subject: Islamic Banking and Insurance [print this page] Islamic Banking and Insurance Islamic Banking and Insurance
A LAYMAN'S INTERPRETATION ON INSURANCE AND BANKING
Some Muslim scholars use their Ijtihad(independent reasoning)to argue that life insurance isforbidden for Muslims as it involves interest and gambling. As a Muslim living in a secular nation like India where Muslims live as minorities, I beg to differ on this argument..
This is the most unwise sort of contention that adds fuel to the
insulting accusation of Islamic Fundamentalism in the West and gives a
long stick to radical parties BJP to beat the Muslim leaders with.
Having said that let me quickly add that Islamic fundamentalism is a
fact because Islam is defined by fundamental articles of faith:
monotheism, Prophet-hood, infallibility of the Quran,
day of Judgment and very many other uncompromising principles.
But a ruling against life insurance by Indian Muslims is not an
uncompromising fundamental article of faith but a matter of high
controversy which requires a penetrating intellectual Ijtihad of top-
class Muslim economists and scholars to deliberate deeply, interpret
judicially and find more acceptable solutions.
In the opinion of Muhammad Asad," Every successive Muslim generation
is faced with the challenge of giving new dimensions and a fresh
economic meaning to this term( interest) which, for want of better
word, may be rendered as usury."
So the pressing question is, "Are Muslim scholars dynamic in
reinterpreting the concept of interest in order to find solutions to
the problems arising in the modern contemporary world of advanced
economics?"
RIPPLE EFFECTS IN OTHER COUNTRIES
Should the Islamic world as a whole insist on accepting a simple
ruling on the non-desirability of life insurance by Muslims, as the
finality, we would find very many of even the so called fundamental
Muslims crossing the floors and jumping into the band wagon of
Americanized modern Islam. Do Indian Alims want this happen to very
many Indian Muslims?
The Christendom would warmly welcome and celebrate such an event.
TRADITIONAL ALIMS' INSUFFICIENCY IN DEALING WITH COMPLICATED ECONOMIC
PROBLEMS
More knowledgeable Alims who have been well trained in both Islamic
jurisprudence and in specialized fields of study such as economics,
investment, insurance, banking, finance etc., should come forward and
try hard to intellectualize the educational, marital, economic,
financial, corporate, investment, banking, insurance and other mundane
problems of the minority Muslims of India and the world.
I am sure Islamic principles can not be as rigid as our conservative
scholars expect us to believe. Please bear in mind that Indian Muslims
are not governed by Wilayat-al-fiqih, but are governed by compromising
secular laws, hence we can not apply Islamic jurisprudence in their
finest details in Toto.
The basic question to be addressed is:
"Do the secular laws of India undermine the basic beliefs of Muslim
minorities?"
In accordance with the opinions of world renounced Imams like Sheikh
Qartawi ,Tantawi and many others, Muslim minorities ought to live by
the laws of the country where they live, as long as the laws allow
Muslims to adhere to the basic Rukun Islam. This has been the position
of millions of Muslims living in the U.S.A., U.K., France, Germany,
Canada, Netherlands, Australia and in some of the Asian countries like
China, Philippines, Thailand, Cambodia, Sri Lanka, Singapore etc
STRICT ADHERENCE TO ISLAMIC LAWS IN SECULAR INDIA
If our Sunnat Jamah Alims do not agree with the above line of
argument, how would they justify, the entire Muslim population of
India obeying and following several sections of the Indian penal code
which are secular and in very many parts derail the secondary line of
Shariah laws.
Is it religiously or politically possible in the Indian situation to
force the Indian Government to enact Hudud laws, for instance?
The answer is a definite "No". Why then, we make an illogical ruling
on insurance or buying homes on mortgage and similar interest based
contractual financial transactions, and put the Indian Muslims at a
very big economic disadvantage when their standard of living and per-
capita income are several degrees far below the national average of
the majority community.
ISLAM BASED INSURANCE AND BANKING IN OTHER COUNTRIES
To take a case study, Malaysia has an excellent Islamic banking and
Islamic Insurance( known as Takaful). Islamic bankers and insurers
operate on financial rewards to the depositors and the insured,
charges on the borrowers, protection to the insured and rewards for no-
claim and eventual lump sum repayment based on both endowment and
whole-life assurance policies. The terminology varies but the basic
principles remain very much the same.
INDIAN MUSLIMS' INCOMPETENCE
Now, my question is: Do Indian Muslims have the resources, caliber,
organisation, corporate mindset and honest business ethics to set up
similar Islamic principle based institutions that exist not only in
Malaysia but even in very many Western countries catering for the
economic needs of Muslims?
( Even Dow Jones has its Shariyah based share index, so does London FT
index) The answer is again, a definite "No".
A few years back, Milli Gazette did an excellent research on the
pathetic dishonest situations of very many interest-free based Muslim
financial institutions. It washed real dirty linen in public vividly
indicating how the Muslim financial institutions had cheated the
several thousand innocent investors' hard earned savings by their
greediness, dishonesty, corruption and financial mismanagement.
