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Do our scholars understand? RE: I have put money in an endowment policy: Is this fine?

Answered as per Hanafi Fiqh by Qibla.com

Answered by Shaykh Faraz Rabbani

There are two reasons for this. Firstly, interest, as the policyholder receives an excess amount on the original payment. Do you see now the problems that these fuqaha are having in their analysis of investments? This one is prohibited because it might make money.

In the Name of Allah, Most Gracious, Most Merciful

Assalamu alaikum,

Sidi, question your understanding.

The reason is that the excess amount is specified in the contract, and this is riba. It is not the issue of making money, but specifying the actual amount made.

Secondly, there is an element of what is known in the Fiqh terminology as ‘gharar’ (deceptive uncertainty or chancing). I don’t dispute the connection between deception and gharar. However, I also don’t see what deception is involved here. We need to further develop the concept of consent so that it can be applied meaningfully to financial contracts.

I don’t see what you don’t see, Sidi.

‘…the presence of risk. But in reality, these contracts are exchanges of risk – the risk is not a nuisance, rather, it is the…’

Risk, in this sense, is not something that can be ‘traded.’

‘…object and the whole point of the exchange. Why can people not consent to such an exchange, as long as they are not gambling? Now it’s true that all investments are ‘gambles’ in a lexical sense, but if we get carried away with such thinking then again, investment becomes haram. And of all investments, Qimar (chancing) does not refer specifically to gambling in the sense of something done for ‘entertainment.’…’

There is a wide range of meanings to qimar (chancing), including:  

1. To take others’ wealth without a recognized right. [Sawi, Hashiyat al-Sharh al-Sahir, 2.323]

2. Gambling.

3. Grossly uncertain returns. Nawawi mentions that it shares the sense of qamar (moon), because it increases and decreases, and may not even be present.

‘…insurance resembles gambling the least because it has no entertainment value and it only mitigates one’s losses – the policyholders don’t use them as a means to profit, because the average payout is negative (which is how insurance providers make money) unlike other investments which make money on average. There are people who gamble by buying and selling stocks. Insurance is not associated with gambling addictions or anything … I don’t see why it has been singled out as an example of ‘qimar’. …’

Insurance is considered a form of qimar because that which you are transacting over is something completely and grossly unknown, and there is no way of reasonably determining it. This is where both the gharar and qimar come in.

[See: Sheikh Nuh Keller, Reliance of the Traveller, w42, p.942-943]

Now here the objection to this investment is that it is not a sure thing. Actually, no investment is a sure thing. On the other hand, if an investment were to make money for sure, then it would be riba.

However, there is a known basis for determining the future returns: how the profits or benefits will be divided from the investment are specified. This is one important difference between investment and qimar/gharar-based transactions.

Therefore, in your situation, the excess amount you receive is usury (interest) and must not be used for personal benefits Do you see how these 2-3 prohibitions combine to make all investment impossible?

No. Explain.

For these reasons, all types of insurances have been declared unlawful. So that should give you a glimpse of my dissatisfaction with these analyses.

I missed the glimpse, Sidi. Please explain.

‘…You could say that I am being unfair: stocks are halal, mudaraba is halal … but look at the inconsistent methodology: stocks are halal because they have not been analyzed as exchanges of risk, rather they have been treated…’

But is ‘risk’ something that can be bought and sold? According to even the wider definitions of value in the Shariah, it is not something of value.

‘…as buying and selling goods – the assets that the company owns (even though this interpretation is highly contradictory to the ‘urf). That reasoning cannot be extended to more sophisticated investments, i.e. it can only deal with a question that is 200 years old…’

Sidi, the way I see it, our objection to Western finance is fundamental. The base assumptions and principles do not correspond with the understandings that the Shariah of the Prophet (Allah bless him and give him peace) accepts. Given that we cannot leave the latter, then we have to look selectively and critically at the former.

What material good has Western finance brought to most of the world, anyways? Africa? South America? Large chunks of Asia? The Muslim world?

It is interesting that even Western development economists accept that no country has managed to achieve ‘economic development’ by following the prescriptions of Western economists…

And it is not far-fetched to state that the machinery of the assault on Islam and Muslims around the world is the spider’s web of Western financial systems.

‘…Mudaraba is allowed because people can’t live without it…’

This is not the only reason why it is allowed, Sidi.  When we reason, we should be fair.

Mudaraba was defined in the Majalla (item 1404) as being,

“A form of partnership, in which the money invested is from one party and the work from the other.”

