Islamic Insurance: A Modern Approach to Islamic Banking

By Aly Khorshid | Go to book overview

7

BASIC PRINCIPLES FOR AN INSURANCE SCHEME ACCEPTABLE TO THE ISLAMIC FAITH

Introduction

This study has shown that insurance is not completely forbidden by the Shari' a. Islamic finance is becoming a major force in the Islamic world and is beginning to play a significant role in the West, one that will increase in extent and influence. Islamic contracts, as construed and expounded by the Shari' a, are neither understood nor ignored by Western scholars. Modern Islamic authors and legislators have endeavoured to build a systematic Islamic law of contract similar to Western law but benefiting from the flexibility of the general principles contained in the Shari'a (Moghaizel 1990:270). In addition to this, and as part of the same trend, efforts have been made to establish an all-embracing 'Islamic' economic doctrine, comprising modern concepts and practices such as insurance, presented as an alternative to available economic systems. As far as the concept of insurance is concerned, the existence of an economic system based on the Shari' a is tangible and specialist in nature.


Indemnity and non-indemnity insurance

Muslim jurists generally treat life insurance and non-indemnity insurance with more caution than other forms of insurance since the sum insured is paid independently of the injury suffered - the contract is not seen as a contract aimed at compensation. The payment of the sum insured is a conditional obligation, and the compensation is considered inequitable in that it involves gaining unjustified financial rewards.

The life insurance contract is open to criticism from an Islamic point of view, as the concept of insurance is not free from the prohibitions of riba and gharar. Therefore, non-indemnity insurance is regarded by a number of Islamic financial institutions as both justified and well-founded. One such example is the Mudaraba contract of the Dar al-Mal al-Islami Trust. Leaving aside the misapplication of Mudaraba principles (ibid.: 271-2) as discussed earlier, it might be considered that whilst the more conventional life insurance industry favours introducing investment devices in most life insurance schemes and that

-155-

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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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