Islamic banking derives its rulings and principles from the Holy Quran and Sunnah (Prophetic traditions). Both are divine sources that God revealed to the Prophet Mohammed (PBUH). In the Holy Quran, God said: “And Allah has revealed to you the Book and the wisdom,” (Surat An Nisaa, Verse 113).
According to Mufassirs, those who interpret the Quran, wisdom here refers to the Sunnah and this is what qualifies Islamic banking to solve a number of problems that the contemporary financial system suffers from as a result of using methods and tools that are purely governed by the selfish interests of humans irrespective of the catastrophic effects this may have on society for example usury, Gharar and Jahala [a sale involving risk], and Maysar [gambling] all of which are prohibited by Shariah law because they inflict serious damage upon individuals and society.
Perhaps the clearest example of the harm that these prohibited tools could inflict upon society and economy is the mortgage crisis that the world is experiencing today. It has led many international financial institutions to write off numerous debts and consequently has suffered many setbacks causing the dismissal of numerous employees and disturbance to financial markets. There has been a lot of talk recently about the possibility of an international recession as major financial institutions have collapsed one after another and their experiences have not assisted in avoiding or predicting this crisis. What has happened so far might only be the tip of the iceberg.
Despite the magnitude and the escalation of this crisis, it does not affect Islamic banks because Islamic law (Shariah) that governs these financial institutions prohibits using the financial tools that have led to the mortgage crisis. In view of the fact that a number of Western societies have been hit by this crisis, where numerous Islamic banking institutes are based, many researchers within these societies will look into the foundations upon which these institutions are based and the methods that they follow. Undoubtedly, any study of these institutions would implicitly lead the researcher to study the Quran and Sunnah.
I believe that any study of the Quran and Sunnah away from the preconceptions and abhorrent fanaticism, would push one to realize the greatness of the Islamic religion and its mercy upon mankind. In the Quran, God says, “And We have not sent you [the Prophet Mohammed] but as a mercy to the worlds,” (Surat Anbiya, Verse 107).
Therefore, I consider this a suitable opportunity to urge Islamic financial institutions to fund research and studies that are related to Islamic financial theories and to increase the number of symposiums and workshops that will explain the foundations upon which Islamic banking is based and the apparatus that it uses. In addition they should demonstrate the Islamic perspective of the causes of the mortgage crisis and how the Islamic financial institutions’ adherence to the provisions of Islamic Law allowed them to avoid this crisis. Furthermore, Islamic financial institutions must seek to achieve the goals of Islamic Law and keep away from formalism in its transactions, showing the world that Islamic law is capable of solving its difficult financial problems.
There is no doubt that making these societies understand the foundations and principles upon which Islamic financial institutions are based and the way that they work would positively reflect these institutions, whereby these societies would accept them and hostility towards them and Muslims in these countries will alleviate as a result of them understanding the civil message of Islam away from the negative stereotypical image of Islam that has emerged as a result of ill practices by some Muslims and the media.
By Lahem al Nasser *, Asharq Alawsat 21/03/2008
* Lahem al Nasser is an Islamic banking adviser.