Rabu, 19 Januari 2011

FORBIDDEN ELEMENTS OF BUSINESS CONTRACT IN ISLAM

Islam intends to form solid social order of society, where every individual is bound by brotherhood and affection as one universal family which is not limited by geographical boundary .
يأَيُّهَا النَّاسُ إِنَّا خَلَقْنكُمْ مِنْ ذَكَرٍ وَأُنْثَى وَجَعَلْنكُمْ شُعُوْبًا وَقَبَائِلَ لِتَعَارَفُوْا
"O mankind! We have created you from a male and a female, and made you into nations and tribes, that you may know one another".
To realize and preserve this social order of society, Islam prohibits all kinds of deceit and fraud in every activities of mu'amalah, because they can harm the social order of society what Islam yearn for . Islam explains, verily, all kinds of trades with deceit and fraud inside by doing prevarication will never get God's blessing. The holy Prophet -peace be upon him- said:
البَيِّعَانِ بِالْخِيَارِ مَالَمْ يَتَفَرَّقَا فَإِنْ صَدُقَ البَيِّعَانِ وَبَيَّنَا بُوْرِكَ لَهُمَا فِي بَيْعِهِمَا وَإِنْ كَذَبَا وَكَتَمَا فَعَسَى أَنْ يَرْبَحَا رِبْحًا مَا وَتُمْحَقُ بَرَكَةُ بَيْعَتِهِمَا
On such occasions, it is necessary to research those forbidden elements in order to form the insurance which conform to Islamic law.
1. Riba
The Arabic word riba literally means increase in or addition to (ziyadah), which is payment addition on financial principal of loan . Al-Jurjani formulated the usury definition as below:
الرِّبَا فِي الشَّرْعِ هُوَ فَضْلٌ خَالٍ عَنْ عِوَضٍ شُرِطَ لأَحَدِ العَاقِدَيْنِ
Terminologically, riba is excess free from payment devoid of recompense required to the hold one of parties.
Rahman, after studying various forms of business and credit transaction, containing the element of riba which were in vogue in Arabia during the time of the Holy Messenger -peace be upon him-, defined the riba as a predetermined excess or surplus over and above the loan capital received by the creditor conditionally in relation to a specified period. It contains the following three elements:
a) Excess or surplus over and above the loan capital.
b) Determination of this surplus in relation to time.
c) Bargain to be conditional on payment of a predetermined surplus to the creditor .
Clearly, Allah prohibited the usury in any types. This prohibition is based on qur'anic verses:
الَّذِيْنَ يَأْكُلُوْنَ الرِّبَوا لاَ يَقُوْمُوْنَ إِلاَّ كَمَا يَقُوْمُ الَّذِيْ يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ذلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا البَيْعُ مِثْلُ الرِّبَوا وَأَحَلَّ اللهُ البَيْعَ وَحَرَّمَ الرِّبَوا
“But those who devour interest cannot stand except like the one whom Satan was bewitched and maddened by his touch. They have been condemned to this condition because they say, Trade is just like interest, whereas Allah has permitted trade and forbidden interest”.
يَأَيُّهَا الَّذِيْنَ أمَنُوا اتَّقُوا اللهَ وَذَرُوْا مَا بَقِيَ مِنَ الرِّبَوا إِنْ كُنْتُمْ مُؤْمِنِيْنَ
“O Believers, fear Allah and give up what is still due to you from interest, if you are true believers”.
Muslim jurists never stop discussing the interest limitation. They agree in prohibiting the riba, but differ in determining the savings interest. Dr. Muhammad Hatta differentiates between riba and savings interest. In his opinion, riba merely occurs in the consumptive loan with the high return addition. And the savings interest occurs in the productive loan with the low return addition, which as the yield of capital .
Yet practically, it is difficult to differentiate between riba and savings interest, because actually they are equal in complicating the loaner .
Dr. Yusuf Al-Qardhawi argued strictly the permitting of productive riba. He maintained his argument with the historical fact proofed that the dominant riba in the pre-Islamic epoch was not consumptive riba. If there was so, the case was rare and could not be the measuring rod of this permitting. However, the riba which commonly used to be done in trade expedition in that era was productive riba .
If the sort of forbidden riba was merely consumptive, Prophet Muhammad -peace be upon him- would not curse the manager of riba as much as he cursed the eater. However he cursed those eater, manager, writer and witness of riba as mentioned in his saying:
عَنْ جَابِرٍ قَالَ لَعَنَ رَسُوْلُ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّمَ آكِلَ الرِّبَا وَمُؤْكِلَهُ وَكَاتِبَهُ وَشَاهِدَيْهِ وَقَالَ هُمْ سَوَاءٌ
From Jabir, he said that Messenger of Allah -peace be upon him- cursed those eater, manager, writer and two witnesses of riba, and he -peace be upon him- said: “they are equal”

