محور : مقالات انگليسي + ترجمه در لينك مطلب
Islamic Banking Lectures Overview & Glossary or terms: November 2001, UCLA, Los Angeles, California.
بانکداری اسلامی سخنرانی بازنگری و لغت یا شرایط : نوامبر 2001 ، دانشگاه کالیفرنیا، لس آنجلس ، کالیفرنیا.
Outline of Lectures on Islamic Banking and Finance
The Foundations
From its beginning, Islam gave a positive approach to wealth creation, recognized private property, and emphasized fulfillment of contracts and fair dealings. It set limits to freedom of enterprise designed to protect similar freedom of other individuals and protect social interest. Prohibition of interest is one of those limits as well as prohibition of gambling, fraud and hoarding. In early Islamic history, Muslims managed their finances with the help of such contracts as partnership, profit sharing, and prepaid future contracts. When Muslims came out of colonial rule in mid-twentieth century, they adapted these contracts into a new way of financial intermediation and investment management.
Recent History
The first modern theoretical literature on Islamic banking appeared in Urdu, Arabic, and English from the 1940’s through the 60’s. Modest practical steps in the 1960’s were followed by the establishment of several Islamic banks in the private sector in the 1970’s. The Islamic Development Bank was established in 1975. During the 1980’s, Pakistan, Iran, Sudan, and Malaysia adopted the new system officially. Indonesia too launched an Islamic Bank in the 90’s. Many conventional banks started offering interest free Islamic products and some even opened Islamic branches. Currently, there are approximately 200 Islamic financial institutions managing over 100 billion dollars in deposits and funds across the world.
Advantages and Disadvantages
The third lecture will consider two recent changes in the financial environment:
1) the decline in financial intermediation and ascendance of aggressive investment management; and 2) worldwide financial integration. In principle both are advantageous for Islamic finance, but in practice they pose great challenges. Current research in risk management in Islamic framework is very underdeveloped. However, the apparent constraints in the Islamic approach could turn out to be good for financial environment in so far as they help contain a situation going out of control. Some other issues in the regulation of Islamic financial institutions will also be discussed. It will be argued that community level initiatives in the West provide a new vista for Islamic finance along with continued progress in the state-sponsored and private corporate sector institutions in Muslim countries. Islamic banks operate under supervision of their countries' central banks. Also, they have no problems dealing with international financial institutions.
Glossary of Terms
Ijara: Leasing.
Istisna: Salam contracts applied to manufacturers, with the possibility of payment in installments.
Mudaraba: Profit-sharing between financier and entrepreneur.
Murabaha: A sale agreement under which the seller purchases goods desired by the buyer and sells it to them at an agreed marked up price, payment being generally deferred. Also referred to as Bay’ Muajjal or Bay’ bi Thaman Aajil.
Musharika: Partnership; all business partners supply capital and participate in management.
Riba: Interest; payment over and above the sum borrowed. Also covers exchange of unequal quantities of similar fungibles in a barter transaction.
Salam: Payment on the spot for goods to be delivered in the future with the price being agreed now (e.g. paying now for wheat that is yet to be grown). This is similar to a commodity forward.
Shariah: Refers to divine guidance as given by the Qur’an and the example of Prophet Muhammad and embodies all aspects of the Islamic faith, including beliefs and practices.
Urboon: Depositing small fraction of price in a deal to be concluded in the future. It binds the seller to wait but allows the buyer to back out of the deal, with the seller keeping the deposit.
Additional Resources
For more information on Islamic Banking and Finance, check out these sites:
www.islamicbankingnetwork.com
www.hifip.harvard.edu
www.siddiqi.com/mns/
www.halalco.com/economics.html
www.islampub.com/books/econom.html
www.islamic-finance.net
www.islamic-economics.com
Recommended Reading:
Towards a Just Monetary System by M. Umer Chapra, Leicester, Islamic Foundation, 1985
Islamic Banking by Mahmoud al-Gamal, Indianapolis, ISNA, 2000
Islamic Finance by Rodney Wilson, London, The Financial Times Press, 1998
Challenges Facing Islamic Banking by Munawar Iqbal et al (eds), Jeddah, Islamic Development Bank 1998
Islamic Financial Instruments for Public Sector Resource Mobilization Jeddah, IRTI, Islamic Development Bank, 1997
Development and Problems of Islamic Banks, Jeddah, IRTI, Islamic Development Bank, 1987
Muslim Economic Thinking, by M.N. Siddiqi, Leicester, The Islamic Foundation, 1988
Contacts:
Dr. Mohammad N. Siddiqi, LARIBA Senior Visiting Scholar
Center for Near Eastern Studies
(310) 825-1181
mnsiddiqi@hotmail.com or www.siddiqi.com/mns
Dr. Yahia Abdul-Rahman, Founder of American Finance House LARIBA
(626) 449-4401
yarahman@email.msn.com or www.lariba.com
Jonathan Friedlander, Assistant Director of Center for Near Eastern Studies
(310) 825-1181
jfriedlander@isop.ucla.edu
Parisa Sekandari, President of Muslim Business Student Association (MBSA)
Anderson School of Management, Class of 2002
(310) 963-0979
psekanda@anderson.ucla.edu
Question and Answer
IS NOT MURABAHA FINANCING LIKE INTEREST-BASED LENDING?
No, there are at least 4 differences:
A. With conventional banking, the borrower gets cash from the lender which, in principle, can be used for any purpose. Instances abound of individuals and nations borrowing for one purpose and using the money for other (non-productive) purposes. Not so in Murabaha; the customer gets goods, not cash.
B. Come time for repayment, a regular loan can be rolled over with the customer paying interest for the extended time (often at a rate higher than the initial). This is not possible in Murabaha. What the customer owes is a price agreed to in the beginning, which can not be increased because of delay in payment.
C. The rate of interest has become a policy-determined variable. But the rate of mark-up in Murabaha is determined by the demand and supply of goods and services like all other prices. Murabaha financing is therefore more compatible with free market economy.
D. At the macro level, Murabaha keeps the financing tied to real economic activity conducted through acquisition of goods and services, which is not the case with debt financing. Debt-financing contributes to higher inflation, and the availability of huge quantities of debt instruments in the market opens the door for speculative games that do not contribute to the real economy.
WHY DO THE SERVICES OF ISLAMIC FINANCIAL INSTITUTIONS COST MORE THAN THOSE OF THE CONVENTIONAL ONES?
This may not be the case for all services. Checking accounts in Islamic banks perform at par with any other bank. It could be true regarding home financing, financing of consumer-durables or opening a LC, etc. I think the reason lies in the much smaller size of these institutions as compared to others, which makes them incur higher unit overhead costs. This phenomenon may, therefore, prove to be transient. It could, even in the short run, be compensated by the greater trust these institutions evoke in their communities as well as their ethical approach to investment, etc.
WHAT ARE THE BENEFITS OF THE ISLAMIC FINANCIAL INSTITUTIONS TO THE SOCIETY?
It is widely acknowledged that the availability of Shariah-compatible banks has increased banking habit in the Muslim community. Islamic investment companies, mutual funds, and insurance companies have brought out some hoarded wealth, encouraged people to save more and helped Muslim entrepreneurs. The Islamic Development Bank is promoting trade and technical cooperation between Muslim countries. At the community level, the Islamic financial movement has provided the community with yet another cause to rally around, with the unique advantage that this activity brings them closer to the rest of humanity as it is open to all. Islamic financial institutions are the most modern face of contemporary Islam, a face with which every human being can empathize because of the promise of much needed reforms it bears.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
Vote of Thanks: October 7-9, 2003, Bahrain.
رای ها : 07-09 اکتبر، سال 2003 ، بحرین
Vote Of Thanks
Fifth International Conference on Islamic Economics and Finance
Bahrain, October 7-9, 2003
His Excellency Abdulla Hasan Saif, Minister of Finance and National Economy, Kingdom of Bahrain, Her Excellency Dr. Maryam bint Hasan Ale Khalifa, President University of Bahrain, His Excellency Shaikh Ahmed bin Mohammed Al-Khalifa, Governor, Bahrain Monetary Agency; His Excellency Dr. Ahmed Mohammed Ali, President Islamic Development Bank; His Excellency Sheikh Saleh Abdullah Kamel,
Ladies and Gentlemen
As the current President of the International Association For Islamic Economics it is my pleasant duty to propose a vote of thanks to His Highness Shaikh Khalifa bin Salman al-Khalifa, the Prime minister of Bahrain for extending his patronage and hosting this Fifth International Conference on Islamic Economics and Finance, to H.E. Abdulla Hasan Saif, Minister of Finance and National Economy who in 2000 on the occasion of the Fourth International Conference on Islamic Economics and Banking invited our Association to plan this Conference to be held in Bahrain and the University of Bahrain and the Islamic Development Bank who made strenuous efforts for making this Conference such a success as we see it today. I would also like to thank all members of Conference Committees who worked very hard. Without their dedicated efforts, we could not see such magnificent arrangements and such a rich collection of papers. I will fail in my duty if I do not put on record my deep appreciation for paper writers and discussants for their valuable contributions. It is that treasure which will keep the memories of this Conference alive for future generations.
Ladies and Gentlemen:
A quarter century ago there was no Islamic bank in Bahrain, but today Bahrain has the largest number of Islamic financial institutions not only in the Gulf but, to the best of my knowledge, anywhere in the world. The Kingdom is playing host to 26 Islamic banks and financial institutions, five industry-support organizations, six Islamic insurance companies and 34 Islamic mutual funds. This did not happen by default. The wise policies of the Government and the timely steps taken by the Bahrain Monetary Agency have been the main factors attracting the Islamic financial community. Bahrain has hosted so many conferences on Islamic finance that it can rightly claim to be the birthplace of most of the initiatives taken in the last decade. Bahrain has been as quick to learn from experiments being made in other vibrant centers of Islamic finance like Malaysia as it has been keen to teach lessons from its own experiences. Its recent innovations in Government sponsored sukuk has opened a new vista in the field of Islamic finance. Bahrain has undoubtedly become the hub of Islamic financial industry. This unique position of Bahrain in Islamic Finance Industry makes holding of this Conference an omen of good tidings for our Association’s future aspirations.
Distinguished Guests
It is no secret that behind the flowering of Islamic banking and finance and the sprouting of the nascent discipline of Islamic economics in university campuses the world over, are the untiring efforts of Islamic economists during the last half century. From its modest beginnings in the Indian subcontinent and Egypt, Islamic economics got a big boost when the First International Conference on Islamic Economics was held in Makkah Mukarramah in 1976. Attended by some three hundred shariah scholars, economists, financiers and journalists, that conference sent the clearest message that Muslims are launching a new project in the field of economics and finance, considered till then to be a Western prerogative. The sincere efforts made by scholars and practitioners thereafter were rewarded by a rapid growth of the discipline of Islamic Economics and the Islamic financial industry. Within a decade of that event teaching of economics in Islamic perspective proliferated in Muslim universities and the practice of banking, investment and insurance in accordance with shariah spread far and wide. One factor behind this success story was the prohibition of riba in Islam which by an almost consensus of Islamic jurists covers bank interest. An interest-free way of banking was, therefore, welcome to all Muslims. But there must be something more to explain the Universities introducing Islamic economics than Muslim attraction towards interest-free banking. A general disillusionment from the two opposing ideologies of capitalism and socialism brought Islamic teachings related to economic affairs into focus. In order to capitalize on that opportunity, Muslim intellectuals developed alternative economic and financial theories and the practitioners quickly responded by experimenting with those ideas. The International Association for Islamic Economics, established in 1984 in response to a resolution of the Second International Conference on Islamic Economics held in Islamabad in 1983 was charged with the objective of further intellectual development and its dissemination, a responsibility that it has been carrying out since then with the meager resources at its disposal. The sincere efforts made by scholars and practitioners thereafter were rewarded by a rapid growth of the discipline of Islamic economics and the Islamic financial industry.
During the 20 years that have elapsed since then great strides have been made. New ideas have been germinated, new financial instruments developed, new institutions established. The Association and its leading members silently provided a helping hand. Since 1991, the Association is publishing an academic journal, “Review of Islamic Economics”. More importantly, it is closely associated with the remaining half a dozen scholarly journals in the field. During the same period, the number of seminars and conferences on Islamic Economics and Finance runs into hundreds. Not all were organized by the Association. But the office holders of the Association were always there with their support and guidance. Under its own auspices, the Association has organized the series of International Conferences of which this one in Bahrain happens to be the fifth. The two preceding ones were held under the auspices of the University of Loughborough in the United Kingdom and the International Islamic University, Malaysia at Kuala Lumpur. If that is an indication of our linkage with seats of learning in the East as well as in the West, we have really worked hard for it. The literature produced by these Conferences remains to be the most important contribution made in the discipline and is widely quoted in academic circles. Credit must also be given to the dozens of teachers and hundreds of students, many of them eventually earning a Ph D degree, who opted for Islamic economics. As a matter of fact the academic community outnumbers the business community and financiers insofar as membership of the Association is concerned. We wish to use occasions such as this one, when both the academia and business are represented in good numbers to elicit further support for our Association by way of membership and patronage.
We are fortunate indeed that today our hosts in the Kingdom of Bahrain include both the University and the Monetary Agency. We look forward to further academic cooperation between the Association and the University of Bahrain and more joint projects between our Association and the Bahrain Monetary Agency. I am fully aware of the fact that besides the Kingdom of Bahrain’s own goodwill, it is the sincere dedication of my two predecessors as Presidents of the Association, Professor Khurshid Ahmad and Professor Mohammad Omar Zubair that has made this Conference a reality. We thank our hosts, the Government and the people of Bahrain for this wonderful opportunity that they provided us. We also thank the Islamic Development Bank represented here by its dear President, for coming to our help whenever called upon. It is no coincidence that since its establishment, the IDB has always been our partner in organizing these International Conferences. We assure all our patrons that the trust they reposed in our Association will be valued and honored.
Ladies and Gentlemen
We have the ambition of penetrating further into the academia. One effective way of doing that is by instituting endowed chairs at some major seats of learning for teaching and research in Islamic Economics/Islamic Finance. Also scholarships to attract talented students in this field can be very effective. We have wide contacts and some experience in this regard. All that we need for making a break through are financial resources. There is also a plan for donating or subsidizing the purchase of Islamic economic literature to Universities which can go along the above two steps.
The Association aspires, through in-house research, round tables and appropriate publications to influence the future direction of the Islamic financial industry so that it becomes poor-friendly and pays special attention to the poorest among Muslim countries and communities. This may need designing credit instruments and investment vehicles suited to the poor---a task that should not be left to the market forces as it would need some institutional support in the initial stages. The association has the network needed for launching such a project, but it needs money.
Last but not the least, the Association has always been a forum where East meets West in a noble joint venture to develop economics using the best in human knowledge guided by Divine principles. The Association has the wherewithal of acting as link between Muslim academia, and the Economics profession, as also between the financial community in general and the Shariah scholars and jurists. This would entail creating special task forces and discussion groups as also sending suitable representatives to professional conferences and other events. Given the nature of our enterprise involving religion as well as business and the East as well as the West, strengthening such links can be neglected only at a great peril to the whole exercise.
Once again, your Excellencies, Ladies and Gentlemen! Thanks for your attention, thanks for coming.
Mohammad Nejatullah Siddiqi
President
International Association For
Islamic Economics
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
Islamic Finance: Current Legal And Regulatory Issues: May 8-9, 2004, Harvard University, Boston, Massachusettes.
امور مالی اسلامی : کنونی حقوقی و تنظیم مقررات مسایل مربوط به : 08-09 مه، 2004، دانشگاه هاروارد، بوستون، Massachusettes
ISLAMIC FINANCE: CURRENT LEGAL AND REGULATORY ISSUES
Social dynamics of the debate on default in payment and sale of debt.
Presented at the Sixth Harvard University Forum on Islamic Finance, May 8—9, 2004
The current debate on regulatory issues reflects a variety of approaches. Most experts in Islamic law, the fuqaha use analogical reasoning and try to make past rulings their guide to a rule for today. Most economists, on the other hand, argue in terms of socio-economic consequences and seek rules that would bring in the desired state of the world. This paper demonstrates this with reference to two important issues. It then proceeds to make a plea for a more integrated approach.
Jurists are trained to arrive at new rules governing a situation that is wholly or partly novel mostly by analogical and deductive reasoning. Social philosophers are concerned with certain values. They are always evaluating new rules on these criteria, often concluding that new rules are not good enough. Insofar as there is a good case for betterment the jurists are obliged to have a second look, invoking methods which are more accommodative of the very values that concern the social scientists like justice and fairness, even promotion of the common weal. In the Islamic tradition we often come across rules arrived at by analogical reasoning (qiyas) being abandoned in favor of rules designed to protect/promote the benefit (maslaha) desired. In economic literature there has been a debate between those who would maximize production, thereby creating as much new wealth as could be created, and those whose primary concern is with social justice and ensuring dignity and security for every human being.
Law is concerned, primarily, with fairness whereas social good, including economic good, is conceived in terms of provisions that depend, ultimately, on production. Fairness is necessary for ensuring dignity whereas wealth is needed to guaranty security.
In this brief paper I propose to demonstrate that a tension similar to the one described above is discernable in the current debate on legal and regulatory issues in Islamic Finance. To illustrate I select two issues that are attracting considerable attention: How to deal with delays in payment of debts resulting from sales on credit, mostly in murabaha deals, and; Permissibility of securitization and sale of debts resulting from murabaha and other credit transactions.
It is well known that widely different positions have been taken on these issues. I will try to show that differences may be rooted in the priorities of the position taker. Those giving more importance to production and creation of wealth care more for efficiency. They want to ensure the flow of credit, economize on use of cash, etc. Those who care more about fair dealings and social justice are more concerned with avoiding any involvement with riba/interest, whose prohibition is the first threshold of keeping away injustice and unfair practices.
It goes without saying that Islamic economics as a discipline cares about efficiency as well as justice and fairness. It is well aware of the fact that in a balanced realization the two reinforce each other. This does not, however, preclude the possibility that scholars having different backgrounds may differ in their priorities. Economists tend to care more for efficiency, or at least think that efficiency comes first. The more you produce the fairer you can afford to be in distribution. The less you have the more the temptation to be self-serving. In dealing with a certain situation economists are always thinking of how to improve that situation, how to have more of what we already have. Law, on the other hand, focuses on fairness in a given situation. Improving situations or caring for more is hardly in focus. As the debate on current legal and regulatory issues in Islamic finance involves scholars drawn from various disciplines, tensions develop which have the pleasant potential of leading to resolutions a narrower approach would fail to achieve.
The Debate on Delay in Payment
The debate on mumatalah or delay in payment of a debt incurred in a credit purchase predates the debate on sale of debt (bai‘ al-dayn). It started in all earnest in the early eighties of the last century. The practice of murabaha, the chief source of debts under discussion, had spread in the late seventies, bringing this issue into focus. The possibility of delay in payment raised the questions: How and when to penalize the defaulter and whether to compensate the creditor and if so, how? The principle of penalizing a defaulter who is capable of payment is universally accepted but neither the need for compensating the creditor nor the method of doing so is agreed upon, fearing it may open the door for riba (Saleh, 2002, pp. 92-93).
The debate was conducted in various forums, e.g., Shariah Advisory Boards, Seminars and Conferences and Academic Journals. In this brief note I confine myself to the last one, especially to the Journal published by the Center for Research in Islamic Economics at the King Abdulaziz University in Jeddah. Since it has been mostly the same scholars involved at all these forums, nothing of significance will be missed, I hope.
A good summary of the debate, as at the end of the eighties, is provided by a paper jointly authored by Mohammad Anas Zarqa and Mohammad Ali Elgari, henceforth referred as Zarqa & Elgari[1].
To restate the issue: How do we deal with one who buys on the promise of paying the price on a certain date in future but delays payment thereby inflicting harm on the seller/creditor? Zarqa & Elgari rightly begin by noting the importance of this issue for a system that does not charge interest as more time passes before payment is made. They also note the importance of credit for the economy that thrives by division of labor and exchange.
Islamic finance needs a mechanism capable of eradicating the phenomenon of delay in payment by those capable of making payment on time, a phenomenon they characterize as delinquency.
How to deter the delinquent? Do we compensate the creditor? If yes, why, how and when? Answers to these questions differ. Some see deterrence in punishment by incarceration, even corporal punishment for the debtor. Black listing delinquents and exposing them in public is also suggested. All these involve courts of law, and litigation takes time. This is rightly seen as a negative point decreasing the efficiency of the Islamic financial system. Efficiency calls for a mechanism that is triggered automatically. Such a mechanism can be a penalty, in terms of a fine, a certain quantity of money. Such a fine can be proportional to the sum of money involved. It can also be related to the actual period of delay. That would make it similar to riba/interest in form if not in spirit. Some claim that it may also fail in its avowed purpose of being a deterrent, insofar as the market rate of interest at any particular time may be higher than the rate at which the fine is imposed. The delinquent debtor may simply decide to pay the fine and ‘roll on’ the debt, much to the chagrin of the creditor!
As hinted above, in the Islamic analysis, riba/interest acts as a surrogate for justice and fairness. Characterizing any procedure as involving riba/interest amounts to declaring it to be unfair and unjust.
Answers to the question, how to deter the delinquent, can be classified in two categories. A monetary penalty automatically triggered ensures efficient operations. It may be noted, however, that some opting for a fine nevertheless opine that only a court of law can fix its quantity. It cannot be made a part of the contract coming into effect automatically. On the other hand, the obligation to avoid interest makes some scholars reject the fine option altogether, irrespective of who levies it. Out of the eight opinions listed by Zarqa & Elgari, one scholar (Nazeeh Hammad) insists that only punishment by a court of law can deter a delinquent whose own conscience fails to deter him. Two scholars (Shaikh Mustafa Zarqa and Zakiuddin Sha‘ban) opt for a fine that must be decreed by a court. Two other scholars agree to a predetermined fine that, according to one of them, goes to a charity (Ali al-Saloos, who combines incarceration with a fine). Another suggestion is to send it to a special fund under the aegis of the state (Siddiqi). The remaining (Siddiq al-Dareer and Zaki Abdul Barr) agree on a fine which would serve as a deterrent but insist that the fine should not exceed the actual harm done the creditor/Islamic bank. Al-Dareer regards the average rate of profit earned by the bank in the relevant period as a good measure of the loss suffered by it. Abdul Barr also emphasizes the role of other kinds of punishment as a deterrent.
When it comes to compensation, one opinion (Nazeeh Hammad) totally rejects the idea, saying it is only the sum owed him that the creditor gets. One can say the possibility of delay must have been taken into consideration in the mark-up, the increase over and above the cash price. Sheikh Dareer would compensate only to the extent of actual profit lost, which he then equates with the average profit earned by the creditor (Islamic bank, for example). This in effect is what the creditor gets according to the formula approved by Shaikh Zarqa. But Zaki Abdul Barr is not comfortable with this formula. He would rather get it looked into by a court and the compensation given in exceptional cases only. Siddiqi would make the affected creditor seek compensation from the special fund under the auspices of the state to which all the fines for delay go.
To complete the picture, mention must also be made of the proposal of the authors themselves, Zarqa and Elgari. The delinquent debtor is to be obliged, by a court of law, to make a counter loan (interest free, of course) to the creditor in the amount owed and for a period equal to the period of delay. The idea is to compensate a lost opportunity by providing a similar opportunity, and no more. The proposal did not get any endorsements, however. One commentator (Rabi‘ al-Roobi, 1992) said it was neither efficient nor fair. The marginal efficiency of money to the creditor was not necessarily the same at the two points of time involved. The different timings of the two opportunities, the one lost due to delay and the one being provided as compensation, could not be treated as equal. Also, the counter loan being provided as part of the contract made it similar to riba/interest, insofar as the extra time was matched by a ‘benefit’.
Zarqa and Elgari visited the issue again when they co-authored with Siddiqi: ‘Banking Law—A Suggested Model for Organizing the Islamic Banking Sector’ ( Elgari, et al, 1993).Appendix 9 to this Law details what is provided briefly in clause 4 of the Law. All fines for delay are to go to a public Fund supervised by the Central Bank. The Fund serves society in various ways but the lender does not benefit from it in any way.
In the year 2000,the Islamic Fiqh Academy, a subsidiary of the Organization of the Islamic Conference, headquartered at Jeddah, passed a resolution on this issue that went beyond its earlier resolution in 1990 which said: ‘If the buyer/debtor delays the payment of installments after the specified date it is not permissible to charge any amount in addition to its principal liability, whether it is made a precondition in the contract or it is claimed without a previous agreement, because it is Riba, hence prohibited in Shariah’(Islamic Fiqh Academy, 2000, p. 104). The new resolution reaffirmed the above, but added: ‘It is permissible to include a Penalty Provision in all financial contracts except when the original commitment is a debt. Imposing a Penalty Provision in debt contract is usury in the strict sense.’ It also lays down that: ‘The loss that may be compensated includes actual financial loss incurred by the partner, any other material loss and the certainly obtainable gain that he misses as a result of his partner’s default or delay. It does not include moral loss.’(Islamic Fiqh Academy, 2000, p.252). These resolutions provide some relief only to those affected by delays in fulfillment of salam/istisna obligations. The amounts owed in installment sales and murabaha sales having become debts remain outside their purview. In other words little attention is paid to the efficiency- based pleas of the scholars reported above and the verdict focuses only on the ethical aspect as surrogated by riba/interst.
The issue of delay in payment is taken up in Chapra and Khan (2000). Obviously concerned with efficiency of the Islamic financial system, they observe: ‘If the late payment does not lead to any penalty, there is a danger that the default may tend to become a widespread phenomenon through the long run operation of self-enforcing mechanisms. This may lead to a breakdown of the payment system if the amounts involved are significantly large’ (p.72). They proceed to suggest an index of ‘loss given a default’ (LGD) ‘to determine the compensation in a way that reduces subjectivity as well as the possibility of injustice to either the defaulting or the aggrieved party’ (p. 73). This comes, however with the proviso: ‘If the concept of compensation for loss becomes accepted by the fuqaha’( p.73 ). The authors report without any comments the ‘conservative view’ that ‘prohibits the imposition of any compensation to the aggrieved party for fear that this may become equivalent to interest’ (p.72).
The latest response to the challenge posed by this issue seeks to strike a balance. It makes a penalty for default/delay automatic, but the proceeds of the penalty go to charity. As regards compensation for harm done the issue is left to courts of law. In its guidelines relating to murabaha, the State Bank of Pakistan says: ‘It can be stipulated while entering into the agreement that in case of late payment or default by the client he shall be liable to pay penalty calculated at percent per day or per annum that will go to the charity fund constituted by the bank. The amount of penalty cannot be taken to be a source of further return to the bank (the seller of the goods) but shall be used for charitable purposes….The bank can also approach competent courts for award of solatium which shall be determined by the courts at their discretion, on the basis of direct and indirect costs incurred, other than opportunity cost’ ( State Bank of Pakistan,2004. p. 3).
One of the peculiarities of a market economy is to press for efficiency. This is done largely through competition. Unfortunately the market has no such mechanism to ensure justice and fairness. That is left, in the first instance, to the conscience of the players, the economic agents, themselves and then to the regulatory authorities. In other words, the market works for the private interests of the participants whereas the public interest (which includes the interests of non-participants also) has to be taken care of largely by the state, the guardian of public interest. Islam works on the conscience of the economic agents through moral orientation. Also, Social Authority is empowered to take steps necessary to protect public interest, a principle enshrined in the traditional Islamic institution of hisbah. Since the prohibition of riba/interest is directed at ensuring justice, the jurists rightly insist that no provision should involve interest/riba. But can they stop there? If they do, as they seem to have done till now, can the market stop pressing for an efficient solution to the problem under scrutiny?
Sale and Securitization of Debt
The second issue we take up is the sale of debt, bai ‘al-dayn. Prohibition of interest almost eliminates the direct lending of money for business. So there is no bond market in an Islamic economy whose liquidity should become an issue. Direct lending of money is replaced by murabaha and similar credit transactions, effectively tying the expansion of credit with the growth of the economy. In place of conventional treasury bonds Islamic financial markets have bonds based on Ijara (leasing), Salam (prepaid orders) or Istisna‘ (manufacturing orders on a pay as you get basis). But there also is a huge debt created by installment sales and murabaha. To some, making all these wait till maturity implies waste. This waste occurs at two levels. Firstly, those holding IOUs will need credit to command real resources in order to continue producing, having presumably exhausted their own resources in producing what they already sold on credit. This means the society will always carry lots of illiquid assets, the IOUs. Secondly, this may force sellers/producers to refuse selling on credit, demanding cash instead. A society in which all IOUs must await redemption by the original debtor cannot economize on the use of cash. This is rather inefficient (but not a big deal in a fiat currency regime!).
