Islamic law and juristic ingenuity 

Of the charges laid at the door of Islamic law in the post-colonial period, that of scholarly sclerosis was probably one of the most common. Juristic ingenuity, it was held, had become ossified to the point where the production of anything innovative became impossible, on account of which Islamic law was now unable to meet the challenges of the modern world.

Considering the fact that the Sharīʿah is believed by Muslims to be, at its core, rooted in the Divine Will, there is certainly much about it that is immutable. This immutability furthermore dates not from the nineteenth or twentieth century, but from the very inception of Islam. It does not, however, extend to every aspect and iota of the law. There are entire areas of the Sharīʿah that remain, within broad parameters, as open to innovation today as they have always been. Of those, the most significant is the field of muʿāmalāt, or commerce and finance.

One of the prominent features of pre-modern economies was the gradual institutionalization of finance. This can be seen clearly in Europe from the 16th century onwards. Newly reinvigorated by the spirit of enterprise, discovery and conquest, European markets were beginning to develop several unprecedented institutions: banks, stock markets and insurance houses.

During that same period, Ottoman Turkey was at its apogee. Testimony to the manner in which scholarly ingenuity responds to developments in society may be found in the legal reforms carried out by the Mufti Abu l-Suʿūd al-ʿImādī during the reign of Sulaymān the Magnificent. If any instance of creative legal ingenuity of the Ottoman scholars has to be singled out in this regard, it would have to be that of the famous cash awqāf. By no means uncontroversial, as demonstrated in the contemporary legal debates of Abu l-Suʿūd, Birgivi and others, it testifies nevertheless to a spirit of innovation that is sensitive to both the needs of a developing society and fealty to tradition. These cash endowments, crafted within the framework of the laws of Waqf, and leveraging off the versatility of the institution of Waqf, displayed a degree of ingenuity sufficient to lead one observer to the conclusion that the common criticism of scholarly sclerosis within Islamic law was “certainly inaccurate insofar as the Ottoman period is concerned”.[1]

But as ingenuous as this development was, and notwithstanding the fact that it did in fact take root in territories other than Anatolia,[2] it was a case of “too little, too late”. The relentless downwards spiral into which the Ottoman Empire had fallen, together with the buoyancy of an ascendant and colonizing Europe, combined to prevent this particular Ottoman legal innovation from having any sort of permanence in the Muslim world. Eventually, the only forms of institutionalized finance and commerce that found permanence in Muslim countries were those bequeathed by European colonization.

The problem of insurance

Among those institutions, the practice of insurance features prominently. As great as the need was for a system to transfer and distribute risk, the unceremonious manner in which conventional insurance flouts the Sharīʿah’s ban on gharar (uncertainty) and ribā remained an impassable obstacle. The ʿulamā were by no means unaware of how insurance worked. It was precisely their understanding of the insurance mechanism that led to their inveterate opposition to it. Disavowal of the concept by figures such as Ibn ʿĀbidīn in the late 18th or early 19th century, and the Muftī of Egypt, Shaykh Muḥammad Bakhīt al-Muṭīʿī in the early 20th century, led to a situation where the prohibition on insurance was pervasive enough for Shaykh Muḥammad Bakhātī, the Muftī of the Dīwān of Awqāf in Egypt, to refuse to even look at a question raised to his office on insurance.[3]

But as inveterate as the opposition to conventional insurance was, it did not rule out the search for an alternative. When colonialism eventually drew to a close in the wake of World War II, the search for an alternative to conventional commercial insurance began in earnest.

