Great Business Ideas: Developing islamic products

Great Small Business Ideas to Start: Developing islamic products

The Muslim population is growing fast, 1.2 billion and rising. Other religions are also gaining followers, and all are characterized by a commitment to faith-based principles. Recognizing that commerce can have a respectable, positive, and valuable role supporting people of faith is increasingly significant.

The idea

In common with most religious groups, Muslims have specific needs. Meeting these needs in the complex, fast-moving world of the early twenty-first century is a challenge, but also a significant opportunity.

For example, takaful is an alternative to conventional insurance that is compliant with Islamic (Shariah) law. From the Shariah perspective it is needed because, although conventional insurance exists to protect customers, the way it operates poses problems.

Several elements make it haram (not permissible) for Muslims to purchase insurance. These include: gharar (uncertainties), maysir (gambling), and riba or usury (interest). Gharar is defined as any element in a contract that could lead to injustice or exploitation. It has a range of negative connotations encompassing uncertainty, deception, ambiguity, and ignorance.

Muslim scholars believe that gharar exists in conventional insurance, because the benefits of protection that the plan offers are always uncertain: whether the benefits are deliverable depends on whether the insured event occurs or not.

In conventional insurance, Muslim jurists believe that the existence of gharar (uncertainties) leads to maysir (gambling). The gamble is that the insured may either lose all the premiums they have paid, or be compensated for losses incurred should the insured event occur. Gambling takes place whether the insured event occurs or not. This is because, if the insured event occurs, policyholders will gain for being compensated for the loss they incur; however, if the insured event does not occur, the insurer will gain by keeping all the premiums that have been paid by the policyholders.
Riba (interest) is most prevalent in the investments of insurance funds. From the Shariah perspective, accumulation of wealth must always be free of interest. Therefore, the investments of insurance funds in interest-bearing securities such as bonds and stocks, which do not comply with Shariah principles, pose a major problem for Muslims purchasing conventional insurance.

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SABB Takaful is an Islamic insurance business based in Saudi Arabia that is partly owned by SABB (formery the Saudi British Bank). Takaful means “guaranteeing each other” in Arabic. It is an Islamic system of mutual insurance built around the concept of tabarru (donation or gift). Tabarru contributions are made with the intention of helping other participants faced with difficulties. This eliminates the resemblance of takaful to gambling and exploitation.

Each participant contributes to a fund to cover expected claims, while also benefiting from a share of investment returns. SABB Takaful manages its operations and invests contributions in line with the principles of Shariah. Participants share in the profits of the fund with the understanding that these may be forfeited to cover losses. When there is surplus, it is jointly shared. With takaful, contributions are pooled into one fund that will be used to pay for any contingency should any of the scheme’s members suffer a catastrophic loss. In other words, by guaranteeing compensation from the takaful fund for the defined losses incurred by any members of the scheme, all the members of the scheme essentially protect each other.

In practice

Takaful insurance is growing rapidly in the Muslim world, as financial service firms recognize that sound financial management and religion are compatible, and possibly even complementary.

Although it only launched in 2007, the future for SABB Takaful—a well-run, ethical business—is promising. The question is, why is it taking so long for firms to realize the opportunities here? Businesses not only make a profit but help people in a positive, socially responsible way as well—by supporting their personal faith. One question that is increasingly significant, and I suspect unusual, is how can your business support people of faith?

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