THE basic objective of Islam is to emancipate people from every kind of material and doctrinal slavery and uphold social justice.
In the economic field, and with particular regards to finance, Islam has also paid due attention to all the factors that restrict the freedom of action, and those that lead to material and intellectual bondage (Behechti & Bahonar, 1990).
In this regard, the Quran has formulated rules, including one that has been deemed as part of the vision of the Quran itself, and has become the main thrust of Islamic economics and finance — the prohibition of riba (usury).
This rule is clearly outlined in the Quran. The following verses prove that Islam is very serious when it comes to riba: “Those who swallow down usury cannot arise except as one whom Satan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner.”
To show that riba has very bad implications on human welfare, Allah has declared war against those who refuse to stop practising riba.
Verses 278 and 279 of Surah Al-Baqarah state: “O you who believe! Be careful of (your duty to) Allah and relinquish what remains (due) from usury, if you are believers. But if you do (it) not, then be apprised of war from Allah and His Apostle.”
In one of his hadith, the Prophet mentions: “The wrath of Allah is on the taker ofriba, its giver, its writer and its two witnesses.”
In regard to financial transactions, riba is defined as any contractual increment in a loan or debt due to a time element.
We know this today as interest (Kahf, 2006). To understand why riba violates the principles of property rights in Islam, we need to revisit the basic concept of debt.
According to Kahf, a debt is an inter-personal relation that is a liability on one party and an abstract asset to the other.
By its nature and in real life, a debt is not liable to increase or decrease; it is not able to produce increments because it has no intrinsic utility other than being an ingredient of wealth.
The amount of an increment in a debt is also assumptive; it depends on the conditions and externalities in the imaginary market that we create for debts.
Interest-based debt contracts have two major characteristics. First, they are instruments of risk shifting, risk shredding and risk transfer.
The second characteristic of interest-based contracts is that upon entering into such a contract, the creditor attains a property rights claim on the debtor, equivalent to the principal plus interest and whatever collateral may be involved, without losing the property rights claim to the money lent.
Therefore, it is very obvious that the practice of charging of riba is an act of injustice because it violates Islamic property rights principles.
The Islamic finance industry is still far from realising its founding fathers’ vision of uplifting society through the concept of justice, social equity, brotherhood, charity and cooperation.
As a matter of fact, the Islamic banking and finance industry (IBF), which is deemed as the only manifestation of an Islamic alternative to mainstream economics, seems to have grown as part of the conventional financial sector (Zaman & Asutay, 2009).
Most Islamic economists highlight two major points about the IBF’s failure. First, they say the IBF is economically not feasible because it is more costly and less accessible to those in need.
In fact, very little of the large amounts of wealth associated with it has actually reached the most needy in Muslim societies. Instead, the funds circulate amongst large corporate interests in oil-rich states (Zaman & Asutay, 2009).
Second, they also criticise the process of reengineering financial products to make them Shariah-compliant, whereby only the actual validity of the fiqh(jurisprudence) is involved.
Some sceptics, such as El-Gamal (2006), have expressed unease at the fact that Shariah scholars who authenticate such contracts are themselves employed by the industry, while others, like Zaman & Asutay, have claimed that such contracts are designed to circumvent Shariah laws and so violate broader principles, ormaqasid, associated with the prohibition of riba.
The reason for the IBF’s failure is rooted in the proposed multi-dimensional andtawhidi development process.
This is because by solely relying on the prohibition of riba and at the same time operating on a conventional system framework, the Islamic finance industry – instead of growing as an establishment that promotes justice and equity – would only converge and become part of its mainstream counterpart.
As asserted by Zaman and Asutay, only an Islamic political economy can respond to this failure, not neutral Islamic finance or even Islamic economics.
For any system to be fully realised, it must have elements, such as a framework paradigm, a value system, foundational axioms, operational principles, specific methodologies and functional institutions.
As such, the actualisation and realisation of the objective of the Islamic finance industry depends to some extent on the identification, support and propagation of the specific indigenous institutions of Islam associated with the original vision underlined by the Quran.
Muhammad Hisyam Mohamad is a Fellow at Ikim’s Centre for Economics and Social Studies. The views expressed here are entirely his own.
(The Star Online / 29 December 2015)
---Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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