Comparative Perspectives on Takaful and Conventional Insurance: Exploring Barriers to Islamic Finance Growth in Nigeria

Abstract

Many developing countries have a low level of insurance penetration, which affects their economic stability and financial inclusion processes. This is primarily due to the resistance that conventional forms of insurance face in areas where Muslims comprise majority populations. This resistance stems from prohibitions against elements commonly associated with conventional insurance, such as riba (interest), gharar (unreasonable risk), and maysir (gambling) (Ayub, 2019). Takaful, an alternative based on mutual risk-sharing (ta’awun), donation (tabarru’), transparency, and ethical investments, may provide a culturally relevant option (Sulaiman and Zakariyah, 2021; Billah, 2019). However, Takaful has not yet achieved the success of conventional insurance, despite regulatory improvements in multiple jurisdictions. As a result, it lacks opportunities to develop protections for low-income individuals and SMEs. The objective of this qualitative comparative study is to explore the structural and institutional characteristics of Takaful versus conventional insurance and reveal barriers to its growth. This study also assesses the inclusion potential of Takaful. Data were collected using semi-structured interviews and document analysis, with findings highlighting the need for greater awareness, improved regulatory infrastructure, and innovative product development strategies. Results contribute to a refined framework for incorporating macroeconomic factors into Islamic finance development strategies for developing countries.