Tuesday, August 29, 2017

Islamic Financial Planning (Ch 2) & Islamic Common Market (Ch 5) in a Newly Published Book: Islamic Economics (2017)

Tuesday, August 29, 2017 0
Sharing my humble Chapters (2: Islamic Financial Planning & 5: Islamic Common Market) in a new book "Islamic Economics" (2017), published by Palgrave MacMillan (UK):

This book explores contemporary empirical issues in Islamic economics. It begins by outlining current trends in Islamic economics and before identifying...
PALGRAVE.COM

Thursday, January 26, 2017

Asset-Backed vs Asset Based Sukuk

Thursday, January 26, 2017 0
Asset-Backed Sukuk

It involves granting the investor (sukuk holder) a share of a tangible asset or business venture along with a corresponding share of the total risk (that is, a share commensurate with this ownership).

In this structure, there is a true sale transaction, where the originator sells the underlying assets to a Special Purpose Vehicle (SPV) that holds these assets and issues the sukuk backed by them.

The buyers of sukuk don't have recourse to the originator if payments are less than usual. A true sale implies that the assets of the issuer will not be added to the assets of the originator in the event of default and liquidation.

The sukuk holders must assume any losses in case of impairment of sukuk assets.

Asset-backed sukuk are, thus, closer to equity than debt, and for that reason are not so popular in the market of sukuk offerings.



Asset-Based Sukuk

It involves the issuer purchasing the underlying assets and then investing, trading or leasing them on behalf the investors (sukuk holders), using the funds raised through the issued certificates (sukuk).

This structure, most often, takes the guise of a sale-lease to the originator and is embedded with a binding promise (wa'ad mulzeem) from the originator to repurchase the underlying assets at maturity. In this structure, the sukuk holders can only require the originator to purchase the underlying assets.

As such, the sukuk holders have an unsecured debt claim against the originator embodied in the payment of the purchase price following an execution of the binding purchase promise. This implies that sukuk holders don't have full recourse to the underlying assets and the underlying assets are not used as collateral.

 Asset-based sukuk grant only beneficial ownership to the sukuk holders, so that in case of default, the investor would be left without any claim on these assets. In this structure, the originator typically transfers to the investors only the beneficial ownership of the SPV issuer.


But shari'a stipulates a transfer of assets to sukuk holders. However, since investors have no recourse to the assets, the structure doesn't pay any attention to the asset risk, but rather concentrates on the creditworthiness of the sponsors of the sukuk



Sukuk
Asset-Backed
Asset-Based
Issuer
SPV
Company
Process
Securitization of tangible assets
Securitization of receivables
Characterization
Equity-like
Debt-like
Sources of payment
The revenues generated by the underlying asset
The originator/obligor's cash flows
Sukuk holder's ownership
Legal ownership with right to dispose of underlying assets
Beneficial ownership with no right to dispose of underlying assets
Recourse
Sukuk holders cannot recourse to the originator (recourse only to underlying assets)
Sukuk holders can recourse to obligor (originator) if there is a shortfall in payments
Shari'ah nomination
Because of its equity-like nature, this structure is considered Shari'ah compliant
This structure involves both Tawarruq and ba'i al-inah. Hence, it is not compatible with Shari'ah


Istisna' vs Salam Contract

Istisna’ vs. Salam

             Istisna’                  (manufacturing contract)
                    Salam                  (sale by deferred payment)
An Istina’ Contract is a Contract of Service / Manufacturing  / Development as per agreed terms
A Salam Contract is a Sale of product / asset / commodity by deferred delivery as per agreed terms
In an Istisna’ Contract the required service / manufacturing / development is the subject matter of the contract
In a Salaam  Contract the underlying asset / commodity / product is the subject matter of the contract
The subject of Istisna is always a thing which needs manufacturing,
The subject of Salam can be effected on anything, no matter whether it needs manufacturing or not
It is not necessary in Istisna’ that the price is paid in full in advance
It is necessary for Salam that the price is paid in full in advance
The contract of Istisna can be cancelled / revoked before the manufacturer starts the work.
The contract of salam, once effected, cannot be cancelled / revoked unilaterally
The time of delivery is not essential part to be fixed In Istisna’ contract
The time of delivery is an essential part of the sale in Salam


Wednesday, December 30, 2015

Tips for a Sustainable Growth of Sukuk as an alternative to the ongoing debt-based economy of the globe

Wednesday, December 30, 2015 0


An effective reform is needed to subrogate the debt-based economy, which deploys a threat to the world economy thus, an alternative sustainable way out is the SUKUK thus, the prospective Basel IV may also prepare to address the issue harmonizing with the spirit of SUKUK to rescue the world economy ahead. To uphold the above concern, the following Tips affecting SUKUK are emerged to be in reality:

1.     Comprehensive Regulatory Frameworks to facilitate a result oriented Sukuk operation. The frameworks include Fatawa, Law, Policies, Guidelines & Standard, which shall be in total compliance with the Shari'ah.

2.      Standardization Board to be established by comprising of highly qualified (skills & experience in Shari'ah-finance-commerce) selected members from different jurisdictions and schools of Islamic jurisprudence.

3.     Reformation of Shari'ah scholars' views in view of standardization of Sukuk structures & instruments and operational mechanisms. 

4. Increasing the culture, scope and volume of the issuance of Sukuk  by both the corporate and the government namely; corporate sukuk, sovereign sukuk and cooperative micro-sukuk, which may vibrate the economy both at the national and also the global levels. This may eventually strengthen the economic backbone against the debt-based experience.

5.     Specialized Empirical Research (analysis, case studies, solutions, modeling and recommendations) shall be carried out as a continuous development plan in view of benefiting both the market players and participants with unique products and services.

6.     Professional Development or Human capital development (HCD) in niche issues of Sukuk shall be continued with an effective outcome.  A specialized-training unit may take a lead to focus on the Professional Development in Sukuk (PDS). 

7.     Global Awareness by 2 day annual Convention on difference niche issues of Sukuk, to be held in different zones of the globe.

8.     A biannually Debate on different aspects of Sukuk shall be organized by comprising the diverse teams namely; Zone vs Zone, Scholars vs Practitioners, Instruments vs Instruments, Mechanisms vs Mechanisms, Law vs Law and so on.  

9.     An exclusive specialized  publication on Sukuk is required to be established, which includes, quarterly Journal, monthly bulletin and proceeding. 

10.      An annual Report on Sukuk global shall be produced in view of maturing the policy makers, decision makers, developers, market forces, operators and participants.

11.  Weekly Talk-show on specialized issues of Sukuk to be managed through TV  & Radio, which shall eventually be published through social media like You tube. 

12.  Establishment of a 'Global Sukuk Arbitration Center' perhaps under the OIC chamber of Commerce aiming at dispute settlement within the Shari'ah spirit arising out of Sukuk in any jurisdiction of the world should one be not contrary to the concerned local jurisdiction.                                                                                                                                                                                               

Thursday, July 30, 2015

Possibilities of Shari'ah Banking Regulatory initiative in the West & the Pacific

Thursday, July 30, 2015 0
Shari'ah banking is neither a mere religious issue nor applicable to Muslim only with limited scope, but is an applied subject with universal character for the benefit of all mankind regardless of one's religion, status, gender, race or nationality. Thus, Shari'ah banking is applicable with beneficial results to every mankind on earth with no exception in general.

