1. By: Camille Paldi
CEO of FAAIF

2.  The aim of this presentation is to reveal the
potential of takaful or Islamic insurance in the
United States as a product for the mass
consumer market.
 The objective of this presentation is to show the
methods and procedures available to successfully
introduce Islamic insurance in the USA.

3.  The global takaful industry has been recording
double-digit growth every year in the past few
years.
 Insurance giants such as AIG, Allianz, Swiss Re,
and Hannover Re are now offering takaful.
 AIG introduced takaful products in the US in
2008.

4.  Native-born American Muslims are primarily
African-American and minorities.
 Many American Muslims converted to Islam
during the last 70 years and follow the teachings
of the Nation of Islam (NOI) rather than Sunni or
Shiá Islam.
 The United States also hosts a large number of
Muslim immigrants.

5.  The biggest challenge in introducing takaful and
Islamic finance in the US is the First Amendment
of the US Constitution, which prohibits the
making of any law respecting an establishment
of religion or impeding the free exercise of
religion.
 Furthermore, under the Establishment Clause,
the government cannot draft legislation that
gives preferential treatment to any one religion.

6. Establishment Clause challenges are analyzed
under a three part test.
1- the statute must have a secular legislative
purpose;
2-its principal or primary effect must be one that
neither advances nor inhibits religion; and
3-the statute must not foster an excessive
government entanglement with religion.

7.  In Murray v Geithner, a case was filed against the
Federal government challenging the permissibility of
bailout money provided to AIG under the Emergency
Economic Stabilization Act (EESA) legislation on the
basis that it violated the Establishment Clause.
 EESA was used to purchase $40 Billion in AIG shares.
 AIG conducts takaful business in Bahrain and the US,
so it was alleged by the plaintiff that tax dollars were
going towards the financing of Shariáh products and
activities.

8.  Using the three part Establishment Clause test,
the court found that the EESA legislation and the
AIG bailout was made for a secular purpose and
did not violate the First Amendment of the
Constitution.
 However, businesses may hesitate to enter the
US takaful market out of fear of similar lawsuits
being filed against them.

9. Furthermore, Islamic financial institutions may
be at a disadvantage in the United States as
conventional institutions may access federal
funds, while Islamic financial institutions may
not as in the case of the EESA legislation.

10.  In addition, the insurance regulatory regime in
the US may hinder the introduction of takaful.
 The US has a state-regulated insurance system
whereby each state determines its own licensing
requirements for insurers.
 In order to obtain a license, a company must
demonstrate that it has the experience and
management capability to run the company and
show that it is financially sound.

11.  Insurers are also required to justify their
premium rates.
 In addition, companies must fulfill the solvency
requirements set by the state.
 Furthermore, there may be limits on the types
and concentration of investments made with
held reserves.

12.  Since the members in a takaful arrangement
agree to insure one another and share in
risks and profits, there may be some
obstacles in establishing the company as a
financially sound insurance provider and in
justifying tabarru or donation amounts.
 Further exacerbating the situation is that in
takaful, in case of a potential insolvency, the
shareholders fund must provide an
emergency loan to meet the existing claim
obligations.

13. Furthermore, in terms of solvency, capital
requirements in the US may not take into
account the separation between policyholder
and shareholder funds.

14.  Another obstacle includes the fact that setting
up a state or federal Shariáh Board for the
takaful fund may contravene the separation of
church and state.
 However, it may be possible to outsource this
function to foreign countries.

15.  Furthermore, it seems to be the trend that each
state is taking action to ban Shariáh law.
 For example, the Jihad Prevention Act
introduced in Colorado may deter the
establishment of Islamic finance in the United
States.

16. One option is to draft neutral legislation that
would redefine solvency requirements, taking
into account that certain insurers may choose to
structure the division between shareholder and
policyholder funds differently.

17. Another option is to introduce Islamic finance as
a form of Holy Book Banking in the United
States, which incorporates the teachings of the
Bible, Torah, and the Qu’ran, thereby
circumventing the Establishment Clause and
potential violations of the First Amendment of
the US Constitution. In this way, the
introduction of takaful and Islamic finance in the
US will not be seen as giving preference to any
one religion.

18. Although there are many obstacles to the
introduction of Islamic finance in the US, if
properly presented and marketed, there is a
huge potential for Islamic finance and Holy Book
Banking in the United States.