Also, Qardhawi opposed the legalization of riba because of its small percentage. . Thus, no differences in law status between riba and savings interest, both are unallowable.
2. Maisir
The Arabic word maisir literally means an ancient Arabian game of change (forbidden by the Koran) played with arrows without heads and feathering, for stakes of slaughtered and quartered camels . Rahman defined maisir as getting something too easily without hard labour, or receiving a profit without working for it; therefore it is called gambling .
The Arabic word “azlam” used in the Qur’an also refers to the practice of gambling. Maisir on other hand applies to all this forms by which wealth is acquired or divided by devices of chance, for example, lottery, betting, wagering or gambling.
Thus gambling in general (maisir) and raffling in particular way (azlam) and all forms of betting, raffling or lottery which, on principle, come under gambling forms are prohibited in Islam . Islam prohibited all forms of business in which monetary gain comes from mere chance speculation and conjecture and not from work. This prohibition is clearly mentioned in Holy Qur’an:
يَأَيُّهَا الَّذِيْنَ أمَنُوْا إِنَّمَا الْخَمْرُ وَالْمَيْسِرُ وَالأَنْصَابُ وَالأَزْلاَم ُرِجْسٌ مِنْ عَمَلِ الشَّيْطانِ فَاجْتَنِبُوْهُ لَعَلَّكُمْ تُفْلِحُوْنَ
“O yee believers! Wine and gambling and divining stones and arrows are an abomination of Satan’s handiwork. Leave it aside in order that you may prosper”.
وَأَنْ تَسْتَقْسِمُوا بِالأَزْلاَمِ ذلِكَ فِسْقٌ
“(Forbidden) also is the division (of meat) by raffling with arrows, that is impiety”.
Prophet Muhammad -peace be upon him- had prohibited many business practices including maisir. Those practices are:
a. Habal-al-Habla
It is narrated by Abdullah bin Omar the Holy Messenger -peace be upon him- forbade the sale called Habal-al-Habla which was a kind of sale practiced in the pre-Islamic days of ignorance period. In this sale one would pay the price of a she-camel which was not born yet but would be borne by the immediate offspring of an expectant she-camel.
عَنْ عَبْدِاللَّهِ بْنِ عُمَرَ رَضِي اللَّه عَنْهمَا أَنَّ رَسُولَ اللَّهِ صَلَّى اللَّه عَلَيْهِ وَسَلَّمَ نَهَى عَنْ بَيْعِ حَبَلِ الْحَبَلَةِ وَكَانَ بَيْعًا يَتَبَايَعُهُ أَهْلُ الْجَاهِلِيَّةِ كَانَ الرَّجُلُ يَبْتَاعُ الْجَزُورَ إِلَى أَنْ تُنْتَجَ النَّاقَةُ ثُمَّ تُنْتَجُ الَّتِي فِي بَطْنِهَا
“From Abdullah bin Omar -may Allah be pleased with both-, verily Holy Messenger -peace be upon him- forbade the sale called Habal-al-Habla which was a kind of sale practiced in the pre-Islamic days of ignorance period. In this sale one would pay the price of a she-camel which was not born yet but would be borne by the immediate offspring of an expectant she-camel”.
b. Muzabanah and Muhaqalah
Muzabanah was the exchange of fresh fruit for dry ones in a way that the quantity of dry fruit was actually measured and fixed, but the quantity of fresh fruit given in exchange was guessed while still on the trees. Likewise muhaqalah was the sale of wheat in exchange for wheat in ear which was estimated by conjecture while still in ears . It is reported by Ibnu Abbas that God’s Messenger -peace be upon him- forbade the transactions of muhaqalah and muzabanah:
عَنِ الشَّيْبَانِيِّ عَنْ عِكْرِمَةَ عَنِ ابْنِ عَبَّاسٍ رَضِي اللَّه عَنْهم قَالَ نَهَى النَّبِيُّ صَلَّى اللَّه عَلَيْهِ وَسَلَّمَ عَنِ الْمُحَاقَلَةِ وَالْمُزَابَنَةِ
“From Syaibany, from ‘Ikrimah and from Ibnu Abbas -may Allah be pleased with them- said that Holy Prophet -peace be upon him- forbade the transactions of muhaqalah and muzabanah”

