Philosophy and
Methodology of sciences
D. ZAMANBEKOV
al-Farabi Kazakh National University
Almaty, Kazakhstan
An
introduction to Islamic Banking and it’s religious preconditions
Key words:
Islamic bank system, Shari’a, Riba
Introduction
Islam propounds
the guiding principles, and prescribes a set of rules, for all aspects of human
life, including the economic aspect.
Systematic
thinking by professional economists has a short history compared to earlier
period in the sciences and humanities in the Muslim world.
Islam postulates
a unique nexus of contracts among the Creator, man and society on the basis of
the Divine Law that directly affects the working of the various social,
political, economic, and financial systems. Therefore, to understand the way in
which economic affairs and financial institutions are to be organized in an
Islamic Bank system, it is first necessary to comprehend the nature of this
relationship [1].
The purpose
of this abstract is to make theoretical and religious analysis of the Islamic
Banking with it’s religious preconditions.
The core and the
most fundamental axioms of Islamic ideology are the believe in (1) the Unity
and Oneness of the Creator (Tawhid), (2) the prophet hood (Nubuwwa), and (3)
the ultimate return of everything o the Creator for the final judgement (Maad).
Efforts to
explain Islamic financial and economic principles and rules in modern
analytical terms are only two decades old. Despite considerable published research, however, there is still some
confusion in regard to precisely defining various social sciences prefixed with
the term “Islamic”, such as “Islamic economics” or “Islamic finance”. One of
the main reasons of this confusion is the tendency to view different aspects of
such a system in isolation, without looking at it in its totality.
Concomitant with
the acceptance of Islam, the
individuals agrees to observe the rules of Islamic Law (Shari’a) [2]. This
acceptance and agreement represents a contract between the individual and the
Creator, which symbolizes the priordial covenant between Allah (swt) and man,
according to which man agreed to serve and worship no one but Allah (swt).
Islam considers
economic relations and behavior as the means of integration of society and the
integration of man into a higher order of reality. While Islam recognizes
equity on the basis of effort and rewards, it declares an inviolable right for
those unable to actualize their potentioal equal liberties and opportunities in
the wealth of those more able. So Islamic economic system is a rule-based
system founded on the principles of preservation of property rights and
sanctity of contracts. Beginning from the notion of property as a secret trust,
the Shari’a ensures its protection from any exploitation through unjust and
unfair dealings. Prohibition of Riba (interest)
and the elimination of contractual ambiguity (Gharar) and other forms of
exploitation are some of the implications of these core principles.
Literally, the
Arabic term Riba refers to excess,
addition and surplus [3]. Early Muslim scholars considered money to be a medium
of exchange, a standart of value and a unit of account, but rejected its
function as a store of value. Lending on interest was prohibited because it was
an act of ungratefulness and considered to be unjust, since money was not
created to be sought for it’s own sake, but for other objects.
Literary meaning
“increase” Riba was interpreted by
classical scholars, such as Ibn Arabi, Mujahid, and Tabari, as increase which
has no wealth (mal) corresponding to it (Ibn Arabi) or as reward for waiting
(Mujahid) or that increase which accrues to the lender on account of deffered
payment due to an extension in the actual period of loan (Tabari). At the time
of the prohibition, it was a common practice for people to lend money on the
condition that a specific amount would be payable periodically as interest and
that the principal amount will remain to be paid [4]. At the expiry of the
loan, if the borrower was unable to meet the obligation for any reason, the
lender will offer to extend the lending period subject to an increased rate of
interest.
The concept of Riba is not confined to money lending
only, but extends to exchange of goods as well.
For further
understanding the process of Islamic Banking functioning we need to have a look
to the table below[5].
Here is the traditional Islamic construct:
Conclusion:
In the emerging business of Islamic finance, Islamic
scholars play crucial roles in product development, compliance oversight, and
validation of a product’s or business’ Shari’a compliance. A scholar may or may
not have a formal degree in a relevant field relating to Islamic Banking; or
the scholar may have significant experience in the field and attain sufficient
respect of others to be accepted as a formal scholar.
With such basic rules in mind, the primary stipulation
of Islamic Shari’a is freedom to contract: that is, the parties to an Islamic
financial transaction are free to agree any terms they wish, provided those
terms are then expressly abided by, and do not conflict with or contradict
aspects specifically prohibited under Islamic law.
References:
[1] Nasr, Seyyed Hossein, Islamic Life and Thought (London: George
Allen & Unwin, 1981).
[2] Osman, Fathi, Sharia in Contemporary
Society: The Dynamics of Change in the Islamic Law (Los Angeles: Multimedia Vera
International, 1994)
[3] Thomas, Abdulkader, ed., Understanding Riba
(London: Routledge, forthcoming).
[4] Ahmad Khurshid, "Islamic Finance and Banking:
The Challenges and Prospects," Review of Islamic Economics,
[5] An introduction to Islamic Finance. Theory and
practice. Zamir Iqbal& Abbas Mirakhor (Wiley 2007)