By
Aamir Abbas,
Govt College University Sargodha

Introduction

This paper is an attempt to highlight the practices of traditional banking system comparing it with Islamic one. This is an exploratory study of existing practices of banks in money, capital and credit markets where interest based borrowing and lending, though repugnant to Islamic injunctions, is supposed to be the blood vessels for economic survival of homo sapiens.

Comparative Economic Philosophies

The societal fabric of human being solicits different socio economic setups and consequently, each society envisions economic system different to other societies Economic system is an integrated way of production, consumption and distribution or how the state should allocate resources among different factors of production. This integrated system is guided by particular economic system, which a society prefers to practice. This trend resulted in three different economic systems, present in the world. These are capitalism, socialism and Islamic economic systems. Each has its own guidelines for production, consumption and distribution of resources.

In capitalism, ownership lies with the individual and individual has absolute power on his property. He may use his wealth in a way he likes irrespective of how it creates disorder. This nature of wealth is evident from saying of nation of Hazrat Shoaib (A.S)

“Does your way of prayer commands you that we should forsake what our forefathers worshipped or leave off doing what we want with our own property” (11:87)

This verse reveals that people who reject faith think that they can do any thing what they want to do with their property

In socialism, ownership lies with the state and state has absolute power on use and distribution of wealth among various factors of production.

But in Islam, ownership lies with Allah and man acts as agent of Allah and can use the wealth under the commandments of Allah. Quran has authenticated this by

“And give to them from property of Allah, which He has bestowed upon you” (24:33)

It is clear from above verse that all what a man possesses has been given to him by Allah and therefore, man has restricted or conditional power on use of wealth. Secondly, man does not have unconditional power. Thirdly, purpose of human being is not only to make profit, as it is in materialism, and enhance living standards. From Islamic perspective, this universe is a trial of man as Quran says that

“And know that your possessions and your children are but a trial for you” ()

And Allah clearly dictates man on how to utilize the wealth. Quran Says that

“Seek the other world by means of what Allah has bestowed upon you and do not be negligent about your share in this world and do good as Allah has done good with you and do not seek to create disorder on the earth” (28:77)

This verse provides comprehensive guideline on concept of ownership, purpose of human being and nature of power from Islamic perspectives. Firstly, this verse reveals that purpose is to seek the other world. Secondly, what does a man has, has been bestowed upon him by Allah. And thirdly, man cannot use his wealth in a way that is likely to create disorder on the earth as last part of above verse interdicts the unjust use of wealth.

Interpretation of Riba

The term Riba derives its meanings from Quran

“O those, who believe fear Allah and give up what is still due to you from interest, if you are true believers” (2:278)

Thus Riba is any excess compensation without any consideration. There are two types of Riba. One is Riba Al Nasiyah and the second is Riba Al Fadl. The first type has been prohibited by Quran and is predetermined excess on capital while the second, has been prohibited by Prophet (PBUH) and it results from sale of goods. Islam does not prohibit the excess on capital. It only interdicts the predetermined excess on capital as is practiced in traditional deposit and credit markets.

In 17^th century, two new types of Riba appeared. Some Muslims, who were looking the speed at which West was making tremendous progress in the field of economics, science and technology on one side and shattering economic conditions of Muslim states on the other side, argued that commercial interest is not prohibited in Islam. It is only usury (sarfi sood), which is prohibited in Quran. They presented two arguments.

Argument#1

Riba that was in practice at time of Prophet (PBUH) was only usury

Counter Argument

When Islam prohibits some thing, it does not prohibit its one form that is currently prevalent, it prohibits all types, which may erupt in future. For example, Quran has prohibited liquor, khinzeer and corruption. The process of making liquor today is totally different from what it was at the time of Prophet (SAW) but ruling remains same. Similarly, how pure and clean breeding of khinzeer is today, it remains haram. Same ruling applies to gambling and interest too. Commercial interest in one type of riba and is haram.

Argument#2

Commercial interest did not exist at the time of Prophet (SAW) and is therefore acceptable in Islam.

