National Shari'a Board - Indonesian Council of Ulama Fatwa No. 21 of 2001 on General Guidelines on Shari'a Insurance

This fatwa acknowledges the Indonesian public's need for financial insurance, but notes that shari'a-friendly insurance agreements must not contain anything that is deliberately misleading, or that pertains to gambling, interest (riba), mistreatment, bribery, non-halal items or immorality.

The fatwa stipulates that two types of contract between a customer and insurance-provider are permissible:

  1. tijarah (mudharabah - sale-purchase), whereby the insurance-provider acts as a manager and the customer is the policy-holder; and
  2. tabarru' (hibah - gift), whereby a customer provides a bequest to be used to assist another affected customer.

The fatwa also stipulates that a tijarah agreement may be amended to become a tabarru' agreement if the party whose rights are denied voluntarily relinquishes those rights, thereby absolving the party who is yet to execute their obligations. A tabarru' agreement, however, may not be amended to become a tijarah agreement.

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