It may rightly be pointed out that somebody must await maturity of debts incurred in the process of acquiring command over real resources on credit. As Keynes pointed out commenting on the ‘liquidity fetish’, not everybody can be liquid all the time. It is, however, more efficient to provide opportunities for exchange between those who are willing to wait and share the risks involved (as the Islamic framework does not reward pure waiting) and those who seek liquidity. One way to do so is to allow IOUs as collaterals for fresh credit---a practice already in vogue in the Islamic financial market. It is also permissible to exchange these IOUs for goods and services. But some want more, let us see if they can have it.
The juristic objection to sale of debts resulting from murabaha, etc. is the same as in case of selling a debt created by a money loan. If I buy for 90 an IOU worth 100 after a year, I am doing so in order to earn 10 as interest. They see no reason to distinguish between IOUs created by murabaha and IOUs created by lending money. This seems to be underlying the latest Islamic Fiqh Academy resolution on the subject that states: ‘It is not permissible to sell a deferred debt by the non-debtor for a prompt cash, from its type or otherwise, because this results in Riba (usury). Likewise it is not permissible to sell it for a deferred cash, from its type or otherwise, because it is similar to a sale of debt for debt which is prohibited in Islam. There is no difference whether the debt is the result of a loan or whether it is deferred sale’ (Islamic Fiqh Academy, 2000, p.234). However, the view equating, in this context, money loans and debts resulting from credit has been challenged. There are reasons to treat the two differently, say Chapra and Khan : ‘The debt is created by the murabaha mode of financing permitted by the Shariah and the price, according to the fuqaha themselves, includes the profit on the transaction and not interest. Therefore, when the bank sells such a debt instrument at a discount, what it is relinquishing, or what the buyer is getting, is not interest but rather a share in profit’ (Chapra and Khan, 2000, p.78). In other words, a debt resulting from murabaha has an element absent from a debt arising from borrowing money-- the mark up on spot price. Sale and purchase of murabaha-based debt would take place on this extra profit margin.
The problem with this proposition is that what was a profit margin for the seller of goods and services (on a murabaha basis) may not necessarily remain so when the same seller ‘sells’ the IOU arising from that transaction. Some of the factors involved in the determination of the mark up on spot price in murabaha may be different from those involved in the sale of the resulting IOU at a discount. Furthermore, the extra profits earned in murabaha sale, over and above those earnable on selling for cash, are still against sale of goods and services. But the part of it that goes to the buyer of the murabaha based IOU (according to the above mentioned rationalization) has no goods and services corresponding to it. It is money for money, with a difference of dates.
The authors go on to argue that there is hardly any gharar involved in the sale of debt-instruments under discussion, a point we may ignore because of the limited purpose of this paper. What interests me is their plea that the fuqaha reconsider the case of asset-based debt instruments and allow their sale as it would lead ‘to the accelerated development of an Islamic money market’ (ibid, p. 79) They proceed to emphasize the need for such a market by pointing out that Islamic banks may face a liquidity crunch in its absence, paralyzing the whole system. They also believe ‘it is difficult for banks to play effectively their role of financial intermediation, without being able to securitize their receivables’ (Chapra and Khan, 2000, p.79). After discussing alternative avenues of raising large funds required by client companies through banks, they conclude that ‘it would be preferable to allow banks to rely on the sale of their own assets to raise liquidity.’( ibid, p.80 )
So it is efficiency that is at stake, in an environment where the inefficient may not long survive. Once again the same story: the jurists bent on ensuring justice by avoiding anything similar to riba/interest and the economists keen to maintain efficient markets. Do they understand each other’s concerns? Is the rationale (hikmah) of prohibiting riba also applicable to sale of debts resulting from murabaha so that it must be blocked to ensure justice? What about a trade-off between the two objectives of Shariah, justice and wealth creation? Is such a trade off acceptable under certain circumstances? Does it become unavoidable sometimes? Can we agree on some formula that ensures a reasonable degree of fairness with a reasonable level of efficiency? These questions have yet to be thoroughly examined. Those arguing in favor of legitimizing sale of debt have to demonstrate that no alternative methods of ensuring liquidity are available. They have also to meet the objection that once sale of debt is allowed insofar as asset based IOUs are concerned, prohibiting the sale of IOUs based on money lending will be difficult, if not impossible, to sustain.
Bai‘ al-dayn is approved by Malaysian Shariah scholars (Securities Commission, 2002). It has a place in Islamic banking as practiced in Southeast Asia. Shariah scholars in that region which follows the Shafi ‘i school of Islamic Law base their opinion on certain rulings which the scholars in the heartland of Islamic finance following other schools, generally speaking, do not agree with (Usmani, 2000). Bank Islam Malaysia is marketing Negotiable Islamic Deposit Certificates (NIDC) backed by murabaha based assets (Archer and Karim, 2002, p.132). ‘In Malaysia the Islamic benchmark bond was introduced in 1990 and is believed to be based on the murabahah concept. They are the most popular form of Islamic financing method used in Malaysia’ (al-Amine, 2001, p.3). Al-Amine goes on to note, however, the controversy that still surrounds the Shari ‘ah legitimacy of these bonds (ibid, p.4). Many Islamic debt instruments on sale in the Malaysian market are criticized on the ground that they involve bay‘ al-dayn and bay‘al-‘inah (Rosley and Sanusi, 1999). But some scholars refer to certain Hanbali and Maliki jurists (.e.g., Ibn e Qayyim and Dasuqi, respectively ) who ‘are of the opinion that selling dayn to a third party is not against syarak (shar‘)’ [Ishak.1997, p.6].It is noted that there is a difference between the debtor being asked by the creditor to pay more than the price agreed upon in a credit sale in lieu of delay in payment, and selling the IOU arising from that credit sale to a third party. In the latter case the seller on credit, who holds the IOU, is no longer dealing with the debtor. He is dealing with a third party to whom he sells the IOU. The deal between this third party, which now holds the IOU, and the debtor, is free of the constraints attending upon the deal between the seller on credit and the one who buys on credit. ‘Bay al-dayn to a third party, however, is different because a third party does not ask for increase in price from the debtor. The debtor will just pay according to the initial contract. As dayn has been sold to a third party, the initial creditor will no longer make a claim but the third party will.’(Ishak, 1997, p.7). Ishak proceeds to argue, ‘ Can haq al-dayn (be) sold at a lower price? The answer is yes, because it is not a currency and the attributes transferred when bought consist of haq mall not currency…….Based on the above, if the initial seller is willing to reduce his right and give the third party the full right, it is not at all against syriah (Shari ‘ah) principles. The same with share certificates traded, it is an ownership right in a company and when sold in the secondary market the price is essentially different from the initial price’ (Ishak, 1997, p.7).
Does not sound very convincing, as a shareholder does not hold a claim to a definite sum of money to be paid in future. But
there is no need for me to evaluate these arguments in analogical terms. What I am interested in is their focus on distancing sale of debt from riba/interest and trying to show it is fair trade, free of injustice as symbolized by riba/interest. Hence the claim that asset based securities are like share certificates and necessary for the well being of people. This is evidenced by Ishak’s appeal to the
‘syari‘ah (Shari ‘ah) principles of ra’fah and takhfif’ in his conclusion ( ibid, p.8 ).In other words, it is being asserted that allowing sale of debt arising from credit sales is neither unjust nor unfair as it does not involve riba/interest. Also it is emphasized that it should be allowed in order to make life easy and prosperous. I think it would have been better if instead of finding an analogy between a certificate of ownership in a company and an IOU, Ishak had pursued the maslaha based arguments on which he concludes.
It would be far better to conduct the debate openly in the framework of ease versus hardship, efficiency versus fairness, growth versus distribution. The trade-offs could then be openly examined, sometime even measured. At the macroeconomic level, we need to know why liquidity cannot be guaranteed without legitimizing the sale of debt. It has to be discussed how giving debt-financing a greater role is likely to change the nature of Islamic economy which emphasizes risk sharing and participatory finance. Alas! That is not the way legal issues are handled, especially in an industry in a hurry, as the Islamic financial industry currently seems to be, under tremendous pressure from its more ‘efficient’ competitors. While the Shariah scholar sitting on an Islamic bank’s advisory board may have barely the time to check the relevant texts and whether a particular analogical reasoning is acceptable, the task of the social scientists/moral philosophers is more contemplative, time taking. An appeal to maqasid al-shariah (objectives of Shari ‘ah) is not that easy as it may seem to the un-initiated. It involves a far deeper understanding of Islam as a way of life, a process of social reconstruction and a mission with humanity that one would normally expect in a legal expert these days. Islamic Finance is about all these objectives, some of which are hard to realize through analogical reasoning, even financial engineering.
Bibliography
Abdul Barr, Muhammad Zaki (1990 ), Raiun Aakhar fi Matl al-Madin, hal yulzam bi’l-Ta‘wid?, Journal of King Abdulaziz University:Islamic Economics (Jeddah ),vol.2, pp.155-160 (Arabic section)
Abdul Barr, Muhammad Zaki (1991) Ta‘liq, Journal of King Abdulaziz University :Islamic Economics (Jeddah), vol.3, pp.61-62 (Arabic Section)
Al-Amine, Muhammad al-Bashir Muhammad (2001) The Islamic Bond Market: Possibilities and Challenges, International Journal of Islamic Financial Services, vol.3, no. 1, April-June , <http://Islamic-finance.net/journal.html>
‘Attiyah, Jamal (1990 ) al-Jawanib al-Qanuniyah li Tatbiq ‘aqd al-Murabaha, Journal of King Abdulaziz University: Islamic Economics (Jeddah ),vol.2, pp.125-145 (Arabic Section)
Chapra, M.U and Tariqullah Khan (2000), Regulation and Supervision of Islamic Banks, Jeddah, Islamic Research and Training Institute, Islamic Development Bank
Al-Dareer, al-Siddiq Muhammad al-Amin (1985) al-Ittifaq ‘ala Ilzam al-Madin al-Mu’sir bi Ta ‘wid Darar al-Mumatalah, Journal of Research in Islamic Economics (Jeddah), vol.3, no.1, pp.111-112 (Arabic section)
al-Dareer, al-Siddiq Muhammad al- Amin (1993) Ta‘liq, Journal of King Abdulaziz University : Islamic Economics (Jeddah),vol.5, pp.69-77 (Arabic Section )
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Elgari,Mohammad Ali,Mohammad Nejatullah Siddiqi and Mohammad Anas Zarqa (1993) Qanun al-Masarif-- Sighah Muqterahah li-Tanzeem Qita ‘in Masrafi Islami, Review of Islamic Economics (Leicester),vol. 2, no. 2,1993, pp.67-97 (Arabic section)
Hammad, Nazeeh Kamal ( 1985 ) al-Muwayi’dat al-Shar‘iyah li Haml al-Madin al-Mumatil ‘ala’l-Wafa’ wa Butlan al-Hukm bi’l Ta‘wid al-Mali ‘an Darar al-Mumatalah, Journal of Research in Islamic Economics (Jeddah ),vol.3,no.1,pp. 101-108 ( Arabic section)
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[1] Mohammad Anas Zarqa and Mohammad Ali Elgari, Al-Ta ‘wid ‘an darar al-mumatalah fi’l dayn bain al-fiqh wa’l Iqtisad, Journal of King Abdulaziz University:Islamic Economics (Jeddah) vol. 3,1411/1991, pp.25-57, Arabic Section
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ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
Emergence of Ethical Investment - Key Note Address : 14 June 2008, Institute of Objective Studies, New Delhi
ظهور اخلاقی سرمایه گذاری -- آدرس کلیدی : 14 ژوئن سال 2008 ، مؤسسهی مطالعات هدف، دهلی نو
Emergence of Ethical Investment:
Key Note Address
M. Nejatullah Siddiqi
The increasing popularity of the idea of ethical investment, and of the closely related concepts of Socially Responsible Investment (SRI), Corporate Social Responsibility (CSR) and Social Business is indicative of a change. It is not long ago we were told by no less a person than Nobel Laureate Milton Friedman that the business of business is business, i.e. making profits. We also heard the mantra: Greed is good. So, what caused this return to sobriety?
I think people have been shocked by environmental deterioration, increasing inequality within nations and between nation s and rising levels of anxiety in personal lives all across the globe. These threats to peaceful living are making people everywhere, but more so in the rich countries, question their existing ways of living. Some recent business malpractices like Enron and the mortgage debacle that heaped unnecessary misfortune on many people added to these worries. Investment being the steppingstone to growth, the key to rising levels of prosperity, naturally comes in for scrutiny.
The Evil of Interest
Investment is good. It has the potentiality of bringing private gains (profits, prestige) to the investor and public benefits to society (employment, growth). There is a problem, however, when investors seek guaranteed returns. Wealth creation through investment takes place in an environment characterized by risk and uncertainty. Fairness demands some arrangement for risk sharing between suppliers of money capital and the entrepreneurs using capital for creating additional wealth. But most of the current investment arrangements are based on risk shifting. The supplier of money capital shifts the risk to the fund user, the entrepreneur. Loans must be repaid with interest irrespective of whether their use in enterprise resulted in additional wealth creation or not. This is one of the main sources of increasing inequality worldwide. The institution of interest is also responsible for environmental deterioration. It creates a constant pressure for accelerated growth so that interest on wealth borrowed and invested could be paid out of newly produced wealth. Interest is also responsible for the inverted pyramid of rising debt levels characterizing our societies, including consumer debt, especially in education and health care. Consumer indebtedness thus becomes the main source of personal anxiety.
I began my discourse on ethical investment by a litany of charges against interest to underline the immoral nature of interest. Ethical investment in the truest sense can hardly exist in a culture of debt and interest. But I will not dwell on that point any further; we have to attend to other dimensions of the subject under discussion.
The Moral Man
Ethics and morality come to man in society naturally. Morality is the quest to do the right thing, to follow the rules, and avoid doing wrong. You need something to suppress this natural inclination and that is exactly what methodological individualism has been doing for quite sometime. Neoclassical economics made us believe exclusive pursuit of self-interest by each individual ensures the realization of the largest common good. By making money your sole objective you could get what is the key to serve any other objective you wish. So no other objectives need attend upon the business of money making.
The recent surge in ethical investment and socially responsible investment (SRI) that brought us together today is an open revolt against that false logic. Instead of discussing what went wrong with neoclassical economics let us proceed further and discuss some of the issues involved.
Morality relates to man-man relationship. In the next step we extend morality to man’s relation with animals as well as inanimate beings, the entire universe. Truthfulness, honesty, justice, fairness, trust, keeping promises, sympathy and compassion are some of the moral values relevant to economic affairs. Men and women entertain these values on a variety of bases, including faith. They are welcome as moral beings, whatever the basis of their morality. But there is a strength in moral values rooted in spiritual values that is not found when morality is given a pragmatic basis.
Spiritual values relate to man-God relationship. A sense of being, i.e. consciousness of the gift of life, invokes gratitude for the Creator. Worship and devotion follow, accompanied by unqualified allegiance. Accountability provokes fear of God that invokes an appeal to the Lord’s mercy and kindles hope. The believer perceives man-man relation as an offshoot of man-God relation, all men and women being the creation of the same Creator. Human brotherhood based on faith is stronger that fraternities based on race, region or language, etc. Common interests do provide a basis for solidarity, but they fail to survive any erosion of commonness of interests. Even shared interests may lack universality. That is the dividing line between values, especially those rooted in faith in One God (tawheed) and interests, however common. Interests are vulnerable to compromises, spiritual and moral values are not.
I am not claiming that morality alone can harness individual investment decisions to serve the social good. Ethics has limitations. Recognizing these limitations Islam came with a three- pronged approach: pursuit of self-interest, moral reorientation and state regulation to ensure a basic minimum of conformity to norms. Let us focus on some of the issues involved in ethical investment within this framework.
The Information Deficit
I select two issues that attend upon ethical investment: Incentive and information. Why should the decision maker avoid harming others? Why should he care about social good? And if these questions are answered to his satisfaction, does he or she have the information necessary to make a decision that would qualify?
What is meant by ethical investment? Is it investment constrained by ethics or investment guided by morality? It could be both. One could be content by deciding never to harm anyone. One could go a step further and try to do some good to others. Both are behaving morally. Examples of the former are not investing in tobacco or anything harmful like weapons of mass destruction…Examples of the latter category is investment in primary education, healthcare and low-cost housing. Both are subject to the proviso that maximizing profits is no longer the aim, that some sacrifice of profits is acceptable, even though firms must survive and satisfy the investors/shareholders.
Does the decision-maker know what is harmful? How much harm can be avoided at what cost? Does he or she have the information necessary to decide what is good for society? How much will be enough? In the neoclassical version of capitalism these questions need not bother the individual decision maker. They are left to the blind forces of the market, the famous “invisible hand”. That faith into the invisible hand having been abandoned, what can be done about the needed information?
One thing is quite clear; It is not the role of ethics, morality, spirituality or religion to supply that kind of information. In my own religious tradition there is no false promise in this regard. It is one of those areas in which man is left to fend for himself. Islam does not provide technical information. It has been reported in authentic collections of Prophet’s tradition that he demonstrated this principle in most unambiguous way.[1]
How, then, the morally-oriented decision makers, the ethical investors, are going to handle the situation and fulfill their aspiration to serve the social good while taking good care of their private interests? The answer lies in the way we handle the second issue, the issue of incentives or motivation. As we have noted above, it is the contribution of ethics and morality, spirituality and religion to motivate and provide the incentive for doing good and avoiding evil. They also motivate people to cooperate. Men and women cooperate in a variety of ways: generating and sharing information, and sharing the costs involved, etc. They cooperate as individuals in one to one contacts. They cooperate by forming NGOs. They cooperate with state agencies and through state agencies. All scenarios apply. Men and women only need to be emancipated from the bondage of self- destructive greed, sanctified by the baseless assumptions of neoclassical economics and capitalism to adopt a healthy and humane stance in what Marshall aptly called “the ordinary business of life”.
The Role of Islamic Finance
Islamic financial markets can play a role in facilitating and promoting ethical investment. But agents are incapable of achieving what principals do not want them to do. The crucial factor is the Islamic investor: Is he or she ethical enough to be willing to sacrifice some private gain for public benefit? If not, nothing is going to happen. You cannot do in the market place what families and schools failed to prepare the market players for.
Transparency
Last but not the least, an important issue in ethical investment is transparency. The principal must know what the agent is doing in his or her name. It is one thing to advertise that the company will put your money to uses that fulfill your moral aspirations and observe the constraints you put to avoid harming others. Actually doing as promised is different. The crucial thing is transparency. The ethical investor must insist on transparency. The stakes are very high indeed.
Tirmidhi has narrated in his Sunan that Ibn e Masud has reported the Prophet, peace be upon him, having said:
The son of Adam would not be able to move away from his Lord’s presence till he is queried about five:
About the duration of his life, in what (activities) did he spend it;
About his youth, it turned into old age doing what?
About his wealth, how it was acquired?
And on what it was spent?
And how far he acted according to the knowledge he received?
[Tirmidhi: Sunan, Abwab Sifat al Qiyamah]
Ethical investment is not a luxury product. For the careful and God-fearing it is a necessity.
[1] Sahih Muslim Hadith #s 2361 to 2363(Kitab al-Fadail. Bab Wujub Imtisal ma Qalahu Shar’n…..) and Sunan Ibn Majah ,Hadith #s 2470,2471(Kitab al Ruhun, Bab Talqih al Nakhl). Drawing on all the five reports, the following summary highlights the point made in the text:
The Prophet, peace be upon him, was passing by an orchard of date trees (in Madinah).He saw some people on top of the trees. He asked, what are they doing? Told they were pollinating, taking pollens from the male trees to the female trees, he said, I do not think it will do them any good, better leave things as they are. The Prophet’s remarks made people stop doing what they used to do. That year there was no date crop. When the Prophet was informed he said, I had merely expressed an opinion. I am a human being like you. Only when I am reporting to you something from Allah, then you are obliged to abide by it as I shall never make any false report. As regards worldly matters, you know them better. Continue doing what you used to do.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
Prelude to Reconstruction, August 4-6, 2004, Kuala Lumpur, Malaysia.
پرلود برای بازسازی، اوت 4-6 ، 2004، کوالالامپور، مالزی.
Prelude to Reconstruction: Shedding Complexes and Avoiding Violence
(Paper presented at, MUSLIMS and ISLAM in the 21st CENTURY:IMAGE and REALITY. International Conference, August 4-6, 2004, Kuala Lumpur, Malaysia)
Only some may know the reality about Islam and Muslims, but the image that is everywhere is not good. Islam and Muslims are being projected as a threat to peace. Some perceive it as a threat to their personal security. Exceptions are made but not universally believed. It is claimed that like the Nazis and the Fascists and the Communists, radical Islam is out to dominate the world by force, destroying everything that comes in its way. Since radical Islam is not ascribed to any particular territory but alleged to be almost everywhere, the entire world of Islam has been thrown on the defensive.
What a change! Before a quarter century the world of Islam was buoyant, not only because of oil money but also because of its identity and its potentialities. It may have been perceived to be distinct yet it was acceptable, as neighbor, friend or/and partner, to all except to the lunatic fringe of the rightists. It was known for its tolerance and its desire to coexist with people of different faiths and persuasions in peace and harmony. Even the Islamic movements in various parts of the world were seen as committed to the rules of decency and non-coercion. This is no longer so. What went wrong?
It is not my intention to attempt an answer to that question. Many in this conference will address it and discuss its antecedents and consequences. I want to suggest an agenda for the immediate future. I shall confine myself to advocating a two point agenda, as a necessary prelude to a wider agenda[1] that I am sure will come out of the deliberations at this conference. It is a prelude to something bigger as the real task to focus on is construction, building up, forging ahead and not just warding off some evil that has befallen us. But there are debris of the past to be cleared and impediments to be removed. My two point transitional agenda should be seen as some urgent action needed to enable us to regain our balance in a turbulent world.
Firstly, I am suggesting keeping away from violence. My second plea is for Muslims to adopt the culture of equality and partnership with everyone and anyone in the global village without any complexes of being superior or inferior. This requires some elaboration, so I begin with it. I will take up the issue of violence later.
But let me warn again. Neither violence nor a bloated sense of being different and superior is the cause of Muslim decline. Our decline is not going to change into progress once we take care of these two problems. We have to deal with these two issues in order to clear the ground for the main work which I shall briefly mention in the end but which is not discussed in this essay.
Why the culture of equality?
Over the last few centuries Muslims have developed some notions about themselves that deserve scrutiny. To be specific, these are:
We are different
We are superior
We deserve to be supreme
We are destined to dominate
We Muslims have these perceptions about ourselves as we are, not as we ought to be, i.e., as Muslims are described/characterized in Quran and Sunnah. Each of these perceptions has some connection with truth, but it is not true as it stands. I find these perceptions adversely affecting the image of Muslims as good neighbors, congenial friends and durable partners. I find these perceptions counterproductive in the context of the Islamic mission of calling humanity toward our One Lord and interacting with men and women as bearers of God’s message to them. And, of course, I find them out of context, exaggerated and mostly false.
Being Different
We are different in certain respects but not different in many other respects. As human beings we share myriad needs and the efforts for survival with the rest of humanity. We share the planet earth with all its environmental problems. Our similarities in body and mind far outnumber the dissimilarities that can ever be acquired.
Compared to the rest of humanity we Muslims differ in our faith.
Even those who believe in God, and that applies to the overwhelming majority of human beings, do not have the clear tawhidi view of the divine. But when you travel down the long queue assessing purity of tawhidi notions among Muslims you face the stark reality of blurring concepts tending to imperceptibly mix and merge with notions of the divine elsewhere. There is no need of taking the other articles of faith one by one and repeating the same mental exercise as the message is clear: the difference is to be taken realistically.
Also, differences related to faith need be placed in context as the rule of faith is not uniformly spread over our life. In trade and commerce, in agriculture and transport, and in so many walks of life all human beings need to interact irrespective of their faith. The perceived differences do not and should not affect the common agenda of removal of poverty and deprivation and maintaining planet earth in good shape for the generations to come.
The reason I am worried by too much emphasis on being different is that it acts as a barrier obstructing normal interaction with non-Muslims. It creates a tendency to withdraw as against a desire for reaching out which would be expected from a people with a mission. Instead of building on what we share and using shared problems as springboards for Islamic contributions to the weal of humanity that would in turn draw attention to Islamic faith, we tend to use blown-up differences as excuses for Muslim exclusiveness.
Before I proceed further to examine the next idea, that of Muslim superiority, I wish to draw attention towards the verses of Quran that underscore the common humanity of us all.
‘And We have given you (mankind) power in the earth, and appointed for you therein a livelihood. Little give you thanks!’ (7:10)
That theme is repeated in 67:15. Verses 7:189 and 39:6 emphasize the fact that all human beings had a common ancestor and 17:70 underlines the privileged position of mankind among other creatures. Verse 49:13 underscores the fact that mankind is one big family descending from the same couple, and the existing divisions into tribes and nations should be treated as a means of introduction only. Verses 67:2 and 21:35, among many others, remind everyone of the transient nature of life on earth in which one is undergoing a test, a trial. Verse 5:32, emphasizing the sanctity of human life, warns against violations of the right to live. Verses 35:15-18 underscore our vulnerable position and that one’s destiny depends on one own doings.
Superiority Complex
The perception of being different is accompanied by a feeling that we Muslims are superior to the rest of humanity. The scope of this superiority is not very clear but it may cover anything and everything. It is certainly not confined to tawhid and other articles of faith in which (true) Muslims are in fact superior as evidenced by the Quranic verse 3: 110, ‘You are the best community that has been raised for mankind. You enjoin right conduct……’. In Muslim perception it extends to culture and civilization. The truth of superiority of a people living, by and large, in accordance with Islamic teachings (as they did in the early days of Islam, as evidenced by Quran 24:55), is metamorphosed into the dubious assertion of superiority of all Muslims, irrespective of how they conduct themselves. Superiority rooted in spirituality and morality brings humility, as the Quran informs us in verse 25:63. In our case it produces arrogance that is bound to repel others.
In the context of the Muslim people’s mission with humanity, this perception too is counterproductive. It separates, erects barriers, obstructs smooth interaction, alienates and invites hostility. It certainly does not endear us to people. It does no good to us either, diverting our attention from hundred and one instances of our inferiority which could have/should have spurred us to work harder, reform and improve. Whereas the Prophet asked Muslims to adopt wisdom, what ever its source (“For a Muslim, wisdom is a lost item found”), our superiority complex all but destroys our capacity to learn from others. We have ceased to be warned by others’ failures under the impression that what happened to them may not happen to us Muslims. We do not venture to repeat their success stories thinking their ways might be tainted. This attitude becomes a liability in facing the problems caused by increasing numbers, crowding of peoples in metropolitan cities, polluted environment, arms proliferation, diseases unheard of earlier, etc. that call for joint action.
I have a hunch that both the above mentioned perceptions, those of being different and of being superior, got a boost during the period of Muslim decline when instead of gaining new ground, attracting large number of people towards Islam, it became our vocation to defend ourselves, consolidate our fold, sharpen our identity and keep our flock from being snatched away from us by the attacking wolves. This happened when interaction with non-Muslims was seen not as an opportunity, carrying the possibility of attracting them towards Muslims and their religion, but as a threat bearing the risk of Muslims being attracted towards others and their ways of life. This disrupted the normal humane relationship desired in case of all except those who persecute Muslims and drive them away from their homes (as Makkans once did). The Quran says:
‘Allah forbids you not those who warred not against you on account of religion and drove you not out from your homes, that you should show them kindness and deal justly with them. Lo! Allah loves the just dealers.’(60:8)
Claim to supremacy
One step forward and the perception of being superior leads to the feeling that Muslims deserve to rule the world. After all it is our Lord who owns it, and has He not ordained us to remove all corruption, destroy all evil and establish peace and prosperity on earth? Who else can do that but the bearers of the true divine message? And how can this mission be fulfilled without wielding power and removing all powers that do not submit to the sovereignty of Allah?