c. Mukhabarah
Mukhabarah refers to the sale of fruit or grain or vegetables before ripening . It was forbidden by the Holy Prophet -peace be upon him- in order to protect the interest of buyer during the period of purchase before ripening when many kinds of diseases, storms, could destroy the fruit or corn crops and ruin the buyer.
عَنْ عَطَاءٍ سَمِعَ جَابِرَ بْنَ عَبْدِاللَّهِ رَضِي اللَّه عَنْهم نَهَى النَّبِيُّ صَلَّى اللَّه عَلَيْهِ وَسَلَّمَ عَنِ الْمُخَابَرَةِ وَالْمُحَاقَلَةِ وَعَنِ الْمُزَابَنَةِ وَعَنْ بَيْعِ الثَّمَرِ حَتَّى يَبْدُوَ صَلَاحُهَا…
“From ‘Athaa’, he listened Jabir bin Abdillah -may Allah be pleased with them- said that Prophet -peace be upon him- forbade mukhabarah, muhaqalah, muzabanah and sale of fruit before ripening”.

d. Mulamasah and Munabadzah
Mulamasah is a sale in which the deal is completed if the buyer touches a thing without seeing or checking it properly. And Munabadzah is a sale in which the deal is completed when the seller throws a thing towards the buyer giving him no opportunity to see, touch or check it. Abu Saeed said that the Holy Prophet -peace be upon him- forbade them in Hadith:
عَنِ ابْنِ شِهَابٍ قَالَ أَنَّ رَسُولَ اللَّهِ صَلَّى اللَّه عَلَيْهِ وَسَلَّمَ نَهَى عَنِ الْمُنَابَذَةِ وَهِيَ طَرْحُ الرَّجُلِ ثَوْبَهُ بِالْبَيْعِ إِلَى الرَّجُلِ قَبْلَ أَنْ يُقَلِّبَهُ أَوْ يَنْظُرَ إِلَيْهِ وَنَهَى عَنِ الْمُلَامَسَةِ وَالْمُلَامَسَةُ لَمْسُ الثَّوْبِ لَا يَنْظُرُ إِلَيْهِ


“From ibni Syihab, he said that God’s Messenger -peace be upon him- forbade munabadzah, it is a sale in which the deal is completed when the seller throws or puts a garment on the buyer giving him no opportunity to overturn and see it. And also forbade mulamasah, it is the sale of thing with touching without seeing it”.

