Islamic insurance out of reach of Indian Muslims

But insurance, particularly life insurance, is prohibited by many Islamic scholars because insurance firms may invest the money in shares of firms that are in the business of alcohol, gambling or entertainment— this is not allowed by shariah or Islamic law. Besides, the insurance firm may also lend money and earn interest income, which is also not approved by shariah, a legal framework that regulates public and some private aspects of life based on Muslim principles of jurisprudence. Shariah deals with many aspects of day-to-day life including politics, economics, business and social issues.

 Shariah does not allow Muslims to buy insurance. Life insurance, in particular, is frowned upon because life is given or taken away by God and anyone taking out a policy is, in effect, hedging against God’s will. There are Islamic insurance products available—this market is valued at a few billion dollars—including policies for marine and airline insurance, but this phenomenon is restricted to countries such as Malaysia, Indonesia and those in West Asia. Although India is home to more than 150 million Muslims, insurance companies have largely stayed away from Islamic products here. Bajaj Allianz’s Star Select is currently the only Islamic, or ethical insurance product in India. 

When Ansari approached Ashraf Mohamedy, who runs an Islamic stock brokerage calledIdafa Investments Pvt. Ltd, he advised her against getting her daughter insured because it is haram or forbidden in Islam. She is still waiting for an insurance product that will get Mohamedy’s nod. Ansari, now 56, hopes it will be soon.

There is no data indicating what percent of Muslims are insured but anecdotal evidence suggests it is less than the national average because of religious reasons.

The Rajinder Sachar Committee, a panel appointed by Prime Minister Manmohan Singh to prepare a report on the social, economic and educational status of the Muslim community, has found that since most Muslims are self-employed, their need to access bank credit is high. Despite this, “Muslims constitute about 12% of all account holders in banks,” according to the committee; this is well below the share of other minorities. And on average, the amount outstanding (an indicator of loans sanctioned) per account for Muslims is about half that for other minorities and only one-third of other communities. The committee presented its report in November 2006.

Rakesh Basant, one of the six members in the Sachar committee, says that the idea that Muslims are generally averse to participating in the formal financial system is a myth. The committee did establish that there is a need for savings accounts among Muslims but sometimes “Muslims themselves assume they will not qualify for credit, and do not approach banks,” Basant says. The committee did not touch upon the insurance sector. Muslim stockbrokers in India say that with the cost of health care rising, there is a growing need for insurance coverage among Muslims. The community’s informal safety net called zakat where wealthy Muslims are obliged to pay 2.5% of their wealth to underserved categories of the society when their annual wealth exceeds a minimum level, is increasingly proving inadequate.

After riot-related damages hit businesses run by Muslims, religious consensus in the community veered towards allowing general insurance. However, even as the cost of health care increases, health and life insurance products remain largely out of bounds.

When people of his community come to Mufti Abdul Qayoom, an Ahmedabad-based cleric, seeking his advise on insurance-related queries, he tells them to invest in a systematic investment plan (SIP) of a mutual fund. SIP is a method of investing a fixed sum, on a regular basis, in a mutual fund scheme. It is similar to regular saving schemes like a recurring deposit and it allows one to buy units on a given date each month. 

Mohamed Irfan Dadani, an agent of Life Insurance Corp. of India (LIC) who operates in central Mumbai’s Muslim-dominated Mohamed Ali Road, says 90% of his 800 clients are Muslims but admits that at least 30% of them stay away from life insurance. Dadani and Mahesh Mangaonkar, another LIC agent in Mumbai’s Santa Cruz suburb, keep an assortment of religious opinions, articles and fatwas that say Muslims can buy insurance products and produce these when they meet prospective Muslim clients. The clients usually do not commit to buying any policy without taking religious opinion.

Even those who have bought policies are not particularly happy. “I took life insurance for myself and my family many years ago because I did not have the money to invest in property or gold then,” says Abdul Ral, a Mumbai-based timber trader. “Now I pay more than Rs1.20 lakh in insurance premiums a year. But I know this is haram and I will be thrashed by the powers above,” the 56-year-old said.

Haroon Efroze, a financial advisor with Metlife India Insurance Co. Pvt. Ltd, a private sector insurance firm, says that despite being a devout Muslim he sometimes feels the ire of his community members because he sells a forbidden product. He recalls having worked out a model portfolio for a high net worth Muslim individual who was ready to pay a premium of Rs1,000 daily to cover himself and his family, but backed out at the last moment, because his local cleric did not approve of the plan. Efroze, however, points out that instances of Muslims opting for unit linked insurance plans (Ulips) and general insurance products have been growing.

Zafar Sareshwala, who runs an Islamic brokerage called Parsoli Corp. Ltd, is in the process of creating an Islamic insurance product and he does advise clients to be insured. But personally, he and his family do not want life or health insurance. “Praying and worrying do not go together. If you believe in the power of prayer, you would not need insurance,” he says. “But when the choice is between getting insurance and staying sick because of the lack of insurance, I feel taking insurance is the lesser evil.”