Henceforth the line bifurcates into two different paths. One line regards that Muslims have to become true Muslims so that they can be supreme, implicitly assuming that supremacy may come by without targeting it. The other line argues that Muslims can become true Muslims only by establishing the rule of Shariah in lands under their control, the Muslim majority countries. Islam’s universal mission with humanity thereby gets translated, temporarily, into struggle for Islamic state(s), which are envisioned as logical transits to global supremacy. That, by irony of history, almost everywhere pitched Muslims (actively working for Islamic rule) against Muslims (ruling the nation states) and the mission of carrying the message of Allah to the rest of humanity was put on hold.
Is power a necessary condition for the mission of Islam? Is the power of governance the only kind of power relevant in this context? [The Prophet Ibrahim was declared ‘leader of mankind’ (2:124) though he never governed.] These are core issues crying for a debate. Also, there must be a way to avoid Muslims fighting Muslims in the name of Islam, squandering away energies that should/could have been put in service of Islam’s mission with humanity.
We are destined to dominate
Then come the predictions. The promises of divine support and the predictions of victory made on the explicit condition that Muslims abide by Islamic teachings and conduct themselves selflessly as servants of God (‘…you will overcome them if you are {indeed} believers’[3:138]) are applied by some of us to Muslims as they are. The promise is predicated on good conduct (24:55). More importantly, the promise of victory is made to Prophets and their followers under attack (22:40; 58:21; 37:171-73; 47:7).
Three points deserve attention in this regard.
(1) Firstly, the Quranic conditionality applies to a collective, the community, and not to individuals and groups of Muslims.
(2) Secondly, the qualifying community is promised dominion under God, free to practice Islam without fear of outside intervention (24:55). The victory of Islam (110) should not be interpreted as disappearance of all other religions and/or their adherents as this runs counter to Text (11:118; 16:93; 12:103; 64:2). In other words the promised position does not amount to a rejection of coexistence with peoples of other faiths. In fact Allah has made it very clear that the arrangements He made for trying us human beings involve such coexistence (64:2; 109; 10:19; 11:118; 16:93). Muslims have been well aware of this throughout history. But extremism could easily build on a premise that is false but capable of being projected as true. Some recent responses to American-led aggressions are a case in point.
(3) This brings me to the third point that deserves attention. The Quranic verses bearing the promise of the ultimate victory of Islam have a context. They boosted the morale of a people under attack (3:138). But they do not provide a basis for unprovoked attacks (2:190-94). They are not a prelude to a world-dominating agenda. Though I do not think such an agenda exists or ever existed in Islamic history, the falsehood of perceptions leaves the possibility open. It is, therefore, necessary to guard against it before it vitiates our ability to function and carry on our mission in the global village.
VIOLENCE IS COUNTERPRODUCTIVE
I would now take up the point I mentioned first, that we must avoid violence[2]. Violence is essentially unethical. It is justified only to deter and punish criminals and to defend oneself. No noble objectives may ever be achieved by violent means. Violence has not been a means for achieving Islamic goals over the centuries. It has not been a part of the agenda for Islamic regeneration during the eighteenth and nineteenth centuries. Islamic movements in the twentieth century did not adopt violence as a means to establishing the cherished Islamic state. Much can be written about the happenings during the last quarter of the twentieth century that trapped a group of Muslims into violent strategies, but it is not the purpose of this paper to examine that line of thinking. What concerns me here and now is the damage violent strategies are doing to the image of Islam and the harm they are inflicting to the Muslim society itself. I do not think violent strategies are succeeding in their avowed purpose: defeating the adversary and thwarting it in its aggressive designs against Islam and Muslims. Also, Islamic objectives can be achieved only through Islamic means of persuasion and good examples. Wrong means, methods that are bad in themselves may never be adopted in the name of Islam as they negate their very objective, i.e., Islam itself.
Resort to violent strategies harming Muslim Society
I begin with the harm being done to Muslims. Three are most visible, having far-reaching consequences.
Firstly a people whose religion had taught them to rely on persuasion, moral appeal and the power of good character in their interaction with the rest of humanity (26:125; 41:34-35) are increasingly being led to lose faith in these methods (before even trying them!).This is being done on the basis of a false premise, that of Islam and Muslims being under attack from every quarter, especially by the entire west.
Secondly, violence, which is justified as a defensive measure, must be used under the supervision of a central authority that can regulate it in accordance with Islamic teachings related to Jihad. In case of Muslim lands subjected to forceful occupation by others, a unified resistance movement could provide a substitute, as happened in case of Palestinians fighting Israeli occupation. Unlike these examples of jihad, violence organized by clandestine groups secretly and in violation of the laws of the land from where it is launched cannot be regulated properly. In the long run it cannot be regulated at all as its leadership is made to run for life, gets fragmented and falls prey to the inevitable dissentions. When a Muslim group living under other people’s rule endorses violent strategies against their adversaries at home or abroad, it is forced by circumstances to accept a leadership that thrives on secretiveness, deception, smuggling, breaking laws and joining hands with criminals. This is bound to corrupt us from inside and does not endear us to outsiders.
Thirdly, this obsession with what the others are doing to us diverts attention from what we are doing to ourselves—something that has been the focus of attention of all the movements for reform and regeneration.
Add to these the adverse impact of violence and counter-violence on what is most important for Islam and Muslims: carrying the message of Allah to the rest of humanity. An environment full of war cries is not the right one for men and women responding to the Islamic call for deep thinking and dialogue (34:46; 14:4; 30:8), nor is it the most efficient way of winning hearts and minds. Note how the peace treaty in Hudaibiyah brought Arab tribes to Islam, first to listen and explore and then to embrace. Historically the expansion of Islam owes itself to peace more than to war. While Islamic jihad removed threats to Islam’s existence and the tyranny of overlords who won’t allow their peoples to listen, it was peaceful interaction in trade and commerce that brought the bulk of adherents into fold. The spread of Islam to South and South-east Asia and into China is an eloquent witness to that.
Violent strategies are not serving their purpose
Once Muslim peoples had regained their independence from colonial powers -- over the period 1945 (Indonesia) to 1963(Algeria) -- they focused inwards on national reconstruction. Muslim society by and large remained free of violent strategies, obviously because there is no role for violence in reconstruction. Unfortunately the state in some Muslim countries opted for violent suppression of some movements. This resulted in some splinter groups of the suppressed parties responding to state violence with violence. Since the post-colonial states in many Muslim countries were seen as vassals of one superpower or other, those powers too became targets of violence by a group of Muslims. This brings us to the last quarter of the twentieth century when the American involvement with the Muslim world, in Afghanistan, Iran, and Iraq reinforced Muslim perception of victim-hood generated and sustained by its pro-Israel policies since the middle of the century.
Preachers of violence started gaining ground, but did they achieve their avowed objectives? I think not. The power relations are too skewed. The cost in terms of ill will being generated by terrorist activities is too high. In fact protagonists of violent strategies may already have destroyed the vast amount of goodwill, sympathy and moral support Muslims had earned over the last half-century.
And the damage to the image of Islam has been immense indeed.
Despite the crusaders’ propaganda and the colonial curricula, Islam was generally perceived as a model of decency. The overwhelming majority of human beings regarded the Prophet with respect and reverence. As the violent strategies pursued in the name of Islam started taking forms explicitly prohibited by Islam the situation started to change. Blowing up busses, trains and planes, attacking foreign embassies, taking hostages and indiscriminate killing of civilians in the name of Islam has tarnished that image. The portrayal of Islam and Muslims in the media as uncivilized inhuman and unkind has gained in credibility, eroding the image of compassion and humanity.
Regarding the achievement of positive goals, like Islamic regeneration and uplift of the Muslim Ummah in moral, material and intellectual terms, one has to adopt the means that suit these goals. Objectives are means-sensitive. Since the Islamic objective inheres in value-oriented living, means destructive of those very values do not suit it. In fact they are inimical to it. One example should suffice. Islam stands for a consultative way of making social decisions. A dictatorial/autocratic organization can never lead us to the achievement of Islamic state/society as it destroys a core Islamic value on the way to its avowed objective.[3]
Concluding Remarks
The combined effect of both the ailments analyzed above, violence and complexes, is to divert our attention, energy and resources from the real tasks. One of these tasks about which there is unanimity is education—starting from a literacy drive in our people about half of which are still illiterate. Our educational agenda would comprise imparting revelation based knowledge as well as science and technology. But our complexes are a stumbling block in the way of reform of curricula. We lack the humility that is necessary for learning. At the same time we lack the self-confidence to make new experiments. Our complexes make us averse to innovation and change, especially those that we perceive to be equating us with others and reducing the differences. Among the other areas calling for immediate attention are health and hygiene and economic enterprise. Recent emergence of Islamic financial institutions provides hope for improvement in Muslim economy. But further progress requires normal market relations undisturbed by violence. Then come the attitudinal reorientations called for by the new environment—the fact that we are living in a global village. Exclusiveness and the tendency to create our own separate space are out. In is the wholehearted sharing of God-given space with all human beings on the basis of freedom, equality, mutual respect and human rights. That provides a unique opportunity for the Islamic mission of carrying God’s message to His people, the ultimate end of those who care for nothing other than Allah’s pleasure.
Neither the American-led aggressive expeditions nor the menace of terrorism is destined to last forever. Both may already have crossed their zenith. The time is coming when the perpetrators of these wrongs will have completely lost public support. We need do all we can to expedite the change and create an environment in which Islam gets an unbiased reception. Much will depend on how we Muslims conduct ourselves. Before we can endear ourselves to others we will have to clean up our own house and put it in order. An emphasis on equality, doing things democratically and insisting on transparency in all our institutions can take us part of the way on the road to launching a comprehensive program of action encompassing education, economy, political reform and conducting ourselves in the global village with self confidence and dignity.
[1] I have addressed that issue in my paper ‘Towards Regeneration: Shifting Priorities in Islamic Movement’ Encounters, Leicester, vol. 1, no.2, September 1995.Also included in: Nature and Characteristics of Modern Islamic Movements, edited by Muhammad Mumtaz Ali, and published by A S Noordeen, Kuala Lumpur, 2000.
[2]. .I have dealt with this issue at greater length in my paper ‘ Violence and Muslims’ in the American Journal of Islamic Social Sciences ,vol.21,no. 2,Spring 2004,pp.137-43.
[3] Please read Syed Qutb’s ‘Fi Zilal al-Quran, related to verse 3:159..Core procedures take precedence over consequences
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
Keynote Address, May 26-27, 2004, Jeddah, Saudi Arabia.
آدرس کلیدی، 26-27 مه، 2004، جده، عربستان سعودی است.
Keynote Address by Mohammad Nejatullah Siddiqi (mnsiddiqi@hotmail.com)
Round table on: Islamic Economics: Current State of Knowledge and Development of the Discipline
Held at Jeddah, Saudi Arabia on May 26-27, 2004, under joint auspices of the Islamic Research and Training Institute, Jeddah and the Arab Planning Institute, Kuwait.
Mr. President, Ladies and Gentlemen!
I begin by placing on record my appreciation of the very idea of holding this round table. I congratulate those who conceived the idea as well as those who worked to make it a reality. Thanks to their efforts here are some of the select few in the field devoting themselves to a stock taking of the past and to framing an agenda for the future.
Without wasting your time in preliminaries or pleasantries I plunge directly into the subject. My observations are divided, broadly speaking, into two parts: First I indicate what went wrong so that everybody is feeling the discipline of Islamic economics is, lately at least, not making the progress we expected it to make. Then I proceed to the second part of my deliberations, on what needs to be done.
What Went Wrong With Islamic Economics
Exercises in Islamic economics have been too much focused on fiqh. Whether it was the behavior of the economic agents such as the consumer or the entrepreneur, or the functioning of social institutions such as property or money, scholars sifted the vast treasure of Islamic jurisprudence for an answer to what ought to be….They did the same when asked to define the role of public authority vis a vis the economy involving such issues as taxation and public borrowing. From microeconomics to macroeconomics, management of money to public finances, in each field we worked to derive rules from fiqh. We did the same when confronted with such novel fields as economic development and international economic relations. The rules of conduct and policies devised by wise men of Islam to implement the guidance of Allah in certain specific situations were treated as the guidance from Allah applicable to all situations.
It can easily be seen that such an approach suffers from severe limitations. This applies with greater force in affairs of life most influenced by changing conditions of living. Technology is only one of these conditions. Equally important are population and other demographic factors. The accumulation of knowledge about the environment as well as about the self, as time passes and scientific progress takes place, is no less important. Also important are the changes in human perceptions and aspirations that take place as a result of historical experiences. It so happens that our social relations, especially economic relations, are the most affected by these developments. Even the behavior of economic agents cannot but be greatly influenced by these changes.
There are, broadly speaking, three ways in which fiqh rules relating to such matters as behavior of the consumer or conduct of a trader or the functions of the market inspector( muhtasib),etc. are formulated. We have either a text directly applicable to an issue or the issue is amenable to analogical reasoning on the basis of a text. The third way acceptable to some schools of Islamic Law if not all, is to look at the maslaha (benefit) intended or the darurah ( necessity) involved and issue a decree in response to them. The text itself may be a verse in the Quran or something reported from the Prophet (peace be upon him), a hadeeth.
The verses of the Quran directly related to the economy are few, and most of them, as we shall see subsequently, are laying down values and norms rather than laws or even rules of conduct. Most of the specific fiqh rules relating to economic transactions are based on hadeeth. But one cannot, despite recognizing the divinely inspired nature of the Prophetic rulings, accord hadeeth the same status in matters economic as one does to the Quran. There are a number of important reasons for this. The first relates to authenticity. Whereas authenticity of the Quranic text is guaranteed by Allah, the authenticity of a report about the Prophet has to be ascertained before it is accepted as such. Secondly, a reported ruling of the Prophet must be seen in the context in which it is issued, before it can be decided whether to generalize and apply it to everyone, every where, all the time. Lastly, all rulings of the Prophet are for realizing the objectives of Islam, the maqasid al- Shari ‘ah. When circumstances change it has to be ascertained whether the original ruling serves the purpose or needs modification. To one who may think this last is no different from the previous one, it can be pointed out that the latter entails modification in what was in fact intended by the Prophet to be general, as evidenced by some policy decisions of the second caliph, Umar ibn e Khattab, to be noted later.
It seems the great jurists were themselves fully aware of these limitation of their work, especially when it came to matters economic. This is evidenced by their reference to ‘urf and ‘aadah, conventions and customs, that change not only over time but across space too. Thus, Imam Shaf ‘i changed his fatwa on some issues when he moved from Baghdad to Cairo, referring to these differences. In a similar vein, we find some jurists claiming that the situation confronting them was a novel one, having never arisen earlier. They then proceeded to give a fatwa never heard before. One such example is Imam al Haramain al Juwaini (d.478 H/1085CE). He legitimized the ruler levying taxes on the wealthy, over and above zakat. One of the justification cited was threat to the security of the country and lack of financial resources required for meeting it. It is, therefore safe to conclude that a finite body of rules framed over the earlier centuries of Islam to enable Muslims live as Allah wanted them to live could not be used to derive from them general rules applicable in later times without first checking their background in socioeconomic conditions, etc. But the fact is many of us proceeded to do precisely that. That some went beyond and tried to apply the rules themselves to situations entirely different from those in which they were framed is also true. And that makes our task more complicated.
Even those of us who showed an awareness of the need to complement the fiqhi approach by the maqasid approach in order to deliver a meaningful agenda for economic development in modern circumstances, failed to deliver, generally speaking. Having rightly proclaimed elimination of poverty and reduction of inequality to be objectives of Shari ‘ah, they felt constrained by fiqh when it came to the means to these goals. Macroeconomics as developed in Islamic framework is largely affected by this crippling deficiency. Worse still, with the passage of time the constraining influence of the detailed rules and regulations of fiqh seems to have all but extinguished the spark of maqasid-inspired thinking. One has only to compare the emphasis on poverty elimination and inequality reduction in the early Islamic economic literature with the almost total neglect of these subjects during the recent years to feel the change.
Recourse to Maqasid al Shariyah
As a matter of fact even those who frequently made recourse to maqasid al-Shari ‘ah got trapped into the classical treatment of maqasid. At the time it was launched it was a remarkable achievement. To have shown that the various ahkam (laws, rules, regulations) were not disparate pieces but an integrated body designed by the Lawgiver to enhance human weal was a great step forward in understanding. It paved the way for ijtihad in new circumstances not covered by earlier rulings. It also indicated what to do when an old ruling becomes counter productive and must be abandoned in the overall interest of the system. But, with all praises, it is dated. It was a fruit of human intellect between 5th and 8th centuries after Hijrah (11th to 14th CE). To expect it to serve with the same efficacy after six more centuries is to expect too much.
The classical treatment, largely by Ghazali ( d. 505H/ 1111 CE ) and Shatibi ( d.790 H/1388 CE) put the maqasid into the strait jacket of the so called five necessities (daruriyat khamsa ):life, religion, progeny, reason and property. These five were graded into three levels of realization: essential, needed and contributing to perfection or completion (daruri, haji and tahsini or takmili ). But, as Ibne Taymiyah ( d.728 H/1328 CE) pointed out, it was a one sided treatment:
‘Some confine masalih mursalah to protection of life, property, honor, reason and religion. But that is not correct. Masalih mursalah require us to acquire benefits and keep harm away. The protection of the things listed by these people relates to only one of the two kinds of masalih mursalah. The other kind involves realization of positive benefits, in worldly matters as well as in religion’.( Ibn e Taymiyah, 1983,vols 4/5, pp.174-75 )
That maqasid al Shari ‘ah could not be confined only to protection (hifz), preserving what people had or saving them from harm, rather they must include broader measures ensuring welfare was asserted by Ibn e Qayyim (d. 751 H/1350 CE), who emphasized justice and equity. Furthermore, he insisted that the means to justice and equity could never be captured by a finite list. Reason will guide us how to ensure justice and equity in changing circumstances.( Ibn e Qayyim, n.d, vol. 4 pp.309-11 ). Izzuddin Ibn Abdussalam (d. 660 H/1262 CE) preceded these scholars in noting that ‘Most of the benefits and harms in this world are recognizable by intellect. This applies to many shari ‘ah rules too.’ ( Izzuddin Ibn Abdussalam, 1934, p.4 ).
It can clearly be seen that the more one is focused on the second of the two functions of study of maqasid, i.e. their being a help in new ijtihad, the more the importance of the points noted above.
The classical treatment was a wonderful, though one sided, scheme for a systematic study of the corpus of Islamic jurisprudence existing by that time. Also of some help into extrapolating it into new but near situations. But you could not make a social science out of it in the closing years of the twentieth century. One was, at the least, expected to expand the classical list by paying heed to the points noted above. As a matter of fact recent works on the subject, like those by Allal al Fasi and Ibn Aashoor, insisted on the primacy of justice and equity in any list of maqasid.( al Fasi, 1963 ; Ibn Aashoor,1366 H )
Unfortunately this did not attract the attention of those who were trying to model the behavior of economic agents like the consumer, the producer, etc., in the light of Islamic jurisprudence. Some who proceeded to postulate consumer behavior in Islam in the light of the classical scheme arrogated to themselves the right to decide what was daruri (necessary) and what was not for a Muslim living in modern times. Those who attempted to set profit margins acceptable in Islam on the basis of opinions rooted in the social reality of an agricultural society a thousand year ago unnecessarily constrained themselves by things human in place of going straight for the divine. Examples abound.
The malaise was not confined to behavioral issues only. Fiscal policy and gender relations too remained chained to a socioeconomic reality long extinct. Ideas like Jiziyah being projected in Islamic public finance as a permanent source of income or women being confined within the four walls of their homes could find their way in a twenty first century vision of Islamic living only when little attention was paid to the objectives of Shari ‘ah correctly understood.
There is also a need to distinguish between the objectives of Islam as a way of life and the objectives of Islamic Law. The former involves aspects of personality and society the latter does not cover. Also, the former has a larger box of tools than available to the latter. Envisioning Islamic economy in twenty-first century is better done with reference to goals of Islam as a way of life rather than being done with reference to the goals of Islamic Law. This will enable us to handle issues like poverty and inequality that a Law-based approach has failed to handle.
Understanding maqasid
How are the maqasid to be understood today so as to serve the twin purposes of making sense of the existing corpus of Islamic laws and making fresh ijtihad? I would suggest we have to make a fresh start and not just attempt a pooling together of past wisdom. The starting point should be the Text. Begin with the Quran and see what values and ends are required or desired. As Shatibi has rightly observed these are, almost all of them, to be found in the Makkan chapters of the Quran (Al-Shatibi, n.d., vol.3, p.165). Confining ourselves to those relating to economics, the following objectives can be noted: Sustenance for all, dignity, security, justice and equity, freedom of choice, moderation and balance, peace and progress, reduction of inequality in the distribution of income and wealth……
Then we take up the example of the Prophet, peace be upon him. How he conducted himself as a consumer, as head of a household, a producer of wealth through trade, as head of state looking after the welfare of his people by guiding them in their economic activities, supervising and sometimes regulating their market, managing public property, etc., etc. These, the Sunnah, are best understood as conduct and policy directed at realization of the objectives and values in the Quran , some of which we have noted above.
The next thing to focus on is the contemporary reality, the current environment. Is there sustenance for all, and dignity, and…and? How to realize the Islamic values and achieve the Islamic ends in economic life in our times? That is the question we have to answer. It is in answering this question that we consult fiqh. It is a great help, an indispensable source, but not the only one. When it comes to identifying the appropriate means for realization of a certain end, current state of human knowledge and technology may have things to offer no old treasure possibly could.
It is not the purpose of this paper to go further and deeper into the how of answering the above question. That is a big task and must be taken up separately. My immediate concern is to point out that what transpired during the last half century was not always in the sequence indicated above. For many if not most of the scholars fiqh came first and the contemporary reality came next. They sought to lay down how the rules and regulations detailed in our fiqh compendiums are to be implemented here and now. That by doing so the values and ends enshrined in the Text would be realized even in the contemporary conditions was taken for granted. It was an article of faith. In other words, it was assumed that maqasid al- Shari ‘ah could be realized in today’s environment by putting into practice all the rules of personal conduct and public policy that are there in the books we inherited from our glorious past. The task our scholars defined for themselves was, therefore, to find out what was there in these books, and what would be the mechanics of implementing it.
To be honest, these were no ordinary tasks. We have too many books, belonging to different schools of fiqh. It often required not only lot of labor but great ingenuity to cull out a single piece capable of securing universal acceptance. That can easily be discerned by going through the proceedings of various fiqh councils and research seminars during the last fifty years. Great credit goes to these scholars. No less stupendous was the task of creating artifacts and inventing vehicles for real life practice of what the books handed down. Earlier pioneered by certain individuals, that is the task the Shari ‘ah Boards of Islamic financial institutions have been performing lately. We must recognize their services in making the practice of an unconventional way of banking and finance a universal reality.
The reason we have this round table today is that nobody is satisfied by that much of achievement. If it is the goals of Shari ‘ah we want to realize, we still have a long way to go. And more important than that, the road we are traveling on is not the one to take us there. We may implement all the rules and regulations relating to the economy in our books and still find ourselves far from being near our goals. The reasons are very simple. Keeping in view the objectives of Shari ‘ah related to economic life, appropriate means have to be discovered/invented after a careful understanding of today’s environment. They could not have been there in our books because today’s environment is so different from the environment in which these books were written.
I cannot go on like this for long due to the obvious time constraints. It is therefore time to refer back to the document circulated before this Round Table. I wish to address the two questions posed on page 5 of that document.
Do we need a distinct theory?
If so, what is constraining their development and how to remove those constraints?
Need for a distinct economic theory
Economic theory as we know it today has three features that concern me in today’s discussion. Firstly, it is focused on the individual, society or community appears as a mere aggregate, having no independent significance. Secondly, the individual is motivated by self-interest and focused on private gain. Thirdly, maximization is the norm in this individual pursuit of profit in enterprise/satisfaction in consumption. For the last three hundred years this has been the paradigm for economics as well as the economy. There is no doubt that it has spurred unprecedented developments in both, the ‘science’ of economics as well as the economy itself. However, the immense progress made in the production of wealth has been accompanied by increasing inequality in the distribution of income and wealth and a rise in relative poverty, within nations as well as between nations. The paradigm has also been responsible for imperialism, colonialism and, their most recent form, superpower hegemony. Peace has been lost, crime and corruption are rampant and levels of anxiety are high, even in the rich countries. Even the main beneficiaries of progress, the rich, complain of stress and insecurity. Neither family nor community could escape the chilling indifference of the existing paradigm. Nobody seems satisfied with the current state of the world.
I submit that all the three features of the conventional economics are unacceptable. They do not represent the reality of human existence and they are not how Islam looks at the matter. I do not reject them entirely, for each one of them has some element of truth. But they need modifications resulting in an entirely new paradigm. Here is how I would put the matter:
There is no individual without society. Not only that it takes two individuals to bring one into existence and raise him/her to be characterized as an individual, even this three-some can hardly survive without a community. So the first modification called for is to view the individual as a member of society. This amounts to introduction of social good or public interest in the model at the very outset. Secondly, care for others tempers self interest. Pursuit of private gain must avoid harming others. There is also the possibility of helping others. Both remain in focus without endangering survival of the individual decision maker in which case the desirability of helping others becomes ineffectual. Lastly, maximization of private gain is constrained by the demands of the above: serving public interest, avoiding harm (including environmental damage) and helping others. In other words, maximization is largely replaced by balancing of various interests: the self, the society and the physical environment. I think this modified version approximates the reality of human existence better than the conventional one depicted earlier. I also find it to be in harmony with the Islamic vision of life.
One may well remark that some of these can be discerned at the policy making level even in conventional economies. But the important point is that for Islamic economics these are core considerations. They must inform theory as well as practice. An economic theory that whittles down self interest at the very outset and saddles it with care for others, introducing public interest (including the future generations) and defines as the goal of the economy not higher and higher GDP but balanced growth with equitable distribution, will be very different from the one we have. It will certainly be distinct, though not entirely different.
I will now take up the second of the two questions posed on page 5 of the conference document: What constrains the development of distinct theory. There are two main factors constraining the development of a distinct theory of economics at the hands of the Islamic economists. The first relates to an understanding of the contemporary reality, the second relates to a faulty approach to the shari ‘ah sources. Both constraints reinforce one another resulting in a logjam in our thinking, so to speak
It is very difficult to elaborate on the first point in a short presentation. Everyone will agree that the ground reality in human economy is very different today than it was during the first four centuries of Islamic history, by which time the codification of shari ‘ah law was almost complete. But the agreement hardly goes beyond this generality. Cite any specific change and you will be confronted with a battery of citations relating the new to the old. So, nothing is entirely new and the old rules can somehow accommodate the newest eventualities! Recourse to the goals and a role for intellect in devising suitable new means for realization of these goals remains, therefore, in abeyance.
The price paid for this ‘conservative’ stance is immense. In a world in which pockets of absolute poverty still exist, a world in which some countries are poorer today than they were in the past, and where increasing inequality within nations as well as between nations threatens civilization as never before, Islamic economics fails to focus on the one issue which has always been the focus of the Prophetic Message: Justice and Equity. As I argued in the earlier parts of my presentation, primacy of rules and regulations over goals and objectives is largely to blame.
That was macroeconomics. Islamic microeconomics has also suffered from a timidity born from the fear of losing one’s moorings once the cozy assumptions of self-interest coupled with maximization are relaxed. The sciences of mathematics, statistics, and econometrics as of now do not offer the balancing individual (or the balancing policy-maker) the kind of sophisticated tools they offer to one maximizing an easily measurable variable like dollars. The acts of caring about others, serving the social interest while protecting one’s own, and avoiding doing any harm to man, animal or the physical environment are not a rarity. They have never been, as evidenced by our folklores, other art forms and history. But they are not the current subjects of research in economics and the tools of research in our discipline do not suit them. Even Islamic economists failed to come up with historical evidence and current empirical data on that kind of behavior, with some notable exceptions. Core Islamic concepts related to microeconomic behavior like israf, tabzeer, i‘tidal, samaha, naseeha, rifq and ihsan were rarely the subjects of textual, linguistic, exegetical, historical and empirical research even in the universities with departments of Islamic Economics. This kind of research is, however, a must for delineating the evolutionary and dynamic nature of these concepts, something often lost in the dense fog of dated fiqh rules that are diverse and full of differences. The importance of these moral concepts lies in their closeness to the objectives of shari ‘ah as compared to the rules that may have been made for their realization in a particular cultural milieu at a particular time and place. One who puts these concepts aside in favor of any set of rules runs the risk of losing the way to the goal of fairness flavored with generosity. As already pointed out in the earlier part of this presentation, many of us seem to have committed this mistake.