The  issue of Shari'ah banking regulations & application in the USA, Europe, China or any other non-Muslim state of sovereignty, the following suggestions are made:
1. An analysis / research shall be carried out on the relevant Article (s) of the Constitution, customs, peoples' perceptions, the government's interest, business prospects & the market phenomena of the respective concerned country, aiming at possible discovery of the implementation of Islamic banking.

2. Establishing standard regulatory frameworks (Laws, guidelines, policies, standards & manuals) by complying the Shari'ah principles & standard in harmonizing the concerned country's policy & tradition (through the necessary adaptation of the rules of "Masalih al-Mursalah (public interest)".

3. Continuing with Public awareness programs through media, training, seminars & other forms of human capital development schemes.
4. Continuing with research in products, policies, standard, system, technicalities, mechanisms, market & dynamic corporate culture by referring to the global standard and practices (subject to the Shari'ah compliance).

5. Establishment & Operation of the system for the benefit of all within the Halal / Shari'ah spirit.
6. Enrichment of the continuing communication with & cooperation from the government / policy makers of the concerned jurisdiction.

Friday, July 3, 2015

Reality of 'Islamic Finance' today 2015

Friday, July 3, 2015 0


Islamic finance is in "no usury" thus, it's either based on profit or loss (risk) sharing techniques (in case of equity participation) or based on service charge (in case of debt financing). In other word, Islamic finance evolves with risk sharing deal while rejecting risk transferring deal in view of gaining at the expense of others.

Hence, Islamic finance is not merely a product with commercial motive only, but an integrated system for all humanity based on holistic approach of sharing, caring & concern within the spirit of brotherhood and that, may lead to a better & sustainable way to world peace in today's reality.

 

Wednesday, October 29, 2014

Update on Global Halal Industries

Wednesday, October 29, 2014 0

The demand for Halal consumable items is gaining momentum. The Halal industry currently stands at around $1.6 trillion and expected to grow by $3 trillion in 2018. Muslim consumers spent $1.08 trillion on food alone.

This consumption is about 16.6% of the global expenditure, which is expected to grow $1.6 trillion market.

Similarly Muslim global travel expenditure in 2014 is expected to be $140 billion and is 12.5% of the global expenditure.

This industry is expected to grow to $200 billion by 2020 and is the larger than the tourism market of the United States. (source:Al Maali Consulting Group, Dubai).

Saturday, September 6, 2014

Islamic Life Insurance (Family Takaful)

Saturday, September 6, 2014 0

Sharī’ah model of Life Insurance (Family Takaful) does not mean to insure ones life, but it is a financial transaction undertaking to protect widows, orphans and other dependents of the deceased (assured) against future unexpected financial risk.  The conventional system, however, offers a life insurance policy, which may not be free from ribā (interest), or some other elements, which are not recognized by Islamic teaching. 
 
Based on the observation of the practices of life insurance policies under the conventional system many Muslims, and even some Islamic scholars, diametrically oppose the idea of life policies, but have not come up with an Islamic alternative model to the conventional one which would meet the expectations of contemporary Muslims and would protect widows, orphans and other dependents in society from unpredicted future financial risk. 
 
Hence, the central idea of the model of an Islamic life insurance is that, it is not a policy to insure ones own life, but is a financial transaction relying on the principles of mutual cooperation to undertake a responsibility towards safeguarding widows, orphans and other dependents of the deceased (assured), from future financial risk, which does not involve the elements of Ribābut is operated along the lines of the following principles of the al-Mudhārabah financial technique, while neither clashing with the principles of ‘Mīrath’ nor with the principles of Wasiyah.
 
 In an Islamic model of life insurance policy the nominee(s) is not an absolute beneficiary(s) but a mere trustee[1] who is under a duty to obtain benefits over the policy and distribute them among the heirs of the deceased (assured), according to the principles of ‘Mīrath’ and ‘Wasiyyah’.[2]

 This article attempts to come up with a solution to the operation of an Islamic model of life insurance policy in contemporary Muslim societies, refuting the misconceptions that some Muslims have placed against the validity of a life insurance policy.

 ADDRESSING THE PROBLEM

Central Idea of Life Insurance under the Islamic discipline is quite different from the one, which is practiced under the conventional system.  A Islamic model of a life insurance policy, however, is a financial transaction based on the principle of the ‘al-Mudhārabah’ financing technique relying on the principle of mutual cooperation, undertaking a responsibility towards safeguarding widows, orphans and other dependents of the deceased (assured/policy holder) from an unexpected future material risk.  The nominee(s) in the life insurance policy who is appointed by the assured, is not an absolute beneficiary(s) over the policy but a mere trustee who receives the benefits and distribute them among the heirs of the deceased (assured) according to the principles of ‘Mīrath’ (inheritance) and ‘Wasiyyah’ (bequest). 
 
Where the assured is still alive upon the maturity of the policy period, he has the right to claim from the insurer the paid-premiums, the share of profits made over the paid premiums, plus bonus and dividends according to the company policy.  But if the assured dies at any time before the maturity of the policy, the claim of the nominee(s) includes the paid-premiums, the share of profits made over the paid-premiums, bonus and dividends according to the companys policy plus a donation from the companys charitable fund according to the financial condition of the beneficiary(s) of the assured. 
 
As for the claim for benefits over a life insurance policy, the death of the assured does not necessarily have to be natural or accidental but any cause of the death (even an unlawful death like suicide or being killed in the act of a crime etc.), counts so long as the death of the assured is proved.  This is because the death of the is determined by Allāh (SWT) as is stated in the holy Qur’an:

No soul can die except by the permission of Allah (SWT), the term being fixed (by Allah SWT).[3]

Moreover, as regards the act of suicide or any other crimes, the doer himself/herself is solely accountable to Allah (SWT) for his/her own act.   As Allah (SWT) ruled in the holy Qur’an:

  …They shall reap the fruit of what they did, and you what you do…”[4]

 Thus, it does not mean that a criminal will simultaneously be accountable for his/her own wrongful act and also be depriving from other rights.  It is a fundamental right of everyone in society to enjoy in business and other matters that which they may require lawfully.  Such personal rights should be exercised by every equally regardless of whether one is innocent or a criminal as long as the rights within the lawful sphere.  Hence, life insurance policy is a transaction whereby the assureds beneficiary(s) should not be deprived due to the assureds criminal act (i.e. act of suicide, or being killed for a wrongful act etc.).  The agent in a life insurance policy is not supposed to be paid his salary out of the assureds premiums because they work for The Company and thus should be paid by The Company.   For example since a life insurance policy is based on the principle of ‘al-Mudhārabah, whereby the involved parties i.e. insurer, assured, agents share the profit over the business which is partly run by the assureds paid-premiums, therefore, the interest for the agent in a life insurance policy is a share of profits made over the assureds paid premiums plus dividend and bonus according to the companys policy.  As regards to the insurable interest in a life policy under the Islamic model, the policyholder himself has an insurable interest if he is alive upon the expiry of the policy period.  If the assured dies at any time within the policy period, the insurable interest is to be vested only in the heirs of the assured according to the principles of ‘Mīrath’ and ‘Wasiyyah.’

