Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Philosophy of Islamic
Banking and Finance
Outline
Financial intermediation, financial markets
and banking
The need for Islamic banking and finance
The Shariah and fiqh
Maqasid al-Shariah and its implications to
Islamic banking and finance
Understanding riba and its types
The prohibition of riba
Addressing misconceptions about riba
Rationale for the prohibition of riba
Gharar and its prohibition
Concept of iwad
Preamble
Efficiency
Search costs
Transaction costs
More optimal allocation of resources
Production of goods
& services
Producing units
(primarily
businesses and
government)
Consumption of
goods & services
Financial Markets
Consuming Units
(flow of financial
claims)
(primarily
households)
Productive
services
Productive
services
Flow of income
Flow of payment
Product
Markets
Factors
Markets
Flow of income
Financial Markets
Financial Markets within a
Financial System
Direct Financial
Markets
Bonds
Equity
Indirect Financial
Markets
Banks
Unit
Trusts
Takaful
Financial Intermediation
Savings &
Investment
Financing
Surplus Units
Individuals
Businesses
Government
Return on
investment &
savings
Banks Liabilities
Deficit Units
Financial
Intermediary
(e.g. bank)
Individuals
Businesses
Government
Return on
financing
Banks Assets
The Shariah
Maqasid al-Shariah
Tawhid
Fiqh
Akhlaq
Belief in
oneness of Allah
Rules and
Guidelines
Islamic code of
conduct
Economic
resources
entrusted to man,
will be held
accountable for
its use
Al-muamalat
rulings related to
economic
transactions
Ethics, morality
and positive
attributes
(honesty,
kindness,
sincerity)
Holistic approach
Role of the Shariah
Riba
Categorization of riba
Riba al Qard
If one of you has advanced a loan and the debtor offers the
creditor a bowl (of food), he should not accept it, or if the debtor
offers him a ride of his animal (cattle) the debtor must not take
the ride unless this type of gift has been a usual practice
between them before advancing the loan
[ Anas Ibn Malik ]
Riba al Bay
Background
Condition
Money1 + Money1
Equality
Hand-to-hand (spot)
Food1 + Food1
Equality
Hand-to-hand (spot)
Money1 + Money2
Hand-to-hand
Food1 + Food2
Hand-to-hand
Money + Food
Money + Others
Food + Others
Others + Others
Argument
The prohibition of riba was revealed in the last days of the life of the
Prophet s.a.w.
The Prophet did not have the opportunity to elaborate the
interpretation and definition of riba
Such ambiguity in the meaning of riba falls under area of
Mutashabihaat, thus its prohibition cannot be extended to modern
day banking
The fact that the Prophet included the prohibition of riba in his last
sermon does not mean that the prohibition was only introduced at
that time
Some words used in the beginning of some surahs, e.g. Alif Lam Mim
References made to the hand of Allah in the Quran, e.g. in An-Nisaa
3:73
Argument
Argument
Removal of riba from the economy does not imply that financial
institutions will have to give charitable (interest-free) loans
Argument
1.
2.
3.
The common practice of riba during the time of its prohibition was
the charging of interest on consumption loans taken by poor people
to finance their basic needs
This form of exploitation is not present in production loans whereby
in many cases, the debtor is economically well-off
There are evidences to substantiate that the practice of interestbased production loans dated back to much earlier times
If one sells to the poor, the most that can be said is that some
concession should be accorded on humanitarian grounds, but
one cannot say that the profit derived is haram
A trader deserves reasonable profit for his investment and
labour
Profit is the traders means of earning his livelihood
For e.g., why does Islam provide a long list of prohibitions and
commands instead of issuing one single command to avoid zulm?
Human reason, despite its wide capabilities, cannot claim to have
unlimited power to reach the absolute truth
Reason often confused with desires, leading to disguised justice
Thus humans need guidance of divine revelations
Argument
1.
2.
Anti-productive
Given that with the current monetary system, bank debt is unrepayable in aggregate, loan defaults are inevitable
Non-possession of object
E.g. Selling item owned but stolen
Gharar
Permissibility
in Islam
Characteristic
Inherent in productive
economic activities
Unnecessary, avoidable,
intentionally created
Common day
example
Effects
Encourage
entrepreneurial spirit and
productivity
Risk
Argument
Effort
Argument
The bank does not act as agent for both deficit and
surplus units but contracts separately with them
Liability