Let me emphasize that it is not merely a case of ‘variation in values’ or in ‘rules of behavior’ –the view ascribed to a group of Islamic economists as noted on page 4 of the conference document. A departure from maximization and from focus on private gain as well as from focusing on the individual, ignoring the social dimension, changes the paradigm. The fact that Islamic economists have so far failed to rewrite the theories of consumer behavior or that of the firm owes itself to insufficient historical and empirical research coupled with the inability to devise analytical tools suited to the study of morally informed behavior and the quest for balance between competing claims. These deficiencies themselves, i.e. lack of appropriate research and dearth of suitable tools, are caused by our misconceptions about the nature of Islamic economics.
Islam is primarily about a spiritual view of life and a moral approach to life’s problems, including the economic problem. The contentment Islam promised man[1] is rooted in this spiritual and moral framework. Islamic economics in an anxiety-ridden world bereft of peace and tranquility owes it to itself to project this dimension above other dimensions. But most of us have been busy competing with conventional economics on its own terms, demonstrating how Islam favors creation of more wealth, etc. We have had enough of that. It is time to demonstrate how modern man can live a peaceful, satisfying life by shifting to the Islamic paradigm that values human relations above material possessions.
Institutional research
Let us now turn to some other aspects of the problem in hand. The conference document points out the need of focusing on certain institutions common to almost all contemporary Muslim countries and communities, e.g. Zakat, Waqf and Islamic financial institutions (like banks, investment companies and insurance companies working according to shari ‘ah rules). Apart from the obvious need for separately subjecting these to detailed studies, there is a need for an integrated view. Could they taken together be the harbingers of a new approach to welfare as well as finance, an approach that eludes the conventional system because the two, welfare and finance, find themselves in opposite camps, sometime hostile to one another. A financial system eagerly guarding its independence from state regulations (oriented towards certain social goals) and claiming rights to access all corners of the global village without admitting any responsibility for welfare of the peoples involved has become a major headache for mankind. Welfare activities of modern states serve at best as palliatives, and that too within the national boundaries. The system for taking care of the poor among nations improvised in the wake of Breton Woods arrangements seems to be collapsing under the strong currents of globalization. Could an integrated view of zakat, waqf and Islamic financial institutions indicate a new way to link the poor, the rich and the profit-making middlemen to serve society better? It must be noted at this juncture that Islamic economics views finance as subservient to exchange (of real goods and services), rather than the other way round as it appears to one watching the current state of affairs. I notice a great opportunity here.
This brings me to another point I wish to make. Islamic economics needs to come closer to the peoples in general and the Muslim peoples in particular. Its focus must be what concerns people most, not what appears to be more important in theory. This should cause no qualms even to the purists as the former would lead to the latter in due course, if the theory is well conceived. If it is unemployment and, therefore, lack of purchasing power that is troubling someone it makes little sense to subject him or her to a lecture on zakat or interest free banking. Unfortunately that is exactly what we have been doing. No wonder the audience is losing interest.
Islamic economics has done a great service by providing Muslims with a way to do banking, investment and insurance without involving riba/interest. In doing so they might well have presented to mankind an alternative to conventional finance that instead of serving production, exchange and distribution of wealth seems to have made them subservient to finance. That was the achievement of Islamic economics in seventies through nineties of the last century. But before that it had done a job that can be rated even higher. Islamic economics during the forties through sixties of the twentieth century performed the unique service of weaning away the Muslim masses from the lure of socialism and capitalism and restored in their elite the confidence that their economic problems could be solved within the framework of Islamic teachings. But every age brings new challenges. With these two achievements to our credit we must proceed further to meet the yet unsolved problems of poverty, inequality, hegemony and anxiety, convinced that nothing short of a new approach to economics will do the job.
I cannot close without addressing an issue bothering the sponsors of this Round Table. As articulated on page 2 of the conference document, ‘Islamic banks took their own course which caused frustration’ to Islamic economists. ‘They do not see a direct relationship in this development and the claim that Islamic economics promises a paradigm to give a better economic future to mankind’. That sentiment is widely shared.
Modern finance tends to develop as an independent activity, complete with its objectives and methods, orchestrated by a distinct set of players. It is undoubtedly part of the economy but it does not necessarily share the goals of the economy. True to the conventional paradigm, its objective is to maximize profits. Thanks to the stock exchange and financial engineering and numerous innovations, modern finance has evolved methods to pursue its objectives with little regard for the over-all goals of the society. I suspect what is happening to Islamic finance is part of that game. We can hardly wish it away without changing the paradigm.
I also suspect that part of the reason for the alienation from Islamic economics comes from the way jurists function. Their dependence on fiqh details and the inhibition they feel in going directly to maqasid has led them into some kind of financial engineering. As in case of modern finance, financial engineering is bound to be very different from social engineering. Financial engineering is not inspired by social goals. It is propelled by financial goals—monetary gains. One has to be fully cognizant of the social importance of finance to feel the need of subjecting it to social considerations. I am not sure those without a deep knowledge of modern financial environment posses that virtue—our jurists included.
So, where do we go from here? Be faithful to the Islamic paradigm and work hard to launch it worldwide, is my answer.
References
‘Allal al-Fasi (1963) Maqasid al-Shari ‘at al-Islamiyah wa Makarimuha,Maktabah al-Wahdat al-‘Arabiyah, Al-Dar al-Baida’
Al-Shatibi, Abu Ishaq (n.d) Al-Muwafaqat fi Usul al-Shari ‘ah,Cairo
Ibn e Aashoor, Mohammad al-Taher,(1366) Maqasid al-Shari ‘at al-Islamiyah, Tunis
Ibn e Tyamiyah, Taqiuddin Ahmad (1983) Majmu ‘at al- Rasa’il wa’l Masai’l, Beirut
Izzuddin Ibn e Abdussalam (1934) Qawa‘d al-Ahkam fi Masalih al-Anam, Maktabah Husainiyah,Cairo.
[1] Refer to Quran, 16:97;16:112;and 89:27 for example.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
Obstacles to Islamic Economics Research: April 2008, KAAU, Jeddah, Saudi Arabia
موانع پژوهشي اقتصاد اسلامي : آوريل 2008 ، KAAU، جده، عربستان سعودي
OBSTACLES TO ISLAMIC ECONOMICS RESEARCH
Seventh International Conference on Islamic Economics, Islamic Economics Research Center, KAAU, Jeddah, April 1-3,2008
(Mohammad Nejatullah Siddiqi mnsiddiqi@hotmail.com)
This paper emphasizes six factors as main obstacles to progress in research in Islamic Economics. They are: Lack of proper historical studies; Lack of relevant empirical studies; Lack of adequate institutional support; Non-observance of ethical norms relating to research and publications; Poor vision of Islamic society and economy that fails to distinguish between the essential and the peripheral, and, last but not the least; Failure to distinguish between the divine and the human in the Islamic heritage. In what follows we discuss each one of these, with the existing Islamic economics literature in mind. We then suggest possible ways of removing these obstacles to further progress in Islamic economics research. wa billah al-tawfiq
INTRODUCTION
Before we launch our enquiry it is appropriate to ask ourselves the question: Why are we doing it? All is not well with Islamic economic research. The enthusiasm of the early decades has gone. The surge in enrolment in Islamic economics courses, especially at the post- graduate level, observed during the eighties of the last century, has all but subsided. In its place we have kids looking for appropriate qualifications in “Islamic Finance”, and sprouting of institutions offering such courses “on line,” to meet the growing needs of the ‘industry’. Nothing bad. No regrets. The question is, what about the grand idea of providing an alternative to capitalism and socialism, that is informed by moral purpose and inspired by a spiritual vision. Has it yielded to a desire to join the flock at its own terms? I suspect it is so, and that this is rooted, among other things, in the change of times. In the sixties and seventies of twentieth century the world of Islam was abuzz with all things Islamic: education, society and state. Currently, in the first decade if the twenty-first century, there is a collapse of grand agendas leaving a pathetic scenario in which everything is in a flux: education, society, state. As I proceed to discus the micro-causes of decline in Islamic economic research, I beseech you not to lose sight of the macro- framework in which the future would unfold it self. The grand Islamic agenda launched in the early decades of twentieth century has been pushed back due to its own shortcomings.
Lack of a sense of History
Islamic economics, insofar as its normative aspect is concerned, is based on divine guidance revealed in the seventh century Arabia to a desert people who later carried it to the fertile valleys in the north, west and east, and then across the mountains and beyond the oceans. People of all hues and colors, speaking different languages, and cherishing different traditions rooted in each people’s unique past, tried to live that guidance. Trying to do the same in the twenty-first century in a globalising world, we need to know everything about these trials before we can draw a plan of action.
That is where we failed. The source of most of the economics projected as Islamic has been fiqh, which is largely based on the historical experiences of the first four centuries, mostly in what we now call the Middle East and North Africa. Historical experiences over the next thousand years, especially those in India and South-East Asia, Turkey and Iran have neither been studied properly nor allowed full impact on fiqh. Among the very few attempts to sift through Islamic history for knowing more about such institutions and practices as waqf, zakat, mudaraba, suftajah, and such concepts as israf, infaq, etc.[1], the sources covered are all in Arabic and from one particular region. This has deprived us of the variety of interpretation and diversity of experience in living according to Quran and Sunnah. Economic history of Muslim peoples is a very thinly researched area, and so is the economic thought of Muslims. This can hardly do, as living according to norms and concepts handed down centuries ago is a challenging task, especially in economic affairs. It would be some help to know how Muslims responded to technological changes, expanding markets and new sources of energy over the centuries. As it stands, most of Islamic economic literature treated Islamic norms and concepts relevant for man’s economic life to be above time and place, unaffected by increasing populations, urbanization, rising incomes, increasing trade and commerce, innovative ways of handling money and foreign exchange and faster means of transport and communication. That is unacceptable as even during the first few centuries of Islam, which did not witness any revolutionary change in sources of energy or technology, we have some variety of interpretation and diversity of practice. What we need is a closer look at what was going on in different regions at different times. That requires sifting through all available historical records, supplementing these by a study of stories (qisas, poetry and travelogues, court records, etc. This has to be done for all regions under Muslims, covering all the languages spoken by them and through all the 15 centuries that have passed between now and the days of divine revelation.
Let us have it straight, history, even of Muslim peoples, is not a source of guidance for us. Divine guidance inheres only in Quran and Sunnanh of the Prophet, peace be upon him. We invoke history for the purpose Quran has recommended it to us: as ibar .[2] There are lessons to be learnt, warnings to be heeded. We run a great risk in ignoring history. Knowledge of history may save us from repeating mistakes and encourage us onto following into footsteps of those who succeeded.
A greater risk inheres in focusing on only part of Islamic history and ignoring the rest. This elevates a particular history to a status it cannot claim and does not deserve. By committing this mistake we run the risk of alienating parts of humanity for no fault of theirs.’
Being Realistic: Feel of the Ground under your Feet
We know very little about contemporary Muslim economic behavior. There is lot of work on what Muslims should be doing as consumers, producers, employers, traders and managers. But what they actually do, and whether it is any different from what others are doing in similar situations, we hardly ever investigated. The same applies to our distinctive institutions like awqaf, zakat funds, even Islamic financial institutions. The question: What to do if and when a Muslim behaves differently from the way he or she should behave cannot be addressed without knowing what actual Muslim behavior is. Similarly we need to know whether our institutions are actually playing the role claimed for them in Islamic economic literature. Lack of adequate attention to finding out the actual state of Muslim individuals and institutions, needs some explanation. It will be too much to assume that we do not care, that all we care about is announcing what the desired model is. This cannot be true as the whole thing about Islamic economics is an offshoot of the movement towards Islamic living that the second and third decades of the last century witnessed. In other words Islamic Economics is not an academic exercise (no economics ever was). It is an offshoot of the Islamic Movement. So it must be caring about change, change from the current behavior and institutional structures to those in accordance with Islamic norms. But can we do so without first knowing what the state of Muslim individual and of Muslim institutions is, and why?
We claim a Muslim would behave ethically. That there are higher spiritual horizons he or she is looking at in the conduct of business. But how far they do so, and what explains the discrepancy? Does the fault always lie with human perfidy? Or, someone may have overshot in defining the norms and developing the concepts. There is also the problem that inheres is comparing today’s Muslims with the idealized image of Muslims during the days of the Prophet and the caliphs. The present we know and observe, but the past is partly a mental construct. The reports that form the basis for that construction are neither exhaustive nor all authentic. But their romantic spell is capable of clouding judgment and suppressing rational evaluation.
I suspect that is what happened, especially with regard to the period immediately following the Prophet. It might have been found to be prudent to underplay departures from Islamic norms as perceived. But that dilutes the didactic value of history as honest recording of facts.
A final verdict must await fresh research. Meanwhile it will do no harm to know the current state of affairs thoroughly. That needs being done with regards to individual behavior in all aspects relevant to economics. It needs being done for all regions and ethnic groups in matters where geography may matter. For comparison we need studies of non-Muslim behavior too, as we want to know impact of Islam, if any. The same has to be done about institutions like family, bazaar, and inter-Islamic trade as well as uniquely Muslim institutions like inheritance, the Hajj ,waqf and zakat .
If there is one lesson to be learnt from the collapse of the socialist agenda and demise of Soviet Russia during the short span of less than a century, it is that one must feel the ground underneath one’s feet before launching on a grand march to the ideal. Before one dreams of successes to come, there may be lessons to learn from past and current failures. This is especially true of priorities. What is to be done incase the peoples’ own concerns are widely different from priorities in the agenda of the reformers? Shall the reformers readjust to ground realities or persist with their own sequencing?
Consider the current focus of Islamic economists on Islamic finance and dearth of Islamic economic literature on poverty removal, inequality and development. Among the billion plus Muslims of the world, how many are bothered about banking and finance? How many of the over six billion inhabiting the planet care about Islamic finance, considering the fact that Islamic economics is for all?
Research Needs Money
Modern research needs lots of resources. Whether it is historical studies of the kind indicated above or empirical studies of the type we were talking about in the previous paragraphs, they both require large teams making sustained efforts over long periods of time. Their findings have no industrial application, so the market is not going to finance them. The costs of these public goods have to be borne by the Muslim society. If the record of the last forty years is an indicator (in which very few Muslim governments assigned any resources for these tasks, and the assignments have been too meager to deserve any mention), Muslim governments would not be funding the type of fundamental researches outlined above. Most of the contemporary regimes in the Islamic world that have resources to spare are happy with the status quo. Whatever the perceived tension between that status quo and the popular construct of Islamic history, it is well contained and poses no threat to the status quo. But the same cannot be true about the outcome of new probes into the past with a new set of questions in mind.
Most of the research output in Islamic economics so far owes itself to private charity and/or dedication of the researchers themselves. Happily the financial resources of the private sector are destined to grow with the passage of time. More and more wealth is likely to be created by human ingenuity and the relative share of scarce resources such as petroleum is destined to decline. While one should continue pressurizing governments, especially those in democratic countries, for allocating funds for historical and empirical research, current hope lies in persuading the voluntary sector to change its priorities from doing more of the same to exploring new directions. One ground for persuasion is the failure of the old to inspire fresh positive thinking and produce new agenda for reconstruction of the ummah. As things stand now, all new energy of Islamic activists seems to be destined for destroying what is perceived to be un-Islamic, with no clear vision of what to replace it with. It is precisely for recovering such a vision that fresh fundamental research in the past and a new understanding of the present is needed. Those who care for the destiny of the ummah and that of humanity, and there are many, would be willing to open their purses without expecting any material returns to themselves. The important thing is to impress on our people that the stakes are very high. Unless the ummah is given a new direction that is credibly rooted in the past, convincingly realistic regarding the present and reasonably confident about building a better future, an avalanche of crises may sweep away many a promising career.
Resources, to the extent available, need to be spent judiciously. It is not advisable to house all research under one roof or in one country, even in one region. It must also be multi lingual. Universities, autonomous institutes and associations like the International Association for Islamic Economics should all partake in this enterprise. A role awaits the publishing industry too, by way of patronizing young scholars and providing them with initial impetus. No less important is need for the media, including the mimbar, to orchestrate the new priorities so they are accepted by the ummah as a whole
Rights Protection
Plagiarism is an endemic disease afflicting scholarship. But does it pose a threat to proper development of Islamic economic scholarship? Frankly speaking, I don’t know. There are indicators, however that it is assuming bothersome proportions. There have been complaints on ibf net, the popular Islamic economic discussion forum in English. Some senior teachers and authors have also told me the same about research and publications in the Arabic language.
It will take time and efforts to root out the evil. Teachers and publishers have special responsibility, but peer review and vigilance must also play its role more effectively. But will they? We have some notions about knowledge being for the benefit of all, any proprietary claims to new ideas being essentially bad, un-Islamic. Besides being baseless in law and morality, such notions totally ignore the way new facts are discovered, fresh ideas originate, and new knowledge germinates and flourishes in a society. Original research in modern times demands life-long dedication. Each small brick laid could be the basis on which further edifice may rest. Unless it is secured in the name of the originator, and brings him or her any recognition and/or rewards society thinks fit for awarding, there would be no incentive for follow up work. It is in society’s interest to protect the rights of researchers, authors and publishers from plagiarism and piracy so that the flow of scientific research continues unabated. This social protection does not depend on law alone. More than legal provisions, it needs, first of all, to be clearly recognized as the norm. No one, neither a student nor an author has a right to lift even a sentence or two from any author’s work and present it as his or her own, without reference to the source and proper acknowledgement.
Cheating in scholarship is worse than robbing someone of material possessions. Plagiarism, unlike robbery, harms society much more than it hurts the victim. Taking it lightly is like allowing quakes to wear the mantle of physicians. The intellectual health of a society that fails to prevent it will be at grave risk.
The Essential and the Peripheral
Islam is for all times and all places, and so are its teachings that are relevant for the economic life of man. It was, however, revealed in seventh century Arabia. The time and place in which the Prophet, peace be upon him, gave Islam’s first concrete exemplification was bound to have its stamp on that example. But what was local and specific to those times cannot form part of the universal and eternal Islam. We who are engaged in living Islamically in the twenty-first century in a globalising world have the responsibility of sifting the eternal and the universal for implementation now and here, implementation that is bound to bear the stamp of a changed locale in a changed time. While all Muslims share this responsibility, and have to partake in its discharge, each according to his or her capacity, Muslim economists and social scientists have special responsibility. Having a better understanding of the changes that have occurred since the early centuries of Islam, and the features that distinguish modern living conditions from living in those times, they can identify the eternal and the universal, fit for adaptation and implementation.
The record of Islamic economic research so far has not been very promising. Islamic economists hardly did any better than those without any learning of social dynamics, specializing only in traditional Islamic sciences developed more than a thousand years ago. Hopes of getting better results by bringing the two expertise together by housing them in the same institution and/or seating them around the same conference table have not been very encouraging.[3] The result is a kind of intellectual paralysis. What is worse is the exploitation of this situation by a section of the market to offer conventional goods in superficial Islamic wrappings in the name of Islam.
It will take going into very many details fully to substantiate the above. I do not think it is necessary, even proper, to attempt doing that in this paper. I wish the task of substantiating (or refuting!) the point made above is taken up by someone with more time and energy than available to this writer. But I cannot miss this opportunity of giving at least one example, that of insurance. The Islamic economic literature on insurance during the last half- century, and the corresponding practice in the name of Takaful and Islamic insurance, exemplifies the problem, the predicament and the dangers I have indicated in the previous paragraph.[4]
In a world in which even such problems created by rapid technological change as job insecurity and increasing inequality in the distribution of income, are sought to be tackled by insurance[5], we are still discussing whether the idea of insurance itself is valid. Scholars would generally regard as alien, and therefore unacceptable, the idea of random events being subject to regularities that could be discovered, given a mathematical formulation and used for insuring against risk. Yet the same scholars would easily accept the fiction of tabarru’(donation) to validate thinly wrapped conventional insurance.[6]
I do not want to debunk the various Islamic insurance products available in the market. Let a hundred flowers bloom. What I am lamenting is a failure to accept anything that does not fit in the old mould despite its obvious wisdom. In trying to abide by derived rules we have distanced ourselves from the very source of rules. We have already noted the anomaly of Islamic economic research relegating poverty removal to the backburner and bringing investing rich peoples’ surpluses for making them richer to the fore. That is how the essence is overwhelmed by the peripheral.
The remedy lies in focusing on the vision of a Muslim and that of an Islamic society before we attend to rules of conduct and ways and means for their implementation. The so-called economic rules of individual conduct and social policy, most of them lifted from secondary sources, blur our vision of the total picture because we are living in a different time and place. The better method is to
perceive and conceptualize the totality from out of the primary sources, the Quran and the Sunnah. All the rest should follow and not lead, insofar as Islamic economic research is concerned.
The Human Element in the Islamic Heritage
This brings me to the last point: The need to distinguish what is human from what is divine in our Islamic heritage. The Prophet, peace be upon him, brought the word of God and explained it by living it and guiding a whole generation of men and women organize their lives, including their economic affairs, in accordance with divine guidance. The word of God is preserved in its originality, un-adulterated by word of man. But the same is not true of anything else. As the Prophet leaves the scene and his companions are left to fend for themselves, the problem gets more complicated. It is no longer a matter merely of authenticity of reports. We are now dealing with men like us, without any direct link with divinity. Facing new challenges, they no longer had the Prophet to ask how to meet them. All they had is the Quran and what they had heard from the Prophet or, seen him doing in different situations. Building on that, they had to decide for themselves, and they did. Times moved on. The second and third centuries of Islam brought new challenges and explored new solutions. It is during these times that most of the recorded Islamic heritage took shape. Besides the vast literature on what is characterized as Islamic sciences the age produced a rich harvest of living traditions, arts and culture. Supplemented by the intellectual contributions in the following centuries, that is the heritage we cherish and seek inspiration from in our own enterprise of living an Islamic life in this globalized world of the twenty-first century. So far so good.
In exercising ones own judgment in the enterprise of Islamic living, it is good to have so much to fall back on. It is a great help. But one should not be constrained by the sayings and doings of other humans. The divine is binding but the human is not. Additional constraints thwart fresh thinking and innovation. Sacralization of the non-sacred has been a great source of degeneration in human history. It is one thing to treat history as help and inspiration. It is very different when we try to recreate it in a changed world, and that too in economic affairs. History, even Islamic history, is not sacred. We run a great risk by giving it that status.
Well said, but has it any relevance to the subject in hand? I think it has. You need only a cursory glance at the Islamic economic literature on taxation, fiscal policy, social welfare and development financing to conclude that the writer is focused on some script, rarely looking up to gauge the reality faced in modern living. Most writers on Islamic Public Finance[7] are writing history, telling us how to recreate it. The divine in our heritage does not offer such script, so, how come? That is the problem.
The problem is not confined to archaic treatment of novel modern situations and issues. Our fixation with a particular history not only alienates us from current reality, it also isolates us from the rest of humanity. It reinforces Muslims’ sense of being different from others to undue proportions, making frank, sincere outreaching and interaction almost impossible. The normal process of learning from others’ experiences and contributions is replaced by, at the least, indifference and apathy, and often by suspicion and hostility. No wonder we get the same in response.
This situation has to be rectified before it goes out of hand. There is no better area for making a beginning than economics. I say this because the need to focus on the divine in human heritage and treat the human only as efforts in implementation from which lessons can be drawn is most obvious in economic matters. It is the economic affairs of man that bear the brunt of technological change and are often harbingers of change in other aspects of life. It is in economics more than in other areas that our focus should be on Maqasid al-Shriah [8](the objectives of Islamic Law) rather than what is commonly perceived as Law. Islamic economic research, unbound from the chains that human elements in Islamic heritage have put around it, can then bring Muslim intellectuals out of their shell into the company of other intellectuals for exploring ways and means of delivering humanity from the unprecedented predicament it finds itself in.
Regaining Self Confidence
A shrinking from independent thinking and total reliance on Islamic heritage came to Muslims after the first five hundred years of their history gradually and due to many factors. First it was to save Islamic law from becoming a hand-maid of petty rulers in a world of Islam torn asunder by sectarian squabbles and internecine wars. Then came the colonial era and the onslaught of Christian missionaries in the wake of western armies. The new emperors produced their own courtiers from out of greedy elite among the natives. Islamic thought was defended from inroads by foreigners and tampering by motivated insiders by declaring it self sufficient and immune to change. All that is history. Things have been changing after the coming of Muslim peoples from out of the yoke of colonialism during the last century. The intellectual scene of the ummah is humming with activity, the emergence of Islamic economics being one of its fruits. But it takes time. There is no justification for despondency. Nevertheless speed matters in this age of rapid change. The obstacles to progress in Islamic economic research are all removable. We can do that. Better begin by diverting existing resources to priority areas of research. The next step should be to revamp the existing institutions involved in Islamic economic research by giving them greater autonomy, making them more democratic and providing them with more resources. Let the newly rich among Muslims in India, China and South East Asia realize their potential and cast away the image of dependence on largesse from the oil-rich for funding their universities and research institutions. We need a strong center for research in Islamic economics located in the west. This will serve the dual purpose of benefiting from the well-established research traditions in the west and affording western scholars interested in the area, and they are an increasing lot, a closer look at the ideas.
The toughest nut to crack are the two last mentioned obstacles, failure to prioritize so that the essence prevails over the form and detaching the human accretions from the eternal and universal divine guidance. Two sides of the same coin, they are so well entrenched in traditional Islamic scholarship that even their mention is bound to raise eyebrows. Yet there would be no breakthrough without removing these obstacles. They are borne of precautionary defensive mechanisms created during the last one thousand years to protect Islam from corruption by the un-scrupulous Muslim autocrats, foreigners and their lackeys. Even after two hundred years of Islamic revivalist movements, many calls to ijtihad and fresh thinking, and hundreds of conferences and seminars to revive creativity among Muslim intellectuals, fear of the unknown makes the commonality of Muslims and their mentors stay close to the beaten path, if not quite on it. We may err if we think independently. There is bound to be variety of opinion if free discussion and independent judgment is encouraged. Far-flung regions of the Islamic realm, now bound together by adherence to half a dozen major schools of fiqh, may opt for newer directions, especially in matters of economic policy. And so on and so forth, goes the long list of reasons advising prudence, conservatism, at the least wait and see. The net result is restraining the pious, the knowledgeable and those likely to evoke trust from the Muslim masses, from ijtihad , leaving the field entirely, or mostly, to dare devil mujtahids. The outcome, not entirely unexpected, becomes yet other reason why the status quo should not be disturbed!
The status quo cannot sustain itself. If we do not change in a well-considered manner, change will be forced onto us in haphazard manner. I already see it happening in an area so dear to us Islamic economists[9], the area of Islamic finance. The remedy lies in getting rid of the fear psychosis, the fear of committing mistakes in matters of religion, thereby inviting the wrath of Allah. That is too dumb a view of God to be taken seriously. Did the Prophet not tell us there is a reward awaiting even the mujtahid who errs?[10] We have faith in God that needs to be buttressed by confidence in ourselves. The chances of making a mistake today are less, not more, than the chances of a Muslim thinker making a mistake in the third century of Islam. We have better access to Quran and Sunnah, more works on other Islamic sciences within easy reach, and better, faster means of mutual consultation and discussion than was available to our fore runners.
To the Organizers of this discussion
I congratulate the organizers. At least you recognized there are obstacles to research in Islamic economics that need serious discussion. You felt more of the same would not do. We need to take newer directions, break new paths. I have contributed my humble bit. I am sure the panel discussion will throw up ideas we can pursue on to the road of progress.