 LIFE INSURANCE & ITS RATIONAL OUTLOOK

 Having an Islamic life insurance policy does not mean that one has insured one’s own life, but it is a fair financial transaction catering for the benefits of certain helpless people in the society.  The rationale behind of having a Sharī’ah justified life insurance policy could be summed up as follows:

 1)         It is one of the means of providing a material safeguard for offspring and is thus in line with the saying of the holy prophet SAW.  He (SAW) spoke to this effect:

it is better for you to leave you off-spring wealthy than to leave them poor, asking others for help…” [Narrated by Saad b. Abi Waqqas (r.a)][5]

2)         Having a life insurance policy is a future material security for widows and other dependents of the deceased (assured).  The Holy Prophet (SAW) in fact encouraged the providing of security for the widows and poor persons as he highlighted in one of his traditions:

 "The one who looks after and works for a widow and for a poor person (dependent), is like a warrior fighting for The Cause of Allah (SWT), or like a person who fasts during the day and prays throughout the night. “ [Narrated by Safwan bin Salim ( r.a)].[6]

 3)         A life insurance policy guarantees a future material protection for, inter alia, orphans, and it is again justified by the saying of the holy Prophet (SAW):

 I and the person who looks after an orphan and provides for him, will be in paradise like this, putting his index and middle finger together. [Narrated by Sahl bin Saad (r.a)].[7]

4)         Having a life insurance policy provides certain persons (as widows, orphans and so on) with a protection from unexpected future material difficulties, which may result a hardship for the life of these people.  The Holy Prophet advised the ummah to protect one from any form of hardships and difficulties when he said to the effect:

Whosoever removes a worldly grief from a believer Allah (SWT) will remove from him one of the grieves of the day of Judgement.  Whosoever alleviates a needy person Allah (SWT) will alleviate from him in this world and the next [Narrated by Abu Huraira ( r.a)].[8]

 5)         Having a life insurance policy is like taking an initiative towards reducing the poverty rates and contributing towards a reasonable comfortable life without such difficulties.  It is thus justified by the Qur’anic principle whereby Allah (SWT) advised the creatures to seek from Him for The Comfortable life. He (SWT) says to the effect:

…our Lord!  Give us comfortable life in this world and comfortable in the hereafter...[9]

6)         A life insurance policy ensures mutual cooperation, a brotherly feeling towards others, which provides a positive status, which can provide a feeling of brotherhood in society.  For example, an assured pays the premium, which enables the insurer to invest and make a profit while the insurer ensures a financial protection for the assureds beneficiary(s). Such financial cooperation lead to a sense of brotherhood and economic progress.   Moreover, having a life insurance policy is a positive initiative by the assured towards a positive material status of the widow, offspring and so on.  Such mutual cooperation towards a positive goal is in fact ruled on by Allah (SWT) where He (SWT) says to the effect:

…Sustain in mutual cooperation among yourselves in righteousness and piety...[10]

 7)         Finally having a life insurance policy is like taking an initiative towards ensuring a self-reliant society, without facing hardship and difficulties, and, of course, an economic growth in society which may result in the elimination of hardship and bring about a comfortable standard of living in the society.   It is thus in line with the Qur’anic principle where Allah (SWT) Himself prefers an easy life for the creatures rather than them having difficulties.  He (SWT) says to the effect:

..Allah (SWT) intends easy life for all of you while He does not want you to be in difficulties..[11]

MODERN LIFE INSURANCE Vs. FAMILY TAKĀFUL

 The purpose of scrutinizing is to discover the basic contrast between the conventional system of life insurance and the Islamic model of it.  This is because some ‘Ulamā and many Muslims are of the impression that a life insurance is totally prohibited in Islam.  The argument has been raised from the scenario of life insurance policy practiced under the conventional system.  It is to be acknowledging here that even though in both the conventional system as well as in Islam a notion of life insurance policy is being designed, there are undoubtedly several aspects whereby both systems are in conflict in both principles and practices.  I would therefore, like to sum up the basic contrast between them which may enable us to grasp the nature of the Islamic model of a life insurance policy as an alternative to the one which is practiced under the conventional system.  The basic contrasts are as follows:

 1)         A life insurance policy under the conventional system evolves around the element of Ribā whereas an Islamic model of life insurance policy is totally free from the elements of Ribā for it is operated based on the principle of al-Mudhārabah financing technique.[12]

 2)         In a conventional system of life insurance policy, the nominee(s) is an absolute beneficiary(s).  Suffian J. in Re Man bin Mihat,[13] gave a verdict that, the nominee(s) inter alia in a life insurance policy takes absolutely and exclusively the benefits of the policy.[14]  In contrast, the nominee(s) in a life policy under the Islamic model is not an absolute beneficiary(s) but a mere trustee who is in a position to receive the benefit over the policy on behalf of the assureds heirs and distribute it among them according to the principles of ‘Mīrath (inheritance) and ‘Wasiyyah’ (bequest)[15].  In Karim v. Hanifa[16] the High Court of Karachi ruled out that the nominee(s) in a life insurance policy is nothing more than a mere agent.[17]  The National Council of Muslim Religious Affairs in Malaysia, also issued a fatwa to the same effect in 1979, that the nominee(s) in a life insurance is a mere trustee who is supposed to receive the benefit over the policy and distribute it among the heirs of the as according to the principles of ‘Mīrath’ and Wasiyyah.[18]

3)         Idea of a conventional designed life insurance policy is that, if the assured dies at any time before the maturity of the policy, the nominee(s) is entitled to maturity of the policy the nominee(s) is entitled to recover from the insurer the whole amount agreed in the policy, while if the assured is till alive life upon the expiry of the policy period he is also entitled for the whole amount agreed in the policy plus the interest, dividends and bonus subject to the companys policy.  On the contrary, in the paradigm of an Islamic Model of life insurance policy is that if the assured dies at any time before the policy matured the beneficiary(s) is entitled from the insurance company to the whole amount of paid premiums, the bonus and dividends according to the companys policy, a share of profits made over the paid-premiums plus a donation from the companys charitable fund according to the financial status of the beneficiary(s) (i.e. if the beneficiary(s) is financially in good condition the amount will be small  but if the beneficiary(s) is financially weak or unstable the amount could be bigger).[19]  Such transaction is considered as a mutual cooperation towards the welfare of the helpless people in society, and is thus in line with the Qur’anic principle.  Allah (SWT) says to the effect:

 …Cooperate among yourselves in righteousness and piety...[20]

However, in the case where the assureds is still alive upon the expiry of the maturity period, he is entitled from the company the whole amount of paid-premiums, a share of profit made over the paid-premiums according to the principle of al-Mudhārabah, bonus and dividends according to the companys policy.
 
4)         In the operation of a life insurance policy under the conventional system, the payments for the agents are to be paid out of the assureds paid-premiums, whereas under the Islamic model of a life insurance policy, the agents work for the company and thus the company itself should pay them.   This means that the payment for the agents could include a share of profits made over the paid premiums, plus dividends and bonus according to the companys policy.
 
5)         With regard to the insurable interest under the conventional system, it is usually vested to the policyholder himself[21] should he be alive upon the expiry of the policy period.  But, in the case of the death of the assured within the period, the insurable interest is to be vested to husband and wife, parents or children, the benefactor or beneficiary or servant, company and director, trustee and employee, partners, mortgagor and mortgagee.[22]

In contrast, under the Islamic model, the insurable interest is to be vested to the assured himself or to his heirs according to the principles of ‘Mīrath’ and ‘Wasiyyah’.[23]

UNDERLYING  PRINCIPLES AFFECTING LIFE INSURANCE UNDER SHARĪ’AH DISCIPLINE


 It has obviously been established from the earlier discussion that a life insurance policy under the Islamic model is different from the one practiced under the conventional system.  Here I wish to propose the following basic governing principles for the Islamic model of life insurance.

