Time is an issue well discussed in the ethical dimensions of economic theories, a fundamental concept in the critical dialogues of Islamic finance. It can be vividly demonstrated through a simple question centred over the ethical failure that occurred via banning interest in banks. If one borrowed a hundred rupees from a friend and agreed to return the same after one week, the denomination while returning will not be the same in tandem with the changes in the value of money. Thus the giver is not getting the real money he lent to the borrower.
Time has a prominent position in modern economic theories, as most of economic values change due to the variation in time. From this axiom, Islamic finance is explicitly criticised in concern with the time value of money, the so-called movement which depicts a veil crafted over the abandoned positive concepts in Islamic finance.
CONCEPT OF MONEY IN ISLAMIC FINANCE AND CONVENTIONAL ECONOMICS
Islamic finance is verily classified from conventional economic theories via the concept of money. Capitalist economic theories envisage money as a commodity that can be bought and sold in market. Thus one is obliged to pay interest if he holds the commodity (money) of a second person as a compensation for the merits that he has gained with that commodity.
According to Islamic finance, money is not considered a commodity. Thus it is not an economic tool for holding needs and never promotes prodigality. Money is a medium to determine the value of every commodity. By this feature, it maintained the axiom to overcome the negative aspects of barter system, once in practice. Thus money is used as medium of exchange. But it never argues that money has its own intrinsic value. It gains value when it is tabled with commodities. No one can satisfy his basic necessity with mere money. But one needs to buy commodities by using this money. Thus money gains value by means of commodities.
When money does not have its own value, it can be concluded that money cannot be used in buy-sell dogmas in financial market. According to Imtiyaz Ahmed Parvez (Director of Fysal Bank Limited, Pakistan) the reasons that rationalise money as non-product in financial market can be briefly sketched through four points:
- The money income of one who holds money never increases as a commodity does not have such feature.
- There is no unembellished production cost in the production of money in banks.
- The demand for money is unreal as it depends upon the demand of commodities.
- No sort of depreciation in money as in commodities.
The basic economic elements of money in Islamic finance can be viewed from two angles:
- The acknowledgement that money is not a commodity.
- The jurisprudential concern that money exchange needed to be done in the same place by both parties.
The Islamic jurisprudence has well considered the value diversions occurred by the passage of time. But, this never pursues that money has its own intrinsic value. The change in price does not occur by the passage of time, but it reflects the changes in demand and supply mark of each commodity in two periods of time. Thus, time never acts as the fundamental catalyst in price variations.
INTEREST AND BORROWINGS
As conveyed, money does not have its own intrinsic value; how money creates money is a valid question. Today, Islamic banks gain profit via lending for business purposes, but unlike conventional methods of lending. If one gives money as a debt to a business entity, it remains a debt. But if it is done through an agreement to have share in both profit and loss of the company, it turns as a capital. Thus we can be able to recognise the changes in the value of money as the changes are not solely related to time. Thus, potentiality of money to be a capital is not important, but being a capital is the matter of consideration.
We have said the non-ethical aspects of lending. As many people erroneously realise, money is not an economic tool for earning or increasing one’s income. In Islamic finance, money is given as a debt for the following purposes:
- Charity – as this part pursues humanitarian concepts, profit never becomes a goal.
- Savings – saving of money is the prime point of consideration, thus, here also, profit is not a part of lender’s goal.
- Profit – profit gaining via business. The lender has agreed to have a share in both profit and loss of the business, thus it encompasses ethics and humanity.
Those who chant for interest consider usury as a matter of sustainable development. But, in real, there are lots of axioms, that interest possesses non-ethical activities. A borrower is basically facing shortage of money. If his financial activity never gains profit, even after borrowing, his situation will become more pathetic. Moreover, the lender is facing a shortage in his total money via lending. Ethically, if borrower gains high profit in his business with this money, the lender needs to get a portion of it which may be more than the amount of interest. Thus interest never frames an ethical background in these financial interventions.
It is important to know the philosophical aspects of banning interest in Islam. Many scholars opined that interest is banned to promote justice as the banning will save the poor from being exploited by the rich. The suicide stories of farmers in India (during 1998 and 2018), tell us about suicides of 300,000 farmers in the country. Even though the government has taken steps to write off the debts of millionaires, no such debts, incurred via interest and loan has written off for farmers) act as a vivid paragon for this argument. Every matter will have two sides – personal and social. In a public platform, a society needed to be taken into consideration more than an individual, which is the real connotation of sustainable development. The viewpoint of Islam regarding interest is built upon this social framework.
The Murabaha agreement in Islam is also a striking example where the tensions over time value are well considered. In this contract, one can sell his product for a price which will be for the same after a certain period (Majmooh 3/14-Imam Navavi). Islamic jurisprudence has put forward three conditions while exchanging currencies and coins as in gold and silver. One of it obligates both contractors to exchange their part before leaving the market. As one lags, the value of the so-called money will not be the same after a certain period. Islam has banned this activity, calling it a type of interest.