[1]…….al-Faharis al-Tahliliyah lil-Iqtisad al-Islami (1985-86) 5 vols. Amman, Jordan ,Maktabah Saleh Kamil & al- Majma’al-Malaki li-Buhus al-Hadarah al-Islamiyah, Mussasaah Aal-al-Bayt
[2].Certainly in the stories of the bygone people there is a lesson for people of understanding…..[12:111.] Also see , 59:2; 3:12
[3].Mohammad Nejatullah Siddiqi, ‘Shariah, Economics and the progress of Islamic Finance: The Role of Shariah Experts ”, Seventh Harvard Forum on Islamic Finance,21 April 2006.. Available at the author’s website<www.siddiqi.com/mns>
[4] Issa Abdoh (1978) al-Tamin bain al-Hill wa-l Tahrim , Cairo, Dar al-I’tisam. The book also records views of more than a dozen scholars other than Dr. Issa Abdoh. For the current position, see, Mohammad Obaidullah (2005): Islamic Financial Services, Jeddah, King Abdulaziz University pp.119-141
[5] .Robert J . Shiller (2003) The New financial Order, Risk in the 21st Century, Princeton University Press, page 4-7 & 149-164
[6] One scholar is reported to have defined it as “ ..a contract of donation with a condition of compensation..”. See the site http://www.kantakji.org/fiqh/files/insurance/diffbwconvIns.pdf ( accessed 21 March 2007) More on reciprocal tabarru’ http://www.Islamic-world.net/economics/takaful_intro.htm Many other details are available at websites of Bank Negara Malaysia and other Malaysian Islamic Financial Institutions and on IBF NET.
[7] S. A. Siddiqi (1948,1975) Public Finance in Islam, Lahore, Sheikh Mohammad Ashraf ; Ibrahim Yusuf Ibrahim (1980) al-Nafaqat al-?mmah fi’l Islam, Cairo, Matabi’ Diyab; …( 1989-90) al-Idarah al-Maliyah fi’l Islam,3 vol;s. Amman, Muassisat Aal al-Bayt
[8] Mohammad Nejatullah Siddiqi (2004) Key Note Address to Round Table on Islamic Economics, Jeddah IRTI, May 26-27,2004. Available on the author’s website <www.siddiqi.com/mns>
[9] Mohammad Nejatullah Siddiqi (2006)Islamic banking and Finance in Theory and Practice: A Survey of State of the Art, in Islamic Economic Studies(Jeddah) , Vol. 13,No. 2,pp. 1-48,Also by the same author (2007) Economics of Tawarruq : How its Mafasid overwhelm the Masalih, Harvard Law School and London School of Economics, Workshop on Tawarruq, Available at the author’s website <www.siddiqi.com/mns>
[10] Abu Dawood in his Sunnan has the following report: …Amr Ibn al-?s reports that the Prophet, peace be upon him, said, “When a ruler decides and exercises his judgment and gets it right, he is rewarded twice. When he exercises his judgment to decide and errs, he is rewarded once.” Hadeeth # 3574 . Kitab al –Aqdiyah , Bab # 2
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
A Note: Sukuk and Their Role in Islamic Finance: February 2008, LSE/HIFP Seminar
توجه : Sukuk و نقش آنها در امور مالي اسلامي : فوريه 2008 ، الاسايي / سمينار HIFP
A Note on Sukuk and their role in Islamic Finance
[LSE/HIFP Seminar,7 February 2008]
mnsiddiqi@hotmail.com
This note argues that distancing sukuk from debt is necessary to make them free of riba and elements of maysir (gambling). This can be done by making sukuk based on real assets to the exclusion of murabaha receivables. It also requires doing away with the commitment to redeeming sukuk at their original price on expiry of their term. These steps may save Islamic finance from contributing to the trend towards inequity and instability germane to conventional debt based financial system. Oil rich Muslim countries issuing sukuk should especially avoid financial products likely to further worsen the distribution of income and add to popular discontent.
Nature and Role of Sukuk
The introduction of sukuk in Islamic finance has been a great help. Many a project in private and public sectors have been facilitated by recourse to sukuk. Sukuk have great potential for promoting risk sharing thereby increasing savings mobilization and investment, spurring growth leading to enhanced welfare. The purpose of this note is to explore possible ways of keeping sukuk away from being debt instruments based on risk shifting that increase inequality and cause instability, thereby decreasing welfare. We start from the position that trade in debt instruments (obviously at prices different from their face values) is riba. There is a sizable literature on riba being unfair, leading to inequity, instability and inefficiency, so we need not repeat all those arguments[1]. Distancing sukuk from debts is required in order to make Islamic finance serve its purposes in enhancing prosperity with justice and equity.
What makes some of the sukuk debt instruments is inclusion of murabaha receivables into the package of assets against which sukuk are issued and the commitment to redeem them at their face value at some future date, regular periodical returns being paid in between. There is no difference, in effect, between this and a sum of money lent for an interval being serviced by periodical payment covering the interval.
What happens if murabaha receivables are treated as not saleable (except at their face value)? Most probably it will have a negative effect on the practice of murabaha, as well as cause a decrease in the total demand for sukuk. What happens if there is no commitment to buy back a leased asset (against which sukuk were issued) at their original price? Most probably there will be a decrease in the demand for sukuk as people not willing to take any risk regarding the sale value of the asset shy away. Since Islamic finance does not offer the opportunity of lending at interest many prefer non-Islamic finance. So purging Islamic finance from incipient debt-structures only restores the original position: Those who have no problem with interest bearing transactions may not stick to Islamic finance. Whether this will cause some loss of market share in countries like Bahrain and Malaysia is difficult to predict off hand. Much will depend on innovation and on what other alternatives are made available. It will also matter if the rationale of these reforms is fully explained to the market participants, to the people in general and to the policy makers.
It is argued that it is not wise to deprive people of an option they prefer. Investors’ sovereignty seems to be a natural corollary of consumers’ sovereignty. But it is not a rational argument, as individual choices that are aggregated to arrive at the relevant totals may not always serve the social weal. The society has a right, rather a duty to protect itself (and all its members) from possible bad choices of some of its members. This is empirically established in case of drug use and investment in drugs trade. Islamic economists have argued that riba leads to a bad distribution of income and wealth. Riba also leads to instability[2]. Using riba to mobilize resources does not increase welfare.
As it stands now people have an option to quit the Islamic financial market and go to the conventional financial market, consequent upon blocking the debt based sukuk structures. It has yet to be established empirically that they will in fact abandon sukuk in favor of conventional bonds after the above-mentioned reforms. Insofar as it is Islamic legitimacy that influences their choices, people may still prefer clean sukuk to debts. They may do so due to a conviction that that debt proliferation is bad for the economy.
Debt Proliferation and Welfare
It is argued that debt proliferation is no cause of concern as long as debt servicing can be sustained. The argument could carry some weight if debt was always to be serviced out of the new wealth created by the productive use of the resources mobilized through debt. But there can be no such guaranty as the returns payable are in no way dependent upon or linked to the productivity of the funds mobilized through debt or debt based sukuk. Should debt be serviced out of existing wealth of the society but fail to generate an equal amount of wealth through its productive use, it would amount to a redistribution of social wealth in favor of suppliers of loans. There is no economic or moral justification for such redistribution. It is immoral as well as inefficient to assure increased wealth to fund owners who refuse to expose their funds to any of the risks that invariably attend upon wealth creation. On the other hand, by insisting on all sukuk issues being clean, free of riba, Muslim countries would be taking a step towards a more just and humane financial arrangement than prevails in much of the world. Many individual fund owners, Muslim as well as non-Muslim, prefer earning additional wealth the clean way. The claim that purging sukuk from elements of riba would make the sukuk market shrink cannot be accepted without proper empirical evidence. The Islamic finance industry owes it to itself to educate people into the bad effects of debt financing and the expected good effects of riba-free Islamic financing. As of now the industry has failed to do so. Instead of devoting any resources to R&D it invested in “conventionalizing” the industry thereby undermining the very reason for its existence.
Rich Muslim countries should better opt for clean, riba-free sukuk as this will prevent an already inequitable distribution from worsening further. Their undemocratic political systems are more vulnerable to popular discontent than their western counterparts. A further descent into inequity and a financial system prone to instability could be fatal.
It may be argued that distancing sukuk from debts will render them akin to stocks and shares. Why should a company desirous of funds not issue new shares instead of launching sukuk, it is asked. The answer is: sukuk can be project specific which is a great advantage. The proclivity to mimic debt instruments prevalent in conventional finance has in fact hindered the process of innovation in structuring sukuk that are free of riba yet cater to different classes of investors, classification being based on their attitudes towards risk. The prohibition of money now for more money later is accompanied, in Islamic finance, by the permission of leasing out real estate or capital goods at fixed rents and rentals, or of charging a higher price when selling on credit. Any legitimate economic purpose that a money loan on interest serves (like reducing monitoring and transaction costs in certain circumstances) can often be served by these two permissions taken together.
Interest bearing debts and its burgeoning trade, takes the economy onto the path of instability by creating an inverted pyramid of debt securities. The market for debt is vulnerable to gambling like speculation because of the slender base of real assets on which it stands. On the other hand ijarah and murabaha are activities belonging to the real economy. Trade in papers based on them would not have the ill effects of conventional finance as long as they do not involve trading debts. Just as trading in real goods and services differ widely as regards the risk attached to them, so would the sukuk based on them differ in their risk profile. But there is an objective basis underlying the market for sukuk based on ijarah and murabaha (provided their exchange takes place within the well known Shariah constraints, i.e. no discounting of debts and no redemption at par values).
Ijarah sukuk with pre-announced periodical incomes are the nearest to conventional bonds that Islamic finance can offer. Even these would carry some risk as redemption would be possible only at market price. A commitment to redeem them at their original price amounts to selling a debt, whereas the whole rationale of sukuk is to avoid doing that. Market value of Ijarah sukuk at the time of redemption may be higher than, equal to or lower than their original price. In other words, Ijarah sukuk are vulnerable to capital gains or losses. This is the same risk that attends upon the purchase and sale of the real assets on which Ijarah sukuk are based. These sukuk have the advantage of being available in small denominations. Fund owners who cannot afford to buy the underlying assets can buy parts of them by buying sukuk. They are saved the trouble of managing real assets as these are taken care of by the financial intermediaries issuing sukuk. Sukuk can be marketed globally while the property on which they are based sits in a particular country, given the public institutions that enforce contracts and protect property rights.
Risk Shifting Versus Risk Sharing
Prohibition of riba implies that fund owners who do not want to take any risk at all, neither risk of capital gain or loss nor the risk attaching to periodic returns, cannot enter the investment market. Their money cannot earn them more money. No economist has claimed that this will cause havoc to the economy of man. On the contrary paying a price for “liquidity preference”, without any reference to the marginal efficiency of capital, is rightly seen as problematic.
The world has more wealth today than anytime before. Much of this wealth is in the hands of people who have lots to spare. Add to this the financial institutions entrusted with money by the rich, the not so rich and even by the masses, in order to earn more money for them. Much of the prosperity the world enjoys today depends on the productive employment of this liquidity. Sukuk are very convenient vehicles of transferring some of this liquidity to people capable of employing it into productive projects. A diverse spectrum of investment vehicles serves persons with different perceptions of risks and returns. Debt-based financing, some of the sukuk included, shifts the risks involved in wealth creation on to the user of funds. Inside the same country this method of financing tends to make the rich richer and the poor poorer, relatively speaking. At the international level, debt financing has been ruinous for many developing countries in Asia and Africa. The Islamic way of risk sharing, on which genuinely Islamic sukuk should be based, would make the additional wealth created with the use of the existing wealth to be shared between fund users and fund owners while both bear the risks involved and the resulting loss.
With increasing wealth must go equitable distribution of additional wealth so that the society retains its balance and people live in peace and harmony. Widespread poverty, great disparities in standards of living, conspicuous consumption and great display of affluence ……cause envy, resentment and a tendency towards violence, especially when there are few opportunities for the have-nots to improve their lot and when there is no effective supply of public services like education, health care and transportation. As of now, most countries of the world evidence these characteristics. It is yet to be recognized universally that this phenomenon owes itself, largely, to a policy of risk shifting rather than risk sharing. A movement to make sukuk instruments for risk sharing rather than risk shifting is long overdue.
In case additional wealth creation is accompanied by more unequal distribution, a greater proportion of additional wealth going to the rich, and when the share of the poor goes on decreasing in the relative sense, people get frustrated, lose hope and succumb to despair providing a breeding ground for violent ideologies. Unfortunately this has been going on in recent decades, mostly as a result of debt financing which transfers a given percentage of wealth to fund owners irrespective of the fund’s actual contribution to wealth creation. The institution of interest---paying for money capital irrespective of its contribution to wealth creation----has been one of the factors responsible for a fall in the relative share of wages in national income in most countries, especially the United States of America. In much of the un-developed world large sections of population must go without any income because of “unemployment”. But thanks to the institution of interest, money capital never goes without income!
Even though absolute poverty may have somewhat decreased, the increasing gap between the rich and the poor has been causing frustration and anger. This is as true of citizens of any single nation as of the community of nations as a whole. Rejection of riba, i.e. refusal of entitlement to an increase in wealth for those who would insist on a guaranty that their existing wealth does not share the risks attending additional wealth creation, will go part of the way in rectifying the situation.
As a necessary step towards a just and equitable society, discounting of debt should also be disallowed. To prevent a thriving market for debt it is necessary to prohibit exchange of debt with cash at a discount in line with the well known Shariah prohibition of exchanging unequal quantities of the same money or unequal quantities of debts. Shifting the risk of default is a transaction accompanied by excessive uncertainty (gharar). Transactions focused on risk shifting imply gambling like speculation as they rely on difference in tastes for risk and nothing more. On the other hand risk sharing arrangements are essentially cooperative ways to meet life’s contingencies. Risk sharing is a way of facing risk. The reward of facing the risk involved is uncertain. The burden, in case of loss may be too much. So two or more parties come together. The terms of sharing the rewards are freely agreed upon. Differences in the participants’ perception of the risks involved will be decisive in the resulting bargain. Even though the motivation may be making a profit, it is very different from a game of chance. There are real gains to be reaped, real wealth to be created in case of successfully meeting the risks involved. The bargain focuses on sharing these gains. The bargain does not create the risks involved, as these risks have an objective existence independent of the participants in the bargain. This nature of risk sharing remains intact despite unbundling different kinds of risks and repackaging them to suit different types of customers. It is an entirely different story with risk shifting. Neither the seller nor the buyer of a risk may have any stake in the wealth creation that may or may not depend on facing that risk. The only thing necessary for a deal to be possible is that the parties to the bargain view the outcome differently. The reward/loss of either party to the bargain does not depend on what happens in the production sector, whether additional wealth is created or not. It depends on whose guess comes true. If it is a deal between two parties, only one of them stands to gain, not both. It is different in case of risk sharing in which each one of the two parties to a deal stands to gain or lose, i.e either both lose or both gain. Facing risk is a means of wealth creation. It deserves a reward when wealth creation actually does take place. But why should anyone get a compensation for shifting risks? Like all gambling, risk shifting is a zero sum game. It does not add to social wealth. The society is better off without it.
Gambling in the debt market (i.e., buying and selling risk) does not create additional wealth, yet the gamblers are seen to become wealthier! The secret lies in the way money is created and managed in a debt based economy like ours. The system is so designed that the supply of money expands in response to the demand for debt. But a very large part of the additional paper wealth goes to the players in the financial markets, giving them an undeserved handle over the real markets. This further reinforces the perversion in conventional finance: Instead of the financial sector serving the real sector, the real sector gets subservient to the whims of the financial elite.
I do not dispute the empirical fact that sale and purchase of debts at discount (sometimes very big discounts) has greatly contributed to the expansion of the debt market. Also true is the claim that an expansion of the debt market enables more developmental projects to be undertaken. But has it contributed to welfare? It has certainly not contributed to equity. Furthermore, the phenomenon of junk bonds has increased the vulnerability of the financial markets to speculation and further weakened the nexus between the real and financial markets.
The lender has a right to write off whole or part of the debt. He can accept a less than full payment from the debtor. In other words a debt instrument can be “exchanged ” for less than equal amount in cash from the debtor. To argue from this in favor of allowing discounting of debts is not correct as discounting in the debt market does not alter the debtors’ obligation to pay the full amount when the time comes. As a matter of fact those who buy debts at a discount do so in order to make a profit by getting par value when the debt matures.
Towards a Humane Economy
There is a basic dissonance between the tendency to mimic conventional financial practices and products and promoting Islamic finance. The former tendency assumes that conventional financial products and practices respond to genuine social needs. It ignores their ill effects in terms of injustice, inequity and instability. But the entire rationale of Islamic finance is quest of prosperity with justice and equity. Insofar as a debt market obstructs equitable distribution of wealth and income, it must be constrained. Distancing sukuk from debts should be considered in this context.
As hinted above, distancing sukuk from debt is also necessary for strengthening the link between the real and financial markets. It is better for the economy to keep the financial sector follow the real sector rather than the other way around. Finance is a facilitator for production, exchange and consumption of real goods and services that are our natural objects of desire. When financial growth itself becomes an object of desire, and production and exchange of real goods and services becomes a means to that end, a great perversion takes place. Even though this kind of attitude towards finance is not universal, being confined to a section of the population who has the means to play the money game, the ruinous effects spread throughout the society affecting everybody. This tendency cannot be rooted out unless financial papers are restored to their natural status: representatives of real assets. Only then will the demand and supply of real goods and services, reflecting people’s tastes and capabilities, decide allocation of resources and, consequently, distribution of income. As it stands now, under the aegis of debt-based, speculative finance, allocation of resources and distribution of income are vulnerable to manipulation of oligopolies and financial power centers. Financial papers often serve like gambling chips, once their link with the real economy is loosened.
A financial product’s claim of being Shariah compliant cannot be accepted unless it is shown to be in consonance with the objectives of Shariah, the maqasid. In the presence of evidence that debt financing vitiates the higher purposes of Shariah , equitable distribution and relative stability, debt-like sukuk cannot be regarded to be Shariah compliant. It is naïve to assume that replicating conventional financial products demonstrates the viability of Shariah in modern age. The distinctive feature of Shariah is its welfare-enhancing role. Mimicking un-transparently collateralized debt instruments without any regard for their tendency to reduce welfare is no service to Shariah.
Conclusion
Sukuk are there to stay. That they are recognized as genuine Islamic financial products and do not languish into the gray area of conventional clones requires further restructuring that would distance them from being debts. People have to be convinced of the long run advantages of risk sharing at the society level so that they resist the temptation to reap transient benefits of risk shifting at the personal level. The assurance sought through guaranteed redemption at original price can be partly supplied by strengthening public institutions that monitor financial transactions and enforce contracts and by raising the level of trust in the society.
[1] For a summary of literature and detailed references, see this author’s Riba Bank Interest and the Rationale of its Prohibition (2004) Jeddah, Islamic Research and Training Institute, Chapter 4.Also,Abbas Mirakhor (2007) ‘Islamic Finance and Globalization : A Convergence? ’ London. Euro-money Conference, June.
[2] For an empirical Study and references to earlier empirical studies, see Hassan, M Kabir and M Imtiaz Ahmed Mazumdar (2002) Islamic Finance and Economic Stability: An Econometric Analysis ’.Proceedings of the Fourth Harvard University Forum on Islamic Finance,Cambridge,Mass., Harvard University,pp13-25. For theoretical arguments, Mohsin S Khan(1995) ‘ Islamic Interest Free Banking: A Theoretical Analysis,’ Encyclopedia of Islamic Banking and Insurance, London, Institute of Islamic Banking and Insurance,pp.50-66.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در ادامه مطلب
Future of Islamic Finance: August 2007, Kuala Lumpur
آينده مالي اسلامي : آگوست 2007 ، کوالالامپور
FUTURE OF ISLAMIC FINANCE
mnsiddiqi@hotmail.com
(Presented at the conference on: Leadership in Global Finance-the Emerging Islamic Horizon, organized by INCEIF, on August 30, 2007 at Kuala Lumpur)
To speculate on the future of Islamic finance one needs to speculate on the future, not only of global finance, the topic of the day, but also on the future of capitalism.
Capitalism in the technical sense of centrality of capital in production may have an unbeatable future, even though the growing importance of knowledge (soft capital?) maybe threatening that position. But the motivational aspect, the tyranny of self- interest, may not endure. Will the economy of man continue to be dominated by the drive to maximize profits? Will growth in the sense of enlarging mankind’s basket of possessions continue to remain the goal of economic development?
There is a shift from individualistic, profit maximizing capitalism to socially conscious economic activity. Profit-maximizing economic agents and growth-oriented public policies give us the situation that we have today. Among the several note-worthy characteristics of the current situation I will pick a few relevant to my subject: Predominance of the financial sector in the economy and speculative nature of current financial markets, leading to increasing inequality within nations and between nations, environmental deteriorations that threaten the very survival of mankind and the increasing levels of anxiety in the public.
The point I wish to make is that capitalism in its motivational or human aspect cannot continue without getting transformed in a basic way. Neither pure self-interest, nor the exclusive pursuit of economic growth, has a future. We have learnt enough about the consequences of both these motivations to continue adhering to them.
It is speculation about the future, I admit. But if you at least consider this transformation of capitalism a possibility, then our problem changes to speculating on the future of finance and its role in an environment in which a desire for balanced living may replace the urge for rapid economic growth and economic agents--- consumers as well as producers--- may start worrying about social good. They may even consider consulting one another in this regard.
For the present I offer the tip that the possibility of this transformation opens a door for Islamic finance too. You would appreciate that a religion-mandated, morally oriented way of life would never entertain self-centered profit seeking behavior or/and pursuit of limitless growth as public policy. As long as these behavioral norms and policy goals dominated, as they do under capitalism, Islamic finance had little chance. Now that humanity seems to be growing out of those self-destructive stances it may well give Islamic finance a hearing.
Before I proceed to talk about Islamic finance in some detail, I must caution against a possible misunderstanding. The shift from individualistic amoral capitalism towards a morally oriented, socially conscious and consulting approach to economic activity that I am envisaging would not and should not come at the cost of freedom. It is not to be imposed from above by the Social Authority. I am not for dirigisme. I envisage internalization of moral values leading to a quest for balance. I also believe the ground for such internalization is prepared by spirituality.
ISLAMIC FINANCE
I perceive Islamic finance as a quest for balance in a ruthlessly competitive field. Whether it is Prophet Jesus chasing the (usurious) money-changers out from the temple or the Prophet Muhammad exclaiming: what makes (interest-free) loan superior to charitable giving, one cannot miss the point that interest is a stumbling block for virtuous living. Money allures. And nothing is more alluring than getting more money out of your money. It requires commitment to resist the temptation. And there needs to be a backup in regulation.
We begin with the most talked about feature of Islamic finance: rejection of money now being exchanged for more money in future. This denial of immunity to money loan brings capital in the sense of money capital down from its heavenly pedestal to earth, with all its risks and uncertainties. It also relieves the economy from the compulsion to grow that the institution of interest enshrines. In one go rejection of interest strengthens the linkage between the real and financial sectors of the economy, possibly ending the current dominance of the financial over the real. Money must go through the real sector before it comes back as money, so what the financier gets depends on what happens to money capital during that risky journey. Whether it also dampens speculation in financial markets, and if it does (as I think), to what extent, I do not know. But it will be a different environment from the current one, in which some of our best brains are exclusively focused on the money game.
The drastic curtailment of debt financing that Islamic finance promises (its perversion into tawarruq and similar practices not withstanding), may usher in a new era in public policy too. But much would depend on how money is managed. Lately monetary management has been sort of subservient to financial markets, as if its main purpose is saving the society from possible harms emanating from that direction. Monetary management to become a facilitator for real transaction has to rid itself from debt-based maneuvers.
Talking of public policy brings me back to motivations and goals. Shared objectives are supposed to encourage cooperation and mutual consultation, values that provide the rationale for state in Islam. For the Monetary Authority it is a big jump from being an umpire in a game to a social agency working to protect and promote the common good. For society at large, it requires giving up any remaining illusions about the markets being capable of policing themselves in order to ensure public good. Along with this change of mind it also requires a change of heart. A motivational change away from uncaring self-interest, a reaching out to values for the commonality of people. Islamic finance draws its strength from the spiritual and moral transformation implied in such a change. Our best hope lies in free but socially responsible economic agents acting under supervision and regulation of a state manned by socially conscious representatives of the people. Our success in that quest may not be absolute. It never is. But the change of direction matters more than the level of success.
Is it advisable to mix morality with a discipline focused on wealth creation? How do values mix with interests? There is solid empirical and historical evidence showing that man does not live by bread alone, that we do aspire to look beyond utilities and interests to values like justice and fairness, sincerity and compassion, truthfulness and honesty, as guides for our action. No doubt neo-classical economics had a remarkable success in purging this values- dimension of the discipline from explicit consideration. But that does not change the reality. It has always been a mix of material and ideal, worldliness and spiritualism, interests and values. The mix has been changing with time and place, even from person to person. It seems we are about to emerge from a phase of our history that was very low on value to a place where morality and values are as integral to economic activity as wealth creation and self-interest.
Financial Globalization
Can locally minded, interest focused (nationalist?) men and women conduct global finance? I submit that beneficial globalization of finance requires a different mind-set on part of investors and other players. It requires financiers who have a better mix of interests and values, promoters of self-interest who have the intention as well as the ingenuity to guard and advance the public good that is imagined at the global scale and is not just defined in parochial terms.
That, ladies and gentlemen, is a vision of global finance congenial for Islamic finance. As long as global finance is subservient to or collaborative with nationalistic hegemonic policies, Islamic finance can at best be on the defensive. That will remain true even if all the Islamic countries band together. However, if humanity makes a choice for socially conscious economic activity then Islamic finance will be seen as a suitable method for achieving the economic policy goals. But it is ultimately a matter of peoples’ choice. Spiritual and moral movements have always prevailed because they won the hearts and minds of ordinary men and women. It is not the imperial armies that determine the destiny of mankind.
Standardization and Certification
As till date Islamic finance has made great strides in enlarging the menu of saving vehicles for the practicing Muslims and other ethically aware citizens. It has activated not only billions of investable funds but also brought legions of smart people to the financial sector. In an unrepressed financial environment like that in Malaysia the advent of Islamic finance has visibly contributed to the common weal. But the international Islamic finance industry remains focused on survival, which seems natural for an infant industry. How can it ignore compliance with Basel II? How can it ignore the pressure to compete? One wonders, however, if survival with dignity demands something more. Is it not in the infancy that a sense of identity is created? Is not dignity rooted in identity? Better try building an Islamic finance industry that is not deprived of all that is distinctively Islamic.
The Islamic finance industry faces other challenges too. Not the least important among these is a need for standardization. The near chaotic situation that currently prevails, with the same product name meaning different characteristics with different institutions and in different regions, is not healthy for the industry. This lack of standard in itself is, partially at least, a result of the chaos and confusion in the matter of Shariah-advisement. The methods of earning credibility adopted in the beginning of modern Islamic finance era when people were not familiar with Islamic financial products and the industry was confined to a small region are now being perpetuated in a situation when the industry has gone global. In a market that is witnessing new Islamic finance ventures almost every week and new products very often, Islamic financial institutions are being forced to seek certification from a very small list of recognized names. The situation is untenable and the certifications are losing credibility.
Unfortunately issues that require open discussion with wide participation of Shariah-scholars, economists, bankers, financiers, customers, regulators, etc. are being subjected to fatwas. Surely there can be better ways of proceeding further. If a section of investors must check on Shariah-compliance, opinion of independently operating Islamic-law firms or scholars would have more credibility than certification by advisors in the pay of the institutions whose products they certify. We should strive for completely transparent and standardized methods for classifying and certifying Islamic financial products.
