Islamic Finance: A Utopian Idea?

Transcribed from a lecture (in 2008) by Mufti Taqi Uthmani

• The economy has been established by debts, debts over debts! When the debts defaults debts are sold, and this created a panic in the economy; and it affected also the stocks of the company. The stock market always runs on the basis of speculation.

• Debt based economy that has created money without any asset behind it.

• Speculative transactions carried out on the basis of short sales and blank sales (Blank selling and short selling are two ways of profiting from a falling stock market. Essentially, the seller first sells the securities and then buys them back at a lower price, netting the difference. For instance, if you sell 500 shares of Hubco at Rs 32 and buy them back at Rs 30, you would have earned Rs 2/share.)

• The Prophet on Debt and Living Beyond the Means

• Shariah and Refraining from Riba  (Creating an Artificial Economy) 

• Shariah and Selling a Commodity That You Do Not Possess. In Commodity and Equity Market etc. today the commodity and shares are sold and bought without having ownership.

• Shariah and the Alternative to Interest-Based System (A Utopian Idea?) More than 200 Islamic financial institutions in the world today. The first was Islamic Development Bank Jeddah. "The clientele in Bahrain is pushing us to establish an Islamic Unit or window." Non-Muslim Banking sees an emerging market they wish to capture. So it is not a theoretical thing anymore.

What are the alternatives?

• First of all the ideal transaction is partnership, in profit and loss. This brings equitable distribution of wealth. Interest-based is always in favour of the rich. The same 100$ is given as loan to A, To B, To C, to D on the basis of assumption only. This goes far away from reality. This creates inflation and a number of economic ails. This is Musharaka or Mudaraba. Profit and loss, equity participation system.There is no artificial money. Flow of wealth is from the top to the bottom.

• Needs an American Bank to transfer cheques…

• Other methods: Murabaha means you sell a commodity on a margin of profit disclosed to the client. Financing for purchasing cotton, for eg., the bank purchases the cotton from and sells the cotton to the client on a profit, may be a deferred payment sale, price can be altered to entertain profit for institution. There are strict conditions in this transaction.

• Home & Car Financing. The contemporary fuqaha have developed a lee way that instead of borrowing money from the institutions the house is purchased jointly by the finance institution and the client; Client offers 20% and 80% contributed by the bank, but the ownership is joint. The institution then rents out its share and charges a rent; and gives the client an option to purchase different units of its ownership. Here it is necessary that the bank must bear the risk of ownership to the house which validates the profit earned by the bank.

• Ijara wa Iqtina (Islamic Leasing and Ownership)  in my book Introduction to Islamic Finance how to act upon these modes of financing…

• Many financial institutions claim to be following Shariah but are deviant.

Blank and Short selling http://www.dawn.com/2003/02/24/ebr11.htm 

Read more on Islamic Finance Basics: http://islamicfinanceaffairs.wordpress.com/2007/05/25/islamic-finance-basics-what-is-murabaha-ijara-and-musharakahmudarabah/
Read more by Mufti Taqi Uthmani: The Place of Politics in Religion http://baytunur.blogspot.com/2010/06/place-of-politics-place-of-islamic.html

Biography of Mufti Taqi Usmani: 

Mufti Muhammad Taqi Usmani is one of the leading Islamic scholars living today, an expert in the fields of Islamic Jurisprudence, Economics, Hadith and Tasawwuf.

Born in Deoband in 1943, he graduated from Dars e Nizami at Darul Uloom, Karachi, Pakistan. He specialized in Islamic Jurisprudence under the guidance of his eminent father, Mufti Muhammad Shafi, the late Grand Mufti of Pakistan. He has been writing on various Islamic topics in English, Urdu and Arabic and is author of more than 60 books and numerous articles.

In tradition to the scholars of Deoband, recognizing the importance of Tasawwuf, he traversed the path under the guidance of khulafa of Hakeemul Ummat Moulana Ashraf Ali Thanvi (rahmetullah ajmaeen). In addition to his busy schedule he is himself a mentor to numerous spiritual aspirants all over the world. He also conducts a weekly session for the public interested in spiritual improvement.

List of publications include: (Updated May 2004) The Authority of Sunnah, An Introduction to Islamic Finance, Discourse on Islamic way of Life, Islam and Modernism, Islam aur Seasate Hazra ( Islam and Contemporary Politics), Islahe Ma'ashara (Perfecting society), Islahi mawa’iz (Discourses for spiritual perfection) (3 volumes)  http://www.albalagh.net/taqi.shtml;