1)         Prior to entering into a life insurance agreement, the assured must have a sincere intention that the policy will not lead to gain but should look towards protection of off-springs, wife and the other dependants from unexpected future financial risk.  Simultaneously, he also has to put his trust in Allah (SWT) for the betterment of those dependents’ future lives.  Such initiatives thus in line with the advice of the Holy Prophet (SAW):

 "The Holy Prophet (SAW) told a bedouin Arab who left his camel untied trusting to the Will of Allah (SWT):  Tie the camel first then leave it to Allah (SWT).[24]

 2)         The life insurance policy should not be involved with ribā but based on the principles of the al-Mudhārabah financing technique, whereby the insurer as well as the assured or his beneficiaries share the profits, bonus and dividends accordingly.

3)         In the case of the assureds death at any time during the policy period, the beneficiary(s) of the assured should not fight for the whole amount but only for the paid-premiums, a share of profits made over the paid-premiums, bonus and dividends accordingly, plus a donation from the companys charitable fund according to the beneficiary(s) financial condition.

4)         In case where the assured is alive life upon the expiry of the policy period, the assured can only claim from the company the paid-premiums, a share of profits[25] made over the paid premiums, plus bonus and dividends according to the companys policy.

5)         The nominee(s) in a life insurance policy does not necessarily have to be an absolute beneficiary(s) but a mere trustee who is under a duty to receive the benefits from the insurer and distribute them among the heirs of the assured according to the principles of ‘Mīrath’ and ‘Wasiyyah’.  Hence, should the nominee(s) fall into the category of heirs of the assured he/she is also entitled to a share accordingly.

6)         The agents in a life insurance policy should not be paid out of the paid premiums by the assured but be paid out of the share of the profit made over the paid premiums by the company itself.  This is because the agents are not working for the assured but for the company.  Therefore, the agents should enjoy a share (a salary) of the profits according to the companys policy.

7)         As regards the investment of the paid premiums, Adil Salahi suggested that the company (insurer) is under an obligation to invest the paid premiums in a lawful business which is free from the elements of Ribā’,[26] gambling’ and other forms of unlawful transactions, contrary to divine principles.

8)          The insurable interest in a life policy should be presented either to the assured himself (should he be alive upon the expiry of the policy period) or to the heirs of the assured (should the assured die at any time within the policy period) according to t he principles of ‘Mīrath and ‘Wasiyyah’.[27]

 MISCONCEPTIONS AGAINST THE VALIDITY OF LIFE INSURANCE

 Some Islamic scholars oppose the idea of contract of life insurance generally.  They argue that, a life insurance contract is contrary to the Divine principles and thus, is not permissible in Islam.  There are another group of ‘Ulamā who agreed to the general insurance with certain conditions but they opposed the application of life insurance policy.[28]  In this section, an attempt is made to highlight the opposing views of the ‘Ulamā against the validity of life insurance in todays society and possible refutation to it.

Opposing Views among the ‘Ulama

Among the opponents against the validity of life insurance are Mufti Mohd. Bakhit, Mohd. Abu Zuhra, Mohd. Musa, Ahmad Ibrahim, Al- Hanafi, Ibd Abdeen, Sheikh Shaukat, Khan Mohd. Yusuf Musa, Shaukat Alyan, Ahmad Fahmi, Ahmad Taha Sanusi, Abdur Rahman Isa, Ali Khaleef and a few others including Al-Sheikh Jad Al-Haq Ali Jad Al-Haq who vehemently oppose the idea as well as the operating of life insurance policy in the light of the divine sanctions.  In their judgement life insurance is absolutely opposed to the Shari’ah discipline and thus shall not be permissible in Islamic teachings.[29]

 Grounds for the Opposing Views

 The grounds for opposing the validity of life insurance are in fact based on many reasons.  Here, I would like to sum up some of the principal grounds upon which the ‘Ulamā and many Muslims are reluctant to accept a life insurance policy under the shield of Islamic teachings.   Their arguments rely on the following grounds:

1)         It is a policy of insuring ones life.  Sheikh Jad al-Haq issued a Fatwa against the validity of life insurance because it is a transaction, which ensures one’s life, and insuring ones life by a creature is not permissible in the Shariah.[30]

2)         A life insurance contract involves unlawful elements.  A contract, which involves unlawful elements, can never be binding as the Holy Prophet (SAW) says to the effect:

 ..the Muslims are bound by the conditions except the condition which prohibits the permitted one or the one which permits the prohibited one.[31]

3)         It contains the element of Riba.[32]  Many ‘Ulama oppose the validity of life insurance because it involves the elements of both kinds of ribā i.e. riba al-Fadhl and ribā al-Nasiah.  For example, if the insurer pays the insured or his beneficiary(s) in return of paid premiums more than what he paid, it becomes ribā al-fadhl, while the payments by the insurer to the assured after a particular period of time becomes ribā al-Nasiah.  Thus both situations make a life insurance policy unlawful.[33]  This is because, any transaction involving riba does not have shelter in the Islamic Sharia as Allah (SWT) declared to the effect:

 … Allāh (SWT) permitted trade while prohibited ribā...[34]

 4)         It supersedes the Will of Allah (SWT).  In a life insurance policy, from the commencement of the contract between the insurer and the assured, the assured always aims that upon his death, his beneficiary(s) would gain a large amount of money.  In such a situation the assured predetermines his own death as well as confirming the material gain for his beneficiary(s) whereas, Allah SWT) is the one who determines ones death as well as future earnings.  Allah (SWT) reminds us to the effect:

  .. Nor does anyone know what it is that he will earn on the morrow, nor does anyone know in what land he is to die, verily Allāh (SWT) has full knowledge and He is acquainted (with all things).[35]

 5)         It contains an element of betting. In a betting the gambler always hopes for a chance to gain.  Similarly, in a life insurance policy the assured upon the payment of premiums to the insurer always hopes for a change of gaining a large amount of money.  Hoping for such a chance is similar to gambling and thus Sharīah never recognizes it as a valid transaction.[36]

6.         It has element of al-Gharar (uncertainty). Any contract whose subject matter or the object involves al-Gharar (uncertainty) the contract deemed to be null and void ab initio.  In a life insurance contract the subject matter is a death and it is not certain whether the assureds death will occur during the policy period or not.  Thus, such uncertainty in the life insurance policy leads the policy to be invalid.  Moreover, a transaction involves al-Gharar is prohibited in the Islamic discipline as the Hadīth to this effect:

 The Holy Prophet (SAW) forbade the transaction through fraudulent means or the Gharar Sale.[37]

 7)         It contains the element of  Maisir (gambling). In a gambling the gambler pays a certain amount of money and subsequently hopes for a chance to gain an additional large amount of money.[38]  Any transaction  involving such element of gambling is prohibited in the Shariah, as Allah (SWT) says to the effect:
 
…They ask thee concerning wine and gambling say in the them is great sin...[39]

Similarly, in a life insurance policy the assured always hope for a chance to gain which is in the same nature as gambling and thus is prohibited in the Islamic Sharīah.

8)         There is no direct authority, which justifies life insurance.  There are some who do not accept the life insurance policy as a valid transaction.  They claim that a life insurance policy is a transaction, which cannot be, justified by the injunctions from either the Qur’an or the Sunnah.