Towards a brighter Future
Last but not the least, time has come when innovation should trump imitation. From purification of current financial transactions from haram
(the prohibited) to designing financial ways and means that would serve the maqasid al- Shariah (objectives of Islam), that is the new direction Islamic financial community should aspire to take. With a sizeable market share in its base region, the Gulf, as well as in South-east Asia, it is now in a position to experiment and explore. Once it takes that direction Islamic finance is sure to find itself in good company. There has been a relative decline in bonds and a rise in equity as means of investment at the international as well as domestic levels. The financial community is now aware of the environmental and ethical considerations that must attend its choices. People want their money to make more money but with a difference not felt even a decade ago. That provides a window of opportunity for Islamic finance seeking to serve the Islamic goals of balanced growth, equitable distribution and mutuality--- goals that are universally acclaimed by contemporary humanity.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در لينك مطلب
A Note: An Approach to Islamic Economics: October 2007
توجه : رويکرد به اقتصاد اسلامي : اکتبر 2007
AN APPROACH TO ISLAMIC ECONOMICS
Prelude to a Textbook
October 2007 < mnsiddiqi@hotmail.com>
The subject matter of economic analysis, behavior of economic agents, is susceptible to human volition. There are no iron laws. One can do things in a manner then change to another way of doing. In one’s choice of how to behave/do things, one is influenced by a number of factors. Self- interest seems to be the most influential of these. But tradition, what the others are doing, what is the easiest course of doing, impact on others, public interest, what is morally preferable, what is spiritually higher, etc. are also involved.
Some abstraction is necessary for scientific analysis to proceed. Traditions change only in the long run and can be abstracted away in a short-term analysis. Demonstration effect and peer pressure also belong to that category, though to a lesser extent. Taking the easiest course (by maintaining the status quo, for example) leads to different paths in different cases and cannot be handled scientifically. It is better left to be taken into account at the policy level, if and when needed. The remaining four factors are of a different nature. They should not be abstracted away without careful consideration of the implications of doing so.
Before we proceed to consider the desirability and possibility of including care for others and spiritual-moral dimensions of economic decisions into behavioral analysis, a word on the interrelation between analysis and policy prescription is called for. In other words we have to ponder over the relation of studying what is and what should be in an aspect of life susceptible to human will. When the ‘is’, the existing reality at a particular time and place, is the creation of willful choice by economic agents, it becomes very important to know how those choices are made. One’s view of what one should choose would affect what one actually chooses. This in turn is of great significance to policy makers targeting results that are easier obtained through reshaping incentives.
Insofar as policy is directed at well-defined goals, it would help to get economic agents willfully choose paths leading to those goals. A study of the relation between possible paths of action and desirable goals would, therefore, occupy center stage in economic policy studies. To make these studies meaningful, economic analysis too would have to pay attention to factors influencing choice. One’s world-view (spirituality) and leanings towards goodness (morality) would be prime influencing factors to be considered. Care for others, individuals as well as the society or humanity as a whole, becomes the immediate expression of spirituality and morality in economic choice. While the actual content of care for others in a particular time and place for a particular economic agent will require empirical rather than logical/theoretical study, the mere admittance of this dimension in economics has far reaching consequences.
It is a well-established point that incentives can be reshaped, by education, example, promise of reward, threat of punishment, etc. The possibility of a change in behavior in response to a change in incentives opens a whole range of topics in economic analysis as well as in policy studies. Instead of posing as passive observers recording how economic agents behave, economists could proceed, in the light of desirable goals of behavior, to lay down proper policies for guiding economic agents’ behavior towards those goals.
VALUES VERSUS INTERESTS
An economic agent’s perception of his or her interests in a particular situation is fairly clear so as to prompt suitable action. Need fulfillment, wealth acquisition, power seeking, etc. require taking specific paths of action within the constraints imposed by the availability of relevant information. Simultaneously with having interests, men and women have values they cherish: Truthfulness, honesty, keeping promises, justice and fairness, compassion, etc. Adherence to values may be weak or strong, capable of overriding interests or being overridden by them. There may not always be a conflict calling for sacrificing part of the perceived interests for the sake of a cherished value, or vice versa. What is important to note is that choices, including economic choices, are made in a framework in which both interests and values are involved and that the two are distinct from one another. Ignoring any one of the two would render the understanding faulty. The challenge facing the social scientist is not to lose sight of either dimension while studying economic behavior. Insofar as demands of higher values and those of material interests coincide, as they sometimes do, there is little for policy makers to do, except reconciling individual decisions with social priorities and global considerations. In case there is a conflict, and social consideration require giving priority to higher values, policies directed at reshaping incentives will be called for.
Emerging from the bosom of a religion with its world-view and moral values, Islamic economics focuses on behavioral and policy studies that take both values and interests into account. Its primary task is to understand. This involves not only observation (empirical studies) but explanation too. Part of the explanation refers to values Islam seeks to inculcate in its adherents. But the other factors involved: local conditions and cultures, etc. are also in focus. In fact the former, Islamic values, enter into picture as frame of reference, they are not imposed on reality, which is recorded as observed. But since the policy goals involve transformation of human behavior from what they actually are to what they should be, reference to Islamic values serves the dual purpose of revealing the actual impact of Islam, if any, as well as indicating the gap that remains to bee bridged.
How to go from here to there, from the state of the economy that actually obtains to the state of the economy desired, is a big question to ask. It cannot be answered by economics alone. But economics sure can play a role in answering it. One of the major problems of economic management in our age of globalization is the widening gap between the desirable state of the economy and the actual state of the economy. A major task for economics in the coming days would be to discover the causes of the widening gap, its consequences for people and the possible ways to remedy the situation. Islamic economics should be able to make significant contribution in view of its incorporating values and care for society in its analytical framework and its emphasis on the possibility of reshaping incentives and harnessing a variety of policy tools for realizing the goals, termed maqasid al-Shariah in Islam.
There is a fundamental difference between the two elements in the economist’s field of observation, values and interests that needs to be noted. Values are above time and place whereas interests are situation bound. Values such as truthfulness, honesty and compassion do not differ from person to person, situation to situation. Interests do. Values may sometime be so interpreted that they serve the interests of the interpreter. It is also possible for an economic agent to pursue his or her interests in clear violation of certain values. There is no compulsion. Values do not impose themselves. Pursuit of value is an act of will, one is free to do so or not to do so. The role of Islam is suasion, goading man to pursue higher moral and spiritual values. Islam also provides substance to values by means of anecdotes and episodes that help one in interpreting values in one’s own situation. Islamic economics envisages economic agents in pursuit of their interests within a framework of moral and spiritual values. Applied to a particular situation this would lead to a vision. The ground reality may or may not conform to that vision. But the exercise is nevertheless useful as it helps in identifying the gap between the reality and the desired state of the world that can help policy makers in their efforts at transforming what exists into what is desirable.
It is advisable at this stage to devote some thought to vision and its significance for Islamic economic analysis and policy studies. Unlike a statement of moral and spiritual values based on Quran and Sunnah, which is couched in general terms, the vision mentioned above is situation specific. It is stated in concrete terms, spelling out appropriate behavior and sound policy in a well-defined situation. It is possible, building on such a vision, to project a state of the world resulting from realization of that vision. That can be compared to what currently obtains, prompting people to move on to a better world. The entire exercise takes place in a framework of freedom, assuming free people choosing freely. In studying the behavior of economic agents----as consumers, producers, employers, employees, lenders, borrowers, importers, exporters, etc.---Islamic economics does not impose the Islamic vision on what exists, which is recorded as it is, in all honesty and humility. The Islamic vision is kept in the back ground as a point of reference.
FOCUS ON THE MARKET
Households, markets and states are three entities most prominent in the economy. They act and interact in producing, distributing and consuming wealth. To them belongs ownership of and control on natural resources. In the process of exchange several other entities and institutions are created but they are invariably related to one or more of these three entities. Money and credit stand out among these institutions as among the most important, affecting almost all economic activities. For an orderly study of economy we start with the market. Our justification of preferring it to households for a starting point is that households become economically relevant mainly through interactions in the market. As regards the state it derives its role mostly from the happenings in the households and markets.
It will be unrealistic to assume, however, that each and every household has access to the market. He or she who has nothing to give has nothing to get from the market. But even the households with no purchasing power are part of the economy by virtue of being human. Whether the society handles their case by providing them access to market through grants or in any other manner is another matter worthy of study. One possible approach is entitlement based on need. The role of the state vis a vis these households is another subject of study.
Markets are for exchange. Every exchange involves at least two parties, each having something to give and desiring to acquire something. Beginning with the simplest act of exchange, bartering one thing for other, we notice how interests as well as values are involved. Interests inhere in the desirability of the things exchanged to the respective parties. The value framework inheres in truthfulness of description of their wares by the respective owners, and any promises, warnings, etc. that might be involved. Bringing money into the picture does not alter the picture. It only complicates it, increasing the importance of the value framework. Introduce credit and the problem of keeping promises and honoring any other commitments involved takes the center stage. It is in this context that some writers have emphasized the role of trust. The more we complicate the picture by introducing multiple parties to the act of exchange, bringing in middlemen and lengthening the supply chain, making the things to be acquired more exotic and sophisticated, passage of time between clinching a deal and actual delivery, etc. the more important the value framework tends to become. Today in the early years of the twenty-first century with its electronic payments, cross border deliveries and goods comprising myriad parts manufactured in a number of countries, the importance of value framework in which exchange takes place has increased manifold. Interests of the parties to economic exchange can hardly be secured unless a clearly defined framework of values is there. To what extent such a value framework needs to be reinforced by the coercive powers of law-enforcement and to what extent voluntary adherence can be relied upon is a different matter. But interests of both parties to exchange do require that certain values be honored.
The central problem for Islamic economics, and for any ethical approach to economics, for that matter, is motivating the parties to a contract to care about the welfare of the other parties too, and to adhere to moral-spiritual values to that end. It is a challenge yet to be met. Some people think they can provide material incentives for doing so, apparently under the assumption that there is no other kind of incentive. I think that is a hasty conclusion reached under the influence of the ruling materialistic ethos. We need historical and empirical research to arrive at a realistic conclusion. The role of incentives other than the material incentives needs being fully explored. Insofar as an overwhelming majority of people believe in some kind of life after death, and do things to secure a better dispensation in that life, it will be unrealistic to ignore good of the hereafter as an incentive.
Despite the potential role of ethics, matters like fulfillment of contracts cannot be left entirely to voluntary compliance. No markets can function and no civilized living is possible unless contracts that are freely entered into are legally enforced. At the same time it is also clear that the value framework mentioned above cannot be legally enforced in its entirety. Part of the reason is the cost of enforcement. The wider the coverage of law the greater the cost of redress through litigation. But this is not the only reason for some parts of the value framework remaining outside the scope of law. There are values like compassion that, though necessary for civilized living can hardly be legislated, much less enforced. Some values require for their realization information available only with one of the parties to exchange. The cost of extracting that information and/or punishing failure to act accordingly may be sometimes prohibitive, always problematic. Exchanges between a patient and her or his doctor or surgeon, or between a student and tutor come to mind. Examples may also be found in environment and ecology related matters. Fair dealings are often difficult to define in international trade or/and international financial dealings. The society would be better off relying on voluntary adherence to basic moral values than on long-winded negotiations between unequal parties whose end results often suffer in credibility. It will be a fairer world, the world where there is a greater adherence to moral values. It will also be a more efficient one, as it would avoid the cost of litigation and law enforcement to the extent of its moral betterment.
Is there a way to handle values necessary for good life but hardly amenable to legal enforcement? Can society harness morality to avoid some of the heavy costs of litigation and law enforcement? Islamic economics, which greatly values the role of moral-spiritual values in promoting human felicity, has an answer. The answer lies in demonstrating the costs/benefit of violating/voluntary adherence to these values. This is possible for Islamic economics as its very raison d’etre is the values Quran and Sunnah advocate relevant to man’s economic life. It doesn’t have to ‘discover’ the relevant values as they are rooted in human nature, indicated in Quran and Sunnah and elaborated upon in Islamic heritage with respect to various regions and periods of time in history. The present generation has only to project basic moral values onto its cultural and technological conditions. Can we do so?
Some Precedents
The value-based legal framework for the market as developed early in Islamic history can be summarized as follows:
‘ All economic transactions require the willingness of the concerned parties with the provision that goods and services transacted do not belong to the prohibited category and the transaction is free from the following corrupt practices:
1. Riba, i.e. interest on loans and exchange of unequal quantities of similar fungibles. Gold or silver or a particular paper currency must be exchanged in equal quantities. When gold or silver or a particular paper currency are exchanged with one another, the quantities can be unequal but the exchange must be simultaneous.
2. Qimar, i.e. gambling, bet and wager. The essence of gambling is taking a risk deliberately created or invited which is not necessary in economic activity, to gain thereby.
3. Ghaban, i.e. fraud, especially that relating to the characteristics of a product
4. Ikrah, i.e. coercion, or imposing a contract, or a condition therein, on an unwilling party.
5. Bay’ al- mudtarr, i.e. exploitation of need, e.g. by charging an exorbitantly high price.
6. Ihtikar, i.e. withholding supply of essential goods and services with a view to raising prices.
7. Najash, i.e. raising prices by making false bids.
8. Gharar, i.e. hazard or uncertainty surrounding a commodity, its quantity, price, time of payment, time or delivery etc.( with the provision that some little gharar can be ignored if it is humanly impossible to ignore it).
9. Jahl mufdi ila al-niza’, i.e. such lack of information about a commodity, its quantity, price, etc. as may lead to dispute.’
The Firm
The market attracts those who supply what is in demand. Suppliers wish to make profit by doing so, i.e. sell for more than it costs to produce and supply the goods and services in which they are dealing. Given the price at which to sell, profits can be maximized by producing an amount at which marginal cost equals marginal revenue, in this case the given market price. This neat formula is, however, based on certain assumptions that rarely obtain in real life. Good for drawing a diagram to show how things could work out in certain cases, it is not how the sellers actually behave in most of the cases. Prices tend to be sticky in most markets. Observations show that average cost is, in general, more important in price determination than marginal cost. Instead of profit maximization taking primacy so that prices respond to changes in demand and cost conditions, profits rise and fall to enable a degree of price stability in most markets. Firms attach greater importance to retaining their customers, i.e., their share of the market, than to maximizing profits in the short run. Only empirical research into specific markets can reveal how firms respond to changes in market price, and how they are able to influence that price and to what extent.
The above falls within the conventional view of profits as an entity measurable in terms of money, a view long exposed to have little basis in reality. Actually there are a number of factors that, though not measurable, do intrude upon the situation. Economists generally dismiss them as effective only in the long run, then never mention them again! But certain traditions and norms of behavior, conditioned by ethnicity, community feeling or sheer public opinion do impact day to day decision-making and should not be ignored.
An industry is a group of firms, producing/selling the same product. In a situation where products are similar but differentiated, a more realistic definition of industry would comprise firms producing/selling similar products. Our economy comprises a very large number of industries producing and selling all kinds of goods and services: agricultural, manufactured, communication, entertainment, education and health services, etc. Some of these services may be provided by governments, local or national. Some are ‘sold’ by non-profit agencies.
To complete the picture of the market we have to bring in the buyers. Demand for goods and services come from households as well as from firms and the government. Buyers are looking for the best bargain, the best commodity at the lowest price. Competition results in a price at which all those willing to sell are able to sell and all those willing to buy are able to buy the commodity. This is the market price. Lack of information on part of some buyers /sellers or power enjoyed because of being the only seller/buyer of a commodity, or because of being a very large seller/buyer of a commodity results in deals at a price different from what it would have been in the absence of these conditions. The market is in a continuous state of flux, changing in response to ever changing condition on supply side and/or demand side. However economists envisage a state of equilibrium at which a price equating demand and supply is established. They also imagine a state of affairs in which every firm in a particular industry is in equilibrium, so that the whole industry is in equilibrium, i.e. things do not change unless and until some of the factors determining the equilibrium, such as demand conditions change. Some go even further to envisage a condition of general equilibrium in which every industry is in equilibrium so that the market as a whole is in equilibrium. Since the notion of equilibrium prices is applicable to all markets, including the markets for labor and capital, the notion of general equilibrium has been very dear to theoreticians. It gives the economic cosmos the aura of the cosmos itself in which the heavenly bodies appear to be in equilibrium. But the idea of general equilibrium is based on very tough assumptions and is hardly of any practical significance.
Market price of a commodity is the most important signal for the suppliers (producers) of that commodity as well as for the demanders (consumers) of that commodity. But if forces other than competition are working, as they often do, the importance of the price signal decreases. In certain cases the government may intervene to regulate prices, ready to regulate production also, should it lag behind the national targets. It may be appropriate in such cases that all stakeholders participate in taking a decision. The idea of a free market is still valid but the complexity of modern life often necessitates a managed market .The crucial question is: how to ensure that market management caters to general interest rather than serving particular interests. This brings economics nearer to politics. Since the market and the related price mechanism involves the markets for labor, land and capital also (and therefore incomes of the members of society), the politics of managing the market becomes one of the central issues in modern living. The fusion of economics and politics required at this juncture has to be informed by a framework of values. Bereft of moral- spiritual values to guide it, management of money, wages, rents, and other prices (to the extent necessary) would be decided by the tug of war between various interest groups. The interest group that is able to capture the state or its important organs will use this power to maximize its advantages, irrespective of the need of the society.
THE STATE
Markets need supervision and control. Market supervision and control can be exercised, and historically has been exercised, only by the social authority. Before the modern state it had been the king or the tribal chief, sometimes partly aided by vocational guilds. In earlier times, the most important things to monitor were weights and measures, quality control and keeping of promises. The relevant tasks would be easily done by a market inspector, a mint to issue coins, an arrangement for settlement of disputes by courts or special arbitration, etc. With increasing complexities and widening scope of markets and increasing use of money and credit more elaborate mechanisms have been devised. But the essence of the matter remains the same: The market cannot manage itself, it has to be supervised and controlled by the social authority. Social welfare has always been one of the objectives of social supervision and control, besides ensuring justice and fair play. A focus on the role of state in economic management is, therefore, an essential part of economics. Islamic vision of state and its role in the economy has been in focus of Islamic thinkers since the earliest days. Building on that rich heritage and keeping the objectives of Islam in view, Islamic economics has to weave into market economics such essentials of state management as the situation demands. It has no bias against authority, nor does its adherence to individual freedom ever over ride public interest.
An Islamic theory of state envisages a representative institution. There is no place for dictatorship in Islam. Given the consensual nature of social authority, it is assigned the task of realizing the goals of the economy—the maqasid al-Shariah relevant for the economy. One of the primary goals is universal need fulfillment, there are others too discussed in the extant literature on Islamic economics. The state is authorized to use coercive power to fulfill this goal after having exhausted all means of persuasion to let the goal be realized voluntarily.
Since some prices are incomes for people, and as sustenance and survival of human beings hinges on their incomes, such prices cannot be left entirely to the market to determine. Just as social intervention in the labor market may be called for to ensure survival and need-fulfillment, intervention in some markets, e.g. those of land and real estate, may be called for to prevent concentration of wealth. The same applies to the financial markets whose regulation and control is necessary for ensuring equity as well as efficiency. The role of maqasid e Shariah in economic management has to be carefully fine-tuned so as not to jeopardize the essentially free nature of the economy. The results of such fine-tuning are bound to differ from time to time and place to place. Islamic economics cannot commit itself to any particular mix of private enterprise and public control for all times and places. Since the relevant details differ from country to country, even in the same period of time Islamic economic policies could be/would, be different in
different countries.
[It remains to cover the important areas of money and finance, labor relations and international trade, etc. I hope to attempt a sequel to this note, inshaAllah.
I wish to point out that the above Note follows a methodology different from the one on which my earlier work, Teaching Economics in Islamic Perspective (Jeddah, 1996) , was based. Assuming that modern economics is being taught to Muslim students anyway, I tried to point out what can be added form Islamic point of view. In this Note I have attempted an independent look at the economy. I hope readers especially colleagues who have been engaged in similar exercises in the past will help me by their comments.]
ادامه مطلب
محور : مقالات انگليسي + ترجمه در ادامه مطلب
Role of Shariah Experts, April 21, 2006, Harvard University, Boston, Massachusettes.
نقش خبرگان شريعت، آوريل 21 ، 2006 ، دانشگاه هاروارد، بوستون، Massachusettes.
Shariah, Economics and the Progress of Islamic Finance: The Role of Shariah Experts
Concept paper presented to stimulate discussion at the
Pre-Forum Workshop on
Select Ethical and Methodological Issues in Shari`a -Compliant Finance
SEVENTH HARVARD FORUM ON ISLAMIC FINANCE
Cambridge, Massachusetts, USA
Friday 21 April 2006
Mohammad Nejatullah Siddiqi
mnsiddiqi@hotmail.com
Discussing the role of Shariah experts in the development of Islamic economics and Islamic finance calls for a look at the nature of economics and the focus of Shariah. The chief concerns of economics over the ages have been efficiency and equity. Shariah in its broader sense that gives primacy to objectives over rules and regulations shares these concerns. However the same may not apply to shariah meaning fiqh : i.e., laws codified at a particular time and place. The historical context in which we approach our subject today sends mixed signals. The schools of traditional Shariah learning had long tilted towards teaching codified fiqh with few insights into the objectives, the maqasid al-shariah. But the new assignments given to Shariah scholars trained in these schools increasingly called for paying attention to objectives while interpreting the rules. How far have they been able to meet this challenge, is one of the questions whose answer I will try to explore. I begin by first narrating what happened in the name of Islamic economics during the last century then trying to understand where we find ourselves today and how we arrived where we are in the business of Islamic finance.
The Islamic Economics Project
Islamic economics was conceived in the early part of the twentieth century as an antidote to socialism and capitalism—an Islamic response to what were perceived as God-less western ideologies. The emphasis was on justice. Freedom from colonial rule and all that it meant in terms of exploitation and oppression was to be accompanied by a return to Islam that stood for elimination of poverty and reduction in inequalities in the distribution of income and wealth. Islam would help securing these goals without socialistic regimentation depriving people of their freedoms and robbing them of their properties. Islamic economy would not allow labor to be exploited by capitalists and the environment to be despoiled by greedy profit seekers. The appeal in all this was to the objectives of Islam, the maqasid al-Shariah. There were few references to fiqh, to Shariah in the sense of laws and regulations as codified in early Islamic history. Those who championed the alternative vision were mostly modern educated people, university teachers, journalists, political activists, poets. Even among the Ulema expounding Islamic economic system very few could be characterized as experts in fiqh/Islamic law. Even though it was asserted that Islamic economic system would be free from interest and gambling-like speculation, the mechanics of interest-free banking did not occupy the center of the stage. That came much later, in the nineteen-seventies, to be precise. That development brought in the Shariah experts whose role I propose to study and highlight, but before that there is something more to note in order to reinforce what I said above.
In the early nineteen-seventies I made a survey of writings on Islamic economics in English, Arabic and Urdu languages[1]. Out of the seven hundred items included in the bibliography only 8 date before 1920. Out of these, only 2 deal with the subject of interest, the remaining dealing with distribution of wealth (2 ) history (2 ) trade(1 ) and waqf (1). Of the 14 entries in the following decade only one deals with interest, the remaining are spread over other subjects. The first writings on interest-free banking appear in the nineteen-forties. Out of a total of 28 writings on Islamic economics during this period, three are on interest-free banking. Among the remaining zakat and the Islamic economic system in general has the largest number of writings. Though the writers in this period include Ulema trained in traditional schools, the writings on interest-free institutions are not by them.[2] We have 156 entries for the nineteen-fifties which include several writings on interest and interest-free institutions but the writings on socialism, capitalism and on some other aspects of Islamic economy far outnumber these. I have also listed all writings on interest-free banking in English, Arabic and Urdu till 1967in the appendix of my book Banking Without Interest.[3]Out of the 18 items listed 9 belong to nineteen-sixties, 2 to the fifties, 3 to the forties and 4 are not dated. Few, if any, among the authors of these books are Ulema. As the above-mentioned survey would show, most of the writings on interest-free Islamic banking came in the sixties[4] and seventies of the last century. But the flood of technical material on the subject started after the period I surveyed and that is where Shariah experts came into picture in a big way.
Shariah Experts
I have made this statistical digression to establish three points.
First, the project of Islamic economics launched in the twentieth century was much wider in scope than introduction of Islamic finance, as it was mainly focused on providing a just and humane alternative to the raging ideologies of those times, capitalism and socialism.
Second, the role of Shariah experts in launching that project was at best marginal. I hasten to add that I say this not to belittle the role of Shariah scholars but to put it in proper perspective. As we proceed to describe, they do have a very significant role in the contemporary practice of Islamic banking, much more than what we noted above in the context of early days of the Islamic economic project. But their role is rather technical whereas the main project from which Islamic finance branched out was civilizational, oriented as it was towards maqasid al- shariah, which have little to do with technicalities. As I will show in what follows, Shariah experts have been doing what their training equips them to do, and they have been doing it well. Unfortunately their training is no longer well designed to serve the maqasid al-shariah in circumstances very different from the environment reflected in the books they study. This places the entire burden of identifying the maqasid involved in any matter and finding ways and means of securing them on the individual Shariah expert. Furthermore, the Shariah advisory function also involves monitoring the consequences of adopting a certain course and, in the light of lessons learnt, changing course if necessary. Let me make it clear that the Shariah experts do care for maqasid al-Shariah. As I have argued elsewhere, there are numerous recent examples of fatawa given on the basis of maqasid.[5] The problem in my opinion is not of willingness to take maqasid into account. The challenge comes from the nature of the task in the new environment. These are tasks calling for not only economic analysis but drawing upon latest developments in other social sciences like sociology, psychology, political science and management. Lacking proper institutional arrangements for training to do the task, with its necessary backup in terms of fundamental research, instances of malfunction have been increasing in recent years causing anxieties in the market and raising the possibility of a backlash in terms of consumer rejection.
Third, it is only natural that the progress of Islamic financial industry be evaluated in the context of the larger project of Islamic economics of which it is an offshoot. That many find Islamic finance failing to serve the larger goals of Islamic economics should not be shocking in view of the short period of time since actual practice started in mid nineteen seventies and complexity of the task itself.
The first few fatawa shar’iyah dealing with Islamic banking and finance and providing us with a window upon role of Shariah experts in the development of Islamic finance date late nineteen seventies and early eighties. They originated from the Dubai Islamic Bank, Kuwait Finance House and Faisal Islamic Bank in Sudan.[6] Most of the early fatawa deal with well-known contracts like mudarabah and musharakah along with tijarah (trade). Murabaha was not in picture in this early phase, nor were salam/istina’. I am not sure about leasing ( ijarah),but it could have been on the agenda of Kuwait Finance House. Issues relating to trade dominated the scene, giving rise to questions and answers relating to guarantees and bills of trade. There was no conscious effort to find Islamic substitutes for conventional financial products (which is different from what was obviously in focus: finding Islamic ways to do what needed to be done). In the nineteen eighties the two big conglomerates, Dar al-Mal al-Islami and al-Barakah, established in the beginning of the decade, became the most important sources of fatawa, even though smaller entities like the Jordan Islamic Bank had their independent Shariah Boards some of whose fatawa are available in print.
The emergence of Islamic financial institutions (Islamic banks, Islamic insurance companies, Islamic investment companies, etc.) was preceded by lot of homework that involved Shariah experts. Some of these works are available in the form of committee reports.[7]
The involvement of Shariah experts in the project was also crucial in giving legitimacy to the newly established Islamic financial institutions. For the Muslim masses under colonial rule, western financial institutions were an extension of colonialism, an instrument of exploitation like other colonial institutions. Introducing banks and insurance companies in Muslim societies was, therefore, always suspect as the history of nineteenth century shows. Government officials and businessmen with a vested interest would have never succeeded in selling these institutions to the people.
It is time to mention state-sponsored bodies occupied with the task of ?slamization’ of banking operations in Pakistan, Iran and Sudan. Shariah experts served on these bodies, either as members as in case of the Council of Islamic Ideology in Pakistan or as advisors to the central bank of the country, a pattern followed later on in Malaysia and Indonesia, both of which have in-house committees of Shariah experts. Pronouncements of the Council of Islamic Ideology and other official bodies mentioned above are, mostly, available in print.
About this time, in the middle of nineteen eighties, big multinational financial corporations started operating in the Islamic financial market. Whereas the two biggest Islamic conglomerates, Dar al-Mal al-Islami and al-Barakah were managing funds around 5 billion dollars each at the peak of their success, Citibank, HSBC and ABN AMRO, managing hundreds of billions each started aggressively, first to prevent their rich Arab clients from deserting them in favor of Islamic banks and then to mop up the surplus liquidity in the oil-rich Muslim countries. The small but rich Muslim countries of the Persian Gulf also entered the fray at the official level. Even after the introduction of murabaha, ijarah, salam and istisna’ during the eighties, the Islamic financial market needed more sophisticated financial products to handle the estimated three hundred billion dollar funds under management at the dawn of the twenty-first century. The impulse to try duplicating conventional financial products seemed natural.
