’s largest reinsurance advisory firm to support institutional clients in financial risk management strategies across the health and agricultural sector. Qhelile is a Rhodes scholar and holds an MSc in African Studies and an MSc by Research in Statistics from the University of Oxford and BSc in Financial Mathematics (cum laude) and Actuarial Science (summa cum laude) from the University of Kwa-Zulu Natal in South Africa.

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CO-AUTHORS

Sonia Plaza

Senior Economist, Finance, Competitiveness and Innovation Global Practice

World Bank

Sonia Plaza is a Senior Economist in the Finance, Competitiveness and Innovation Global Practice of the World Bank. She is also the co-chair of the Diaspora Thematic working group of KNOMAD (Global Knowledge Partnership on Migration and Development). Sonia was born in Lima, Peru. Her father had a constructing firm, so some of her earliest childhood memories are of traveling with him to poor areas including Ayacucho where he was working on projects. This is how she was first exposed to development work, and it shaped her. She wrote chapter 5 of the book, “Africa’s Silk Road: China and India’s New Economic Frontier”, which covers trade facilitation, technology, and skills transfer, and regional trade agreements. She advises many universities on the transfer of skills and tapping into their diasporas. Sonia attended the University of Lima and earned a degree in Economics, after which she joined Chase Manhattan Bank, and was then invited to join the Peruvian Ministry of Trade as a manager responsible for counter trade and debt swap agreements. She also has a dual degree from Yale University and the University of Pennsylvania in International Economics and Development. She was Professor of Economics (International Economics) at the Peruvian School of Foreign Service and at the University of Lima in Peru, and was adjunct faculty (Microeconomics and Macroeconomics) at The American University in Washington, DC. Her research interests include international migration, labor mobility, trade, and the future of labor. She joined the Institute for the Study of Labor as a Research Fellow in February 2010.

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