 9)         It is contrary to the principles of Tawakkul (placing the trust in Allah (SWT).  It is a fundamental obligation on believers, in conformity with their faith, to place their trust always on the Al-Mighty Allāah (SWT).  As Allah (SWT) commanded to the effect:

….but on Allāh (SWT) Tawakkul (put your trust) if you have faith.[40]

 In a life insurance policy once the assured enters into an agreement and pays regular premiums while he hope that one day he will die and the insurer will protect his beneficiary(s) financially.   In this case, the assured puts his trust not in Allah (SWT) but on the insurer which is contrary to the Qur’anic principles of Tawakkul and therefore a life insurance policy should be deemed to be unlawful.

10)        It is contrary to the principles of al- Mīrath and al-Wasiyyah. It is a divine principle both Mīrath and Wasiyah that ones property and wealth upon death are, inter alia, to be distributed according to the principles of ‘Mīrath’ and ‘Wasiyyah’.  In the light of these principles the deceased has no jurisdiction to determine the beneficiary(s) upon his death.   In a life insurance policy however, the assured nominates the beneficiary(s) who are expected to enjoy the benefits of the policy.  It seems that the assured determines the beneficiary(s).  Thus it is contrary to the principles of ‘mīrath’ (inheritance) and ‘Wasiyyah’ (bequest).[41]

Recent fatwa by Shaikh Al-Azhar.

 Sheikh  al-Azhar, Al-Shaikh Jad-al-Haq Ali Jad al-Haq, responded in a fatwa session on the position of life insurance in Islamic Shari’ah which has appeared in al-Iqtisadul Islami July 1995, in the Fatwa  column, at 60.  In his Fatwa he established that a life insurance policy is prohibited in Islamic Sharī’ah.[42]  His claim was based on the following grounds:

 1)         In the light of the principles of Islamic Shari’ah no one could ensure others wealth or property unless there is a fear of unjust enrichment, losses or destruction.  In a life insurance policy these three circumstances are not available; moreover, a life insurance policy involves the element of Ribā and therefore it is not allowed in Islam.[43]

 2)         Life insurance is a policy which insurers ones life and thus it is not permissible in Islam.[44]

 3)         A life insurance policy involves the element of al-Gharar (uncertainty).        A transaction, which involves Gharar, is not valid in the eyes of the Islamic Sharī’ah and therefore a life insurance is unlawful.[45]

4)         Moreover, he went on to prolong his discussion by arguing that, a life insurance contract evolves not around mutual cooperation but unlawful elements and thus if a contract evolves around such elements it is null and void[46] relating on the following Hadīth:

..Muslims are bound by the conditions except the of conditions which prohibit the permitted one or the one which permits the prohibited one.[47]

 5)         Finally, he advised Muslims that Muslims should get involved in a life insurance policy because anyone who obtains money from such a policy is Haram.[48]

 RESPONSE TO THE MISCONCEPTIONS

 There are differences of grounds relying on the divine authorities, authenticities and analytical approaches, put forward by distinguished Islamic scholars in opposing the operation of life insurance policy in the light of Sharī’ah discipline.  I sincerely believe that if those scholars could spend some time deeply concentrating on the issue of life insurance policies without looking at the nature of how the conventional system operates but consider the material risk of unfortunate orphans, widows and other dependents who may unexpectedly loss their bread winner, then surely they could come up with an alternative Islamic model of life insurance justified by the divine sanctions, which may protect these vulnerable persons from unexpected future material risks and ensure the elimination of poverty  in  society while guaranteeing an economic growth in the Muslim Ummah.  In this part of the article, I would like to respond to the views put forward by the opponents against the validity of life insurance policies, which will enable us to understand the actual scenario of a life insurance policy under Islamic teaching, and be able to distinguish a life insurance policy under Islamic teaching from one which is operated under the conventional system.

Response to Opponents in General


1)         Getting involve with a life insurance policy does not mean that one is insurance ones own life, but it is mere financial transaction based on the principles of al-Mudhārabah relying on the Qur’anic doctrine of mutual cooperation,[49] in taking an initiative towards rescuing orphans, widows, and other dependents of the deceased from an unpredicted future material risk.  In a life policy the insurer and the assured equally believe prior to entering into the agreement that every creature is subject to his own death, and thus the assured will surely meet his death.  In other words, a life insurance policy means an initiative to provide financial security for the orphans and so on, which has nothing to do with insuring ones own life as claimed by some.[50]  Moreover, an initiative is like ensuring the future welfare of the off-springs (orphans), widows, and dependents, and it is highly justified by the Islamic doctrine of the following Ahādith as the Holy Prophet (SAW) stated to the effect:

 Narrated by Saad bin Abi Waqqas (r.a) the Holy Prophet (SAW) said it is better for you to leave  your off-spring wealthy than to leave them poor, asking others for help..[51]

  Narrated by Saffwan bin Salim (r.a ) the Holy Prophet (SAW) said the one who looks after and works for a widow and for a poor person is like a warrior fighting for Allahs cause or. Fasts during the day and pray through out the night[52]

 Relying on the above justifications, it could be stated here that a life insurance policy does not mean to insure ones own life, but it is a great contribution towards the future welfare of orphans, widows and other dependents.

2)         A life insurance contract does not involve unlawful elements like al-Gharar, ribā, or gambling as claimed by some.[53]  It is a lawful financial transaction whose subject matter is the assureds death which is not uncertain (al-Gharar) or the assured doe not hope for a chance (like gambling) but he is taking an initiative for the future welfare of the orphans, widows and so on, or it is a financial dealing based on the principles of al-Mudhārabah financing technique whereby the parties involved share the profits over the paid-premiums and do not get the interest which is different from the one under the conventional system on interest (which is Ribā-based).  However, since the life insurance contract does not involve these unlawful elements, it is thus lawful and binding because the Holy Prophet (SAW) said:

 Muslims are bound by their contract except the one which prohibits the permitted one and vice versa.[54]

3)         A life insurance policy does not involve an element of Ribā as claimed by some ‘Ulamā[55] but it is a financial transaction which is in line with the principles of mutual cooperation, which is based on the principle of the al-Mudhārabah financing technique whereby both the insurer and the assured enjoy the share of profits made over the paid-premiums plus dividend bonus as well as an amount of donation which is subject to the financial condition of the assureds beneficiary(s).  Thus, such transaction of mutual cooperation is in line with the Qur’anic principle, where Allah (SWT) commanded to the effect:

..Cooperate ye one another in righteousness and piety..[56]

 4)         A life insurance policy does not supersede the Will of Allah (SWT) nor is it contrary to the principles of Taqdir (fate), as some argue that the assured in a life insurance policy determines his own death, whilst ensuring a future financial gain for his beneficiary(s), and meanwhile places his trust in the insurer for the financial protection of his beneficiary(s).  These situations overrule the power of Allah (SWT).  In responding to this arguments, in a life insurance policy the assured believes that he will surely die, which does not mean that he determines his own death, and such a believe is in line with the Qur’anic injunction:
Every soul shall have a taste of death..[57]

The assured in a life policy does not determine the future financial condition of his beneficiary(s), but he takes an initiative towards rescuing his off-spring and so on from future material risk, it is also in line with the tradition of the Holy Prophet (SAW) said:

Whosoever takes an initiative to alleviate ones (inter alia material) difficulties, Allah (SWT) will lighten his difficulties in the world and the next…"[58]

 Moreover, the assured does not place his trust in the insurer to protect his beneficiary(s) materially but he is in financial agreement with the insurer for a mutual cooperation to look after the future welfare of his beneficiary(s), and it is no doubt justified by the Qur’anic principle of mutual cooperation:

…Cooperate ye one another in righteousness and piety...[59]

 5)         A life insurance policy does not involve elements of betting.  Mustafa Al-Zarqa opined that in a bet the person always hopes for a chance and there is no element of cooperation in it,[60] rather it is some sort of competition.  In contrast, a life insurance policy is based on the principle of cooperation[61] in which the assured never hopes for a chance but works for the welfare of orphans, widows and other dependents which is in line with the saying of the Holy Prophet (SAW).