Some important departures from early practice in the matter of Shariah advisement need be noted at this stage as they may turn out to have implications for our subject of study: role of Shariah experts. Most of the Shariah experts serving the Islamic financial industry in its infancy were not well versed in the English language[8]. This changed. Western multinationals marketing Islamic financial products needed Shariah experts who could read, write and speak English. That was a scarce commodity in late eighties and continues to be so. Secondly, we find increased secrecy and reduced transparency in this later phase. Being private institutions the new entrants were under no obligations to make public all that their Shariah experts told them. Thirdly, those issuing fatawa shar’?yah in the early seventies came from an environment in which fatwa was seen as a public good. This was not obvious in an environment in which conventional legal experts charged hefty fees per hour of consultation. Following the same practice in getting Islamic-juristic advice looked fine. And lastly, wide publicity of fatawa in the early phase served the additional purpose of assuring the niche markets for Islamic financial products that they were being served the halal they cherished. But with the passage of time the importance of this function declined sufficiently to be overshadowed by the advantages of reaping the advantages of innovative moves.
Shariah Advisement Under Stress
In anticipation of further empirical research I can only surmise that the trend of focusing on duplicating conventional financial products through a kind of Islamic financial engineering started in nineteen nineties and came to dominate the scene in the new century. The most important areas seem to be sukuk duplicating bonds and tawarruq duplicating bank-loans. Leaving detailed empirical research for more competent scholars, I shall proceed to describe the mal-function in Shariah advisement that occurred in the case of tawarruq[9], as an example.
I base my opinion that declaring tawarruq to be Shariah compliant is a case of mal-function in Shariah-advisement on two grounds. Firstly, it was necessary to evaluate the masalih (benefits) and mafasid (harms) involved, as adoption of this practice on a large scale (by financial institutions) was an entirely new thing without precedents in the entire history of Islam. In the words of some scholars, tawarruq masrafi is qualitatively different from tawarruq practiced at individual levels, person to person. Secondly, evaluating masalih and mafasid in case of wide spread practice of twarruq was beyond the capacity of Shariah experts, generally speaking, as it requires expertise not provided in Shariah schools. I think it is necessary to look at the ultimate macroeconomic consequences of approving this product. It is not possible to detect the full extent of the mafsadah (ill-effects) involved without doing so. The maslaha ( benefits ) cited by those approving the product mainly relates to the individuals. Also it is smaller compared to the public harm that would occur. In accordance with the well-established qaidah (dictum), the smaller private gain has to be given up in order to avoid the lager public harm[10]. Unfortunately the macroeconomic part of the above argument never came into focus in the deliberations on the subject. The point I wish to make is: It could not be considered because the kind of training it calls for is not given in Shariah schools. The ability to conduct economic analysis in order to delineate the consequences of allowing tawarruq is not available with Shariah experts, generally speaking. Let me briefly elaborate.
One of the banes of modern financial system is the proliferation of debt. Debt instruments dominate the scene. From money creation and supply of credit to investment and capital formation, in the domestic market and at the international level, everywhere it is accelerated proliferation of debt. Islamic economists since the earliest dates but increasingly during the last three decades[11] have pointed out that almost all major ills of the cotemporary economic and financial system are rooted in this phenomenon. Domination of debts leads to instability. It creates opportunities for gambling-like speculation. It increases disparities in the distribution of income and wealth based as it is on interest. Islamic economists advocated an asset-based system of creating money and extending credit in which money loans will occupy a marginal role. The problem with tawarruq is it introduces money now, given in exchange of a larger amount of money in the future, thus opening the door for debt proliferation. As I noted earlier, arguments given in favor of tawarruq demonstrate complete unawareness of the macro economic consequences of debt proliferation.
It is not possible for me in this brief talk to go into further details in discussing the wider causes of mal-function in Shariah advisement. I only note that it occurred. I think it can occur again. I suggest the issue be discussed with the seriousness it deserves and at the level of scholarship it requires. It will be most unfortunate for the discussion to degenerate into a blame game. The matter is far too complex to be dealt with in terms of pronouncements of right and wrong, sincere or motivated, etc. To appreciate part of the complexity, let us remember that economists were always called upon to assist the Shariah experts by the sponsors of Shariah boards/ advisories. They participated in several conferences and seminars organized to sort out such matters as inflation, and indexation. They are invited to participate in non-voting capacities[12] in such bodies as the OIC sponsored Fiqh Academy, Jeddah and the Fiqh Council of Muslim World League at Mecca and the Islamic Fiqh Academy, India. It remains to be researched how far this association served its purpose. If it still left something to be desired, why? In these days of specialized expertise it may be too much to expect anyone to be an expert in the whole of Shariah or in all branches of fiqh. So how realistic it is to expect one to be an expert in Shariah and economics simultaneously? All that can be said with certainty is that the current practice of Shariah advisement/auditing, buttressed by occasional hearings given to economists, is vulnerable to mal-function. As to how to fix it, we are yet to grapple with that problem. I do not claim to offer you any quick fix. I will consider my job done if I succeed in convincing you that a problem exists and deserves your attention.
Banking, insurance and investment were not the only financial institutions taking off from the Islamic economic project launched many decades ago. In several countries with a Muslim majority the project covered other areas of the economy such as trade, commerce and international economic relations. The establishment of the Islamic Development Bank and its numerous subsidiaries is an eloquent testimony to that. Even in the countries in which Muslims lived as minorities, there have been considerable efforts to reorganize Awqaf and harness them once again in service of the goals they served in Islamic history, e.g., educational improvement and health care, etc. Also there have sprung up official as well as private institutions for collection and disbursement of Zakat. Shariah scholars had a strong role in the conception as well as direction of these institutions. Last but not the least, teaching of Islamic economics and finance, and research in related subjects, spread throughout the landscape if Muslim education with the Ulema often taking a lead. It would be rewarding to cover these areas too as they are witness to the valuable contributions Ulema have made to Islamic economics and finance. But I stop here to enable you to focus exclusively on the most important part of a vast problem.
Summing up, I would like to re affirm the important role Shariah experts played in the progress of Islamic economics and finance. However there has been some mal-functioning that needs looking into and correction. Further more, the issues we face are far too complex to be handled properly without some conceptual as well as structural changes in Shariah advisement. The future of Islamic economics and finance may well depend on rising to this challenge.
[1] Presented at the First International Conference on Islamic Economics held at Mecca in 1976 .It is included in Studies in Islamic Economics, edited by Khurshid Ahmad and published by the Islamic Foundation, Leicester , UK , in 1980.Also published as Muslim Economic Thinking (1981),Leicester , the Islamic Foundation. An Arabic translation was later published by the Islamic Economics Research Center at Jeddah.
[2] See items # 393, # 419 and # 526 in the bibliography of the survey mentioned above.
[3] Published by the Islamic Foundation , Leicester , 1983,1988,1997. First published in Urdu in 1969.
[4] These number 246 followed by 176 in the first five years of the seventies. It should also be noted that 72 out of the 700 items in the bibliography are not dated.
[5] Fikr o Nazar, Islamabad, vol. 43,no.2, Oct-Dec 2005, pp.3-24( Urdu paper on Maqasid al- Shariah and contemporary Islamic Thinking)
[6] Fatawa of the Shariah Boards of Kuwait Finance House and Faisal Islamic Bank Sudan are available on their respective websites (www. kfh. Com) and (www. fibsudan . com) The website of Dubai Islamic Bank (www.alislami.co.ae) does not give details nor are its fatawa available in print, to the best of my knowledge. However several collections of fatawa from different sources are now available in print, on CD ROM and online. Among them: Economic Fatwas marketed by Harf and available online at (www.harf.com). Also see( www.al-islam.com)
[7] See, Siddiqi , M. N. Banking without Interest (1997), pp.185-88.
[8] Names and brief CVs are available on some of the websites mentioned above.
[9] One who needs cash first buys something on credit, becoming indebted for a certain sum of money to be paid at a future date, then sells that thing for cash. The cash to be paid in future is larger than the cash one gets in the present. This method , used earlier for tiding over individual difficulties has been recently institutionalized by some Islamic financial institutions. Some material is available on
the Internet. Google the word tawarruq .I have briefly dealt with the issue in: A Survey of the State of the Art in Islamic Banking and Finance in Theory and Practice, to be published by the Islamic Research and Training Institute, Islamic Development Bank, Jeddah. One recent writing on the subject is: Ahmad Mohammad Khalil al-Islamboli, al-murabahah wa’l ?nah wa’l tawarruq bayn usul al- al-bunk wa khusumih, Journal of King Abdulaziz University : Islamic Economics,Jeddah,vol.18/2005,Arabic Section,pp.59-68,available at the website(http://islamiccenter.kaau.edu.sa/english/index.htm,).
[10] See rule # 26 in The Majelle , Lahore, 1980, Law Publishing Company.
[11] I have reported some of these works in the fourth chapter of my book: Riba, Bank Interest and the Rationale of its Prohibition, 2004, Jeddah, Islamic Development Bank, Islamic Research and Training Institute, available at the website (www.irti.org)
[12] Reporting this does not imply that the practice is efficient or correct. The economists are there to elaborate upon the maslha aspect of the issues under discussion which are decisive in matters that are not covered by texts of Quran and Sunnah or analogical reasoning based on textual laws.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در ادامه مطلب
ECONOMICS OF TAWARRUQ How its Mafasid overwhelm the Masalih
اقتصاد TAWARRUQ چگونه Mafasid خود را پایمال Masalih
A position paper to be presented at the Workshop on Tawarruq: A Methodological issue in Shar?`a-Compliant Finance February 1, 2007
Mohammad Nejatullah Siddiqi?
This paper examines the impact of tawarruq on the economy. It demonstrates through macroeconomic analysis that the harmful consequences of tawarruq are much greater than the benefits generally cited by its advocates. It concludes that a financial instrument whose mafasid (harms) are much greater than masalih (benefits) cannot be characterized as shar?`a - compliant. TAWARRUQ Tawarruq is the mode through which some Islamic Financial Institutions (IFI) are facilitating the supply of cash to their clients. The client— the mutawarriq—buys X on deferred payment from the IFI and sells X for a cash amount less than the deferred price to a third party. Also tawarruq enables IFI to guarantee a predetermined percentage rate of return to its term-depositor, buying XX from him/her on deferred payment then selling XX for cash, the deferred payment being larger than the cash price. Every tawarruq transaction creates a debt. Furthermore, the debt a tawarruq transaction creates is invariably larger than the cash it transfers to the client---the mutawarriq, in the first case, and to the IFI in the second case (mediated in both cases by another transaction). In what follows, we trace the macroeconomic consequences of both: creation of new debts and the fact that the debt is larger than the cash received. But before doing so, let us examine the potentials of the new creation: the paper resulting from tawarruq. As it currently stands, both in the conventional and in the Islamic financial markets, debt documents, like those resulting from tawarruq, are subject to repeat financial and speculative transactions. At their limit, these transactions sever all links with the real assets with which they could have been associated with at the start (assuming the cash so acquired result in the production of wealth). This process leads to an inverted pyramid of financial instruments with a small asset base. The process also moves the transaction of tawarruq from that of the asset market to the money (debt) market, where the underlying signaling and equilibrating mechanisms no longer are linked to the real market. ROLE OF DEBT IN THE ECONOMY Mere debt creation does not increase the net wealth of society as every addition to social wealth through it is cancelled by deduction of a similar amount of wealth owed. Meanwhile the cash acquired through a debt can be put to uses that may or may not result in actual wealth creation. If wealth is in fact created, it may be equal to, larger than or less than the cash input. The economic consequences will be different in each case. If the additional wealth so created is larger than the cash invested, then society stands to gain in view of the net increase in social wealth after the debt is repaid. If the additional wealth is equal to the cash invested and, therefore, to the resources used, there is no net gain, as the social wealth remains what it was, after the debt is repaid. In case the cash invested results in wealth creation but by an amount less than the cash invested and the resources used, society is poorer to the extent of the loss, as the borrower must repay the debt by compensating for the loss out of existing wealth owned or acquired by him/her. The same applies to cases in which invested cash is totally lost, no wealth creation having taken place. In both cases a redistribution of wealth in favor of the creditors is involved.
? I am grateful for the insightful inputs from Professor Mohammad Anas Zarqa and Dr. Abbas Mirakhor.
1As a method of creating additional or new wealth, debt creation (or debt finance) is inefficient as well as inequitable. It is inefficient as the finance so provided goes not for the most promising projects for wealth production but to the most credit-worthy borrower. It is inequitable as it redistributes wealth in favor of suppliers of finance, irrespective of actual productivity of the finance supplied. Since both these points are well argued in Islamic economic literature, I will not repeat them in this paper.2 One important point to note, to exchange money now for more money later is fundamentally unfair due to the uncertainty that accompanies the passage of time. Money needs to be converted into goods and services before it can enter into the process of production, the source of possible additional value creation. The results of such process of production have to be reconverted into money before money can be paid back to the one who gave it in the first instance. THE MARKET FOR DEBTS Debt instruments can easily change hands. The economic consequences of this fact are independent of the terms on which debts change hands. These terms have their own consequences. The key aspect of this equation is what happens to a debt instrument between the time it is created and the time it is extinguished on repayment. Owners of debt instruments can benefit from these instruments in a number of ways. Financial innovations are providing them with newer and novel ways all the time. Debt instruments are substitutes for other forms of wealth, e.g. as securities can bring in some payment over and above their repayment. Insofar as they are substitutes for cash (generally but not necessarily at a discount) they can be characterized as near money. These uses of debt instruments create a demand for them that increases as the economy grows and the market expands. With ever-increasing supply and demand, we have a market for debt instruments. Like in every market, speculation plays a role in debt markets too.3 But the special nature of debt instruments enhances the role of speculation in this market to a degree unmatched by any other market. Debt instruments are very heterogeneous.4 The probability of a debt being repaid as promised varies from debt to debt, depending on the debtor, the guarantor if any, and the country of origin. There are no standard, uniform methods of evaluating the quality of debts with respect to their recoverability. Debt prices are also vulnerable to wide fluctuations in response to news, even rumors. Instances abound of manipulating debt prices by planting false news or manufacturing rumors. All these factors account for the observed reality of the market for debt instruments being much more vulnerable to gambling-like speculation than the markets for goods and services. In short, it is better not to have a debt market. However, by allowing tawarruq, this leads to a debt market. THE DISCONNECT BETWEEN THE REAL MARKETS AND THE FINANCIAL MARKETS The emergence of a market for trading in debts transforms the economy in a fundamental way. As compared to the situation in which all trade was focused on goods and services (or papers representing ownership rights over goods and services), this new economy has a new tier. This tier is a super economy focused on creation/production and trading/distribution of and benefiting from the consumption of debt
1 For detailed references and a summary of literature see, Siddiqi , Mohammad Nejatullah: Riba, Bank Interest and the Rationale of its Prohibition (2004) Jeddah, Islamic Research and Training Institute, Islamic Development Bank, chapter 4. Also, Khan, Mohsin S and Abbas Mirakhor (eds) [1987] Theoretical Studies in Islamic Banking and Finance, Houston Texas, The Institute for Research and Islamic Economics; Mirakhor, Abbas (1995) ‘Theory of an Islamic Financial System”, in Encyclopedia of Islamic Banking and Finance, London, pp. 31-49; Abbas Mirakhor: Globalaization and Islamic Finance, Paper presented at the Sixth International Conference on Islamic Economics and Finance, Jakarta, November 21-24, 2005. 2 On speculative finance, see Minskey, Hyman P.: Stabilizing an Unstable Economy (1986) Yale University Press, New Haven and London, pages 43,117 and 177. 3 Stiglitz, Joseph E. and Bruce Greenwald: Towards A New Paradigm in Monetary economics (2003),Cambridge University Press, page 271. 4 Gambling inheres in creating a risk for the pleasure of betting on it. Normal business speculation inheres in expectations of price changes. Gambling-like speculation maneuvers expectations in order to profit thereby.
instruments. What is the relation between the two, the real market and a financial market dominated by debt instruments? In what ways are we human beings benefited or harmed by the ways in which the two interact? These are questions too big to be answered in this paper. But we can nevertheless hardly afford to ignore these questions. Before we venture to offer some answers, let us note another development that naturally accompanies the emergence of a market for debts. Like all other markets, people can make money by also playing in the debt market, that is, by borrowing further to do this. The prospects of doing business in the debt markets tend to increase the volume of debt in the economy. The larger the volume of debt is the greater the scope for speculation. Furthermore, the debt market is, generally speaking, more speculative than the market for goods and services as debts extend way into the future. Expectations regarding future values could exercise greater influence on debt prices than on the prices of real assets. Also, it is in the nature of speculation to invite more speculation. Thus, the market for debt in a competitive economy tends to be increasingly speculative with the passage of time. People enter the real market in order to profit from the enterprise of producing and selling goods and services that are in demand. When those seeking profits enter the debt market, there is a diversion of entrepreneurial talent and resources to an activity that does not increase the social wealth as we have seen earlier. Insofar as making money in the debt market results from gambling-like speculation, the distribution of income and wealth in the society tends to get distorted. Society suffers on both counts of efficiency and of equity. The normal connect between the real and the financial market is a one to one correspondence between real and financial assets. Financial instruments representing ownership of real assets and deferred prices of real assets, conform to this rule. However, debts do not belong to this category. A debt instrument does not represent any real asset. As noted above tawarruq generates debts, adding to the hiatus between the real sector and the financial sector of the economy. This is at odds with the Islamic economy that claims a distinct advantage over the conventional debt based economy in effecting a closer integration between the real and the financial sectors. It is important to point out that the common assertion that tawarruq does integrate between the real and the financial assets as it involves the sale and purchase of real assets as opposed to lending and borrowing with no real asset sale and purchase in between, is not sustainable. As noted by almost all scholars, a single car enables dozens of tawarruq deals without moving from its spot. Therefore, the financing facilitated by tawarruq, like its counterpart, lending in the conventional system, is free and unhinged from the real sector of the economy. IMPACT OF EASY AVAILABILITY OF LOANS Borrowing is a serious business as it adds to one’s obligations. Excepting cases of dire (consumer) needs, it would be irrational to venture into indebtedness unless one is fairly sure of using the command over resources so obtained for producing added value (or of future income from other sources). But uncertainty of future values makes this surety less than perfect. It is in the interest of all concerned, that indebtedness is incurred with due care so that failures causing pain and suffering are avoided. The social mechanisms developed over centuries to enforce due care include collaterals, penalties consequent upon failures to meet obligations and social ostracization. In earlier days, the same applied to governments and foreign nations. But the past few decades of aggressive debt financing have moved away from these earlier norms, a movement further accentuated by the flood of liquidity resulting from the oil booms in recent times. Borrowing made easy has resulted in mountains of credit card debts and other consumer debts, government borrowing has skyrocketed and loans have been thrust upon third world countries with little prospects of repayment. The Islamic prohibition of interest serves as an effective check on the above trend as it shifts lending to the voluntary sector, as an act of charity rather than for business. The only exception is the traditional trade
credit whose economics are entirely different from bank lending.56. Tawarruq sabotages this unique feature of Islamic finance by introducing lending as a means of doing business. It makes it easy to borrow. It puts IFIs on par with conventional financial institutions, both under competitive compulsion to lend in order to make use of surplus liquidity. MONEY AND ITS MANAGEMENT IN A DEBT-BASED ECONOMY Money creation as well as monetary policy, including monetary expansion, in a debt based economy proceeds on the basis of debt. Money issued by the central bank, by derived bank deposits as well as money created by the commercial banks are based on debt. As the money supply increases to meet the increasing demand due to increases in population and rising incomes, so do the volume of debts. As we have seen, larger volumes of debt have been associated with enhanced speculative activity leading to greater inequities and instability. The larger the volume of debt, the more the gambling like speculation, and the greater the redistribution of wealth in favor of the rich. It has been rightly argued that monetary management in an Islamic economy will be free of this defect. Monetary expansion will mainly proceed on the basis of investment. As regards the fiat money issued by the central monetary authority, a number of possibilities are being explored, but debt creation does not figure among these possibilities. Another common feature of all proposals about monetary management in an Islamic economy is to keep money supply linked to the needs of the real sector of the economy. This is seen as the most effective way of keeping inflation under control. The introduction of tawarruq into the body of Islamic economy is sure to act like a virus destroying its immune system that which would protect it from increasing indebtedness leading to speculation, monetary fluctuations, instability and inequity. It is important to note, at this juncture, that there is nothing wrong about debt at the individual level. It is not fasad. Lending and borrowing at the individual level is harmless. What corrupts the financial system is debt proliferation in the economy and money creation through debt creation. It is a monetary system based on debt creation and speculative finance based on debt that amounts to fasad. The insight that distinguishes between the impact of an act at the micro level and its impact at the macro level was not available to us before the advent of macroeconomic analysis. From individual instances of debt here and there to an organized debt market is a qualitative change calling for a fresh assessment of its impact. THE PRICE OF MONEY We noted above that the debt created by a tawarruq transaction is larger than the cash obtained through it. This disparity has its own consequences. One of these consequences is the compulsion to create additional wealth through the use of the cash so obtained. But the environment in which enterprise is conducted does not guarantee this. Insofar as the cash was obtained for non-productive uses, even the possibility of creating additional wealth does not exist. This creates a situation that cannot be handled except through transferring part of the existing wealth to the creditors and/or creating more debts in order to meet the contractual obligations of the debtors. The inequity of either “solutions” is obvious. In effect, it takes us back to an interest based lending system with all the ills associated with that regime. It is an unfair transfer
5 The far-reaching consequences of this change are too many to be assessed in this paper. As an example, consider this insightful remark: “The most important difference between investment model with debt and equity financing is that in the latter the firm is not in a position to exercise discretion in the determination of its level of investment. It can do nothing but passively adapt investment to what the market is willing to supply.” Jan Mossin, Theory of Financial Markets (1973), Prentice Hall Inc. Englewood Cliff, N.J., page 160. The author further observes that, “the fact that the share prices and the allocation of investment capital among firms are determined in the market rather than in the firms themselves represents a kind of investor sovereignty which may have a certain appeal on ethical grounds (whatever it is).” Ibid, page 162. See also, Mills, Paul S. and John R. Presley. Islamic Finance, Theory and Practice. Macmillan Press, UK, St Martin Press, USA. 1999. pp.77-78. 6see fn. 5 above
7of wealth; it is inefficient as it penalizes entrepreneurs and rewards rentiers; it leads to instability as it creates obligations irrespective of whether they can be met or not. On the level of the economy as a whole, the compulsion for economic grow is created by the fact that the total amount to be repaid is invariably larger than the total amount obtained through loans and this has devastating consequences. It leads to overuse of natural resources and is very destructive of the environment. Since the increased payment must also follow a timetable, it increases anxiety levels by enforcing rigid timetables all round. It is also one of the factors leading to commercialization of almost all spheres of life, including family relations, education and health care as these spheres too come under debtfinancing with its compulsions of repayment with an addition at an appointed time. CURRENT SITUATION The history of tawarruq in Islamic finance has hardly completed its first decade. Yet its practice has been expanding due to its endorsement by a section of shar?`a scholars. Juristic discussion has been focused primarily on the contractual aspects and little attention has been paid to the masalih-mafasid calculus, which is so important in public policy and financial transactions. Even the recently issued AAOIFI “standards” are blissfully oblivious to this essential dimension of Islamic Law, with its considerations of largely the masalih. Other than the two pure forms mentioned in the opening paragraph of this paper, hybrids of tawarruq in sukuk and leasing instruments are becoming popular everyday. All efforts to block sale and purchase of debt (bay’al-Dayn) have come to naught, as effective ways have been found to circumvent the prohibition This is often through making debts a minority part of a large pack of assets. The market has enthusiastically welcomed this development mainly because it takes us back to familiar grounds long trodden under conventional finance.
8 As a result, several scholars who approved tawarruq in the first instance are raising their voices against its indiscriminate widespread use. But profit-maximizers have rarely been amenable to moral exhortations. The Islamic debt market in Malaysia is leading the way9, with the Gulf following. The shar?`a scholars in Malaysia have allowed sale of debt10. Those in the Gulf area who disallowed it, permitted inclusion of amounts receivable as a minority component in a larger package of securities. The end result is no different: all debt-obligations are now sellable. An effective check on the spreading virus needs treating tawarruq as a matter of public policy, focusing on the harms (mafasid ) associated with it and declaring it not suitable for a modern Islamic economy. HARMFUL EFEECTS (MAFASID) OF TAWARRUQ The calculus of masalih and mafasid has been an essential tool of Islamic jurisprudence since the earliest days. Behind that calculus stands the Islamic view on life, the purpose of honoring humankind by laying the resources of the universe at their disposal so that life is sustained for all, and the command from Allah that wealth be shared equitably. Measures that increase inequality in the distribution of wealth and lead to its concentration do not qualify in that framework. The same applies to the strategy of risk-shifting, i.e. debt finance, as compared to risk-sharing involved in other Islamic modes of finance.
8 7 The Islamic debt market is currently estimated to be $10 billion in size. Vide, Gulf Times, 8 March 2006. According to the Star online, December 11, 2006:” In the debt market for instance, Islamic bonds account for 66% of total new corporate bond issued to date. Islamic bonds are expected to trend higher to 88% of total corporate bonds issued by end 2006.” 9. Securities and Exchange Commission (2002) Resolutions of the Securities Commission, Syariah Advisory Council, Kuala Lumpur, March 2002 10 Some good readings on the subject are : Abdul Wahab Khallaf (1955) Masadir al-Tashri’ al-Islami fi ma la Nassa fih, Egypt, Matabi’ Dar al-Kitab al-Arabi.; Husain Hamid Hassan, Fiqh al-Maslaha wa Tatbiqatuha al-Muasirah (1993) Jeddah, Islamic Research and Training Institute, Islamic Development Bank, especially pp.39-48.
It will be useful at this stage briefly to recount the harmful effects (mafasid) of tawarruq.
• It leads to creation of debt whose volume is likely to go on increasing. • It results in exchange of money now with more money in future, which is unfair in view of the risk
and uncertainty involved. • It leads, through debt proliferation, to gambling like speculation. • It leads, through debt finance, to greater instability in the economy. • In a debt-based economy, the money supply is linked to debt with a tendency towards inflationary
expansion. • It results in inequity in the distribution of income and wealth. • It results, through debt finance, in inefficient allocation of resources. • It contributes, by consolidating debt financing, to raising anxiety levels and destruction of
11environment. It is worth noting that giving priority to public interest over individual interests has been an accepted principle in Islamic jurisprudence. The benefits of tawarruq to individuals in certain circumstances must be over ruled in view of the huge public benefits of not allowing it. It will, however, be necessary to make some social arrangements for taking care of the individual problems sought to be solved through tawarruq. The subject we are considering is not the permissibility of a certain activity. Rather it is a matter of public policy on which hinges the welfare of society as a whole. We are duty-bound to examine whether tawarruq leads to fasad or salah. In verse after verse the Quran tells us that Allah does not like fasad or those who perpetrate fasad.12 The great jurists all emphasized examining maslaha and mafsadh as measures under consideration not specifically mandated by text. WHY THE FUQAHA DID NOT SAY NO TO TAWARRUQ? The above raises a tricky question: How has a whole array of Islamic jurists in the past, starting as early as the second century hijri, have allowed tawarruq? Two facts explain the apparently puzzling situation: The Fuqaha in the past were dealing with a different world, and the tools of macroeconomic analysis, required to find out the harmful effects of tawarruq, were not available to them. The harmful impact (mafasid) of tawarruq on the economy as a whole, to the extent present, were not visible at the time, whereas its benefits (masalih) in certain individual cases were easy to see. Let me first elaborate, though briefly, the first point. Debt did not play as big a role in the economy during the times our fuqaha as it plays today. Money was not based on debt. Debt instruments hardly existed, much less traded. There was nothing even remotely resembling the debt markets of today. Traders’ speculation focused on prices of real goods and services rather than that of debt instruments. Economic fluctuations originated in droughts, famines and crop failures or in big changes in population rather than in the financial sector. Debt financing of business was secondary. Trade, industry and agriculture were largely financed by self-owned wealth, trade credit, partnership and sharing. Loans (based on interest) did exist but their role was not dominant.
