International Investment Group (IIG), the Kuwaiti investment house, has bought 50 per cent of an Islamic insurance company in Bahrain to add to its small but growing regional franchise in Islamic financial services. IIG has already set up an Islamic merchant bank in Bahrain this year, called Investors Bank, and is raising capital via a private placement (MEED 10:10:97).

IIG was formed by Kuwaiti investors in 1993 and has just listed on the Kuwait Stock Exchange. It had shareholders' equity of KD 22.3 million ($74.3 million) at the end of August. IIG has paid BD 2 million ($5.4 million) into the capital of Bahrain Islamic Insurance Company (BIIC), doubling that company's capital and giving the Kuwaiti company a 50 per cent shareholding.

IIG executive vice-president Ahmed Al-Janahi, who is based in Bahrain, says the intention is to change BIIC's name to Takaful International and use it as a base for a regional insurance business in the Gulf and other parts of the Muslim world. At the moment, BIIC is confined to the Bahraini market. Expansion will probably require another capital increase, which could take place in mid-1998. 'In the last 20 years, we've seen the growth of Islamic banking. I think that in the next two to three decades it will be Islamic banking and insurance,' says Al-Janahi.

Takaful, or Islamic insurance, differs from traditional insurance in that funds from policy holders can only be invested in Islamically acceptable assets, and in that policy holders receive an annual dividend alongside shareholders once claims have been paid out. Most asset classes can be insured, though there is still debate about Islamic life insurance. Insurance generally is a growth industry in the Arab world - the Arab Insurance Group (ARIG) estimated last year that the total value of premiums in the region will double to $10,000 million by 2010 (MEED 1:1:97).