Understanding Islamic Finance - Doha Academy of Tertiary Studies

418 Understanding Islamic Financebe questioning His actions. Second, the severe prohibition of Riba, Gharar and gamblingare believed to indicate the nonpermissibility of conventional insurance. Further, insurancecompanies are involved in other forbidden businesses, including alcohol, pork, indecententertainment and hotels with clubs and prohibited activities.While the second reason is genuine and must be observed in order to avoid prohibitions,the first is only a myth. All human beings are invariably exposed to the likelihood of meetingcatastrophes and disasters, giving rise to misfortune and suffering such as death, loss oflimbs, accident, destruction of business or wealth, etc. Notwithstanding the belief in Allahand destiny, Islam provides that one must find ways and means to avoid such catastropheand disaster wherever possible, and to lighten one’s or one’s family’s burden should suchan event occur.Sharī´ah intends to save human beings from hardship. The Holy Qur´ān says: “Allâhintends for you ease, and He does not want to make things difficult for you.” (2: 185). Itfurther says: “Allah wishes to lighten (the burden) for you, and man was created weak” (4:28). One day the holy Prophet (pbuh) saw a person leaving a camel in the jungle, he askedhim: “Why don’t you tie down your camel?” He answered: “I put my trust in Allah.” TheProphet said: “Tie your camel first, then put your trust in Allah.”The idea of getting cover against risks is not intrinsically bad. In the case of genuineproblems and remaining within the main Sharī´ah constraints, the rule of necessity comesinto play to find the proper solutions. Therefore, the scholars deemed it necessary to developa scheme or system enabling human beings to avoid misfortune and lessen the losses in amanner not against the principles of the Sharī´ah.The insurance business is conducted mostly by non-bank financial institutions (NBFIs)and the commercial banks are not allowed, in most countries, to be involved in the insurancebusiness. However, all commercial and investment banks and other NBFIs have to resort toinsurance services, either as a regulatory requirement or as an unavoidable business need.Similarly, business, industry and individuals have been increasingly taking on the servicesof insurance companies to safeguard against unfortunate incidents and losses to life andwealth. While Islamic banking emerged in the 1960s and early 1970s, Islamic insurancestarted no earlier than 1979. This reveals that the Takaful system developed in response todemand for risk cover by Islamic financial institutions, due mainly to the fact that bankingand insurance go hand-in-hand and complement each other’s operations. However, it mayalso have positive implications for those individuals, households and businesses who havebeen avoiding insurance on the basis of belief.16.2.1 Why Conventional Insurance is ProhibitedAs indicated above, efforts to avoid risk are not against the Sharī´ah tenets. Belief in God ordestiny does not mean that man should be exposed to unnecessary risks, and Sharī´ah acceptsthe basic safety requirement of human beings and their belongings. This includes protectionof self, protection of one’s offspring and wealth, protection against disease, illiteracy andpoverty and other misfortune. Why, then, is conventional insurance not acceptable in thestructure of Islamic finance?Marine insurance was the first form of commercial insurance, initiated probably at theend of the 12th century. It took the form of a formal system in the 17th century, whenthe marine business developed on a massive scale. Among the Islamic jurists, Ibn Abdin, awidely respected jurist of the 19th century, was the first scholar who wrote about modern