Answers to Questions: Cooperative (Islamic) Insurance Companies and the Intellectual Text

Question One:

What is the Sharia ruling on the companies that have emerged and grown significantly, sometimes called cooperative insurance, takaful, or Islamic insurance companies? Note that their owners and marketers claim they differ from prohibited commercial insurance because they are a form of cooperation among Muslims to help one another when an accident occurs, in exchange for premiums they pay. In this regard, they cite the Hadith where the Messenger of Allah ﷺ praised the Ash'aris for their cooperation, as explained in an attached research paper on the subject. We hope for a detailed answer, and may Allah reward you with goodness.

Answer:

I have reviewed what you sent regarding the subject, as well as other sources, and the following has become clear to me:

First: The reality of this insurance:

1. Cooperative, takaful, and Islamic insurance do not differ in their method of formation or operation... and the ruling on them is the same.
2. Those in charge market it as a donation from individuals of certain amounts to help each other if a hazardous event occurs, such as a fire, car accident, etc. However, a contract is signed between the "donor" and the insurance company!
3. Those in charge say that this insurance is not intended for profit but is cooperation in righteousness and piety.
4. They claim it differs from prohibited commercial insurance, which is based on profit and the investment of funds paid by the insured for profit... and which involves gharar (uncertainty) since the insured pays their subscription and does not know when an accident might occur.
5. They infer its permissibility from the Hadith of the Ash'aris, who, when facing famine, would put all the food they had in one place and eat from it together.

عَنْ أَبِي مُوسَى قَالَ: قَالَ النَّبِيُّ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ: «إِنَّ الْأَشْعَرِيِّينَ إِذَا أَرْمَلُوا فِي الْغَزْوِ أَوْ قَلَّ طَعَامُ عِيَالِهِمْ بِالْمَدِينَةِ جَمَعُوا مَا كَانَ عِنْدَهُمْ فِي ثَوْبٍ وَاحِدٍ ثُمَّ اقْتَسَمُوهُ بَيْنَهُمْ فِي إِنَاءٍ وَاحِدٍ بِالسَّوِيَّةِ فَهُمْ مِنِّي وَأَنَا مِنْهُمْ.»

"Indeed, when the Ash'aris run short of provisions during raids, or the food for their families in Madinah runs low, they collect all they have in a single cloth and then divide it equally among themselves using one vessel. So they are of me, and I am of them." (Agreed upon)

6. These cooperative companies... perform "re-insurance," meaning the local or small cooperative insurance company gives the subscriptions it holds to a major insurance company to manage and invest the money...

This is what appears in their books and pamphlets regarding re-insurance: ("Since small insurance companies cannot cover compensation for large damages, nor can they bear the risks of insuring ships and aircraft, they find themselves forced to insure their insurance with giant insurance companies located in the world's major capitals, such as Europe and America. This is called re-insurance...")

7. Those in charge of this cooperative insurance... do not deny the prohibition of commercial insurance, as fatwas have been issued prohibiting it by several bodies whose legitimacy they acknowledge, such as:

• The Council of Senior Scholars in Saudi Arabia.
• The International Islamic Fiqh Academy of the Organization of Islamic Cooperation (OIC), based in Jeddah.
• The Islamic Fiqh Council of the Muslim World League, based in Makkah.
• The Islamic Research Academy at Al-Azhar.
• ................ (End)

However, they claim that cooperative insurance is different and therefore halal. They consider it a donation, not a commercial investment, and claim it does not engage in re-insurance with commercial companies... they tried to exploit the decision of the Council of Senior Scholars in Saudi Arabia dated 4/4/1397 AH to promote this insurance.

For clarity, it is worth mentioning how that decision was made and how the Council later corrected it, despite the Council's link to the government... despite all that this implies, for the sake of fairness, we mention what happened: Those in charge of this insurance presented the matter to the Saudi Council of Senior Scholars as a donation for righteousness and piety, not for investment or profit. Consequently, the Council issued Decision No. 51 on 4/4/1397 AH, permitting cooperative insurance based on the information provided. The Council stated at the beginning of its decision: ("Cooperative insurance is one of the contracts of donation (tabarru') aimed primarily at cooperation in distributing risks and sharing responsibility when disasters occur, by individuals contributing cash amounts allocated to compensate those affected. The cooperative insurance group does not target trade or profit from others' money; they only intend to distribute risks among themselves and cooperate in bearing the harm...") (End)

The Council concluded the decision by requesting ("that a group of specialized experts chosen by the State be tasked with drafting the detailed articles for this cooperative company. After they finish, what they have written is to be returned to the Council of Senior Scholars to be studied and applied according to the rules of Sharia. And Allah is the Giver of success.")

