A cooperative fund for car repair warranties

A question about a planned fund in which car owners pay a subscription to cover breakdowns for a set period, with any surplus returned or donated, in which Jordan's General Iftaa Department answered that it is unobjectionable if it is built on the principles of Islamic cooperative insurance. ¹

The questioner said he wanted to start a car-warranty business for a fee set by the car's value, as a fund that pays to repair any fault arising over one or more years, after which part of the money would be returned to members who made no claim or donated to charity after expenses; he asked about the ruling on this arrangement. ¹

The Department answered that there is no objection to setting up Islamic cooperative insurance companies or funds, based on members committing to pay subscriptions as donations to cover the faults or risks named in the fund's rules. ¹ It quoted the Shari'ah Standards of the Accounting and Auditing Organization for Islamic Financial Institutions on the definition of Islamic insurance and its principles: subscriptions are donated to the insurance account, the company keeps its own account separate from the policyholders' account, and it acts as agent in managing the account and as mudarib or agent in investing it. ¹ Among these principles it listed that the insurance account holds its own assets, returns and liabilities, that any surplus is used in the members' interest with nothing of it due to the managing company, and that provisions and surpluses go to charitable causes when the company is wound up. ¹ It also listed the preference for policyholders sharing in management, the company's commitment to the sharia in all its activities, including not insuring forbidden things, and the appointment of a sharia supervisory board whose rulings bind the company. ¹ It concluded that Islamic insurance funds may be set up to cover possible risks, provided these principles are respected. ¹

Jordan's General Iftaa Department published this fatwa on aliftaa.jo as no. 3908, dated 8 August 2024. ¹ The museum records this text as a historical document attributed to the body or scholar that issued it; it issues no ruling of its own.