Both these forms of sale are gambling. Two persons may agree to exchange one thing for another without seeing or checking either of them. The whole transaction in both forms of sale is based on sheer change or conjecture.
3. Gharar
The Arabic word gharar literally means risk, hazard, jeopardy, danger and peril . Etimologically, there are many definitions of gharar; Scholars of Maliky defined gharar as unknown event which may happen or not and may be gotten or missed. Scholars of the Shafiite persuasion defined gharar as unknown consequences of everything and more frightening peril . According to Imam Ibn Taymiya gharar is involved when one does not know what is in store for one at the end of business venture or bargain . More clearly, Ibn Qoyyim defined gharar as measureless supply in the existence or non-existence of the goods, such as selling the fled slave and wild camel.
Based on many foregoing definitions, Rahman divided the concept of gharar into two groups:
a) The element of peril or risk involving doubt, probability, and uncertainty is dominant.
b) The element of doubt due to the deceit or fraud on the part of one of the parties in paramount .
The Holy Qur'an has explicitly forbidden all business transactions including injustice in any form to any of the parties; it may be in the form of deceit or fraud, or undue advantage or peril leading to uncertainty in the business or any dealings. And in the business contract, Islam enjoined the clear and certain element with doing full measure and full balance in trading. Allah Almighty said:
وَأَوْفُوا الكَيْلَ وَالْمِيْزَانَ بِالقِسْطِ لاَ نُكَلِّفُ نَفْسًا إِلاَّ وُسْعَهَا
"He has enjoined that you should use full measure and a full balance. We charge you only with that much responsibility that you can bear".
Prophet Muhammad -peace be upon him- had prohibited many business practices including injustice and gharar in his Hadith, whether gharar owing to doubt and probability or gharar due to fraud and deceit. Those practices are :
e. The sale of fish in the water that is not yet caught.
f. The sale of bird in the air, because in the one case it is free and not property.
g. The sale of a fetus in the womb, because it may be born deathly.
h. The sale of catches that still in the trap, because the game-catcher may or may not catch any thing at all.
i. The sale of milk in the udder, because there is the possibility of fraud. The udder may be void of milk, and full of wind, or other might be implicated in the sale something not properly
4. Jahala
Jahala signifies an unspecified element in the quality, quantity or price of a thing. It seems something unknown or not known, leading to uncertainty in the outcome .
Any sale contract or business transaction that contains an element jahala is unlawful. For example, when one of the parties to a contract says to the other, “I sell you one of my sheep for Rp. 300.000,- “this is likely to lead the argument and dispute from the very beginning because the specification of the sheep is vague and not known. The buyer would naturally ask for the best sheep in the flock, whereas the seller would like to give the worst.
The sale is invalid if any quantity or quantity of a commodity can only be judged by conjecture. It is therefore unlawful to sell dates growing on tree in exchange for dates which have been picked, are computed from conjecture to be equal in amount to those that are no the tree as explained under the section of gambling .
In short, any type of transaction which leads to uncertainty with regard to the price to be paid, or the quantity or quality of the object of the sale or the time of payment and the completion of the sale contract, is invalid.
The Holy Messenger -peace be upon him- required to specify the terms and conditions and the time of payment in every transactions. The purpose of this instruction is to make them fair and eliminate the element of uncertainty from them as far as possible. It is narrated by Ibn Abbas that when the Holy Prophet -peace be upon him- came to Medina, the people were paying one, two or three years in advance for dates, so he said to the, “Whosoever pays in advance the price of a thing to be delivered later should pay for a specified measure and weight with a specified period” .

Senin, 17 Januari 2011

The Operational Practice of Conventional Insurance.