 6)         A life insurance policy does not evolve around the element of gambling because a life insurance policy is for the purpose of the material welfare of orphans, widows and other dependents, whereas gambling is a game of chance whereby the gambler always hopes to gain.  Therefore, a life insurance policy is contrary to gambling.  Al-Dareer acknowledged that in the insurance policy there is safety against danger whereas gambling creates danger, so how could an insurance policy be equal to gambling?[62]

7)         There is no element of uncertainty (Gharar)  in a life insurance policy because in a life insurance policy, the subject matter is the death of the assured; the assured  believes that he will die one day as ordained in the Holy Qur’an, and thus it is not uncertain (Gharar).  Moreover, sharing profits over the paid-premiums are also not uncertain (Gharar) because a life insurance policy is based on the principles of al-Mudhārabah, whereby if the assured dies within the policy period, the beneficiary(s) will get the benefits according to the principles of al-Mudhārabah.   But, if the assured is still alive upon the expiry of the policy period, he is also entitled to the claim according to the principles of al-Mudhārabah.  In all these situations, the subject matter, the object and consideration (premiums) of the transaction are clear and not uncertain (Gharar).

 8)         Even though there is no express authorities from the Qur’an or Sunnah highlighting the life insurance policy there are a number of authorities from the Qur’an and Sunnah which impliedly justify a model of life insurance policy for the Muslim Ummah which is quite different from the one operated under the conventional system.  For example, a life insurance policy is based on the principle of mutual cooperation, is justified by the Qur’anic injunction at 5:2, it is operated based on the principle al-Mudhārabah financing technique which is justified by the Sunnah of the Holy Prophet (SAW) and there are many other authorities and authenticities which justify different aspects of life insurance policies as mentioned earlier.

 9)         Some argue that a life insurance policy is contrary to the principles of Tawakkul (placing trust in Allah (SWT)) because  in a life insurance policy, the assured  puts his trust not in Allah (SWT) but in the insurer who is expected to protect the beneficiary(s) financially.  Responding to this argument, I would like to point out here that a life insurance policy is not contrary to the principle of Tawakkul, but  it is a policy whereby the insured takes an initiative for  the welfare of his off-springs and so on, in which he mutually agrees with the insurer that the insurer will undertake to provide a material assistance in consideration of the paid-premiums.   The assured simultaneously places his trust in Allah (SWT) for the betterment of his beneficiaries future life.  Thus the assured does not Tawakkul on the insurer but on Allāh (SWT).  It is  in line with the saying of the Holy Prophet (SAW):

The Holy Prophet (SAW) told a bedouin Arab who left his camel untied trusting to the will of Allah (SWT):  Tie the camel first then leave it to (put your trust on) Allah (SWT)[63]

 10)    A life insurance policy is not contrary to the principles of Mīrath (inheritance) and Wasiyah (bequest).[64]  In a life insurance policy the assured nominates a particular person(s) as a nominee(s) who is nothing more than a trustee,[65] who is under a responsibility to receive the benefits over the policy on behalf of the heirs of the assured[66] and distribute them amongst them according to the principles of al- Mīrath and Wasiyyah.  Hence, the nominee(s) is entitled only to a portion of the benefits over the policy if he/she falls under the category of  heirs of the assured.
Analyzing the Recent Fatwa of Sheikh Al-Azhar[67]

 Sheikh Al-Azhar al-Sheikh Jad al-Haq Ali Jad al-Haq has submitted in a Fatwa session recently that a life insurance policy is in the light of Shari’ah unlawful (haram).  His claim for such a decision was based on a few grounds (as mentioned earlier).  In this part of the article, I would like to respond to the grounds that the honorable Sheikh has put forward as a basis for opposing the validity of life insurance policies as follows:

1)         In the Sharī’ah discipline no one has the right to insure the others property unless there is a fear of unjust enrichment, losses or destruction.  In a life insurance policy the insurer insures a benefit over the paid-premiums (by the assured), for the welfare of the beneficiary(s) of the assured, for an unexpected event, the assureds death (loss of life) and also for the fear of the loss of the beneficiarys(s) material stability upon the death of the assured.  In all situations the life insurance policy contains an element of loss.  Abu Jaib has pointed out that an insurance policy is a compensation for any loss incurred by the insured and it is neither a profit nor a gain like in betting.[68]  Hence a life insurance policy is not contrary to the Sharī’ah discipline.

2)         A life insurance policy does not involve elements of Ribā but it is a financial transaction based on the principle of al-Mudhārabah financial technique relying on the principles of mutual cooperation which is justified by the Qur’anic sanction.  Allāh (SWT) says to the effect:

 …Cooperate ye one another in righteousness and piety...[69]

 3)         A life insurance policy does not involve insuring ones own life but it is a mutual financial transaction towards the welfare of orphans, widows and other dependents.  Such an initiative is in fact well justified by the sayings of the Holy Prophet (SAW).  He (SAW) however said to the effect in the following Ahādith:

 Narrated by Sahal bin Saad (R ) the Holy Prophet (SAW) said:  I and the person who looks after an orphan and provides for him will be in paradise..[70]

 Narby Abu Huraira (r.a) the Holy Prophet (SAW) said whosoever takes an initiative (towards the welfare of)  ones inter alia financial difficulties, Allah (SWT) will lighten his difficulties in this world and in the hereafter.[71]

 Narrated by Safwan bin Salim (r.a) the Holy Prophet (SAW) said : the one who looks after and works for a widow and for a poor person is like a warrior fighting for the cause of Allah (SWT) of like a person who fasts during the day and pray through out the night[72]

 Narrated by Saad bin Abi Waqqas (r.a) the Holy Prophet (SAW) said it is better for you to leave  your off-spring wealthy than to leave them poor, asking others for help..[73]

 4)         A life insurance policy does not contain any element of al-Gharar (uncertainty).  The assured believes that the subject matter of life insurance is his death which is certain and not Gharar, moreover, the benefit over the policy in consideration of paid-premiums is also available which is certain according to the principle of al-Mudhārabah and thus there is no element of Gharar in it.  Hence, a misconception against a life insurance policy involves an element of gharar is very refutable.

5)         A life insurance contract to involves unlawful elements like Gharar, gambling, Ribā, etc. which make the contract unlawful as claimed by Shaikh al-Azhar[74]  But it is a mutual financial contract which is free from the above unlawful elements (as proved in the earlier discussion) and therefore, it is binding as justified by the saying of the Holy Prophet (SAW):

 Muslims are bound by their contract except the one which prohibits the permitted one or permits the prohibited one…….[75]

Based on these responses, I would like to humbly remark that the idea that Shaikh al-Azhar put forward in conclusion of his Fatwa, advising Muslim Ummah not to engage in a life insurance policy because it is Haram (unlawful) should be rebutable.  I sincerely expect that Muslim Ummah should not be confused but would clearly understand the concept that life insurance is valid if applied accordingly and benefits can be rightly gained from it.