It is clear from the Council's decision that they considered it a donation where there is no room for profit or seeking profit, because they described the act as a donation contract rather than an exchange (mu'awadhah) between two parties, based on the information provided to the Council.

Since the mentioned insurance is not a donation, and the companies realize this, they tried to market their operations by exploiting the Council's decision. This prompted the Permanent Committee for Scholarly Research and Ifta within the Council to issue a statement: ("To proceed: The Council of Senior Scholars previously issued a decision prohibiting commercial insurance of all kinds due to its inherent harm, great risks, and the unlawful consumption of people's wealth... The Council also issued a decision permitting cooperative insurance, which consists of donations from benefactors intended to help the needy and the afflicted, from which nothing returns to the participants—neither capital, nor profits, nor any investment returns—because the participant's intention is the reward from Allah Almighty by helping the needy, and not a worldly return. This falls under the saying of the Almighty:")

وَتَعَاوَنُوا عَلَى الْبِرِّ وَالتَّقْوَىٰ ۖ وَلَا تَعَاوَنُوا عَلَى الْإِثْمِ وَالْعُدْوَانِ

"And cooperate in righteousness and piety, but do not cooperate in sin and aggression." (QS Al-Ma'idah [5:2])

And the saying of the Prophet ﷺ:

وَاللَّهُ فِي عَوْنِ الْعَبْدِ مَا كَانَ الْعَبْدُ فِي عَوْنِ أَخِيهِ

"Allah continues to help a servant as long as the servant is helping his brother." (Sahih Muslim)

("This is clear and unambiguous. However, recently, some institutions and companies have deceived people and distorted facts, naming prohibited commercial insurance 'cooperative insurance' and attributing the opinion of its permissibility to the Council of Senior Scholars to deceive people and advertise for their companies. The Council of Senior Scholars is entirely innocent of this act, as its decision clearly distinguishes between commercial insurance and cooperative insurance, and changing the name does not change reality. For the sake of clarifying to the people, exposing the deception, and refuting the lies and fabrications, this statement was issued.") (End) (Source: Important Statements and Fatwas, Permanent Committee for Scholarly Research and Ifta, Dar Ibn al-Jawzi, Dammam, Saudi Arabia, 1421 AH/ 1999 AD.)

Second: This insurance does not differ from commercial insurance except through wordplay:

1. It is not cooperation for the sake of righteousness and piety; rather, it is an investment of the paid funds and a distribution of profits to participants. However, it does not call them profits or interest as commercial insurance companies or banks do; instead, it calls them "surplus" (fai'dh)!
2. It is not a donation; rather, it is a subscription of shares just like in commercial insurance. This is evidenced by the fact that if a participant in this insurance were not given a profit on their subscription—what they call "surplus"—they would complain and file a lawsuit. If it were a donation, they would have no such right. Furthermore, a donation is a unilateral act that does not require signing contracts and terms for negotiation... because the donor's role ends once the donation is made.
3. It is an investment of the participants' funds, not placing donations in a fund without investment; thus, it is exactly like the investment of commercial insurance funds...
4. It practices re-insurance, meaning giving the funds to a larger company more capable of investment, just as commercial insurance does...
5. Its affairs are managed by a board representing participants according to their subscriptions ("shares"). Whoever has more subscriptions controls the board of directors, just like in commercial insurance.
6. Gharar (uncertainty) is present just as in commercial insurance, as the participant does not know when an accident will occur...
7. The programs of this insurance do not differ from commercial insurance programs: fire insurance, car accidents, cargo by land, air, and sea, ship hulls, oil and gas... etc. The only difference is that commercial insurance mentions "insurance" explicitly, while takaful insurance writes in the program: Takaful program for fire insurance, Takaful program for car accident insurance, Takaful program for cargo insurance by land, air, and sea... etc.