Normally, the insurance company is operated as well as other companies. However, because the transaction of insurance needs special functions in its operational practice, so in this field there are some functions specified for the insurance company only.
Although there are some different functions between life insurance and lost insurance, but the main operational practice of all kinds of insurance company is divided as below :
a. Underwriting
Underwriting is classifying the risks that will be assured. It is the essential element in the operational practice of insurance company, because the underwriting can maximize the profits through risks distribution.
The main duty of the underwriter in the risks classification is to ensure no risks can cause great difficulties for the company in next days. For this reason the underwriter must develop sharp consideration through understanding the hazards.
To execute the underwriting process effectively, the underwriter must collect the information as much as possible about the insurance subjects and the cost to get additional data. The underwriter may approve new costumer as long as he complies all underwriting requirements determined by the company. But if he does not so and the hazard risks are too big, the underwriter may reject him.
There are five essential information resources related to the risks, they are:
1) New costumer’s statement embodied in the questionnaire,
2) Information from the insurance broker,
3) Direct investigations toward new costumer’s personality related to the moral hazards such as financial status, occupation, characteristics, etc.
4) Information from the service bureau concerning to the objects or goods. For instance, health information bureau which stores the files of costumer’s physical checking up for life insurance.
5) Direct Inspection toward object’s physical condition.
b. Rating / Pricing
Rate is the price of each protection or exposure units. The rate is different from the premium; the premium is determined by multiplying the rate with the total of bought protection units.
To calculate an equitable rate of premium for an individual risk, the underwriter has recourse either to the pooled record of risks of the same class in his own portfolio, or in the wider record of a group of insurers. Having found the norm of the class concerned, he can adjust the rate upwards or downwards for favourable or unfavourable features in the individual risk to arrive at what he considers a fair rate .
By this rate, the income of insurance company from the premium must suffice all losses' covering and operational expenses. To get the income from this premium, insurance company must foretell the claim and distribute the anticipated expenses to every policyholder classes.
c. Investment
It is the liability of financial staff of company to invest the accumulated amount of money as the accumulated premiums paid by insured. The addition of investment interest purchasing is important variable in determining the rate of premium.
Principally, life insurance is long-range investment. Hence, Life Insurance Company entrusts its funds especially in the long-range investment amounted to 2/3 of asset total invested in the company stocks and the obligation letters, the common stocks amounted to less than 10% and the government’s stocks amounted to 5%.
And loss insurance, normally, is short-range investment. Hence, Loss Insurance Company invests half of its assets total in the government and private company’s stocks. The investment percentage composition of life insurance and loss insurance can be seen in the table below :
Investment Capital Life Insurance (%) Loss Insurance (%)
Stock 9,7 32,4
Obligation 36,6 28,8
Government's Obligation 5,2 28,9
Mortgage 30,8 0,2
Real Estate 3,3 1,6
Policy Loan 8,5 -
Premium Balance - 7,2
Other Investments 5,9 7,3
d. Loss Adjustment
Before the insurance company covers the losses, it must finish the process of loss adjustment. Loss adjustment is most difficult step for insurance company; therefore it needs a good adjuster in claim section.
It is important for insurance company to pay for the claim properly, speedy and satisfactory, because it is the effective promotion device. And it is important also for insurance company to refuse the unevaluated claim, and to prevent the payment more than full indemnity.
There are two basic actions for insurance company toward a claim, those are payment and rejection. There are two matters provided the basis for insurance company to refuse the claim:
1) No losses happen,
2) The involved policy does not cover the loss, because it's out of the insurance contract, whether the contract becomes invalid or the insured violates the clauses of the legal policy.
In determining which whether the insurance company must pay or refuse the claim, the adjuster must attend settlement procedures with four main steps as below :
1) Loss information, the insured informs the insurance company that the loss was happening.
2) Loss investigation, the insurer ensures the loss fact by direct investigation which whether that loss assured by policy or not. Then the amount of losses will be countable.
3) Loss evidence, made by the insured after informing the loss.
Payment or rejection. If all steps run as well as the clauses of policy, the insurance company will draw the draft to indemnify the insured. But if they do not so, the insurance company will refuse that claim.