12 11 Al-Quran (2:204-05; 28:4; 30:41; 26:150-52; 7:74). . As Ibn al-Qayyim put it: “Everything that lapses out from justice into injustice, and from mercy into its opposite, and from maslahah to mafsadah, and from wisdom into the frivolous, does not belong to shar?`a, even if it is inducted into it by interpretation (ta’wil ).” Ibn al-Qayyim (n.d) I’lam al- Muwaqqiيn.., Egypt, Matbaah Muniriyah, vol.3,page 1,also see vol. 4,pp 309-11. Earlier, Izzuddin Ibn Abdussalam had noted that: shar?`a is focused on what is good for human beings. (Izzuddin Ibn Abdussalam (1955).Qawaid alAhkam,Cairo, Maktabah Husainiyah, pages 65-66.
Macroeconomic analysis that deals with rates, ratios and entities related to totals or large numbers was not feasible without empirical studies yielding data—numbers and statistics. The early social scientists, which our great jurists no doubt were, had to make do with direct observation and reports about the past. Projection of current tendencies into the future was a matter of conjecture at best. Juristic thinking was dominated by analogical reasoning. Empiricism played a little role, though through the familiar categories of istihsan, istislah, urf , sadd zara., These speak volumes about the pragmatic approach of the great jurists with whom these categories are associated. But for reasons that can hardly be elaborated in this paper, later day developments leaned heavily on systemized analogical methodology and avoided the nebulous methods based on intuition and empiricism. CONCLUSION Islamic economic movement was launched to usher in a financial system that would help remove the zulm and fasad, inequity and inefficiency, perpetrated by the currently dominant system based on debt. It is our duty not to endorse a process that could someday take us back to the same system. That this should happen at a time when globalization, financial innovation and the spread of information technology is generating a move towards greater reliance on equity participation and asset based financing at the world level, is ironic indeed. An innovative recourse to sharing based modes and asset based financing may get a boost from closing the door to tawarruq.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در ادامه مطلب
Relevance And Need For Understanding The Essence Of Religious Traditions, April 8-10, 2005, New Delhi, India.
ارتباط و نياز به درک ذات سنت هاي مذهبي، 08-10 آوريل سال 2005 ، دهلي نو، هند
Relevance And Need For Understanding The Essence Of Religious Traditions In The Contemporary World
[Paper presented at the International Seminar on:
INTER-CIVILIZATIONAL DIALOGUE IN A GLOBALIZING WORLD,
Institute of Objective Studies, New Delhi, 8-10 April 2005]
Mohammad Nejatullah Siddiqi mnsiddiqi@hotmail.com
Ever since the human race was launched on earth it was destined to live together. That was an added challenge to the challenge of coming to terms with the environment and with life itself—the inevitable questions of why, wherefrom and whereto. Religion came to help mankind in facing all the three challenges. Broadly speaking it did so by connecting men and women to God and reassuring mankind that the environment too owed its existence to Him. Religion thus became a source of harmony protecting from schizophrenia, depression and conflict.
What about the contemporary world? Instant communication, fast dissemination of information, shrinking of space and removal of many barriers, has elevated ‘living together’ from the status of a metaphor to that of description of reality. Cultures intermix, dress codes change and cuisines cross-fertilize. Gone are the days of living in exclusive communities, comprising one’s coreligionists only. Living spaces are now increasingly shared by individuals and families belonging to different ethnic groups and speak different languages. Added to these needs for adjustments are some new worries.
Expanding markets create new opportunities but individuals and groups face new risks and uncertainties. The strong find new weapons while the weak seek new alliances to defend themselves against hegemonic designs. Anxieties increase, depression deepens, conflicts multiply. But the system itself fails to reverse these destructive trends or release forces that could successfully counterbalance them. National governments as well as supra national organizations, instead of solving the problem increasingly appear as part of the problem. The need for a harmonizer was never greater. Could recourse to the religious traditions serve humanity at this critical juncture? Could religion play, once again, the positive role it played at the dawn of human society?
Some demur, saying: Never again! They see religion as a divisive force, pitching persons against persons, groups against groups. Some feel religion robs men and women of their reason, their independence of mind, their freedoms, in effect enslaving them to other humans claiming to be their guides and mentors. Religions, certain about the truths they bear, lack tolerance for others, eventually making their adherents fanatics. Religion, they claim, is by nature paternalistic and authoritarian, discouraging creativity, innovations and experimentation that have been sources of progress. They find religion in history entertaining hegemonic designs serving easily as tools in the hand of colonizers and imperial powers. Many a war has been fought in the name of religion spilling innocent blood, they assert.
Spokes-persons from every religion have come forward to ward off these allegations and defend their positions. Mistakes of the past should not stand in the way of realizing potentials for the future, they rightly suggest. Focus on the essence of the religious traditions rather than being bogged down by the details, many of which might well turn out to be transient or space-bound, they argue. They are being heard. They have to be, as the dominant paradigm fails to prove it can correct itself. There is nothing in the secular tradition to restrain greed, limit hegemony or replace exploitation by fair distribution of wealth and income. Materialistic philosophies provide no credible basis for justice and equity, without which there can be no peace. Pragmatism was always a tool of the strong and resourceful, justifying their exploitation of the weak and the poor.
As a student of Islam it will be my endeavor to explain how Islam answers the needs of contemporary humanity. I will also argue that the Islamic approach is not essentially different from the other religious traditions so that forging a common platform is very much possible. A common minimum agenda for the rescue of contemporary humanity evolved jointly by religions could also accommodate the aspirations of any and all that would still like to keep away from religions. That kind of non-confrontational, accommodative platform would not only be the right venue for dialogue between civilizations. It could well be the harbinger of a new era of peace and prosperity, free of tyranny and destitution. But all that requires a fresh understanding of the essence of religious traditions. The crucial question is, who will do that?
Islam as essential religion
Man-God relation defines as well as shapes all other relations in Islam—relations between man and man as well as relation between man and environment, for example. Since man-God relation is based on choice free of coercion, freedom and non-coercion becomes the prior most essential tradition. The fact that man-to- man relations are under the umbrella of man-God relation inculcates a sense of equality and shared dignity. Environment as God’s gift to accountable-equals, sharing the God-given space becomes a partner in the art of living together. Conflicts arising at any level in any one of these relationships should be regarded as inappropriate and disruptive of good life. The method of conflict resolution befitting moral equals would be democratic and none else. Islam links peace with faith and avoidance of inappropriate behavior:
Those who believed and did not mix their faith with inappropriate behavior, they are the ones who have peace and who are on the right course.( 6:82)
The Quranic word translated above as ‘inappropriate behavior’ is zulm. Lexicographers render it as placing things in wrong positions ( wad ‘ al-shay’ e fi ghair e mahallihi).It is also rendered as transgression or oppression, depending on the context. One example of zulm would be denying dignity to any human being as according to Quran dignity belongs to humans qua humans (17:70).This along with the nature of life on earth as a test (67:2) and the principle of non coercion (2:256) firmly places a Muslim’s relation with the non-Muslim humanity as that of equals in being God’s people whose right to chose is recognized, without an error in choice affecting his or her dignity as a human being.
I hope I will not be misunderstood when I say that a person’s right to chose necessarily implies another person’s right to disagree from him or her. We the fraternity of religious people should not flinch in accepting that idea. The conviction that one is right, with the corollary that someone else is wrong, is nothing to be embarrassed about. It is not bigotry. It does not necessarily lead to fanaticism. What corrupts society and destroys peace is the desire of some to lord over others, to deprive them of their right to choose, to violate their dignity by coercing them into a way of life they did not chose. Islam rejects that approach and so do all religions worth the name. So let freedom with dignity be the first plank of our common agenda.
A Common Agenda
Social equality, democratic decision-making and economic justice tempered with equity are in line, next to freedom. Each one of these can be supported by the sacred texts of Islam. I am sure the same would be true of all world religions represented here. Instead of taking your time by producing references and cross-references, I proceed to note that these are also the core values required for meeting the aspirations of human beings the world over in the wake of globalization. But, unfortunately these are the very values large masses of humanity are being persistently denied. Further to lament is the fact that these are the masses that declare allegiance to religion. What went wrong? Does the blame lie entirely on the ‘other’, the former colonizers and/or the hegemonic superpower? Or, did religion as shaped by layers of corrupting influences over centuries fail to sustain these values in practice? Why and how do hegemonies persist despite being out of tune with the will of humanity at large? Why and how do religious communities fail to cleanse themselves of the unwanted accretions that submerge their core values under a morass of rites and rituals? Analysis and soul- searching leading to light rather than unproductive heat and self-destructive rage are what we owe to ourselves and to posterity.
Meanwhile I humbly submit that no system of core values bereft of a spiritual basis can sustain itself. Rational agendas collapse when under attack by racist or fascist forces. It is only faith in a just God that can sustain morality that is universal in its scope, unqualified by nationality, ethnicity, religion, color or caste. Social equality, democratic decision-making and economic justice, tempered with equity, are not sustainable by mere slogans or pragmatic platforms. These values must be internalized by individuals before they can be actualized in institutions and organizations. They must come to them naturally, as they would in the wake of faith and accountability. They are the values unbiased nature of man cherishes, before one is (falsely, I think) led to believe that one’s survival or/and progress requires one to tolerate inequality, allow exploitation of some, deny democracy to others and opt for double standards in dealing with the ‘other’. Once that fallacy is exposed, and an appeal to the good sense of men and women is made from their counterparts in all and every religious group, we can expect positive response from all quarters, including those benefiting from the status quo.
I will be the last person to entertain a utopian dream of moral appeals bringing down empires and ushering in a regime of fair distribution of wealth and power across the globe. A struggle may well ensue. But the strength required to win in that struggle can come only from a clear moral stand, universal in its appeal, unfettered by the past baggage many of us are carrying.
Responding to the Challenge
That, I think, is the challenge religions are facing. Steering clear of the blame game and cutting across the web of conspiracy theories, can we reach the hearts and minds of contemporary men and women to inculcate in them the above mentioned core values by reconnecting them with the source of all value? It is no small order as it calls for a measure of humility and self-sacrifice not very visible in our ranks, the ranks of the advocates of great religions. Deliverance lies in suppressing the ego and effacing the self. Let individuals reconnect to the divine. Let them do it on their own without imposing on them our dated interpretations of the sacred texts. Trust them. Make them aware of the stakes. Tell them nothing less than the very survival of human race is involved. Encourage them to rise above the parochial and the transient and target the universal and the durable, but do not dictate recipes out of secondary texts long outdated. Give them time to think, discuss and experiment..
Can we rise to this challenge? Need we?
We do, for two reasons. Firstly, the energy that is released by one’s drawing inspiration from God through His revelation and worship cannot come by following guides and mentors themselves as far removed from divinity as any other seeker. We need that maximum level of spiritual strength and moral conviction in religious communities for successfully resisting the onslaught of secular materialist globalization. We also need it for building a new world order based on spirituality, morality, equality, democratic decision making and economic justice tempered with equity. The selflessness that comes out of direct allegiance to God eludes those who must connect with Him through intermediaries no better than themselves. The humility needed to prevent chauvinism taking over the global project for reconstruction eludes those whose heads are not permanently lowered in His presence that is always around.
Yet other reason every man and woman must be encouraged to seek guidance directly from the source is the novelty of the situation in which we find ourselves. Nothing similar ever occurred in history. We need unfettered exercise of human ingenuity. We need untutored reading of the sacred texts. For these two are the only sources of fresh ideas and new guidance suited to meet the challenges of change: the word of God and the human capacity to think, observe, imagine and intuit…Religious mentors who deny these sources to the common man, claiming a monopoly of these sources, commit the gravest of all sins. They have no right to do so. They do not have a divine mandate for appropriating the role of interpreting God .Nor can they justify their claim that they are better equipped for intellection and intuition than other people. The question then is, why do they do so?
I think they are afraid. They think people will make mistakes. Men and women will err in reading and understanding the sacred texts and they will err in thinking about their new problems and arriving at correct solutions. Different people will come up with different interpretations and suggest different solutions. There will be chaos. Chaos is bad enough but chaos in the name of religion is unacceptable as it may destroy the very credibility of religion, they fear.
I will submit two points for consideration in this regard. Firstly, these fears are ill founded and exaggerated, without any basis in history. And, secondly, the alternative course of action they are adopting bears no promise of redeeming the situation.
Taking the first point first, I would remind all concerned that it is God Himself Who invited His people to read the text, or listen to it being read to them, ponder over it and be guided by it. He also urged them to think, observe, travel, dialogue, introspect…and draw lessons.[1] God knows His people better than we might ever know them. We must resign ourselves to His ways and trust men and women in seeking guidance directly from the sacred texts. We must not deter them from thinking independently on the problems facing them. The fresh understanding of religious traditions needed at this hour need not be a prerogative of the elite in religion. It will simply not do. In order to be really effective it has to come from the grass roots and encompass all.
It should also be expected that in their independent pursuit of guidance men and women will adopt all the ways and means available, such as exchange of views, analytical survey of experiments past and present, researches, simulations, etc., etc. They are expected to avail themselves of the services of their religious guides if and when they need them. But these services should not be imposed on them. All that religious guides and mentors need do is try keeping their followers focused on the main project: a world order characterized by morality, equality, democratic decision-making and justice.
There is no alternative. No religious establishment has so far been able to launch such a project. No religion has been able to initiate a mass movement against the onslaught of secular, materialist hegemonic globalization. The probability that any one of them may be able to do so in future is accompanied by the certainty that its appeal will be confined to its own followers, unable to cut across the religious divisions. What we need is universal focus on a spiritually defined order that affords all religious traditions equal opportunity of contributing. Going back to the grass roots and seeking guidance directly from whatever is recognizably divine in human heritage, in the full glare of reason and intellect aided by intuition, imagination and all kinds of inspirations……, is the only course of action with some chance of success. Let us mobilize all our resources in favor of such an agenda. God willing, we shall succeed.
[1] I can quote only from Quran See 96:1;34:46;16:44;22:46; 6:98;7:185 .;12:109;28:72;35:29;2:121, among other verses.
ادامه مطلب
محور : مقالات انگليسي + ترجمه در ادامه مطلب
Economic Benefits of Islamic Leasing, April 24, 2005, Kuwait.
مزاياي اقتصادي از ليزينگ اسلامي، 24 آوريل سال 2005 ، کويت
ECONOMIC BENEFITS of ISLAMIC LEASING
مزاياي اقتصادي از ليزينگ اسلامي
ECONOMIC BENEFITS of ISLAMIC LEASING
Mohammad Nejatullah Siddiqi
mnsiddiqi@hotmail.com
INTRODUCTION
Finance is very important for the economic welfare of people, next only to division of labor. It is finance that enables one to produce what one expects others to buy, thus enabling one to earn a living. With greater specialization, longer periods of production and larger markets, finance grows in importance.
Finance inheres in one wealth owner’s money being made available to another for use, i.e., for acquiring goods and services needed for consumption or production. With the exception of charity or gift, finance always involves two things; repayment and return on the money given.
The theory of Islamic finance in its early days focused on profit sharing. Experience soon added trade based modes of finance, beginning with murabaha /bay ‘ mu’ajjal. To this list was soon added ijarah (leasing),
Salam (pre-paid orders) and istisna ‘ (ordering manufactured goods with promise to pay on delivery, or even earlier). It is interesting to note that these ‘Islamic’ contracts (given this name because of there having been adapted early by Muslims despite their pre-Islamic origins) were not originally for financing. They were only recently adapted to play that role. In fact they have a double role. Each one of them can be practiced, and sometime is actually practiced, in its original, simpler way, as a mode of trade. But they are discussed in the theory and practice of Islamic finance in their more developed, modern-Islamic sense of being a means of financing.
Trade Based Modes of Finance
Let us pause and try to answer the question: How a mode of trade is adapted to serve as a mode of financing?
Finance has always been closely related to trade. In fact it emerged out of trade, as evidenced by trade credit—goods supplied on the promise of price to be paid later. Salam and istisna ‘, are obverse to trade credit, price paid against the promise of supplying goods later. The contract of ijara allows both the supply of the relevant asset-based benefits and payment of price to take place in the future[1]. Since the benefits, like the benefit of residing in a house, flow only gradually and the rent may be paid once for all in advance, ijara too may involve financing. So there is no inherent conflict between trade and financing. There is no reason further adaptation or sophistication be ruled out, insofar as using trade for financing is concerned. What is unacceptable is trading money paid now for money paid in future with an increment. It is not difficult to see that some of the above mentioned contracts are capable of being used as a smoke screen for doing so. That will of course be unacceptable. And that is what Islamic finance has to prevent.
A direct deal between producers and consumers/users of goods or assets rarely takes place. There are intermediaries between producers and users/consumers. We call them traders. Traders in fact never intend to use the goods they buy. Their purpose is making a profit by selling what they purchased, often to its user/consumer. In the same manner, salam, istisna’ and ijara may well take place between an intermediary and the user/consumer.
In some cases this intermediary is a financial intermediary. An Islamic financial intermediary enters into well known Islamic contracts ( e.g., bay ‘ mu’ajjal, salam, istisna ‘ and ijara) with a view to making some profits by providing finance to those who need it. They do so not by handing out money to the user /consumer but by paying for the needed goods or assets to its supplier and handing over the asset or good to the user/consumer, price or rent to be paid in future.
Like all intermediaries, Islamic financial intermediaries too are not interested in the goods or assets they acquire. They eye the profits expected when these goods or assets are passed on to those who needed them but did not have the money to buy or hire them. What distinguishes them from ordinary traders is that their assets are money. Their stock in trade is not goods and services, as in case of traders. But they cannot trade in money, such trade being prohibited in Islam. So they adapt trade for the purpose of financing and profiting thereby. Like all other traders, heir profits are not guaranteed. They may even lose. Default by debtors is not the only risk they face. They face almost all kinds of business risks too. This is a distinctive feature of Islamic financial intermediation. It always involves some risk. But we cannot go into the subject of risks facing Islamic financial intermediaries in this paper.
The Islamic financial intermediaries are spending their money now to acquire these goods and assets in expectation of getting more money than they paid for them from their clients, in future. This distinguishes Islamic financial intermediaries from their conventional counterparts who are trading in money now for more money in future. To be able to earn a profit on the money they have, the IFIs have to buy a real asset and then sell it for money. They run the risk of having to sell at a price that leaves them no profit or even involves a loss. They may be exposed to other business risks too, but we need not discuss them here.
Most of the money Islamic financial intermediaries have comes from the public who deposited it with these intermediaries for making profits for them. But, don’t forget what was noted above: all these contracts are also in use for their original purposes .In case they are used for their original purpose, .e. for acquiring goods and services to be used or consumed, they are modes of trade. It is only when used by an Islamic financial intermediary for supplying finance that they become ‘trade based modes of finance’.
Islamic Leasing
This brief paper will deal with leasing in the framework of Islamic finance and banking. I try to argue that leasing affords a convenient method of financing. This method is capable of serving almost all kinds of needs, e.g., financing businesses, consumers, governments, etc. A comparison with other methods of financing will be made. Then, leasing will be examined in the light of the distinctive features of Islamic finance, such as fairness, stability, and efficiency. I will argue that Islamic leasing needs to abide by certain norms in order to be truly serving the ideals of Islamic finance. Given this, the induction of leasing in the armory of Islamic finance is a welcome development likely to widen its scope and strengthen the case for Islamic finance.
Before discussing leasing as a means of financing, let us discuss leasing itself, i.e. operational lease. The economic role of leasing proper is facilitating sale and purchase of usufruct of tangible things like lands, buildings, vehicles, vessels, aircrafts, equipments, etc. The lessor, who owns the asset and wants to make money out of it without losing its ownership, can do so by leasing the asset. The lessee who needs to use the asset but cannot afford to buy it, or does not want to own it permanently, can fulfill his need by acquiring the asset on lease, paying a rent. In a freely competitive market rents and rentals will be determined like any other prices. If these markets are also free of immoral practices (like fraud and deception, hoarding, etc.) these prices, rents and rentals will be fair, stable and efficient in the sense that they clear the market as well as ensure steady supplies, other things remaining the same. As the main purpose of the user, firm or individual, is served well by leasing, the choice between owning and leasing will depend on the costs involved.
Direct contact between the asset owner and the asset user may not occur easily. There is a role for intermediaries. Another problem arises when the asset user does not have the money to pay the rent or rental. He hopes to be able to pay when he sells the products for whose production the asset is needed. Here is a role for a financial intermediary who can invest some money to acquire the needed asset and provide it to the user at a deferred rent or rental that takes care of the cost of acquisition yet leaves a return for the money invested.
Let us remind ourselves about the economic role of financial intermediaries. They intermediate between wealth owners who have money they want to invest and those who need money for business. But the money needed for business is ultimately destined for acquiring some assets needed by the business. Out of the different kinds of assets businesses need some are in the nature of tangible goods mentioned above. Financing the acquisition of lease-able assets by businesses that need to use them is one possible way of financial intermediation.
A financial lease implies that ultimately the lessee will own the asset leased. A return of the leased asset to the lessor is not envisaged, sometime not permitted at all. Financial lease in its conventional form evolved out of the society’s needs over a period of time, gaining prominence in 1960s and becoming popular in the following decade. As the IT sector boomed in the nineteen nineties, leasing computer hardware and other IT accessories was found to be more convenient than owning them, in an environment of rapid technological change and fast obsolescence.
Modern Islamic jurisprudence grappled with the special issues raised by financial leasing for quite sometime as it involved a number of things unacceptable in Islamic law.[2] As of now the issues have been sufficiently thrashed out to enable the Accounting and Auditing Organization of Islamic Financial Institutions to put forward a set of standards.[3]
The AAOIFI STANDARDS
The standard relating to financial leasing (characterized as ijarah muntahiah bittamleek) aim at guarding against the danger of financial lease degenerating into ‘inah. It does so by separating the lease contract from the contract transferring the ownership of the leased asset to the lessee. It also lays down that the promise to transfer ownership of the leased asset to the lessee is binding only on one party, the lessor. The lessee remains free to buy or not to buy the asset[4]. Standard 8/5 relies on the passage of ‘a (reasonable) period of time’ between ‘the lease contract and the time of the sale of the asset to the lessee’ in order ‘to avoid the contract of ‘inah.’ It further stipulates that: ‘This period must be long enough so that the leased property or its value could have changed’[5].Unfortunately, the vagueness built into the standard is likely to make it ineffective in realizing its purpose. What is a reasonable period of time? What is meant by a change in property? What amount of change in value will be acceptable, and who will arbitrate on the issue? The history of the practice of ‘inah ought to have made us wiser!
The rational reaction to granting the lessee freedom to buy or not to buy the asset would be, on part of the lessor, to assume the worse, that the lessee will not buy the asset. Assuming no value could be realized for the asset after the lease period, the lessor would try to realize the full value of the asset, in the form of rentals, during the (binding) period of lease. This raises serious questions about the rationale of this provision. It is not clear whose interest it serves. The lessee, whose freedom of choice it supposedly seeks to protect, hardly stands to gain by this provision.
Economic Benefits of Islamic Leasing
Let us proceed to discuss the economic benefits of Islamic leasing. Five distinct benefits of Islamic leasing can be mentioned:
1. As noted above, Islamic leasing necessarily involves real assets. This ensures and strengthens the linkage between the financial sector of the economy and the real sector contributing to economic stability. In this way lease finance relates to a distinctive feature of Islamic finance, a feature missing in the conventional system. Proliferation of financial assets without any counterpart in the real sector of the economy makes the financial markets vulnerable to speculative games threatening to turn these markets into a casino. It also engages a large number of highly skilled people into maneuvers that have nothing to do with production of goods and services. Incomes generated by these activities have contributed to the increase in the inequality in the distribution of income and wealth in the society.
2. Islamic leasing creates a great potential for securitization. Sukuk based on ijara can be traded in the market, affording a convenient instrument for investing savings to the people of small incomes who constitute the overwhelming majority in the developing countries in general and in the Muslim countries in particular.
3. Islamic leasing is especially suitable for some sectors of the economy for which sharing-based modes proved to be rather difficult to practice, e.g. the consumers sector and the public sector. It can take care of the public sector projects related to infrastructure building, e.g., roads and bridges, airports, irrigation systems, hospitals, schools, etc. As a matter of fact most of the leasing based sukuk issued recently belong to this category.
4. Lease finance is easier to practice as it involves less documentation and takes less time to conclude a deal. Unlike lending, it does not need a collateral and no thorough enquiries into the creditworthiness of the lessee are called for. The physical presence of a tangible asset, the subject of the lease, whose ownership may remain with the lessor, makes these formalities unnecessary. This may make it especially suitable for the rural sector, where formalities may hamper operations.
5. Lease finance has some of the good features of debt finance and, at the same time, is free of some of the weaknesses of sharing-based modes of finance. There is less possibility of moral hazard/adverse selection than the sharing modes. There is no agency relationship between the lessor and the lessee, as is in the case of mudarabah (profit sharing), for example. The payment obligation of the lessee, the rent, is fixed, as in case of debt. It is not a case for adverse selection as no part of unforeseen losses/costs can be passed over to the lessor.
A WORD of CAUTION
Exchange of a sum of money given now for a larger amount of money to be paid after a period of time is prohibited in Islam, being riba. The prohibition also applies to arrangements that intersperse an asset, formally, just to change appearances of the contract. An example of this is ‘inah[6] in which an asset is purchased on credit then sold to the seller, from whom it was purchased, for cash. In this case what has really happened is an exchange of money for money. The money owed, and to be paid after sometime, is larger than the money obtained now, in cash. The asset stays where it was. It is, once again, owned by the dealer using it as a means of ‘inah.
A lease contract in which an asset is sold for a sum of money paid in cash now, only to be acquired back on lease by the seller from the buyer for a larger sum of money to be paid over a period of time as rents, looks similar to the above transaction. The asset stays where it was. What has changed hands is money: the asset owner has obtained cash against the obligation of repayment with an increase over a period of time. However there is one difference. Though the asset is back in possession of the original owner, he does not own it, being merely a lessee. He can lease it to others but he cannot sell it, starting another cycle of ‘sale with lease back’ financing. That makes it different from tawarruq, in which an asset is purchased on credit to be sold back for (a smaller amount of) cash. That asset can once again enter another cycle of tawarruq. Not so in lease finance as currently practiced by Islamic financial institutions. Perhaps it is this difference that has persuaded some to allow the transaction. But the crucial point is the economic impact, is it any different from a money loan?
It is very difficult to answer that question. It is especially difficult in the absence of empirical data. All that this writer can do is to emphasize the relevance as well the importance of this question. It must be discussed. Discussion on the issue is necessary to probe into the maslaha (benefits) involved. Without such a discussion we cannot be sure that the type of lease transaction described above does not involve mafsadah(bad effects ) that over whelms any benefits involved.
Sale with lease back has become an essential feature of some of the sukuk being traded in the Islamic financial market. They are likely to proliferate. These sukuk afford new investment opportunities. But is their economic role benign? Is it any different from the securities based on interest-based mortgages, or from the ordinary interest based bonds? How to expand the sukuk market in a competitive environment without losing the distinctive features of Islamic finance? These are some of the challenging questions we face today.
[1] Ministry of Awqaf and Islamic Affairs, Kuwait (1983) Al-Mawsu ‘ah al-Fiqhiyah, vol. 1,p.256;Alao,Mohammad Taqi Usmani (1998) An Introduction to Islamic Finance, Karachi ,Idaratul Ma’arif, p.164
[2] Islamic Fiqh Academy (2000) Resolutions and Recommendations of the Council of the Islamic Fiqh Academy , 1985-2000, Jeddah , Islamic Development Bank, pp. 253-55
[3] Accounting and Auditing Organization for Islamic Financial Institutions (2003), Shari’a Standards, Manama, Bahrain, pp135-58
[4] ibid pp. 146-7, Standard 8/2
[5] ibid, p. 146
[6] Ministry of Awqaf and Islamic Affairs, Kuwait (1987) Al-Mawsu ‘ah al-Fiqhiyah, vol.9, pp.96-97
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