Adopting micro-takaful in Ethiopia: will it fit in the existing informal insurance structure?

Numerous studies show that financial institutions consider low-income people as not bankable and not insurable thus very difficult for people categorized as poor to get out of the poverty cycle. The importance of micro-takaful as one of the available mechanisms to provide affordable protection to these low-income people is well documented in the existing literature. Adoption of micro-takaful in Africa shall be considered as a solution for the above issue since most countries in the continent are categorized as low-income countries. Ethiopia, an East African country, has well-established informal insurance arrangements called 'iddirs' whose beneficiaries include mainly low-income households. By reviewing the literature, this article clarifies informal insurance arrangements; mainly the Ethiopian iddir, the latter's role in financial inclusion and the ideas and practices of micro-takaful. The last part of the present paper examines whether adoption of a micro-takaful will fit the existing informal insurance arrangements in Ethiopia.