Islamic finance is not only furnished to promote profit based contracts, but as a social responsibility. The banning of interest is the outcome of this responsibility. Islam gives prominence to ethical and philosophical aspects of interest than mere economic needs.
[Muhammed Shafeeque is a research intern in Usool al Dheen, with special reference to Islamic monetary policy at Jamia Markaz, Kerala, India. [email protected]]
A LAYMAN’S INTERPRETATION ON INSURANCE AND BANKING
Some Muslim scholars use their Ijtihad to argue that life insurance ( as well other forms of insurance)is haram for Muslims as it involves interest and gambling. As a Muslim living in a secular nation like India where Muslims live as minorities, I beg to differ on this argument.
This is the most unwise sort of contention that adds fuel to the insulting accusation of Islamic Fundamentalism in the West and gives a long stick to Hindu radical parties like BJP to beat the Muslim leaders with.
Having said that let me quickly add that Islamic fundamentalism is a fact because Islam is defined by fundamental articles of faith: monotheism, Prophet-hood, infallibility of the Quran, day of Judgment and very many other uncompromising principles.
But a ruling against life insurance by Indian Muslims is not an
uncompromising fundamental article of faith but a matter of high controversy which requires a penetrating intellectual Ijtihad of top- class Muslim economists and scholars to deliberate deeply, interpret judicially and find more acceptable solutions.
In the opinion of Muhammad Asad,” Every successive Muslim generation is faced with the challenge of giving new dimensions and a fresh economic meaning to this term( interest) which, for want of better word, may be rendered as usury.”
So the pressing question is, “Are Muslim scholars dynamic in
reinterpreting the concept of interest in order to find solutions to the problems arising in the modern contemporary world of advanced economics?”
RIPPLE EFFECTS IN OTHER COUNTRIES
Should the Islamic world as a whole insist on accepting a simple ruling on the non-desirability of insurance by Muslims, as finality, we would find very many of even the so called fundamental Muslims crossing the floors and jumping into the band wagon of Americanized modern Islam. Do Indian Alims want this happen to very many Indian Muslims? The Christendom would warmly welcome and celebrate such an event.
TRADITIONAL ALIMS’ INSUFFICIENCY IN DEALING WITH COMPLICATED ECONOMIC PROBLEMS
More knowledgeable Alims who have been well trained in both Islamic jurisprudence and in specialized fields of study such as economics, investment, insurance, banking, finance etc., should come forward and try hard to intellectualize the educational, marital, economic, financial, corporate, investment, banking, insurance and other mundane problems of the minority Muslims of India and the world.
I am sure Islamic principles can not be as rigid as our conservative scholars expect us to believe.
Please bear in mind that Indian Muslims are not governed by Wilayat-al-fiqih, but are governed by compromising secular laws, hence we can not apply Islamic jurisprudence in their finest details in Toto.
The basic question to be addressed is:
“Do the secular laws of India undermine the basic beliefs of Muslim minorities?” In accordance with the opinions of world renounced Imams like Sheikh Qartawi ,Tantawi and many others, Muslim minorities ought to live by the laws of the country where they live, as long as the laws allow
Muslims to adhere to the basic Rukun Islam. This has been the position of millions of Muslims living in the U.S.A., U.K., France, Germany, Canada, Netherlands, Australia and in some of the Asian countries like China, Philippines, Thailand, Cambodia, Sri Lanka, Singapore etc
STRICT ADHERENCE TO ISLAMIC LAWS IN SECULAR INDIA
If our Sunnat Jamah Alims do not agree with the above line of argument, how would they justify, the entire Muslim population of India obeying and following several sections of the Indian penal code which are secular and in very many parts derail the secondary line of Shariah laws.
Is it religiously or politically possible in the Indian situation to
force the Indian Government to enact Hudud laws, for instance?
The answer is a definite “No”. Why then, we make an illogical ruling on insurance or buying homes on mortgage and similar interest based contractual financial transactions, and put the Indian Muslims at a very big economic disadvantage when their standard of living and per- capita income are several degrees far below the national average of the majority community.
ISLAM BASED INSURANCE AND BANKING IN OTHER COUNTRIES
To take a case study, Malaysia has an excellent Islamic banking and Islamic Insurance( known as Takaful). Islamic bankers and insurers operate on financial rewards to the depositors and the insured, charges on the borrowers, protection to the insured and rewards for no-claim and eventual lump sum repayment based on both endowment and whole-life assurance policies. The terminology varies but the basic principles remain very much the same.
INDIAN MUSLIMS’ INCOMPETENCE
Now, my question is: Do Indian Muslims have the resources, caliber, organisation, corporate mindset and honest business ethics to set up similar Islamic principle based institutions that exist not only in Malaysia but even in very many Western countries catering for the economic needs of Muslims?
( Even Dow Jones has its Shariyah based share index, so does London FT index) The answer is again, a definite “No”.
A few years back, Milli Gazette did an excellent research on the pathetic dishonest situations of very many interest-free based Muslim financial institutions.
It washed real dirty linen in public vividly indicating how the Muslim financial institutions had cheated the several thousand innocent investors’ hard earned savings by their greediness, dishonesty, corruption and financial mismanagement.
