Friday, 26 October 2012

Fatawa on Insurance & Bank Interest

بِسۡمِ ٱللهِ ٱلرَّحۡمَـٰنِ ٱلرَّحِيمِ

The following are fatawa about some issues in banking and insurance by Shaykh ‘Ali Juma’ah.



Since the emergence of banks in the modern age, jurists have disagreed on how they conceive the nature of banks.  Their differences parallel the disagreement between scholars of conventional law and economists over whether the relationship between banks and their clients is one of lending as held by scholars of conventional law, or one of investment as held by economists.  Built upon this difference in conception, taswwir, is of difference in legal formulation, takyif.

The jurists who consider this relationship to be financial lending formulate it as a loan which has brought benefit to the lender.  Thus, its ruling would be based on it being unlawful usury.  But then, the fatwa differed, because some considered this a matter of necessities that are permissible for a Muslim to undertake whenever he is forced to, and is thus based upon the principle of ‘Necessities render the forbidden permissible’, which in turn is deduced from the All-Encompassing Words of Allah (s.w.t.):



…But if one is forced by necessity without willful disobedience, nor transgressing due limits―then is he guiltless... (Surah al-Baqarah:173)

Other jurists maintain that this does not fall under the heading of necessities since necessity is legally defined as ‘something without which one would perish or come close to perishing.’  Some of the jurists amongst this group maintain that it is permissible, based upon the principle of need being given the status of necessities - whether those needs are common or individual.

As for the jurists who followed the formulation that the relationship between banks and clients is a relationship based upon investment: some of them consider it an invalid profit sharing venture, mudharabah, that can be rectified by combining it with a lease.  Other members of this group maintain that it is a new transaction and a new type of contract which has no name in traditional Islamic law.  Thus, they studied the matter in depth, just as the legists of Samarqand researched bay‘ al-wafa’ out of considering it a new type of contract.  Likewise, the Shaykh al-Islam Abu as-Su‘ud researched ‘aqd al-mu‘amalah and ruled in favor of its lawfulness – just as the former scholars ruled with the lawfulness of bay‘ al-wafa’.

They arrived at this judgment because they took into account the interests of the people and their dire need for these types of contracts; and because it was a means for market reform, and the masses depended on them for their livelihood.  Moreover, it suited the demands of the age’s new developments in transportation and communication, and modern technology; population growth; weakened social relations; the development of accounting sciences and book-keeping; and separation between legal entities [corporations] and individuals, and many other novel matters.

In brief, there is a difference of opinion concerning the issue of working in bank transactions and transacting with banks: how it is conceived and formulated, and its legal ruling in theory and in application.  The established legal maxims are:

1.         Objection is reserved for omitting what is agreed to be a requirement, and performing something that is agreed to be unlawful.  Objection is not for issues where there is a difference of opinion.

2.         It is recommended to remove oneself from controversial issues.

3.         Whoever is afflicted with something controversial must follow the opinion of those who permit it.

It is necessarily known in Islam that usury is prohibited.  This is because its prohibition has been stated explicitly in the Qur’an and Prophetic hadits, and because of the unanimous consensus of the Muslim community.  Allah the Almighty Says:



Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness.  That is because they say: "Trade is like usury," but Allah hath Permitted trade and Forbidden usury.  Those who after receiving Direction from their Lord, desist, shall be Pardoned for the past; their case is for Allah (to Judge); but those who repeat (the offence) are companions of the Fire: they will abide therein (for ever). (Surah al-Baqarah:275)

The Messenger of Allah (s.a.w.) said, “Allah Curses those who take usury, those who give it, those who witness it, and those who record it.”  This is recorded in Swahih al-Bukhari and Swahih Muslim.

However, the controversy revolves around the true nature of what is derived from banks: whether it is an instance of usury, which is unlawful, or invalid contracts, which are unlawful; or a new form of contract which would be permissible if it achieves the interests of the parties involved and is free of anything which is legally prohibited.

Based on the above, every Muslim must realise that Allah the Almighty Prohibited usury and that there is unanimous consensus concerning its prohibition.  He must realise that concerning bank transactions, scholars in all parts of the world differ in conceiving, formulating, and arriving at its legal status in theory and in application.  He must also realise that it is recommended to remove oneself from controversial issues.  Nonetheless, he may follow those who permit it; in such a case, there is no prohibition involved in any form of banking activity: depositing or borrowing money, working in or transacting with them, and so forth.