Third: The claim that it differs from commercial insurance because cooperative, takaful, or Islamic insurance has evidence from Sharia—namely the Hadith of the Ash'aris—is an incorrect inference. The Hadith of the Ash'aris describes an action taken after an incident has occurred. They cooperate in facing a crisis; during drought, hunger, or calamity, they cooperate by each paying what they can to withstand that disaster, rather than subscribing to pay before it occurs.

The text of the Hadith is clear: "Indeed, when the Ash'aris armalu during raids, or the food for their families in Madinah runs low, they collect all they have in a single cloth and then divide it equally among themselves using one vessel..."

So when they أرملوا, meaning their provisions were exhausted... at that point, they collect what they have in a single cloth and divide it...

Fourth: The Sharia ruling on this insurance is prohibition (tahrim), because:

1. It is not a donation, so it cannot be discussed on that basis.
2. It is a guaranty (dhaman) from the insurance company—composed of people's subscriptions—to the participant who suffers an accident. Therefore, the conditions of dhaman (guaranty) in Islam must apply to it: a. There must be a fulfilled right in the liability (dhimmah). That is, the accident occurs, and then the company guarantees the person who suffered the accident by paying what is required of them. b. It must not be an exchange contract (mu'awadhah); the guarantor must not receive compensation, whether called profit, surplus, or subscription... c. The insurance company contract must be a Sharia-compliant contract by fulfilling the conditions of companies (sharikat) in Islam. This means it must be a partnership of capital and labor, not a capital-based company (sharikat amwal). The insurance under discussion is a capital-based company; everyone pays money, and even the board of directors managing the company represents their capital, not their persons (abdan). None of them are partners with their labor, but only with their capital. Thus, its reality as a company is identical to a joint-stock company (sharikat musahamah), i.e., a capital-based company. d. The investment of money must not be through prohibited methods via other companies, regardless of the name—whether called investment or re-insurance...

The evidence for this is the evidence regarding capital-based companies and the evidence for guaranty (dhaman), all of which are detailed in The Economic System.

In conclusion, cooperative, takaful, or Islamic insurance does not meet the conditions of dhaman in Islam nor the conditions of sharikat in Islam; therefore, it is not permissible in Sharia.

Question Two:

In the book Thinking (At-Tafkeer), it is stated: "From here, understanding an intellectual text requires, alongside previous information, three conditions: first, that the previous information is at the level of the thought intended to be understood; second, that its reality is perceived as it is—a perception that defines and distinguishes it from others; and third, that this reality is visualized correctly, giving a true picture of it." What is the difference between visualizing reality and perceiving reality, with examples if possible?

Answer:

Perceiving reality (idrak al-waqi') is analyzing the essence of the thing. For example, perceiving the reality of personal freedom means analyzing this text and understanding it to mean that a person may do whatever they wish without anyone preventing them; thus, they wear what they want and associate with whomever they want in the manner they desire... etc.

As for visualizing reality (tasawwur al-waqi'), it is to picture it as it is applied and to see the results arising from it. Thus, you understand the outcome of the state of applying personal freedom; you see moral decay, immense corruption, and the unleashing of personal desires... that is, you visualize it applied as if you were seeing it with your own eyes.

Another example: Secularism. Perceiving its reality involves studying it and knowing it means the separation of religion from life; religion is in the mosque and does not leave it, and relationships between people are governed by man-made laws without the intervention of religion...

Visualizing this reality, however, is to picture it as it is applied. You would see how a Muslim who believes in secularism would be like someone with a split personality. They read:

وَأَقِيمُوا الصَّلَاةَ

"And establish prayer." (QS Al-Baqarah [2:43])

So they implement it and pray. Then they read:

وَأَنِ احْكُم بَيْنَهُم بِمَا أَنزَلَ اللَّهُ

"And judge between them by what Allah has revealed." (QS Al-Ma'idah [5:49])

Yet they do not implement it, but instead refer to man-made laws for judgment, even though Allah Subhaanahu is the Commander in both verses: "And establish prayer" and "And judge...". Thus, you find Muslims who do not judge by Islam but adopt man-made laws; you find they do not rise, nor do they truly take up the means of strength, because they apply what they do not believe—they are Muslims yet they seek judgment from other than Islam!

In summary: Perceiving reality means knowing its essence, components, texts, and contents... and visualizing reality means picturing it as it is applied in reality, along with what results from it and what follows it...