The Global Takaful Alliance – A Vision to Deliver Financial Resilience

COP16 Event Hosted by UNCCD, IsDB and UNDP 3rd December, 2024 ⏐ 16:00 – 16:30 GMT+3 ⏐ Action Agenda Dome, Blue Zone

This official COP16 UNCCD session is the second part of the broader “Harnessing the Power of the Market” event held in the Action Agenda Dome. It is organized by the Islamic Development Bank (IsDB) in partnership with UNDP through its Insurance and Risk Finance Facility. It will present the Global Takaful Alliance, a public-private partnership to enhance the financial resilience of Muslim communities to rising risks, including climate change, land degradation, drought and environmental challenges, through Takaful, a sharia-compliant alternative to mutual insurance. The Alliance aims to build Takaful markets and products with an overarching goal of reaching 100 million people by 2030.

Founding members of the Alliance will be announced, alongside the launch of a new UNDP, IsDB and IsDBI publication 'Insuring a Sustainable Future: Building Climate Resilience through Takaful Part 2: Developing Takaful Market Systems n Takaful', a guidance report informing on the key considerations and recommendations to scale the Takaful market.

Background: Nations across the globe are increasingly confronted with an increasing set of hazards and shocks, driven by our changing climate, environmental degradation collapse, the recent pandemic, increase conflict and rising insecurity. The impacts and losses from these events are seen particularly pronounced in developing countries, where people and governments have fewer resources and capacity to manage their risks. The protection gap from disasters (the difference between losses insured or not) in most developing countries is often well above 90%, and in numerous developing countries, insurance remains remarkably low, with merely 7% of individuals on average being covered by any form.

The lack of financial resilience exposes households to the vulnerabilities of medical emergencies, subjects small-scale farmers to the uncertainties of climate-induced crop failures, leaves SMEs susceptible to overwhelming losses caused by catastrophic events, and prevents heavily-indebted countries from accessing critical financing to support recovery and reconstruction post disaster. Development progress is being both hindered and reversed through the perpetuation of cycles of poverty, vulnerability and heavy impact of uninsured crises. Increasingly, the financial burden of risk rests often entirely with every family, community, business and country.

However, while there is insufficient financial protection in most developing countries, there is a significant disparity in use of insurance protection in countries with a Muslim-majority population, as many communities are reluctant to utilise traditional insurance which is not compliant with Islamic finance principles. And many of these communities are on the frontline of risk, hazard and shock, with more than one and a quarter billion Muslims living in countries most acutely threatened by climate change.

The Global Takaful Alliance is a direct response to the challenges of weak financial resilience in Muslim countries and communities on this frontline of growing risk. A visionary public-private initiative, the Alliance will leverage country, regional and global expertise and capacity on Takaful at scale, with the ambition to build the financial resilience of 100 million people by 2030.