Since insurance in its various forms is a novel transaction which the shari‘ah has not provided specific evidence concerning their legality or lack thereof – in this respect it is like bank transactions – engaging in it falls under the judgment of scholars and their research deduced from the general meaning of textual evidence, such as Allah Most High Saying:



…Help ye one another in righteousness and piety, but help ye not one another in sin and rancour: fear Allah: for Allah is strict in punishment. (Surah al-Ma’idah:2)

The Messenger of Allah (s.a.w.) said, “The example of believers in their love, sympathy, and compassion for one another is similar to the example of a single body: when a single part complains it calls upon the others vigilance and for defense.”  And there are numerous other texts on this topic.

Scholars have two opinions on the permissibility of insurance:

- One group of scholars considers it an unlawful transaction because of its inherent risk, gambling, betting, and unlawful increase, riba’.

- The other group considers it permissible since it stands upon a foundation of social responsibility and assisting one another in acts of piety, and at its root is voluntary charity – not compensation.  They are not among the contracts unlawful due to inherent risk since it is a contract to give voluntarily.  It is not a contract for exchange – and thus nullified by risk – since its risk does not lead to disputes between the various parties because people make frequent use of it.

Furthermore, it is widespread amongst the masses, spreading to all facets of their economic activities.  And what people hold good and consent to without it leading to dispute is not forbidden.  It is established in the shari'ah that voluntary charity contracts can involve much risk, unlike exchange contracts such as buying and selling should not involve risk.

The legal maxims maintained in such disputable matters are:

1.         Objection is reserved for omitting what is agreed to be a requirement, and performing something that is agreed to be unlawful.  Objection is not for issues where there is a difference of opinion.

2.         It is recommended to remove oneself from controversial issues.

3.         Whoever is afflicted with something controversial must follow the opinion of those who permit it.

Based on the above, there is no objection in entering into insurance contracts and following the opinion of those who permit it.  It is preferable to avoid it as a means of piety.  However, it is not permissible for any of the two groups to deny the act of the other as long as it is a disputable matter.


1.         My company takes money away from my salary to give me compulsory life and medical insurance.  I cannot change it as they have said that this is compulsory.  I do not know whether there is any riba’ involved in these insurances or not and also do not know if they invest the money in haram activities.  What should I do?

In Islamic law, insurance is permissible and thus you are not blameworthy.

2.         Is borrowing money on credit card haram if they give you 0% interest free deal for a period of time but charges you a balance transfer fee for it.  After the introductory period the bank would charge interest, riba’, if one did not payback all the money?

This is permissible in Islamic law so long as you abide by the prescribed time for paying back.

3.         My bank where I borrowed money for a house where I live in stipulates that I should have building insurance in place in case there is damage to the building?  Is this haram and what should I do?

This is permissible in Islamic law.

4.         I bought a house from a bank in a non-Muslim country to live in with my family.  I paid them deposit and in the house deeds the bank has a legal charge, I pay them interest, riba’, on the money I borrowed monthly.  What should I do?

In Islamic law, it is permissible to buy in installments through the bank or housing companies, even when the price in case of installment is higher than cash payment.

2 comments:

  1. Asslamu allaikum ,

    I need to clarify Simple things

    1. Simply to ask We can that (Bank accounts interest money ) interest money we can use or not

    2. Can we buy a home loan ?

    3. Can we buy insurance ?

    4.can we go with car loan ?

    As per the sharia Rules

    Thanks in Advance
    Vasalam
    Shagul

    ReplyDelete
    Replies
    1. Wa 'Alaykum as-Salaam,

      Based on the fatwa above:

      1. You may use the money from interest in an ordinary savings account and checking account. However, you may not use it to pay zakat. But since it is difficult to separate the principle from the interest, a simple way would be to pay it as 2.5% but make intention that which is halal for zakat to be zakat and that which is not to be sadaqah. Or, if you would like, then pay on the basis of the original principle only.

      2. On the basis of need, you may take a home loan since the alternative would be to not have a home.

      3. Since insurance is a modern phenomenon, there is a difference of the scholars on the matter and it is still under study. Generally, it permissible since the root cause is as a safety net. Other forms of insurance used as a complex form of investments and can be traded as a derivative would likely be riba'. But those are not the types of insurance a person would buy. They are financial instruments of banks and corporate entities.

      4. On the basis of need, if a vehicle is necessary, the principle is the same as the 2.

      Wa as-Salaam

      Delete

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