A DIFFERENT KIND OF USURY?

DURING a recent lecture tour, Syed Hossein Nasr, the Persian scholar of Sufism, commented on the tendency in the Muslim world to "label" many things as "Islamic".

    According to Syed Hossein during the time of the Prophet and the early Caliphs, there was no Islamic architecture, Islamic art, Islamic culture, Islamic banking, etc. Trade was trade and architecture was architecture.

    In a more matter of fact manner, Dr Rifaat Hassan, a Pakistani Islamic scholar, said in a recent speech at the Institute of Strategic and International Studies, that Muslims were now "lacked in little boxes, There is Islamic geography, banking, health and so on which are highly apologetic in nature..." (NST, Aug 26).

    The "Islamic" labelling is a reaction perhaps to more contemporary circumstances. After a long period of domination by the West the Muslim world may possibly be seeking some satisfaction by labelling things as "Islamic" to prove that not only is there an alternative but that it can also come with an "Islamic" label.

    But for academic purposes, such labelling may actually be good as it could nourish healthy dialogue a trademark of early Islam. Therefore, in this light, I would like to comment a little on Islamic banking.

    Islamic banking or "interest-free banking is now popular in the country. To trace the history of "interest-free" banking, there is little reference on the subject of usury or riba that can be directly attributed to the Prophet.

    In the commentary on usury in his translation of the Quran, the renowned scholar Abdullah Yusaf Ali writes:
"Usury is condemned and prohibited in the strongest possible terms. There can be no question about the prohibition. When we come to the definition of usury there is room for difference of opinion. Saidina Omar (the second Caliph) according to Ibnu Kathir, felt some difficulty in the matter, as the Prophet left this world before the details of the question were settled."

    Such is Abdullah's finding. But other than the Prophet, even Saidina Abu Bakar, the first Caliph, is not recorded as saying anything on the matter. This is rather unusual because trading and usury existed as much in the time of the Prophet and Saidina Omar. And usury is also mentioned quite prominently in the Quran - and the Quran was delivered to us by the Prophet himself.

    Abdullah continues: "My definition would include profiteering of all kinds, but exclude economic credit, the creature of modern banking and finance."

    Abdullah's finding that modern banking does not involve usury is not new. Throughout the history of Islam, the definition of "usury" has fluctuated between including and not including conventional banking. Today there is as least one school of thought in Egypt, which shares Abdullah's views.

    A cornerstone of Islamic banking is profit sharing between depositors and the bank. Without profit sharing, an Islamic bank cannot survive. In other words, depositors will have to bear the risks of profit and loss with the bank.

    The justification for this risk sharing is that the depositor should be "alert about the soundness and good management of the Islamic bank he chooses".

But keeping in mind that the Islamic bank is equity based, that is, Islamic banking is designed to stamp out economic and financial oppression, such an approach would seem difficult for the man in the street or the housewife who cannot be expected to be too alert about the soundness and good management of the banking system.

    Another area where the common man is much dependent on the banks is housing loans. Here the conventional banking system in particular is frowned upon because again it represents "oppression".

    In the Quran, usury is forbidden because God says it is oppression. We must always remember that this is the greatest and truest justification against usury.

    But as far as housing loans are concerned, there is little difference between the Islamic bank and the conventional one. The conventional bank charges "interest" whereas the Islamic bank charges "profit margin". The pounds and pence, however, work out to about the same. Besides, if one fails to pay the instalments, both banks will repossess the property.

    Not only that but the Islamic system also has a different way of dealing with early prepayments. If a borrower were to come into a windfall and wants to pay off his housing loan, the conventional bank will ask him to pay only the principal sum and discount the interest that is not yet due.

    The Islamic bank, however, may ask the borrower to pay the principal sum plus all the "profit margin" for the future periods. The "profit" need not always be discounted. Again, this does not seem to match well with the concept of equity.

    For another comparison, bankers acceptances (BA) - a common form of short-term trade financing are being discounted for 120 days at about 6.5 per cent.
The islamic equivalent which is known as Islamic accepted bills (IAB) is also "discounted" at 6.5 per cent for 120 days. Again the similarities are much closer than the differences. One has to ponder much which system offers more equity.

    Further to this, at a recent conference on Islamic banking in South East Asia, one scholar presented a view that the al mudharrabah system of Islamic financing actually involved usury. Participants were quite surprised because the almudharrabah system is considered a backbone of Islamic banking.

    Another speaker suggested that the Syaria (Islamic law) itself be amended because it does not allow for trading in futures or for financing things that are out of sight like the oil and gas trapped under the sea.

    Scholars perhaps feel compelled to make such suggestions because not all agree that the Syariah is fully divinely inspired. Some agree that portions of it are man-made and can, therefore, be recast.

    Also in Malaysia, the Islamic Centre recently came out with a fatwa or ruling which says that it is not wrong to work in, or even to take a loan from a conventional bank. It is wrong only to make a loan or to deposit money in the conventional bank.

    As mentioned earlier, there is little reference on the subject of usury that can be directly attributed to the Prophet. Hence the scholars differ in their opinions. With all these differing opinions, it is only prudent that Muslims listen to all views and take the best thereof.

We should perhaps take comfort that only the Quran is infallible.