Among its essential conditions is that:

a) the amount invested be known, as in other contracts, and

b) the profits be divided according to a known percentage of returns [not a specified amount, as this would be a form of riba, as the commentators of the Majalla and the earlier fuqaha explain]. (Majalla,item 1411)

What is the basis of Mudaraba contracts?

Imam Kasani explains that basis for a mudaraba contract saying that immediate reasoning (qiyas) would seem to be that it would not be permitted, because it is akin to hiring with unknown or, rather, non-existent payback, for work that is unknown. [f: And the basis, derived from decisive primary texts, is that ‘Any gross uncertainty renders a transaction corrupt.’]

This primary reasoning was left, through the process of preferential reasoning (istihsan), in which less immediately apparent reasoning is preferred over immediate reasoning because of preponderating factors worthy of consideration. This preferential reasoning was chosen because the Qur’an, Sunna, and [f: operational] Consensus all indicate the permissibility of mudaraba contracts [defined above].

1. The Qur’an

This includes the words of Allah, Most High, “…While others strive (yadribuna)in the land in search of Allah’s bounty,” [73.20] and other verses.

2. The Sunna

It is that which has been transmitted from Ibn Abbas (Allah be pleased with him) that his father, Abbas (Allah be pleased with him), used to make such-and-such conditions with he gave his money out in mudaraba.

Also, the Prophet (Allah bless him and give him peace) was sent at a time when people invested their money in this manner and he did not condemn it, which is considered an effective confirmation (taqrir) of their practice. Effective confirmation (taqrir) is one of the ways that a ruling is established through the sunna.

3.Scholarly Consensus

This is that which is reported from major Companions (Allah be pleased with them), including Umar, Uthman, Ali, Ibn Mas`ud, Ibn Umar, `A’isha, and others (Allah be pleased with them all) that they invested their money in this manner, with knowledge of the other major companions, and no one condemned it.

This is considered a form of scholarly consensus (ijma`). [f: Ibn Qudama (Allah have mercy on him) transmits that there is scholarly consensus on the general permissibility of mudaraba, though the scholars differ regarding its details. (Mughni, 5.15-18, using similar reasoning to Imam Kasani)

4. Reasoning

One form of scholarly reasoning (qiyas) also points to the permissibility of mudaraba, which is that one person may have money but no knowledge of trade, and another may be skilled in trade but have no money. [F: Therefore, if a contract is specified in which all key elements of gross uncertainty, such as how the profits will be split, then this contract can be deemed valid, because the one working for a percentage of the profits can effectively be considered an agent (wakil) entrusted with the investor’s funds, with a specified percentage return on profits, as explained in other works.]

Thus, the permissibility of such a contract fulfills both their essential needs [f: in a way that lifts that which may initially have appeared to be gross uncertainty], and Allah Most High only legislated transactions for the benefit of His servants, and to fulfill their essential needs. [Taken from Imam Kasani’s Bada’i` al-Sana’i` (6.79), summarized and abbreviated.]

But they are more in need of insurance, and there are fewer alternatives for it. Why has such an uncompromising stand been taken in this case?

Insurance contracts contain most of the key elements of forbidden contracts: riba, gross uncertainty, and chancing.

The social ills that the insurance industry causes are well known.

This is not just the stance of one or two scholars, but there is virtual consensus among the recognized scholars of our times regarding the ruling of insurance.

‘…I don’t see how we can accept this. We should insist that the fuqaha improve their education, and raise the standards of their analyses. At least, they should be willing to listen to people who try to point out the weaknesses in their thinking…’

Those who try to point out the weakness in the thinking of the scholars of Islam should first try to properly understand what these scholars, who we should not forget are the inheritors of the Prophets, are saying, and then understand, too, the basis of this in sound Shariah legal methodology.

Worldly Interests

It is an important point that the fundamental bases of Islamic law are four: the Qur’an, Sunna, Consensus, and Qiyas. Mere ‘worldly interest’ that does not have a sound basis in the above, or that goes against the above is not of much consequence.

Imam Shatibi (Allah have mercy on him), one of those most wronged by modernists, who quote bits of his works and ignore chunks, explained in his Muwafaqat that the primary interests that the Shariah came to safeguard are next-worldly interests. As for this-worldly interests, these are of secondary consideration, insofar as they are a necessary means of ensuring next-worldly interests and are considered only to the extent that they do not go against the primary next-worldly interests.

An obvious next-worldly interest, of course, is avoiding the wrath of Allah by not falling into the prohibited, in one’s actions, thoughts, or beliefs.

And Allah knows best, and He alone gives success.