Developing an alternative 

This search was conducted in two distinct arenas, and came up with two separate models for an Islamically acceptable form of insurance:

• In the Arab world, the resolutions of conferences of al-Azhar University’s Islamic Research Academy in 1965 and 1966, a symposium of the University of Libya (later split into the University of Tripoli and the University of Benghazi) in 1972, a resolution by the Saudi Arabian Hayʾat Kibār al-ʿUlamāʾ (Senior Scholars Committee) in 1977, the Fiqh Academy of Rabiṭa al-ʿĀlam al-Islāmī (World Muslim League) in 1978, and finally the Fiqh Academy of the OIC as late as 1985, led to the development of a cooperative model of insurance in which ownership of premiums is not transferred to the insurer, but pooled for the benefit of members, while a manager is appointed at a fee.
• In the Indopak subcontinent, a group of scholars in Pakistan formed a group called Majlis-e Taḥqīq-e Masāʾil-e Ḥāḍirah (Council for Research on Contemporary Issues). In 1964 the deliberations of this group, which including the likes of Muftī Muḥammad Shafīʿ, Mawlāna Muḥammad Yūsuf Binnori, Muftī Walī Ḥasān Ṭonkī, Muftī ʿĀshiq Ilāhī and a youthful Muftī Muḥammad Taqī Uthmāni, precipitated a novel form of insurance that utilizes Waqf as its foundation.[1]

Challenges

Reconfiguring insurance on the basis of Waqf did not go without challenges. Two categories of challenges might be spoken of here:

• challenges of design;
• and challenges of implementation.

Design

In terms of design, the architects of Waqf-based Takāful faced obstacles similar to those of the Ottoman jurists several centuries before. The raison d’etre for introducing Waqf into the equation was the need for a mechanism other than contractual reciprocity to complete the insurance cycle.[2] The wide flexibility provided by the institution of Waqf, expressed by the Fuqahāʾ in the maxim Sharṭ al-wāqif ka naṣṣ al-Shāriʿ (a condition stipulated by the creator of the Waqf holds the same binding authority as a textual stipulation by the Lawgiver) made it the ideal solution to overcome the obstacle of reciprocity. This mechanism allows the Waqf to be “programmed” by its creator to indemnify certain listed risks for persons of a certain description.

A second obstacle was the issue of waqf al-nuqūd, or the endowment of money. Ottoman jurists faced the same problem. Being the strict Ḥanafī jurists that they were, they found themselves temporarily stymied by the fact that Imām Abū Ḥanīfah does not permit the endowment of movable property. They surmounted the problem by applying instead the view of his pupil Imām Muḥammad ibn al-Ḥasan al-Shaybānī, who held that where the endowment of specific movable items becomes general practice (taʿāmul or taʿāruf) such an endowment is permitted. Another pupil, Zafar ibn Hudhayl is reported as having held the view that the endowment of money is permitted even without the consideration of general practice.[3] Outside of the confines of the Ḥanafī madhhab, the Mālikīs hold the most accommodating position on the endowment of money, while the Shāfiʿī and Ḥanbalī schools both have alternative opinions (as opposed to their standard preferred positions) that permit the endowment of cash.[4]

A third obstacle presented itself in the requirement that the endowed property should be capable of continuously yielding a usufruct. Money, once spent or lent, becomes used up and therefore no longer capable of yielding a usufruct. Against this, Abu l-Suʿūd took the perspective that the dematerialized value that remains should be deemed equivalent for legal purposes to the original physical currency. This, he reasoned, would allow for the consistent application of the normal rules. When the loan is repaid in kind, the new currency will step into the vacuum left by the earlier disposal, much as any other fungible.[5]

The fourth obstacle that we will deal with here pertains specifically to the operation of Waqf in an insurance setting. It therefore has no Ottoman precedent. It deal with how to characterize premiums that are paid into the Waqf. If premiums were to be regarded as endowed property in themselves, this would constitute a major impediment in payouts since there would be a constant outflow from the Waqf, which militates against the requirement of permanency.

