Shariah Compliance Philosophy
Introduction to Shariah Principles
• Ethical Foundation: Shariah law is rooted in Islamic ethical teachings and aims to promote justice, fairness, and social responsibility. It prohibits activities that are considered harmful or unethical.
• Core Prohibitions: Key prohibitions include riba (interest), gharar (excessive uncertainty), and haram (forbidden) activities such as gambling and alcohol. Investments and insurance should adhere to these principles.
Investment Philosophy
• Avoidance of Riba (Interest): Investments should not involve earning or paying interest. Instead, profit should come from legitimate business activities and risk-sharing arrangements.
• Ethical Investments: Investments must be in businesses and projects that are Shariah-compliant. This means avoiding sectors such as tobacco, alcohol, and gambling, and focusing on sectors that contribute positively to society.
• Risk Sharing: Shariah-compliant investments often involve profit and loss sharing mechanisms, such as mudarabah (profit-sharing) and musharakah (joint venture). These structures ensure that risks and rewards are shared equitably among investors.
Insurance Philosophy
• Takaful Concept: Instead of traditional insurance, which is based on uncertainty and interest, Shariah-compliant insurance is structured as takaful. Takaful is a cooperative system where members contribute to a pool to support each other in times of need.
• Mutual Assistance: In takaful, participants agree to mutually support each other in the event of a claim. This aligns with the principle of solidarity and mutual help, and avoids the exploitation seen in conventional insurance.
• Transparency and Fairness: The takaful model emphasizes transparency and fairness in the management of the insurance pool. There is a clear separation of the fund used for claims from the operational aspects of managing the takaful company.
Ethical and Social Responsibility
• Social Impact: Shariah-compliant investments and insurance should aim to have a positive social impact, aligning with Islamic values of helping others and contributing to societal well-being.
• Environmental Considerations: Investments and insurance practices should also consider environmental sustainability, ensuring that financial activities do not harm the environment and contribute to sustainable development.
Governance and Compliance
• Shariah Boards: Shariah-compliant financial practices are overseen by Shariah boards composed of experts in Islamic finance. These boards ensure that all products and practices comply with Shariah principles.
• Ongoing Review: Continuous review and adaptation are essential to maintain compliance with evolving interpretations of Shariah law and to address any emerging ethical concerns.
Conclusion
• Holistic Approach: Shariah-compliant investment and insurance are not just about avoiding prohibited activities but also about fostering ethical behaviour and contributing to societal good. The philosophy integrates financial goals with Islamic values to create a balanced and responsible approach to wealth management and protection.
• Social Impact: Shariah-compliant investments and insurance should aim to have a positive social impact, aligning with Islamic values of helping others and contributing to societal well-being.
• Environmental Considerations: Investments and insurance practices should also consider environmental sustainability, ensuring that financial activities do not harm the environment and contribute to sustainable development.
