Islamic Finance and Banking
Adil Salahi, February 5, 2007
Q. Although much of the Arab world has accepted Islamic finance and banking as perfectly acceptable under Islamic law, millions in the Indian subcontinent are still opposed to it, thinking it unlawful. This is due to some scholars and muftis who are still returning a ruling of forbidden on such transactions. Could you please shed some light on this subject? Is there any council or board which can issue rulings on different aspects in this area?
(Name and address withheld)
A. God has revealed the religion of Islam complete. In some areas, like worship, which do not change with time and social circumstances, he gave us detailed guidance that is not subject to change.
We pray in the same way as all Muslims prayed throughout the fourteen centuries of Islamic history. In other areas, which are subject to change with the development of human society, God gave us guidelines and a framework. He left us free to choose the details of our actions and practices as long as we observe the guidelines and remain within the framework. Economic matters, including finance and banking, are of this latter type.
A main concept within Islamic teachings in this area is the prohibition of usury, because it involves exploiting the needs of the poor in order to make the rich richer. Another principle is that money is generated by work and action, not by lending it to one who needs it. Thus, a loan does not earn the lender anything other than reward from God.
In our modern world, banks offer services that are needed in society, particularly because international trade has flourished beyond anything known in the past. Banks, however, emerged in non-Muslim countries where usury is allowed, within certain limits. Muslim scholars have always looked carefully at transactions offered by such banks and pointed out which of them do not fit with Islamic law.
It was the need of Muslim societies that led to the emergence of Islamic banks, which always have Islamic scholars as advisers to consult on the types of services they offer so that they are certain that such services are acceptable from the Islamic point of view. To reject these without solid support from the Qur’an and the Sunnah is to adopt an arbitrary and rigid approach, which is contrary to proper scholarship. Indeed, these banks have proven to be sound, so that now a number of international banks are offering services that are compatible with Islamic law. They call these “Shariah-compliant services.”
The problem you mention about people not accepting these banks can only be solved by education, which should include the scholars who issue these rulings and the general public.