 URTHER GROUNDS FOR JUSTIFICATION IN THE LIGHT OF SHARI’AH AUTHORITIES AND AUTHENTICITIES

From the earlier debates and justifications based on various authorities and authenticities, it has been quite clear that a life insurance policy designed under the Islamic model is an alternative solution to a conventional life insurance policy for the contemporary Muslim Ummah.  Nevertheless, I would also like to present a few other grounds here to justify the idea that a life insurance policy is not permissible for the purpose of luxury but it is permissible and encouraged by Muslim Ummah for necessity, in order to ensure economic growth and stability among Muslim Ummah of today.  Further grounds for the justification of a life insurance policy are as follows:

1)         A life insurance policy is similar to a contract of al-Wadiah (deposit) whereby two parties in a financial transaction engage in an agreement that one party deposits money as an Amānah (trust) to the other party to be kept for the purpose of safety.[76]  A Wadiah is justified by the Qur’anic injunction where Allah (SWT) commanded people to fulfill the trust (of, inter alia, Wadiah).   Allāh (SWT) ordains to the effect:
Allah (SWT) commands you to render back your trusts to those to whom they are due..[77]

 2)         A life policy is a financial transaction which had been dealt with by the people before Islam under the doctrine of al-Aqilah as a Urf (custom) which had been accepted by the Holy Prophet (SAW) whereby the people of every tribe used to deposit money for a certain amount in order to pay blood money as a compensation on behalf of the killer of their own tribe to the heirs of the victim of other tribe.  Such Urf  (custom) was deemed to bring benefit to society.  A custom, which is beneficial to society, is permissible in Islam as justified by the saying of the Holy Prophet (SAW):

Whatever Muslims see good, it is good in the eyes of Allah (SWT)[78]

 
life insurance policy is based on the sanction of mutual cooperation so as the doctrine of al-‘Aqila practice was also based on mutual cooperation, therefore, Zarqa and Alwan accepted the idea that there is enormous similarity between insurance and al-‘Aqila in the sense of cooperation.[79]

3)         Every transaction is originally acceptable, unless it involves unlawful elements.  Relying on this principle, it is admitted here that in a life insurance policy the elements contained are in line with the Sharī’ah principles (the life insurance policy which is based on the Islamic model), and therefore it is undoubtedly lawful.

 4)         A life insurance policy is for the purpose of sustaining public interest.  For example, the purpose of a life insurance policy is to protect the orphans, widows, and other dependents of the assured from future material risk and thus, it is a transaction to be justified by the doctrine of Masaleh al-Mursalah (public interest).  A transaction which is in the public interest is lawful, because it eliminates hardship and assists a comfortable life for human beings which in line with the Qur’anic injunction:

 ...Allāh (SWT) intends every facilities (inter alia comfortable life) for you; He does not want to put you to difficulties...[80]

 5)         A life insurance is not a gain or hoping for a chance, but it is a policy for providing compensation for damage or loss.  This is because the policy is an agreement between the insurer and the assured that, once the assured dies within the policy period, the insurer will pay an amount of money in consideration of paid-premiums to the beneficiary(s) of the assured.  Such a payment is like a compensation for the loss of opportunity of future earning by the breadwinner (assured) due to his death.  To provide such compensation is like a mutual cooperation, which is commanded by Allah (SWT).

"... Cooperate one another in righteousness and piety...[81]

 6)             A life insurance policy is similar to a retirement pension scheme.  Al-Zarqa and al-Alwan apparently discovered that all contemporary scholars agreed on the validity of retirement pension scheme.[82]  Adil Salahi similarly acknowledged that

  All scholars and seats of Islamic learning approved of the concept of pension because it gives the subscriber security for himself and his Family in the difficult circumstances of his leaving work or in case of death.[83] 

Salahi relying on his acknowledgement poses the question:

 “Why should Family security be lawful in one system and not in the other when the method of operation is practically the same?[84]

  Relying on the above justifications it is admitted here that life insurance is like a retirement pension scheme (which had been widely introduced during the period of Sayiidana Omar (r.a) therefore, it is not unlawful transaction.

 7)         A life insurance policy is also justified based on the principle of necessity (Darurah).  For example, it is an important task for the guardian to work for the welfare of his own dependents.  It is in line with the tradition of the Holy Prophet (SAW) where he said to the effect:

 ...It is better for you to leave  your off-spring wealthy than to leave them poor, asking others for help...[85]

 It is also to be noted here that in the case of necessity that which is prohibited is also to be permitted in the Islamic discipline as Ibn Nawjeem stated in his book al-Ashbah Wa al-Nazaira,

Necessity permits an unlawful act.[86]

 A life insurance policy of course does not allow for an unlawful transaction, but why not, the principle of necessity allows it to be permissible.

8)         A life insurance contract is a binding promise.  In the light of Islamic jurisprudence, a promise either unilateral or bilateral, is in both situations binding as ordained in the Holy Qur’an:

  O ye who believe?  Fulfill all agreements[87]

According to Imam Malik (r.a), the founder of the Maliki School of law, every binding promise is lawful, therefore, every insurance contract contains a binding promise and thus it is lawful.  In other words, in a life insurance contract, there is an agreement between the assured and the insurer which is a binding promise towards the protection of widows, orphans and so on, from future material risk, and therefore such a binding promise makes a insurance contract valid.

9)         A life insurance contract evolves elements of donation.  This is because the assured pays regular premiums for the protection of his (beneficiary(s); such payments of premium is like a donation for helpless people.  Moreover, once the insurer pays an amount of money together with an additional amount from the charitable fund to the beneficiary(s) of the assured in consideration of the paid premiums this also involves element of donation.  A donation is lawful in the Islamic jurisprudence as justified by the practices of the Prophet (SAW):

The Prophet (SAW) used to accept presents (donation)[88]

 Relying on the above authenticity, it is analytically admitted here that a life insurance policy does involve elements of donation and therefore, such a policy is to be held lawful in the eyes of the Islamic discipline

FINAL SUBMISSION

 

Analysis concludes that convention and Islam design different models of life insurance policies.  There are many similarities in both systems but both also diversify.  In conclusion, I would like to summarize where the conventional and Islamic model are in contrast.  Finally, I wish to express a hope for the future application of the Islamic life insurance policy.  To summarize the results of the research:

 1)         A life insurance policy under the Islamic model is a different one from the one, which is operated under the conventional system.  A life insurance policy under the conventional system involves, inter alia, Ribā opposed to the principles of Mīrath and Wasiyah, payments of agents to be out of the paid premiums, etc.  In contrast, a life insurance policy under the Islamic model is like a pension scheme, which is operated based on the principles of the al Mudhārabah financing techniques, does not clash with the principles of Mīrath and Wasiyah, as highlighted earlier, and also the payments for the agents to be paid by the insurer out of the profit made over the paid premiums.

 2.         The insurable interest in life under the conventional system is to be vested to those who are not necessarily to be the heirs of the assured.  In contrast, an insurable interest in life under the Islamic model should be vested to only those who are entitled to the property of the assured according to the principles of Mīrath and Wasiyah.

3.           The nominee(s) under the conventional system is an absolute beneficiary over the policy, whereas the nominee(s) under the Islamic model of a life insurance policy is nothing more than a trustee(s) who is responsible for receiving the benefits over the policy and distributing them among the heirs of the assured according to the principles of Mīrath and Wasiyah.

Analysis throughout the research and the summary show that a life insurance policy under the Islamic model is different from the one which is operated under the conventional system.  Hence, I would like to extend my humble request to the respectable Ulamā, who oppose a life insurance policy generally, that they could oppose the conventional life insurance but not the one, which is designed under the Islamic model.  It is my sincere hope that this article might enable the Muslim Ummah to have no further doubt on the application of an Islamic life insurance policy.  Islamic scholars could come up with a better model as an alternative to the existing life insurance operated under the conventional system for the noble purpose of ensuring further economic growth in contemporary Muslim society.

