Fatwa and its role in regulatory capture and arbitrage in “Takaful and Islamic Cooperative Finance: Challenges and Opportunities” (Studies in Islamic Finance, Accounting and Governance series)
The chapter examines fatwa in Islamic insurance and its role as an underlying cause of regulatory capture and arbitrage. The progression of the Islamic insurance industry from one almost unanimously forbidden to a multi-billion dollar industry in less than three decades is indicative of the notable advances the industry has made. With its core principles of cooperation, mutuality and sharing of loss/gain, Islamic insurance is of particular appeal to the consumer. The chapter highlights the key obstacles preventing Islamic insurance from achieving true mutuality and cooperation, and as such truly serving the consumer for whom it was created. These obstacles include the conflation of terms in understanding mutuality under an Islamic rubric, the undue emphasis on the contractual particulars governing the consumer and the role of fatwa or lack thereof in creating regulatory capture. It covers the need for a review of the Islamic legal approaches used in the formation of fatwa in order to limit regulatory arbitrage by way of fees and charitable contributions.