Allah reminds us:

“You desire the lure of this world and Allah desires (for you) the Hereafter, and Allah is Mighty, Wise.” [Qur’an, 8.67]


“Know that the life of the world is only play, and idle talk, and adornment, and boasting among you, and rivalry in respect of wealth and children; as the likeness of vegetation after rain, whereof the growth is pleasing to the husbandman, but afterward it drieth up and You  seest it turning yellow, then it becomes straw. And in the Hereafter there is grievous punishment, and (also) forgiveness from Allah and His good pleasure, whereas the life of the world is but matter of illusion.

Race one with another for forgiveness from your Lord and a Garden whereof the breadth is as the breadth of the heavens and the earth, which is in store for those who believe in Allah and His messengers. Such is the bounty of Allah, which He bestows upon whom He will, and Allah is of Infinite Bounty.” [Qur’an, 57.20-21]


Faraz Rabbani

قال الإمام الكاساني (رحمه الله تعالى) في البدائع: (6/79)( كِتَابُ الْمُضَارَبَةِ ) يُحْتَاجُ فِي هَذَا الْكِتَابِ إلَى مَعْرِفَةِ جَوَازِ هَذَا الْعَقْدِ , وَإِلَى مَعْرِفَةِ رُكْنِهِ , وَإِلَىمَعْرِفَةِ شَرَائِطِ الرُّكْنِ , وَإِلَى مَعْرِفَةِ حُكْمِهِ , وَإِلَى مَعْرِفَةِ صِفَةِ الْعَقْدِ , وَإِلَى مَعْرِفَةِ مَايَبْطُلُ بِهِ , وَمَعْرِفَةِ حُكْمِهِ إذَا بَطَلَ , وَإِلَى بَيَانِ حُكْمِ اخْتِلَافِ رَبِّ الْمَالِوَالْمُضَارِبِ . ( أَمَّا ) الْأَوَّلُ , فَالْقِيَاسُ أَنَّهُ لَا يَجُوزُ ; لِأَنَّهُ اسْتِئْجَارٌ بِأَجْرٍ مَجْهُولٍ بَلْبِأَجْرٍ مَعْدُومٍ , وَلِعَمَلٍ مَجْهُولٍ , لَكِنَّا تَرَكْنَا الْقِيَاسَ بِالْكِتَابِ الْعَزِيزِ وَالسُّنَّةِوَالْإِجْمَاعِ . ( أَمَّا ) الْكِتَابُ الْكَرِيمُ فَقَوْلُهُ عَزَّ شَأْنُهُ { وَآخَرُونَ يَضْرِبُونَ فِي الْأَرْضِيَبْتَغُونَ مِنْ فَضْلِ اللَّهِ } وَالْمُضَارِبُ يَضْرِبُ فِي الْأَرْضِ يَبْتَغِي مِنْ فَضْلِ اللَّهِ عَزَّوَجَلَّ وَقَوْلُهُ سُبْحَانَهُ وَتَعَالَى { فَإِذَا قُضِيَتْ الصَّلَاةُ فَانْتَشِرُوا فِي الْأَرْضِ وَابْتَغُوا مِنْفَضْلِ اللَّهِ } وقوله تعالى { لَيْسَ عَلَيْكُمْ جُنَاحٌ أَنْ تَبْتَغُوا فَضْلًا مِنْ رَبِّكُمْ } ( وَأَمَّا )السُّنَّةُ , فَمَا رُوِيَ عَنْ ابْنِ عَبَّاسٍ رضي الله عنهما أَنَّهُ قَالَ : { كَانَ سَيِّدُنَا الْعَبَّاسُبْنُ عَبْدِ الْمُطَّلِبِ إذَا دَفَعَ الْمَالَ مُضَارَبَةً , اشْتَرَطَ عَلَى صَاحِبِهِ أَنْ لَا يَسْلُكَ بِهِ بَحْرًاوَلَا يَنْزِلَ بِهِ وَادِيًا , وَلَا