So my assertion is that, until we are ready to set up clean and excellent financial institutions (Shariyah friendly),comparable to that of Singapore and Hong Kong based ones run by non-Muslims, there is no meaning in making a firm stand preventing Indian Muslims investing in life assurance and similar interest based institutions run by more honest non-Muslims. Simply because, there are no such institutions competently, efficiently and honestly run by Muslims in India.
Well some may argue that, after all the interpretations differ.
Opinions can vary. Indian Muslims do not have to follow a particular interpretation and so on. But on the other hand, very many innocent and less-educated Muslims consider the stand of our Alims as powerful and by not following them they commit a big sin. How do they know that
Allah SWT can never be Dzhalim under any circumstances. What more can we say, about the tricky and uncertain Indian situation?
DOES LIFE ASSURANCE INVOLVE GAMBLING?
Life assurance is a method of self-imposed savings similar to an ordinary Bank savings account. There is no gambling here. When a person buys a lottery ticket, he loses the money if his number does not hit the jackpot, ( this is gambling) but the insured person is assured of getting back his premium whether the insured event ( death ) does or does not happen. There is a guaranteed repayment.
At one instance, insurance becomes gambling, if an individual insures something without insurable interest . For example, if a person takes out a fire insurance for say US$ 50 million against the Delhi Red Fort, paying an annual premium of say Rs 25, 000, expecting to get US$ 50 million, should the Red Fort be destroyed by fire, that involves gambling, because the proposer has no insurable interest on the building (the property does not belong to him) and moreover he loses the premium if the event ( fire) does not occur.
Where as in the case of life assurance, say, a person takes out an Endowment Policy for Rs 3 lakhs and agrees to pay a monthly premium of say Rs 940 over a certain period. At the end of that period he or his dependents will receive back Rs 3 lakhs plus some profits. He does not gamble. His primary intention is not to leave his dependents without sufficient financial resources should he die prematurely and /or to have sufficient savings to rely on when he retires from active employment without expecting anything from his grown up children, because in the present day economic rat-race, many earning children have become indifferent towards their parents welfare. For instance who will come forward and pay 2 lakhs for a coronary by-pass operation, or a lakh for an angioplasty if he unfortunately required one at the age of 58.
A life insurance cover can incorporate emergencies of this nature particularly for lower income people. There is nothing illogically or overtly Haram about this.
THE CONCEPT OF INTEREST IN ISLAM:
The concept of interest is one of the most complicated in Islam. The Prophet received the revelation condemning riba only a few days before his Wafat and so the companions had no opportunity to ask Rasulullah (SAW) for the fullest implications of the order. Even Sayyidina Umar ibn al-Khattab had said, “The last revelation of the Quran was concerning riba and the Apostle of Allah passed away before explaining the full meaning of the passage to us” ( Ibn Hanbal, on the authority of Said ibn al-Musayyab).
The exploitation of the economically weak by the strong is a form of oppression. Hence, attaching profits (riba) on the personal loans obtained by those who are really poor, downtrodden and debt-laden is a disgrace and is condemned as haram by Islam. There can never be two conflicting opinions on this.
But not all interest-bearing financial transactions fall within this category of exploitation by the economically strong. Life assurance and buying houses on mortgage are two examples of contractual financial transactions which fall outside this category of exploitation.
To quote Muhammad Asad the question as to what kinds of
financial transactions fall within the category of riba is, in the
last resort, a moral one”.
It is impossible to give an outright judgment in a non-Muslim country banning on all kinds of interest-bearing financial transactions, in a rigid and once-for-all manner putting the economically weak Muslim
minority in India at a greater economic disadvantage.
The interpretation of Islamic scholars must not ignore the changes to man’s environment on his social, economic and technological development.
That is the adoring beauty of the Quran. It is Islam’s biggest
miracle. People living the third millennium may read the same Quran without an alphabet having been changed, but will see totally new light, new messages, new interpretations and new discoveries that go beautifully and logically cognizant of the socio-economic- technological environment of that time that we people living in the second millennium never ever dreamt of. Hence my simple assertion is that, our traditional Alims should not apply the first century Hijrah definition of Riba to solve the most complicated economic problems of the 21st century.
One other point that is worth mentioning here is that, during the time of the Prophet(SAW) the value of money was constant and inflation was non-existent and hence Riba ( as the sort practised by Abbas-RAA )was haram because the lender even after a year of waiting will get the
money that he lent whose purchasing power had not diminished at all.
But in our country the annual rate of inflation is about 10 to 15%. In such a condition of rising prices, is it fair to expect a person depositing his money for safe-keeping ( or lending to another trader who makes profits) with a bank to withdraw the same amount without any additions, say after a period of 12 months. Should the Alims give a fatwa that bank interest on deposit is haram, the depositor will get
back the same amount whose purchasing power has fallen by 10 to 15%
This is one of the angles (there are many others) from which we should aim for a new definition of riba.
WA MA TAWFIQ ILLA BILLAH
Nothing from me except with the help of Allah
P.A.Mohamed Ameen