For the first time in Africa, an insurance policy that combines an Islamic-compliant financial instrument with innovative use of satellite imagery has compensated Muslim pastoralists for drought-induced losses suffered in Kenya’s northeastern Wajir County, where livestock are valued at Ksh46 billion (USD550 million).
Thirty women and 71 men in arid and semi-arid Wajir are the first beneficiaries of livestock insurance that conforms to the Islamic concept of takaful, in which risks are shared among a group of participants. Through a contract called tabbaru (donation), participants make contributions to a risk fund. In the case of a payout, the fund makes payments commensurate with the contributions received.
The pilot program is paying approximately Ksh500,000 (USD5,800) for losses suffered to herds of sheep, goat, cattle and camels during the long dry season that typically ends in March. The herds were insured last August by Takaful Insurance of Africa (TIA) with an Index-Based Livestock Insurance (IBLI) product, branded as Index-Based Livestock Takaful (IBLT).
IBLI uses satellite imagery—measuring the conditions of grazing lands—that is fed into an algorithm that predicts livestock loses. Predictions beyond the 15-percent level trigger indemnity payments. Drought conditions in much of Wajir County have surpassed the index trigger and active contract holders in these areas were compensated today.
So far, about 4,000 pastoralists in northern Kenya have bought IBLI contracts since the project launched in 2010, an indication that there is both interest in and demand for livestock insurance.
Takaful earns a management fee from participants who pay contributions to become members of a fund or risk pool. The pool receives contributions and makes payments when the contract pays out. If a surplus results, it is distributed equitably to those members who are not recipients of the payout.