The Challenge and Opportunity of Islamic Insurance

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Cultural differences can make it difficult for insurers to adapt to the Islamic market. Islamic law, or Shari'ah—which is derived from the holy book of Muslims, Qur'an, and from Sunnah, the prophet Muhammad's sayings, practices, and living habits—provides legal guidelines for the political and economic systems of Islamic society. Shari'ah classifies every human activity into five categories: commanded, recommended, indifferent, reprehended, and prohibited. Although some conservative Muslims continue to avoid insurance products in any form, most feel that insurance can be carried out in accordance with Shari'ah. Currently, Shari'ah-compliant insurance firms exist in Malaysia, Indonesia, Saudi Arabia, Tunisia, Luxembourg, Sudan, and Bahrain. The main model of private Islamic insurance is called Takafol, which resembles Western reciprocal insurance exchanges.

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