يَشْتَرِيَ بِهِ دَابَّةً ذَاتَ كَبِدٍ رَطْبَةٍ , فَإِنْ فَعَلَ ذَلِكَ ضَمِنَ فَبَلَغَشَرْطُهُ رَسُولَ اللَّهِ صلى الله عليه وسلم فَأَجَازَ شَرْطَهُ } وَكَذَا بُعِثَ رَسُولُ اللَّهِ صلىالله عليه وسلم وَالنَّاسُ يَتَعَاقَدُونَ الْمُضَارَبَةَ فَلَمْ يُنْكِرْ عَلَيْهِمْ وَذَلِكَ تَقْرِيرٌ لَهُمْ عَلَىذَلِكَ ; وَالتَّقْرِيرُ أَحَدُ وُجُوهِ السُّنَّةِ . ( وَأَمَّا ) الْإِجْمَاعُ , فَإِنَّهُ رُوِيَ عَنْ جَمَاعَةٍ مِنْالصَّحَابَةِ رضي الله تعالى عنهم أَنَّهُمْ دَفَعُوا مَالَ الْيَتِيمِ , مُضَارَبَةً مِنْهُمْ سَيِّدُنَا عُمَرُوَسَيِّدُنَا عُثْمَانُ وَسَيِّدُنَا عَلِيٌّ وَعَبْدُ اللَّهِ بْنُ مَسْعُودٍ وَعَبْدُ اللَّهِ بْنُ عُمَرَ وَعُبَيْدُ اللَّهِ بْنُعُمَرَ وَسَيِّدَتُنَا عَائِشَةُ رضي الله عنهم وَلَمْ يُنْقَلْ أَنَّهُ أَنْكَرَ عَلَيْهِمْ مِنْ أَقْرَانِهِمْ أَحَدٌ , وَمِثْلُهُ يَكُونُ إجْمَاعًا . وَرُوِيَ أَنَّ عَبْدَ اللَّهِ وَعُبَيْدَ اللَّهِ ابْنَيْ سَيِّدِنَا عُمَرَ قَدِمَا الْعِرَاقَ وَأَبُو مُوسَى الْأَشْعَرِيُّ أَمِيرٌ بِهَا فَقَالَ لَهُمَا : لَوْ كَانَ عِنْدِي فَضْلٌلَأَكْرَمَتْكُمَا , وَلَكِنْ عِنْدِي مَالٌ لِبَيْتِ الْمَالِ أَدْفَعُهُ إلَيْكُمَا , فَابْتَاعَا بِهِ مَتَاعًا وَاحْمِلَاهُ إلَىالْمَدِينَةِ وَبِيعَاهُ , وَادْفَعَا ثَمَنَهُ إلَى أَمِيرِ الْمُؤْمِنِينَ فَلَمَّا قَدِمَا الْمَدِينَةَ قَالَ لَهُمَا سَيِّدُنَا عُمَرُرضي الله عنه : هَذَا مَالُ الْمُسْلِمِينَ فَاجْعَلَا رِبْحَهُ لَهُمْ فَسَكَتَ عَبْدُ اللَّهِ , وَقَالَ عُبَيْدُاللَّهِ : لَيْسَ لَك ذَلِكَ , لَوْ هَلَكَ مِنَّا لَضَمِنَّا فَقَالَ بَعْضُ الصَّحَابَةِ : يَا أَمِيرَ الْمُؤْمِنِينَ ,اجْعَلْهُمَا كَالْمُضَارِبَيْنِ فِي الْمَالِ , لَهُمَا النِّصْفُ وَلِبَيْتِ الْمَالِ النِّصْفُ فَرَضِيَ بِهِ سَيِّدُنَاعُمَرُ رضي الله عنه وَعَلَى هَذَا تَعَامَلَ النَّاسُ مِنْ لَدُنْ رَسُولِ اللَّهِ صلى الله عليه وسلمإلَى يَوْمِنَا هَذَا فِي سَائِرِ الْأَعْصَارِ مِنْ غَيْرِ إنْكَارٍ مِنْ أَحَدٍ , وَإِجْمَاعُ أَهْلِ كُلِّ عَصْرٍحُجَّةٌ , فَتُرِكَ بِهِ الْقِيَاسُ , وَنَوْعٌ مِنْ الْقِيَاسِ يَدُلُّ عَلَى الْجَوَازِ أَيْضًا , وَهُوَ أَنَّ النَّاسَيَحْتَاجُونَ إلَى عَقْدِ الْمُضَارَبَةِ ; لِأَنَّ الْإِنْسَانَ قَدْ يَكُونُ لَهُ مَالٌ لَكِنَّهُ لَا يَهْتَدِي إلَىالتِّجَارَةِ , وَقَدْ يَهْتَدِي إلَى التِّجَارَةِ لَكِنَّهُ لَا مَالَ لَهُ , فَكَانَ فِي شَرْعِ هَذَا الْعَقْدِ دَفْعُالْحَاجَتَيْنِ , وَاَللَّهُ تَعَالَى مَا شَرَعَ الْعُقُودَ إلَّا لِمَصَالِحِ الْعِبَادِ وَدَفْعِ حَوَائِجِهِمْ .

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