An Alternate System of Insurance in an Islamic Economic Framework

Salman Ahmed Shaikh

In conventional insurance, element of interest and gambling makes it unacceptable under Islamic principles. The premiums paid to the insurance company by the people are invested in interest based financial instruments and from those funds, compensation is provided to the insured in case of triggered contingencies. The contingent nature of consideration to the insured brings the element of gambling and uncertainty as well.

In recent years, Muslim scholars have proposed an alternate system of insurance which is known as “Takaful” system. But, in Takaful, the shareholders establish the Takaful company for the purpose of profit. Seeking profit from the core business of guaranteeing risk against certain events does not seem to be ideal.

Regarding commercial insurance, it needs to be kept in mind that not all risks are insurable. In fact, the risks generally insured by the commercial enterprises against accidents, fire or destruction are remote risks as compared to the frequently occurring un-insurable business risks which include loss of customer’s confidence, increased competition, regulation or decreased sales.

As an alternative to the current system of insurance, people can insure themselves against contingencies on their own by investing in relatively less risky investments, such as investment with Islamic banks and mutual funds including pension funds. The insurance needs of the salaried individuals can be met by the employers themselves by establishing the mutual insurance system on their own. Finally, ‘Gharimeen’ is a head of Zakat and the Zakat funds allocated for distribution in this head can be used to pay the debts and accidental losses of the commercial enterprises.


About Salman Ahmed Shaikh

PhD Economics, National University of Malaysia. Assistant Professor of Economics and Finance. Author, Researcher, Teacher and Consultant. He can be contacted at:
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