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Is Islamic Insurance Ready to Take the Lead?

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Is Islamic Insurance Ready to Take the Lead? ǫǣ by AMMAR ALJASER A thesis submitted in partial fulfillment of the requirements for the degree of Doctor of Juridical Science (S.J.D.) at the Georgetown University Law Center 2014 ii Abstract The focus of this thesis is Islamic insurance, which has generated significant debate within Saudi society. Insurance is a new phenomenon for Muslims in general, and for the Saudi society, in particular, because most Islamic schools have prohibited conventional insurance due to the fact that insurance contracts involve prohibited elements such as interestȂriba, uncertaintyȂgharar and gamblingȂmiser. In Saudi Arabia, in particularly in 1977, the Islamic authority declared that conventional insurance, as commercial insurance companies practice it, is prohibited under Islamic law. In 1979, the Islamic authority announced a type of insurance that could serve as an alternative to conventional insurance, the Islamic insurance. This type is structured on Islamic law based in mutuality and cooperation. In 2003 and after almost 40 years, Saudi Arabia enacted an Insurance Cooperative Law to regulate the insurance industry. The law became a controversial matter in Saudi society as the law might not comply with Islamic law and has created a debate between Islamic scholars. There have been criticisms and debates over whether or not the Insurance Law is in fact sanctioned under Islamic law. Because of this debate it seems that the main issue that the Islamic insurance industry faces is the application of Islamic insurance schemes. This thesis will address these issues in the context of the need for developing and regulating the Islamic insurance industry in Saudi Arabia. The extent that Saudi Arabia needs to actually apply Islamic insurance principles in order to have an impact on its insurance sector and whether or not certain insurance products should be banned if they do not comply with these principles is unclear. Key words: Islamic Insurance Ȃ Conventional Insurance Ȃ Fatwa Ȃ Sharia Compliant Ȃ Cooperative Insurance Law. iii Dedication I dedicate this dissertation to my family. Words cannot express how grateful I am to my mother and father for all of the sacrifices they made for their children to be successful and which paved the way for me to accomplish this feat. I would also like to thanK my sisters and brother who, from afar, supported me in my American endeavors and my friends for their words of encouragement and honest input throughout this process. Finally, I would like to thanK the Saudi Arabian Monetary Agency for supporting my commitment to higher legal learning and making possible my aspiration of becoming a Doctor in Juridical Sciences. iv Acknowledgements I would like to express my special appreciation and thanKs to my advisor Professor Kathryn Zeiler, who has been a tremendous mentor for me. I would like to thanK you, Professor Zeiler, for encouraging my research and for providing me with insightful feedback which helped me grow as a legal scholar. I would also like to thanK Professor Craig Hoffman and Professor Daoud Khairallah for serving as committee members to my defense. Finally I would like to thanK Georgetown's academic staff for supporting me throughout this process and, more broadly, the Georgetown University Law Center which has been a wonderful school to conduct my studies. v Table of Contents ABSTRACT .................................................................................................................................................................. III DEDICATION .............................................................................................................................................................. IV ACKNOWLEDGEMENTS ........................................................................................................................................... V INTRODUCTION .......................................................................................................................................................... 1 CHAPTER 1: AN OVERVIEW OF THE SAUDI LEGAL SYSTEM: THE NOVELTY OF ISLAMIC INSURANCE 1 1.1 FOUNDATIONS OF SAUDI LAW ........................................................................................................................................ 1 1.2 THE BASIC LAW OF GOVERNANCE ................................................................................................................................. 4 1.3 STRUCTURE OF THE SAUDI LEGAL SYSTEM................................................................................................................... 7 1.3.1 The Legislative Power ...................................................................................................................................... 7 1.3.2 The Executive Power ......................................................................................................................................... 9 1.3.3 The Judicial Power .......................................................................................................................................... 10 1.3.3.1 The Sharia Courts ..................................................................................................................................................... 10 1.3.3.2 The Board of Grievances ....................................................................................................................................... 11 1.3.3.3 Limited Courts: Special Committees ............................................................................................................... 12 1.4 COUNCIL OF SENIOR ULEMA (RELIGIOUS AUTHORITY) ............................................................................................ 13 CONCLUSION ................................................................................................................................................................................ 14 CHAPTER 2: ISLAMIC DzSHARIAdz O DEFINE ISLAMIC INSURANCE.............. 17 INTRODUCTION ............................................................................................................................................................................ 17 2.1. SOURCES OF ISLAMIC LAW ................................................................................................................................................ 18 2.1.1 Primary Sources .............................................................................................................................................. 19 2.1.1.1 The Holy Scriptures (Quran) .............................................................................................................................. 19 2.1.1.2 ǯȋȌ ........................................................................................ 21 2.1.2 Secondary Sources of Islamic Law ........................................................................................................... 22 2.1.2.1 Consensus (Ijma) ...................................................................................................................................................... 23 2.1.2.2 Analogy (Qiyas) ......................................................................................................................................................... 24 2.2 ISLAMIC LAW AND LEGAL THEORY ................................................................................................................................ 25 2.3 INTERPRETATION OF ISLAMIC LAW: ISLAMIC SCHOOLS OF THOUGHT .................................................................. 26 2.3.1 The Hanafi School ........................................................................................................................................... 27 2.3.2 The Maliki School ............................................................................................................................................ 27 2.3.3 The Shafi School............................................................................................................................................... 28 2.3.4 The Hanbali School ......................................................................................................................................... 29 vi 2.4 PRACTICAL APPLICATION OF ISLAMIC LAW IN SAUDI ARABIA ................................................................................ 30 CHAPTER 3: LEGAL ASPECTS OF ISLAMIC INSURANCE ............................................................................ 34 INTRODUCTION ............................................................................................................................................................................ 34 3.1 INSURANCE IN ISLAM ...................................................................................................................................................... 37 3.2 THE ROLE OF ISLAMIC SCHOLARS IN STRUCTURING ISLAMIC INSURANCE ............................................................ 38 3.3 INSURANCE AND ISLAMIC SCHOLARS ........................................................................................................................... 40 3.4 ISLAMIC FINANCE PRINCIPLES ...................................................................................................................................... 45 3.4.1 Prohibited Transactions Under Islamic Law that Affect Insurance ............................................ 47 3.4.1.1 Usury Riba and Insurance ...................................................................................................................................
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