Prof. Dr. Mohd. Ma’sum Billah                                                                   www.drmasumbillah.blogspot.com



[1] Fatwa, issued by The National Council for Muslims Religious Affairs in Malaysia, see in [1974] I MLJ at x.
[2] See Billah, M. Masum,  “Life Insurance? An Islamic View”, in ALQ, 8 : 4, 1993 at 319.
[3] Al-Qur’an, at ch. 3:145
[4] Id., at 2:134
[5] Sahih al-Bukhari (trans. Eng.) Dr. Mohd. Muhsin Khan, Vol. 8, Kazi Publications, Lahore, Pakistan, 1979, no. 725, at p. 477
[6]             Id., at no. 35
[7]             Id., at No. 34
[8]             Sahih Muslim as compiled in al-Nawawi, Forty Hadith (trans. Eng) Ezzeddin Ibrahim, et. al. I.I.F.S.O., 1985 at no. 36.
[9]             Al-Qur’an, at ch. 2:201
[10]            Al-Qur’an, at ch. 5:2.
[11]            Id., at ch. 2:185
[12]            Mufti Mawlana Mohd. Shafi, Bima Zindegi, (trans. Eng) Anwar Ahmed Meenai, Life Insurance, Darul Ishat, Karachi, 1995, at 36.
[13]            (1965) 2, MLJ at 1
[14]            See also in Billah, M. Masum, op. cit., at 319.
[15]            Ibid.
[16]            [1970] PLD 783.
[17]            Billah, M. Masum, op. cit., at 319
[18]            The fatwa was on succession and wills, (1974) IMLJ at X
[19]            Billah, M. Masum, op. cit., at 324
[20]            Al-Qur’an, 5:2.
[21]            See in Khuan, Lee Kam, Life Insurance in Malaysia, life insurance association of Malaysia, Kuala Lumpur, 1986 at 63
[22]            Id., at 69f
[23]            Billah, op. cit., at 319, and (1970) PLD 683
[24]            Sunan Al-Tirmidi, Cagri Yayianlari, Istanbul Vol. 4, 1981, in Kitabu Sifatul Qiyamat Wal-Raqaiq Al-Wara, Bab 60, NO. 2517 at 668
[25]            See Adil Salahi, Is Life Insurance Haram? in New Horizon, Islamic Banking and Insurance, Nov. 1995 no. 45 at 12
[26]            Ibid.
[27]            See Billah, op. cit., at 319; and (1970) PLD 683
[28]            See in Billah, M. Masum, loc. cit., at 315
[29]            See in Siddiqi, M.N., Muslim Economic Thinking:  A Survey of Contemporary Literature, (Ed.) Ahmad, Khurshid, in Studies in Islamic Economics, The Islamic Foundation, U.K. 1980 at 2116.  Also see Al-Tameen Alal Hayat Gaire jaizin Sharan in Al-Iqtasadul Islami, July 1995 at 60, and also see Hadagha, Refat Mohd., Insurance Contract and Its Provision in the Islamic Shari’ah, IIU Malaysia, (U.P.), 1995, at 17.
[30]            Al-Iqtisadul Islami, loc. cit
[31]            Al-Tarmidi, as quoted by Al-Sheikh Jad al-Haq in Al-Iqtisadul Islami, loc. cit
[32]            Al-Shaikh Jad-al-Haq, loc. cit
[33]            Hadagha, op.cit., at 39f
[34]            Al-Qur’an at ch. 2:275
[35]            Al-Qur’an at ch. 31:34
[36]            It was held in a Juridical Conference held in Mecca in Saban, 1398H.
[37]            As quoted in Idoi, A.Rahman, Shariah:  The Islamic Law, A.S. Noordeen, Kuala Lumpur, 1984 at 359.
[38]            Musleh Uddin, M. Insurance and Islamic Law, 3rd ed. Islamic Publications Ltd., Lahore, 1979 at 143.
[39]            Al-Qur’an at ch. 2:219
[40]            Id., at ch. 14:12
[41]            See generally in Billah, M. Masum, op. cit.,  at 316
[42]            Al-Iqtisadl-Islami., supra
[43]            Ibid.
[44]            Ibid.
[45]            Ibid.
[46]            Ibid.
[47]            As quoted in Ibid.
[48]            Al-Iqtisadul Islami, supra
[49]            The principle is at 5:2 of the Holy Qur’an
[50]            See in al-Iqtisadul Islami, supra
[51]            Sahih al-Bukhari, op. cit., Vol. III at no. 275
[52]            Id., at no. 35
[53]            See in Al-Iqtisadul Islami, supra
[54]            Sunan al-Tirmidi, supra
[55]            See in Al-Iqtisdadul Islami, supra
[56]            al-Qur’an, at ch. 5:2
[57]            Id., at ch. 3:185
[58]            Sahih al-Muslim, as compiled in An Nawari, Riyadus Saleheen, Vol. No. 245
[59]            al-Qur’an, at ch. 5:2
[60]            Al-Zarqa, Mustafa, Nizam Al-Tameen, Beirut, 1984
[61]            The principle is at 5:2 of The Holy Qur’an
[62]            Al-Dareer Sideeq, Al-Gharar Wa al-atharohu fi al-Oqud, Beirut, 1990 at 649
[63]            Sunan At-Tirmidi, supra
[64]            See in Billah, M. Masum, op. cit., at 319
[65]            See the Judgement of the Supreme Court of Pakistan in Amtul Habeeb v Musarrat Parveen, [1974] PLD 185
[66]            This principle has been laid down in a fatwa issued by the National Council of Muslim Religious Affairs, Malaysia.  See in [1974] IMLJ at X.
[67]            See in al-Iqtisadul Islami, supra
[68]            Abu Jaib, Saeed, Al-Tameen binal Hazeer Wal Ebaha, Syria Darul Fikir, Syria 1983 at 36
[69]            Al-Qur’an at ch. 5:2
[70]            Sahih al-Bukhari, op. cit., at no. 34.
[71]            Sahih al-Muslim, supra
[72]            Sahih al-Bukhari, op. cit. At no. 35
[73]            Id.,  at 725
[74]            Al-Iqtisadul Islami, supra
[75]            Sunan al-Tirmidi, as quoted in Ibid.
[76]            Al-Zobydi, Mohammad, Tajul Aroos, Vol. 2, Kuwait, 1967 at 591
[77]            Al-Qur’an, ch. 4:58
[78]            Ibn Qudama, Rawdatul Nazir (nd.) at 85
[79]            Al-Zarqa, Mustafa, op. cit., at 60 also Alwan, Abdullah, Akhamal Islam fi al-Tameen, Egypt, 1987 at 12.
[80]            Al-Qur’an ch. 2:185
[81]            Al-Qur’an  ch. 5:2
[82]            Al-Zarqa, op. cit., at 62.  See also al-Alwan, op. cit. at 13
[83]            Salahi, Adil, supra
[84]            Ibid.
[85]            Sahih al-Bukhari, op. cit., at no  725
[86]            Ibn Najeem, op. cit.,  at 84
[87]            Al-Qur’an, Ch. 5:1
[88]            Al-Sanany, Mohammad, Subul Al-Salam, Vol. 1-3, 1987 at 90
 
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