So my assertion is that, until we are ready to set up clean and
excellent financial institutions (Shariyah friendly),comparable to
that of Singapore and Hong Kong based ones run by non-Muslims, there
is no meaning in making a firm stand preventing Indian Muslims
investing in life assurance and similar interest based institutions
run by more honest non-Muslims. Simply because, there are no such
institutions competently, efficiently and honestly run by Muslims in
India.
Well some may argue that, after all the interpretations differ.
Opinions can vary. Indian Muslims do not have to follow a particular
interpretation and so on. But on the other hand, very many innocent
and less-educated Muslims consider the stand of our Alims as powerful
and by not following them they commit a big sin. How do they know that
Allah SWT can never be Dzhalim under any circumstances. What more can
we say, about the tricky and uncertain Indian situation?
DOES LIFE ASSURANCE INVOLVE GAMBLING?
Life assurance is a method of self-imposed savings similar to an
ordinary Bank savings account. There is no gambling here. When a
person buys a lottery ticket, he loses the money if his number does
not hit the jackpot, ( this is gambling) but the insured person is
assured of getting back his premium whether the insured event
( death ) does or does not happen. There is a guaranteed repayment.
At one instance, insurance becomes gambling, if an individual insures
something without insurable interest . For example, if a person takes
out a fire insurance for say US$ 50 million against the Delhi Red
Fort, paying an annual premium of say Rs 25, 000, expecting to get US$
50 million, should the Red Fort be destroyed by fire, that involves
gambling, because the proposer has no insurable interest on the
building (the property does not belong to him) and moreover he loses
the premium if the event ( fire) does not occur.
Where as in the case of life assurance, say, a person takes out an
Endowment Policy for Rs 3 lakhs and agrees to pay a monthly premium of
say Rs 940 over a certain period. At the end of that period he or his
dependents will receive back Rs 3 lakhs plus some profits. He does not
gamble.
His primary intention is not to leave his dependents without
sufficient financial resources should he die prematurely and /or to
have sufficient savings to rely on when he retires from active
employment without expecting anything from his grown up children,
because in the present day economic rat-race, many earning children
have become indifferent towards their parents welfare.
For instance who will come forward and pay 2 lakhs for a coronary by-pass operation, or a lakh for an angioplasty if he unfortunately required one at the age of 58. A life insurance cover can incorporate emergencies of this nature particularly for lower income people. There
is nothing illogically or overtly Haram about this.
THE CONCEPT OF INTEREST IN ISLAM:
The concept of interest is one of the most complicated in Islam.
The Prophet received the revelation condemning riba only a few days
before his Wafat and so the companions had no opportunity to ask
Rasulullah (SAW) for the fullest implications of the order. Even
Sayyidina Umar ibn al-Khattab had said,
"The last revelation of the Quran was concerning riba and the Apostle
of Allah passed away before explaining the full meaning of the passage
to us" ( Ibn Hanbal, on the authority of Said ibn al-Musayyab).
The exploitation of the economically weak by the strong is a form of
oppression. Hence, attaching profits (riba) on the personal loans
obtained by those who are really poor, downtrodden and debt-laden is a
disgrace and is condemned as haram by Islam. There can never be two
conflicting opinions on this.
But not all interest-bearing financial transactions fall within this
category of exploitation by the economically strong. Life assurance
and buying houses on mortgage are two examples of contractual
financial transactions which fall outside this category of
exploitation.
To quote Muhammad Asad again," the question as to what kinds of
financial transactions fall within the category of riba is, in the
last resort, a moral one".
It is impossible to give an outright judgment in a non-Muslim country
banning on all kinds of interest-bearing financial transactions, in a
rigid and once-for-all manner putting the economically weak Muslim
minority in India at a greater economic disadvantage. The
interpretation of Islamic scholars must not ignore the changes to
man's environment on his social, economic and technological
development.
That is the adoring beauty of the Quran. It is Islam's biggest
miracle. People living the third millennium may read the same Quran
without an alphabet having been changed, but will see totally new
light, new messages, new interpretations and new discoveries that go
beautifully and logically cognizant of the socio-economic-
technological environment of that time that we people living in the
second millennium never ever dreamt of.
Hence my simple assertion is that, our traditional Alims should not apply the first century Hijrah definition of Riba to solve the most complicated economic problems of the 21st century.
One other point that is worth mentioning here is that, during the time
of the Prophet(SAW) the value of money was constant and inflation was
non-existent and hence Riba: interest( as the sort practised by Abbas-RAA )wasforbidden because the lender even after a year of waiting will get the money that he lent whose purchasing power had not diminished at all.
But in our country the annual rate of inflation is about 10 to 15%. In
such a condition of rising prices, is it fair to expect a person
depositing his money for safe-keeping ( or lending to another trader
who makes profits) with a bank to withdraw the same amount without any
additions, say after a period of 12 months.
Should the Alims give a fatwa (judgment)that bank interest on deposit is haram, the depositor will get back the same amount whose purchasing power has fallen by 10 to 15% This is one of the angles (there are many others) from which we should aim for a new definition of riba.
Nothing from me except with the help ofOne True Almighty God.
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