All perfect praise be to Allah, The Lord of The Worlds; and may His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
The ruling of Sharia as regards the insurance on debts varies according to the kind of insurance:
Non-Islamic insurance on debts is forbidden because it is an aleatory contract; whereas, cooperative insurance is permissible because it is based on cooperation and kindness amongst the subscribers.
Allah, The Almighty, said: " Help ye one another in righteousness and piety"{Al-Mai`dah/2}. Accordingly, there is no harm in utilizing cooperative insurance on debts because failure to settle debts on their due time or not to be able to settle them at all is among the insurable risks. This is provided that the debt was incurred by a legitimate transaction because the insurance of usurious loans is impermissible as it helps others to commit sin. Allah, The Almighty, says in this regard: " but help ye not one another in sin and rancor "{Al-Mai`dah/2}.
In conclusion, if the above fund rests on cooperative insurance, then the surplus from the subscriptions should be either given back to the subscribers, or kept in the fund for the coming years. This is provided that the surplus from the accumulated subscriptions, upon the liquidation of the fund, is given to charity, or returned to the subscribers. However, the loaner/creditor isn`t permitted to benefit from it. And Allah knows best.
