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CHAPTER 4. The Law: The Judeo-Christian-Islamic Shari'aa

An overview on the prohibition of riba/ribit/interest/usury in Judaism, Christianity, and Islam was summarized in Chapter 2. During the early medieval period, the Islamic RF finance models were used by caravan traders conducting business between Arabia and the rest of the world, and in particular in trading through the Silk Road. As commercial and business activities increased, and with the growth of international trade and the creation of money, a sophisticated riba-based banking and finance system emerged and developed in Europe. The prohibition of ribit/riba was relaxed by the rabbinical teachings, the Roman Catholic Church, and the Protestant churches, as detailed in Chapter 2. This chapter is designed to introduce the reader to the tedious, meticulous, and detailed processes used by qualified scholars in the Judeo-Christian-Islamic Shari'aa law to come up with legal rulings (edicts or fatwas) that would comply with the teaching of God and His prophets to offer solutions to everyday challenges.

Muslims are required by the Judeo-Christian-Islamic Shari'aa law not to deal in riba. Religious leaders and scholars, who are revered by the faithful in all parts of the world, from the small villages to the largest cities, including those who live as minorities in Asia, Africa, North America, and other parts of the world, are taught that dealing in riba is a major sin.

With the growth of commerce, trading, and industrial development in Europe, more sophisticated riba-based banking operations and trade financing tools were developed to give credit and to help grow businesses. When Europeans began expanding their trade routes into the Turkish Ottoman Empire and colonizing many of their former member states, they brought this new riba-based banking system with them. The riba-based banking system was used only to serve the needs of most of the European businesspeople and their local representatives because the local masses were not trained and equipped to catch up and take advantage of it. Most importantly, the local Muslim public and Muslim business community members did not use it because they believed that banking with interest was divinely prohibited (haram) by Judeo-Christian-Islamic Shari'aa law and was not accepted by the Muslims scholars and thought leaders. This produced, among the local Muslim population, a subculture of avoiding taking a loan altogether. Many may ask how the Muslims have managed their capital needs all these years. It was done in the form of micro-lending cooperatives between friends and family members on the local levels or between businessmen on the commercial level in an informal way; it is still being done now, in the twenty-first century. On the local community level, a group of, say, 10 friends might agree to start an informal small cooperative union, in which each of them places $10 with a trusted member of the group. They then agree, among themselves, as to the schedule of who gets paid in the first month, the second month, and so on. In this way, each member gets a sum of $100 in a certain month. There was no interest charged. The banking needs of the Muslim world, as in all developing countries, have been underserved, especially on the retail level. As these primitive societies began making contact with the world, they woke up to a big surprise. They found that they are at least 600 years behind in the fields of economics, finance, monetary theory, and discipline as well as in banking services. A sophisticated and far-reaching international banking system was slowly installed, and banking with interest became part of normal business transactions in many of these countries. Dissent and concern were expressed constantly by the religious leaders, but no one responded because the religious leaders in the early to middle part of the twentieth century did not have enough stature and were ignored. It is interesting to note here the experience of starting the first Egyptian nationally owned bank, Bank Misr, by the well-known entrepreneur Talaat Harb (1920-1941). Many scholars objected to it because of their concerns about the problem of dealing in riba. However, history records that the well- known progressive religious leader, Imam Muhammad Abduh (1849-1905), issued a fatwa (edict)[1] in 1901 allowing the Egyptian Post Office Savings Department to pay interest on deposits made by the public in its operations with a number of provisions (that were designed as exceptions and conditions to avoid riba) in order for the Post Office to operate and pay interest. That fatwa was called upon and was used as a basis that allowed Bank Misr (Bank of Egypt; Misr here is the name for Egypt in many Arabic and old languages) to organize and get started (April 13,1920). As operations grew, the original provisions stated by Imam Abduh were diluted, and Bank Misr became another riba-based financial institution.

Today, Bank Misr offers a riba-free (RF) window for those interested in Islamic banking in order to compete in the Egyptian market.

With the first oil price jump in 1973 and the use of U.S. dollar as the official and only currency for oil trading came the flow of huge amounts of dollars to the oil-producing Gulf countries. The main concern at that time was the absorptive capacity of the local economies of the countries involved. Armies of commercial bankers and investment bankers landed in these oil- producing countries to expand the existing small riba-based banking operations and to link them efficiently with the international banking system. Many of the business and community leaders went along, but a few were very troubled at the sinful act of participating in riba.

One of them was the late King Faisal of Saudi Arabia . He pledged in 1974 to start a banking system that follows Islamic law (the Judeo- Christian-Islam RF law — Shari'aa). The major problem was the lack of a detailed code in the law that dealt with the existing and sophisticated needs of the customers of the banks and the varied products and services offered by these banks, which were all based on the prohibited riba. This marked the beginning of a brand-new field of RF scholarly research to develop codes of the law that pertains to modern RF consumer and business dealings and banking. Pioneering practitioners of RF banking in Egypt, Turkey, Malaysia, Dubai, Saudi Arabia, and Kuwait began by contacting scholars in the highest-placed Islamic theological seminary, Al Azhar Seminary in Cairo, Egypt. Because the idea was new, the task was very difficult; and because it involved bridging 600 years of a riba-based banking system that uses banking-based English language, which had not yet been mastered by the scholars, a solution was offered. The few leaders of the newly emerging RF banking industry formed a board of scholars that would start the difficult task of developing the RF banking and finance codes of the law. That was the beginning of the creation of what is now known as Shari'aa Board of Islamic Banks.

The religious scholars placed on the Shari'aa Board soon discovered that they did not know much about finance, banking, and monetary issues; they even did not know about the intricacies of bank operations and the riba-based culture and aspects of it. All that was known then were two major rules: interest cannot be charged, and the parties in a consumer or commercial transaction must share the profit and loss. In an effort to bridge the knowledge gap, the RF banking practitioners supplied the Shari'aa Board with riba-based banking practitioners to teach and explain in a crash course format how modern riba-based banks operated and the features of each riba-based banking product and service. Because English was an international banking medium of communication, there was a new demand for scholars who understood and spoke English. Most of these English-speaking scholars did not come from the Arabic-speaking countries; they came from the Asian Muslim countries, such as Pakistan, Malaysia, India, and Bangladesh. Many of these Asian scholars who had mastered English had also mastered Arabic, because it is a prerequisite for Shari'aa scholarship.

This cross-breeding of talents and diversified cultural and educational backgrounds created a rich body of qualified scholars at the Shari'aa Board level. However, because of the diversity in local cultural and educational backgrounds, there were a variety of opinions and levels of flexibility in interpreting the law on what was considered compliant with the Judeo- Christian-Islamic Shari'aa law and what was not. Two major directions were charted. In Egypt and Malaysia (most of the Malaysian scholars had been educated at A1 Azhar seminary), Shari'aa opinions were more progressive and understanding of the challenges that were faced then and opted for gradualism in transformation. Scholars from India, Pakistan, and the Arab Gulf countries believed in a more strict approach toward interpreting what was halal (allowed) and what was haram (not allowed). As time went by, new leaders in the field of RF (Islamic/Shari'aa-based) finance law came from Pakistan, India, Egypt, Sudan, the Arab Gulf countries, Malaysia, Syria, Jordan, Lebanon, Europe, and the United States.

  • [1] Eric Davis, Bank Misr and Its Role in the Industrialization of Egypt 1920-1940. Translated to Arabic and published by Dar Al Shorouk International in 2008, p. 96.
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