Short Summary :: Takaful – Foundations and Standardization of Islamic Insurance by Joel El-Qalqili

The article looks at Islamic insurance as an example of how Islamic Finance developed and how it may develop in the future. What began as a socio-economic movement has become a global industry. The enabling mechanism was a rather legalistic interpretative approach towards Islamic prohibitions such as riba, maysir and gharar. The emergence of an Islamic kind of insurance, i.e. takaful, shows how this process was driven by socio-economic and political factors. Today, one of the central claims often raised in discussions around Islamic Finance in general and takaful in particular is that of standardization. In order to grow and further develop, the claim goes, Islamic Finance requires standardized legal frameworks and products. Although such standardization appears to be difficult given the diverse and pluralistic nature of Islamic law and its interpretation, it also appears to make sense, at least with a view to insurance, an industry particularly dependent on scale. Examining this claim ultimately requires an economic analysis. However, assuming standardization would indeed further the growth of the takaful industry, the question arises, how, i.e. through which mechanisms, such standardization is currently supported. In conventional finance, standardization is often achieved through soft law norms produced by (private or public) international regulatory bodies. Therefore, this article proposes to use frameworks applied in the context of conventional international financial law, to examine the international organizations of Islamic Finance. For that purpose, the article applies a framework which was proposed by Charles Brummer to analyze the purpose, operation and limitations of international financial law, to the Accounting and Auditing Organization of Islamic Financial Institutions (“AAOIFI”). The article finds that the existence and accomplishments of AAOIFI are remarkable, but suggests that the coordination mechanism is restricted by the nature of the subject matter as well as political factors.

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