Kamis, 06 Januari 2011

THE IDEAS OF ISLAMIC EXPERTS TOWARDS INSURANCE

In this modern world, it is almost impossible to live without being affected by insurance. The house and the car that people rent have got insurance cover. The bus that they board has insurance. Insurance is all around them whether they like it or not. However, what is the status of insurance according to the scholars?
The scholars are not in agreement whether insurance is permissible or prohibited. Since the kind of insurance as it is being practiced now did not exist during the Prophet's time and there is no clear injunction in Holy Qur'an and Hadith regarding it. Then, ijtihad is used to determine its status.
As the scholars are not in agreement as to whether insurance is permissible or prohibited, they are also not in agreement as to reasons for its prohibition. And the followings are the ideas of them and their reasons.
1. The Objections
Many scholars deemed insurance to be prohibited, their resistance commonly undertook beneath the existence of forbidden elements in the insurance contract. For instance, Syekh Muhammad Abu Zahrah said that life insurance is a kind of gambling because there is no justification for a person, giving a part only of a sum, to be entitled to get the whole in case he dies and to take what he has paid with the profit in case he survives in the period of insurance. This is but riba .
Syekh Ahmed al-Sharbasi, Director of Young Men’s Muslim Association said that the system of insurance is unlawful if it is based on riba and undoubtedly there is an element of uncertainty and chaos in insurance which often results in a loss to the individual and considerable gain to the insurance companies .
Furthermore, Mahdi Hasan, the Jurisconsult, Deoband, Saharanpur, India said that insurance is nothing but riba on account of the fact that there is absence of equality between the two parties. It is also gambling because there is suspension of ownership on the result of hazard. In life insurance there is an element of bribery (rishwa) too, because the compensation in it is for something which cannot be valued .
Syeh ‘Uruj Ahmad Qadri, Editor Zindagi, Rampur India said that insurance is the admixture of riba, gambling and gharar. The stipulation that the insurance companies will pay the amount agreed upon between parties, if a person dies or property perishes, before all the installments are paid, is within the definition of gambling. By offering compensation as bait insurance companies win the premiums and deal in interest carrying transactions and have assumed the role of bankers. But unlike the banks they forfeit the premiums which are already paid if the policy-holder is unable to pay further premiums .
Muzaffar Hussain Mazaheri, Mazhar al-‘Ulum (Islamic Institution) Saharanpur, India added that insurance is based upon riba and gambling. The premium is a loan and according to the saying of Prophet -peace be upon him- a loan which brings profit is unlawful. It is stressed by Muhammad Zafiruddin, Dar al-Ulum (Islamic Institution) Deoband, India that the amount which is paid by the company to the insured is nothing but riba. Premium being a loan advanced to the insurance company, the profit it brings is not permissible. The excess or increase without counter-value is riba in a transaction where exchange of property takes place .
There are many others scholars also deemed insurance as above; some of them are Sayid Sabiq, the author of Fiqhus Sunnah, Abdullah Al-Qolqili, the Jurisconsult of Jordanian, Muhammad Yusuf Al-Qordhawi the author of Al-Halal Wal-Haram fil Islam, Muhammad Bakhit al-Muth’I, the Jurisconsult of Egypt, etc. . The objections of those ‘Ulama, in the main, are:
a. Insurance draws on the contract of mu’awadhah maaliyyah which comprises gharar.
b. The insurance is truly based on mere chance as in gambling, wagering or betting;
c. The insurance engages the uncertain matters;
d. In case of life insurance, the total obligations of how many times the premium installment paid by insured are not known;
e. The insurance contains element of exploitation, i.e. if the policy-holder fails to continue the policy because of their inability to recover even part of the premium, he shall get nothing from this contract;
f. The shareholder invests the accumulated funds in fixed-earning (interest) and;
g. There is no matching ‘aqd in Islam can be regarded as the insurance contract.
The 'Ulama, thus, wage a relentless war against insurance and emphatically argue that the insurance contract is diametrically opposed to the ethical standards set by Islamic law. It is hazardous, unfair and uncertain.
2. The Rejoinder
On the other hand, the scholars who opined that insurance is permissible, i.e. Muhammad Abduh, Abdul Wahab Khalaf, Mustofa Ahmad Zarqa, the professor of Islamic Law in Shari’a Faculty, Damascus University, Muhammad Yusuf Musa , the professor of Islamic Law in Cairo University, Egypt, and Abdurrahman Isa, the author of Al-Muamamalat al-Haditsah wa Ahkamuna, said that insurance is a modern contract and there is no injunction (nass) regarding it. If there is no injunction, then it is allowed. They based their argument on the established legal maxim that "originally, that any matter is permissible until there is evidence prohibiting it" . This legal maxim is based on the Qur'an of which some of the related verses are as follows:
وَسَخَّرَ لَكُمْ مَا فِي السَّموَاتِ وَمَا فِي الأَرْضِ جَمِيْعًا مِنْهُ، إِنَّ فِي ذلِكَ لآيتٍ لِقَوْمٍ يَتَفَكَّرُوْنَ
"And He has subjected to you, as from Him, all that is in the heavens and on earth: behold, in that are signs indeed for those who reflect".
According to the scholars, in principle, human beings are permitted to use the resources of the universe. This implies that all acts are necessary to facilitate this usage, including transactions, are permissible. To reinforce this, the Qur'an lays down the principle that Allah Almighty has clearly explained His prohibitions. Furthermore, the universe is described as an adornment of Allah. This is stated in the Qur'an:
قُلْ مَنْ حَرَّمَ زِيْنَةَ اللهِ الَّتِي أَخْرَجَ لِعِبَادِهِ وَالطَّيِّبَاتِ مِنَ الرِّزْقِ قُلْ هِيَ لِلَّذِينَ آمَنُوا فِي الْحَيَاةِ الدُّنْيَا خَالِصَةً يَوْمَ الْقِيَامَةِ كَذَلِكَ نُفَصِّلُ الْآيَاتِ لِقَوْمٍ يَعْلَمُونَ
"Say: who has forbidden the adornment of God, which He has produced for His servants, and the things, clean and pure, (which he has provided) for sustenance? Say: They are, in the life of this world, for those who believe, (and) purely for them on the Day of Judgment. Thus do We explain the Signs in detail for those who understand".
Therefore, a mere presumption is not enough to declare something unlawful. Muslim scholars have held any injunction that overrules this principle of permissibility must be decisive in meaning and transmission.
The scholars further claimed that insurance is a contract which brings maslahah 'amah (public welfare, commonweal) to the insured. According to them, the insurance contract is not a contract of mu’awadhah maaliyyah but falls under the concept of tabarru' and as assistance and guarantee by the insurer to the insured. The accumulated premium paid by insured will be considered as the savings fund and managed by insurer under the legal law. In this respect the insurer's position is that of a middleman whose collects money from insured and collectively arranges a form of assistance to them in facing collective losses . Hence, if it does so, the forbidden elements fail to destroy the contract of insurance because they fall under the concept of tabarru’ and ta’awun and the forbidden elements just occur in muawadhah maaliyyah transactions .
They further judged that insurance is perfectly legal form of business from which both the parties benefit; the insurance company and the insured. The former gains the huge profit from the accumulated premium and the latter gets the guarantee of the further loss.
Accordingly, Muhammad Yusuf Musa stressed that insurance in all its kind is an example of cooperation and helpful to society. Life insurance is beneficial to the insured as well as to the insurance company and as such there is no harm according to Islamic law if it is free from interest, that is, the insured taking only what he has paid without any increase if he survives the period of insurance and, in case he dies, his heirs getting the compensation. This is lawful under Islamic law . Again, they do this business contract by mutual good-will as mentioned in Holy Qur’an:
يآ أَيُّهَا الَّذِيْنَ أمَنُوا لاَ تَأْكُلُوا أَمْوَالَكُمْ بَيْنَكُمْ بِالبَاطِلِ إِلاَّ أَنْ تَكُوْنَ تِجَارَةً عَنْ تَرَاضٍ مِنْكُمْ
“O ye who believe! Eat not up your property among yourselves in vanities: but let there be amongst you traffic and trade by mutual good-will”.
And also the insurance contract is like the ‘aqd of mudharabah which performed by a separate department of insurance under interest free bank wherein the insured invests his capital to gain the yield with the basis of profit and loss-sharing , it will absolutely eliminate riba. Legally, scholars analogize the concept of insurance with the concept of ‘aqila (those who have to pay blood-wit) practiced in the time of Prophet -peace be upon him-.
3. The Middle Idea
Such is the conflict between the views of the two schools of thought. Clearly, it can be seen that the source of conflict is the forbidden elements of the business in Islam. Implicitly, it can be understood that the sort of forbidden insurance in the hand of the first thought is the commercial insurance (conventional) and whereas the sort of allowable insurance in the sight of the latter is social insurance with the basis of mutual and cooperative concept. Thus, this third thought takes the middle values between the both foregoing thoughts by allowing the social insurance and strictly forbidding the commercial insurance .
This though supported by Muhammad Shafi’, Jurisconsult, Dar al-‘Ulum (Islamic Institution) Karachi, Pakistan. He forbade the insurance because suspension of the payment of compensation on the occurrence of an uncertain event renders the contract of insurance a wager. The condition, in it, that the premiums already paid will be forfeited in case the insured fails to pay further premiums is opposed to Islamic law. However, in the same time, he suggested an alternative to insurance with requirements as below:
a. The amount paid towards insurance policy be invested, on the principle of mudharabah instead of pre-determined interest, profit be distributed as is generally done by commercial concerns.
b. In order to run the insurance business on cooperative lines, the policy-holders be bound, with their consent, to contribute a considerable portion of their profits towards a reserve fund in the form of a waqf (endowment), which will be utilized to provide for those who are victims of accidents.
c. The original amount of premiums together with profit is given to each insured which will be considered as his property while the reserve fund will remain a tabarru’. The insured will be entitled to be benefited by the tabarru’ in case of accidents.
d. There should be no forfeiture of the installments that are paid in case further installments are not paid .
The writer sees this third thought is wiser, in which the insurance has huge benefits and been needed by modern people in guaranteeing their risks. Islam with its universal characteristic never leaves any useful problem because of the contained forbidden elements but tries to adopt it and eliminates all the forbidden elements by modifying concept, form, nature, goal and its mechanism fund management. Then, it will come into being the newly modified concept of insurance with the basis of Islamic teachings.