Finance conventionnelle

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Before discussing the difference between Islamic and Conventional insurance it is better to first understand the concept of insurance and the objection of Shariah Scholars at it.

Insurance provides the means for people to transfer the burden of uncertainty (of financial loss) to the insurer, for an agreed financialconsideration called the “premium”. In exchange, the insurer promises to provide financial compensation to the insured should a specified loss occur. It is an effective risk transfer mechanism by which individuals or organisations can exchange their uncertainty of financial loss (or risk) for the certainty of the premium. With a fixed premium, the insured is certain that he will not have to pay morefor that year. This service of providing certainty of cost (fixed premium) is of immense value especially to organisations, as it would help them budget their expenditure confidently. This is the financial security provided by modern insurance. The act of taking precautionary measures or `ikhtiar’ against possible danger and its consequences is in line with the teachings of Islam. In the holy Quranit is clearly described how Prophet Yussof a.s. filled the grain silos from the surplus of seven years of good harvest as a protection to ensure the availability of continuous food during the seven lean years. This is a clear indication that one has to strive hard to avoid from being inflicted by any ill luck, and at the same time be fully prepared in terms of the measures taken as precautions inthe event such an unfortunately eventuality cannot be avoided. One such measure available to every member of the community presently is the cover or protection provided by insurance policies. As a concept, insurance actually does not contradict the teachings of Islam, as it is a method by way common resources are pooled in order to help the needy. Based on this, it is said that the operation ofinsurance as known today was established on the practice of blood money under the Arab tribal custom, which formed the basis of modern -day mutual insurance. In Asia, the practice of insurance was first established in the early second century of Islamic era when Muslim Arabs began to expand their trade to ndia, Malay Archipelago I and other Asian countries. Because of the long distance, the voyagewas hazardous and the traders often had to incur losses arising from a multitude of misfortunes.

Money Being Exchanged with Money
Shariah Scholars view the insurance contract as a transaction where money is being exchanged with money. Basically, the two parties to an insurance contract are exchanging the premium for claims both in monetary terms. Money is therefore viewed as the subject-matterof the insurance contract. It should be noted that treating the insurance contract as a contract for ____________________________________________________________

_________ Prepared by Ahmad Ali Khan Registration #: IIBI/DC/572/03

exchange of money is not just a Muslim view but is also shared by some western writers. The following definition of an insurance contract from a textbook clearlyshows that it is a contract of exchanging money for money: “An agreement whereby one party, the Insurer, in return for a consideration, the premium, undertakes to pay to the other party, the Insured, a sum of money or its equivalent in kind on the happening of a specified event, which is contrary to the Insured’s financial interest”.
Malaysian Insurance Institute (MII) Text Book - Risk andInsurance.

Dr. Muslehuddin in his book, Insurance and Islamic Law said the following: “The subject-matter is, therefore, risk coverage (compensation) sold in consideration of the premium. Insurance is thus, a species of contract of sale as is further evident from the policy”
Dr. Muslehuddin, Insurance and Islamic Law pg.129

Exchanging money with money in itself is not a problem so long as there...