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After a period of capitulation to riba-based banking in the Muslim world, the last thirty years have seen the re-emergence of riba free banking institutions. Over the years this interest free banking, or to use its more appropriate description – Islamic Banking – has grown in size and diversity. One is now looking at 187 Islamic Banks worldwide, with 271,000 employees and upwards of 21,000 branches. Iran, Sudan and Pakistan have also indicated the wholesale Islamisation of their entire banking systems.
With the growth in size has come the demand for an increase in the range of instruments for financial intermediation on offer. In many cases, customers demand equivalent facilities to those offered by the riba-based banking system. The modes of trade transactions and the role of financial intermediation are constantly evolving. Muslims engaged in financial intermediation are thus required to meet the demands for innovating financing from their clientele. This has led to a requirement for translating established Islamic norms for financial intermediation (Murabaha, Mudarabah and musharakah) into operational instruments within the legal framework of contemporary banking.
For ensuring that any new formulations and modalities are within the ambit of established Islamic norms, all Islamic banks have a Shari’ah Supervisory Board. These Boards have devised new modes of financing to replace interest-based transactions. The management of an Islamic banking institution brings its day to day problems before its Board which, after examining the relevant details, will decide whether or not the proposed transactions are in line with Shari’ah principles. Such decisions by the Board are called fatwas.
As Justice Muhammad Taqi Uthmani says in the Introduction to the Compendium, “The function of a Shari’ah Supervisory Board is of a very delicate nature. On the one hand, they are meant to abide strictly by Islamic principles, and on the other they have to fulfil the requirements of a constantly emerging needs of the contemporary marketplace. The task entrusted to the Shari’ah boards is indeed a difficult one; because when we claim that Islam provides solutions to the problems of every time and place, we do not mean that Islam has given a specific rule for each and every minute detail of every transaction.”
“….., the sacred sources of the Shari’ah, the Qur’an and the Sunnah, have provided Muslims with a set of eternal principles, but their application to the practical situations of each age requires the exercise of ijtihad. This means consultations in which the individual deliberations of many scholars play a vital role in reaching many firm conclusions. This exercise sometimes brings different answers from different Shari’ah Boards with regard to the same question. The Shari’ah Boards, being comprised of a number of scholars, decide the matter placed before them after mutual deliberations, which is tantamount to collective Ijtihad.”
In this quest during the last three decades the Shari’ah Supervisory Boards of different Islamic banking institutions have passed a large number of resolutions (fatwas) through this collective ijtihad. They form an invaluable collection of attempts to match the principles of Shari’ah with contemporary financial intermediation norms.
Through the efforts of Mr Muazzam Ali, Chairman of the Institute of Islamic Banking and Finance, this Compendium brings together the rulings from Bahrain Islamic Bank, Kuwait Finance House, Faisal Islamic Bank of Sudan, Dubai Islamic bank, Faisal islamic bank of Egypt, Dar al-Mal al-Islami (DMI), Jordan Islamic Bank, and the Dalla al-Barakah Bank. The editor and translator has done an enviable job in rendering the collection into a well classified and manageable Compendium. With Arabic text and English translation present, the room for ambiguity is minimised and the work becomes much more useful for the keen practitioner.
As one ploughs through the different rulings on diverse subjects and dealing with many novel financial intermediation proposals, one becomes aware of the delicate role performed by the Sharia’h Boards. Incrementally, one can see the boundaries of Islamic Banking being pushed outward to encompass innovative intermediation possibilities. One can also see the fundamental differences between the Sharia’h view of intermediation and contemporary banking practice. Apart from the modalities involved, these relate to ownership, purposes for which intermediation is pormissible, and the roles and rights of the parties involved in the transactions.
Thus, for example, one of the rulings of the Sharia’h Board of the Kuwait Finance House is as follows:
Question: May the Bank enter into a murabahah transaction with a client who wishes to order the purchase of music cassettes, such as those used by children in play?
Fatwa: Aside from the differing opinions on the question of the status of music in Islam, the Board’s opinion is that the bank should not engage in such transaction in accordance with the legal principle that legitimate means may be obstructed if it is feared that they may lead to illegitimate ends.
There can also be some difficult decisions. Consider another ruling given by the Sharia’h Board of the Kuwait Finance House:
Question: Is it lawful for the bank to sell commodities, cars for example, by means of murabahah, and on regular basis, to a company when the bank knows for certain that the company will resell those cars on credit and charge interest to its clients when their payments are late?
Fatwa: From a Sharia’h perspective, there is no legal impediment to a contract between the bank and a company that charges its clients interest when their payments are late. In such a case, the contract will be considered lawful; while the condition made by the company with its clients when payments are late is invalid but not nullifying (fasid). The sin for the condition will fall on those who proposed it and, as a second transaction, is in no way related to the bank.
The Compendium is full of invaluable insights into the interplay between Sharia’h norms and contemporary financial intermediation. It is hoped that with the publication of the rulings from a number of Boards, there will be some cross fertilisation and body of rulings forming a kind of precedent will emerge in time to come. It is also to be noted that the Institute of Islamic Banking is considering publishing further volumes with more rulings from a wider range of banking institutions. It would help if this includes rulings from different madhahib (schools of thought) to further help the process of cross-fertilisation and derive maximum mileage from the efforts of a multitude of Sharia’h scholars from across the Muslim world.
This pioneering work needs to be lauded and it is hoped that when the whole Compendium is finished, it will form one of the key building blocks for the construction of an Islamic economic order. The first volume gives the practitioner hours of food for thought and should provide an invaluable insight into the intricacies of Islamic finance for the lay reader.
Reviewed by Mohammed Hassan