The Potential of Micro-Takaful in Improving Financial Inclusion among Low-income Households in Ethiopia

Abstract

In Africa, informal insurance societies are still active and have historically served as the major options for low-income households seeking financial and non-financial risk protection services. Low-income households have not had access to mainstream financial services despite the existence of these arrangements because of their numerous drawbacks. This study aims to determine whether micro-Takaful adoption has the potential to increase Islamic financial inclusion among low-income households of informal risk-sharing services users in Ethiopia. The Theory of Change (ToC) was employed in this study to understand how adoption of micro-Takaful affects financial inclusion. A mixed method design was employed to achieve the objective, and primary data was collected from 654 members of informal risk-sharing arrangements through a survey. Besides, qualitative interviews were also conducted with different stakeholders. The study found that adopting micro-Takaful has a significant impact in enhancing financial inclusion by improving financial usage and financial quality but otherwise for financial access. The findings of this research will have theoretical and practical implications.