Counter Argument

From many examples, it has been proved that commercial interest was in practice at the time of Prophet (SAW). At the advent of Islam, tribe of Mughairah owed a huge amount of interest to tribe of Umro bin Aamir. Both of these tribes were trading partners and are thus very rich. To assume that loan between these two tribes was usury would be very weak argument as both were rich and loan was simply for investment purpose and resultant interest was commercial interest. Secondly, Hazrat Abbas and Hazrat Khalid Bin Waleed made a joint company that used to give loan on interest. Taif was second to Makkah in the field of trade and Jews tribe “Sakeef“ used to give loan on interest to Mughairah that was their main customer in Makkah. All these examples clearly prove that commercial interest was in practice and Islam has also prohibited commercials interest. Secondly, according to Hadees narrated by Abu Hurrairah, Prophet (SAW) said that Mokhabara is haram and should be avoided. Mokhabara has more similarities with commercial interest instead of usury.

Therefore, to argue that current interest based system falls under the category of Bai is not reasonable. There are two types of trade as mentioned in Surah Al Baqra. First type is Bai and second type is riba. In this verse, Allah differentiated between bai and riba and permitted bai but prohibited riba

Nomenclature does not make any difference. Calling pig by the name of chicken does not make it hallal. Ruling stands still and pig is haram. Same rule applies to riba. If nature remains same, profit rate fixation remains same; changing the name from interest-based system to profit and loss sharing system does not make it acceptable. Therefore, while arguing for halal and haram, one thing must be kept in mind that Islam does not say that there is no benefit of haram things. It interdicts things whose harms to society are more than their benefits.

References

1. Ahmad, Ausaf (1993), Contemporary Practices of Islamic Financing Techniques, Research Paper No. 20, Islamic Research and Training Institute, Islamic Development Bank, Jeddah.
2. Al-Gari, M. Ali (2001), “Credit Risks in Islamic Banks’ Finance”, IRTI-HIBFS Seminar on Regulation and Supervision of Islamic Banks: Current Status and Prospective Development held in Khartoum April 2001
3. Al-Jarhi, Mabid Ali, (2001), “Enhancing Corporate Governance in Islamic Financial Institutions”, paper presented to the IRTI-AAOIFI Conference on Transparency,Governance and Risk Management in Islamic Financial Institutions, held in Beirut Lebanon, March 2001.
4. Al-Omar, Fouad (2000), “Supervision, Regulation and Adaptation of Islamic Banks to the Best Standards: The Way Forward”, paper presented to the Conference on Islamic Banking Supervision, Bahrain: AAOIFI February 18-19, 2000.
5. Al-Sabah, Sheikh Salem Abdul Aziz (1999), “Regulatory Framework of Islamic Banking in the State of Kuwait”, keynote address delivered at the CBK-IMF Seminar on Design and Regulation of Islamic Financial Instruments, Kuwait, October 25-26, 1997.
6. Saunders, John I (1966), “The Muslim World on the eve of Europe’s expansion (Englewood Cliff)”
7. Suyuti, Jalal al-Din al- (n.d.), Al-Jami‘ al-Saghir (Cairo: ‘Abd al-Hamid Ahmad Hanafi), vol. 2, p. 96.

Related Posts:

• Explanation and Meaning of Riba and Usury in Islam
• Hadith and Sunnah 2nd Approach of Obtaining Islamic Law
• Quran: Most important Way to Islamic Law
• Concept of Islamic Jurisprudence (Fiqh)
• WOMEN’S RIGHTS IN ISLAM
• INTERNATIONAL PROTECTION OF RELIGIOUS FREEDOM: IMPLEMENTATION IN PAKISTAN
• In the Wake of the Pakistan Earthquake
• COVENANT IMPOSING TAZIR ON PRONOUNCING DIVORCE VOID
• The Anti-Islamic Activities of the Quadiani Group, Lahori Group and Ahmadis (Prohibition and Punishment) Ordinance, 1984
• KHULA: THE GREAT CONTROVERSY
• ISLAMIC LAW OF EVIDENCE
• The Commercial Documents Evidence Act, 1939
• Circular Letters
• Wealth Tax Act, 1963
• Looking to Transfer Money to Pakistan? Find Out What’s Legal and What’s Not