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Umar A. Oseni

shari’ah issues even though the matter was instituted after the enactment of the Central Bank of Malaysia Act 2009 that requires the court to seek clarification on shari’ah issues from the Shari’ah Advisory Council of Bank Negara. While the judge held that the takaful company has to pay the sum of RM550,000 to the plaintiff, it also awarded interest at the rate of 4 per cent per annum on the judgment sum, which is calculated from the date of rejection to the day of the judgment of the court. On top of that, the court further awarded interest at the rate of 8 per cent

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Hiba Allam and Volker Nienhaus

conventional and shari’ah-­ compliant annuitization. The finance industry has well-­established techniques that will not be discussed in this chapter, but one small note should be made: conventional finance formulas often calculate explicitly or implicitly with compound interest (which induces a remarkable growth of figures over longer periods) – for example, when the natural exponential e is used in a formula (such as in the Black-­Scholes option price formula). While simple interest is usually substituted by a market rate of return, a shari’ah-­compliant proxy for the

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Mohammad Faisal, Asif Akhtar, Asad Rehman and M. Abdul Samad

in such facilities because they found the banks less accessible and they were also repelled by the high interest rate charged by the banks; 21 percent of the respondents lacked trust in the banks; 76 percent of Muslims preferred not to take out interest-­based loans from banks as it is against their religion. The respondents further stated that a major portion of their income goes on food expenses (35 percent) while 22 percent is allotted for rental payments and about 5 percent of their income is spent on health care services. The most common type of risk faced by

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Takaful and Islamic Cooperative Finance

Challenges and Opportunities

Edited by S. Nazim Ali and Shariq Nisar

Islamic finance distinguishes itself from conventional finance with its strong emphasis on the moral consequences of financial transactions; prohibiting interest, excessive uncertainty, and finance of harmful business. When it comes to risk mitigation, it is unique in its risk sharing approach.
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Sara E.B. Carmody

benefit to that person or having taken a risk on their behalf, or both. The prohibition on riba makes it impossible to lend money with interest or charge penalties for payment defaults on financial contracts. The prohibition on entering into gharar contracts makes it impossible to have conventional insurance or to enter into other contracts based on chance, such as conventional hedging contracts. Contracts such as musharaka and mudaraba encourage sharing of resources and expertise, with mutually agreed rewards for both parties negotiated upfront. There has to be a

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Mohd M. Billah, Ezzedine GhlamAllah and Christos Alexakis

practices are free from the elements of Riba and other un-Islamic elements, but they revolve around the elements of al-Mudharabah, al-Tabarru’ and other Shari’ah justified elements. Insurance practices involve Riba (interest) and some other elements, which may not be justified by the Shari’ah principles. Extra Risk Premiums Generally, the premium rates imposed are fixed by the actuarial evaluation, and no one is discriminated against by foreseeable extra risk. Hence, no one shall be required to pay an extra premium over the fixed one. However, if a particular