Islamic Insurance: A Modern Approach to Islamic Banking

By Aly Khorshid | Go to book overview

examples, and the conclusion that insurance is intrinsically bad begins to look unfounded.

An additional reason for Islamic proscription is that insurance companies can (indeed, need to) accumulate vast sums of money, much of which is invested. To be suitable for a Muslim to be the insurance company's customer, these investments must not be involved with forbidden aspects of Islamic life: things like pork and alcohol. Few insurance companies can give this assurance.

If the history of insurance is taken as a whole, commercial insurance is a relatively recent invention. This book details several historical insurance schemes where no money changes hands and several where it does. It is concluded that insurance, when applied Islamically and equitably, need not invoke anathema among Muslims, and can be used to the greater good of the community. Mutual insurance and Social Security systems are looked into to provide a basis on which a model can be founded.

Similar apprehensions have been experienced by Islamic States and organizations attempting to create Western-style banking systems for government and the populace. Two case studies-those of the Malaysian Takaful Act and Saudi Arabian systems-are used to demonstrate ways in which Islam and finance can, by focused and careful readings of Sunna and application of business sense, combine to create a system that is as acceptable to Muslims as it is to the financial world. Assurances that the bank does not partake in any transactions or decisions that would contravene the requirements of a truly Islamic life are given to investors, who can go on to benefit from a stable banking system safe in the knowledge that they are not infringing their devotion to God by proxy. While this book does not pretend that banking and insurance are one and the same, the two industries have undeniable parallels and banking can provide insurance with precedents. First, the physicality of the structures of the institutions is in many ways similar, and there are similarities between interest payments and overdraft charges and dividends and premiums. Second, the example of the Takaful Act in particular demonstrates how a desired end can be reached by inclusive intellectual, clerical and financial discussion with the beneficiaries being the general public and, therefore, community, nation and faith.

The fact that there is no mention of what we today would call insurance in the Quran is used as sufficient evidence that it is fundamentally wrong. Considering that the Quran is over a thousand years old, it is little wonder that there is no mention. There is also no mention of computers, aircraft or steam trains, but their introduction can largely be described as beneficial. Supporters of insurance consider the way in which insurance was introduced to the Islamic world (by Christian traders and sailors) and the timing of it (at a time of mutual mistrust between the two worlds) to be the sparks of the anti-insurance blaze, rather than any inherent wrong in an Islamically-designed and wholly beneficial system. Often, the result of the debate is conceived before Quranic interpretation is used to justify it - and interpretation can provide powerful arguments both ways when used by influential parties.

-xii-

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Islamic Insurance: A Modern Approach to Islamic Banking
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Introduction xi
  • Acknowledgements xiv
  • 1 - The Meaning of Insurance in Islam 1
  • 2 - Riba (Usury) and Gharar (Risk) 31
  • 3 - Pre-Modern and Modern Jurists' Standing on Insurance 44
  • 4 - The Development of Mutual Insurance in the West 97
  • 5 - The Development of Islamic Banking and Insurance in Malaysia 113
  • 6 - The Development of Islamic Banking and Insurance in Saudi Arabia 132
  • 7 - Basic Principles for an Insurance Scheme Acceptable to the Islamic Faith 155
  • 8 - Conclusions 166
  • Appendix 1 173
  • Appendix 2 180
  • Appendix 3 183
  • Appendix 4 206
  • Notes 208
  • Bibliography 216
  • Index 223
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