One of the key parts of the world economy is interest. Interest plays a role in making profit for crucial economic institutions, such as banks. The basic principle of interest entails that the lending of money creates a profit through interest rates paid by the one borrowing the money to the lender. This is a staple of capitalism. However, if the world economy, since it is capitalist, is run in this manner, this does not mean that interest is universally accepted. For example, in the Qu’ran, interest or usury called in Arabic, riba, is strictly forbidden. This religious obligation has led to the rise of so-called Islamic financing or Islamic banking, which tries to reconcile Islam with global capitalism financial practices. However, this view has also come under attack from various Muslim scholars, who interpret Islamic financing as a betrayal of the Qu’ran. Is there a possible solution to this conflict?
In his article “Working With Islamic Finance”, Marc L. Ross summarizes the basic tenets of Islamic finance, including how Islamic finance copes with the difficult problem of riba. He argues that Islamic finance is basically an old approach and is entirely consistent with the Qu’ran. For example, instead of riba, Islamic finance incorporates profit-and-loss sharing contracts or mudarabah. Ross explains this approach as follows: “The Islamic bank pools investors’ money and assumes a share of the profits and losses”, and furthermore, the bank then invests this money. There is therefore a mechanism of a fixed return which resembles interest. Accordingly, Ross argues, the mudabarah allows Islam to participate in the world of capitalist finance, since it does not violate any religious obligations, such as the forbidden nature of riba.
Use your promo and get a custom paper on
"Finding Common Ground: Islamic Finance".
Sheikh Imran N. Hosein, in an article entitled “Islam, Murabaha and Fixed Deposits,” views this as a total deception. According to Hosein, what is really at stake in murabaha is the following: “what the bank does is to offer an item on sale in a credit transaction with a price substantially higher than the cash price.” The problem, for Hosein, is that this basically means that “when a client wishes to purchase something, but does not possess the cash with which to purchase it, the so-called Islamic bank enters into the fiction of purchasing the item at its cash price and then selling it to the client on credit. The interest charges are added to the selling price.” This is what Hosein calls back-door riba, an attempt by Islamic banks to state that they are making “halal” business practice when they are merely trying to reap the rewards of interest in a different form to avoid criticism.
Hosein’s arguments are powerful. It seems that Islamic financing is not trying to preserve the message of the Qu’ran, but instead trying to preserve the capitalist system and fit the Qu’ran into this system. This is clear sacrilege, an offensive and deceitful practice, which places economics over religion. However, what is a proposed solution? Where is a balance between the two positions? Does the Islamic prohibition of riba mean that Islam cannot participate in the world economy?
Islam rather should place its ethical principles first. The world economy should conform to ethical business practices. For example, in Christianity, riba is also forbidden. This message has been lost over time in the Western world. In Islam, Jesus Christ is furthermore a prophet. This makes a natural friendship between Islam and Christianity. What true Islamic financing should do is encourage relationships with responsible Christian business leaders, taking their shared religious opposition to usury as a starting point. With this solution, religion is not distorted to fit the economic model, but, instead, the economic practices are practiced according to ethical religious principles.
