Islamic Insurance: A Modern Approach to Islamic Banking

By Aly Khorshid | Go to book overview

2

RIBA (USURY) AND GHARAR (RISK)

Riba

A principal argument against insurance, one whose case is strong and deserves careful analysis, is that of the Quran's and Shari'a's banning of usury and other forms of economic transaction which are deemed to be unproductive or to give unfair advantage to one party at the expense of the other. The history of insurance as it developed in the Arab world has traditionally been limited to joint sharing of common risk. This is a slight deviation from the purely societal interpretation of the mutually caring community, as particular interest groups could individualize risk to their collective advantage, even when it could benefit their competitors. The Islamic concept of insurance is, we recall, not primarily an economic or material concept, but one based on faith in God and the daily following of Islamic moral law which, under the protection of God, enhances security, well-being and prosperity in this life, and ensures a heavenly life hereafter. This chapter details those Islamic legal, juristic and Quranic codes that have a bearing on insurance. As will be seen, the whole concept is interwoven with the principles of the faith.


Usury (riba) in the Shari'a

Modern definitions

At the root of the anti-insurance argument is the Islamic objection to riba, lending at interest. The literal translation of the Arabic verb riba is derived from the Arabic root raba and means 'increase' and refers to the practice of lending money at an exorbitant (and therefore unlawfully high) rate of interest. The noun riba literally means surplus excess. Some English definitions of the word 'usury' are: 'the practice of loaning money at an exorbitant rate of interest' (Collins Dictionary) and 'an addition to the principal of a loan, usually interpreted as interest payments or receipts for both commercial and private loans' (Wilson 1987). The word has unsavoury connotations (being connected, for example, with Hitler's anti-Semitic reasoning) and, since the level at which

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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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