The solution was to draw a clear line of distinction between what constitutes the Waqf itself, and what is owned by the Waqf (mamlūk li l-waqf). Recognition of the Waqf as a juristic person entails acknowledgement of its ability to own. The property that a Waqf owns is not necessarily Waqf in itself, but may well be owned by the Waqf without the strict requirements of Waqf applying to it. A Waqf can own property in very much the same way as a natural person can own property, and property owned by the Waqf will be managed by the Waqf trustees in accordance with the Waqf provisions. A masjid, for example, may own fans or items of furniture which are not Waqf in themselves but are owned by the Waqf. As and when needed, property of this type may be disposed of and replaced by the trustees. As for the actual Waqf itself, it is constituted by the fund originally endowed as Waqf. The purpose of this Waqf fund is to be the Waqf vehicle on which the scheme operates. Whenever for any reason there is a reduction of this amount, it will be replenished from the first premiums received thereafter.

Implementation

In the 60s, much if not all of what today has become the almost ubiquitous Islamic finance industry was pure theory. Takāful, and more specifically, Waqf-based Takāful was no exception. The blueprint of the Waqf-based model of Takāful remained a matter of abstract theory for almost four decades. Among the three distinct sectors of the Islamic finance industry—asset management/investment, banking, and insurance—this particular sector was the last to receive traction in the market. In 2002 a follow-up conference on Takāful was held in Karachi, attended by scholars from Pakistan, Bangladesh and Syria. Also represented at this conference were numerous fatwā institutions and Islamic seminaries. After discussing the prevalent Takāful models, the attendees unanimously agreed that the Waqf-based model presented fewer complications than its counterpart.[6] Yet still, as far as the subcontinent was concerned, the idea could secure no purchase in the market. It is a matter of special pride to South Africa that the very first implementation of the four decade old idea of Waqf-based Takāful occurred on our soil, thanks to the intrepidity of a group of young scholars and insurance brokers. The credit for eventually giving birth in 2003 to this ingenious application of the concept of Waqf, goes to the Jassat family, of whom I may name Uwaiz, presently MD of Absa Islamic Banking, his brother Umair, still active in Takāful, Noor Mohamed of Amana Takaful Brokers, and the young scholars Mawlāna Shoaib Joosub, Muftī Ahmed Suliman, his brother Muftī Yusuf Suliman, and Muftī Ashraf Qureshi. A few years later I was honoured to receive an invitation to join the Sharīʿah Board of the company they started, namely Takafol SA. In 2011, Takafol SA was acquired by the Absa Group, becoming Absa Takaful. This acquisition was part of Absa’s strategy of acquiring a full range of products in its Islamic offering. Needless to say, it was also a major vote of confidence in the model. But when Absa decided to close down its short term insurance business in 2015, the Takāful unit became an innocent victim. Fortunately an international insurance operator, Zurich Insurance, stepped up to take Takāful on board, this time as Takaful Africa. Special mention in this regard should go to sterling efforts of Sedick Isaacs of Zurich.

Ongoing Challenges

From these South African beginnings, Waqf-based Takāful has grown to have quite a visible presence in Pakistan, as well as in Sri Lanka. The rest of the Muslim world, including the Middle East and South East Asia, appears still to favour the straightforward cooperative model. The spread of its footprint, however, does not in any way mean that Takāful has outgrown all its problems and challenges.

While challenges of a technical nature will probably always plague any insurance industry, it is not those challenges that present the greatest stumbling block to Takāful. Debates around issues such as surplus distribution, the need for re-Takāful, and the peculiarities of interfacing with a conventional operator will probably still be around for quite some time. However, a bigger problem than all of these put together is that of public perception and awareness.

Two specific aspects of public perception might be raised here. There is firstly, the need for the public to be assured that Takāful is every bit as efficient as conventional counterparts. The highest degree of integrity notwithstanding, when the product fails in terms of efficiency it will not find traction in the market. This, however, is very much a matter of business.

The second aspect is that of education. In a society that still holds on to a very monolithic perception of Waqf as masjid and nothing else, it is perhaps understandable if something as ambitious as Waqf-based alternative insurance is viewed with scepticism. What is not acceptable is that this state of ignorance around the true potential of Waqf should be allowed to persist, side by side with a lack of faith in the ability of Islamic law to produce viable and efficient alternatives.