Khalid Chraibi

SaudiDebate.com

Tuesday, 24 April 2007

The question put to scholar Yusuf al-Qaradawi at a youth gathering in Morocco, in the summer of 2006, was innocuous enough: in the absence of Islamic banking in Morocco, is it licit for a Moroccan to take an interest-bearing loan from a conventional bank to buy a home?

Al-Qaradawi referred his audience to a ruling by the European Council for Fatwa, which authorized Muslim minorities living in Europe, with no access to Islamic banking, to take such a loan, based on the rule that: “Necessity allows the use of what is illicit” (addarouratou toubihou al mahdhourat).

He added that, since the Moroccans had no possibility to buy a home except through the conventional banking system, their situation was comparable to that of Muslim minorities living in countries in which Islamic banking was not the norm. The ruling applicable to the latter was also applicable to them.

Al-Qaradawi’s fatwa raises the issue of the compliance of modern banking with the shari’ah, a subject of continuing controversy between traditionalist and modernist religious thinkers.

Between usury and interest

Modern banking is inextricably linked with interest, which many contemporary Muslims associate with riba. Since the Qur’an prohibits riba, explicitly and unequivocally, they are convinced that modern banking activities are “illicit”. But the definition of riba is elusive. For centuries, the ulema have been faced with the difficult challenge of sorting out, generation after generation, what the riba prohibition should apply to, and they have not reached any consensus on this matter to this day.

Of course, the ulema agree that riba refers, in the first place, to usury, i.e. “the lending of money with an exorbitant interest charge for its use”. But a majority of ulema consider that riba also refers, in a second meaning, to “interest under all its forms”. This was the position of al-Azhar’s Research Council when it ruled, in 1965: “Interest on all types of loans is forbidden Riba. There is no difference in this regard between so called consumption and production loans. Moreover, Riba is forbidden (haram) in small as well as large quantities, whether it is effected through time deposits, demand (or checking) deposits, or any interest-bearing loan contract. All such dealings are among the forbidden Riba”.

This was also the position upheld, more recently, by the Islamic Fiqh Academy (IFA), an affiliate of the Organization of Islamic Conference, which was established by its 43 member States to try to develop an Islamic consensus about just such complex fiqh issues. In a 1985 resolution, IFA stated: “Any increase or interest on a debt which has matured, in return for an extension of the maturity date, in case the borrower is unable to pay ; and the increase (or interest) on the loan at the inception of its agreement, are both forms of usury, which is prohibited under Shari’ah.”

Under this definition, conventional banking operations are all “illicit”, because they incorporate interest, i.e. “a charge for borrowed money, generally a percentage of the amount borrowed”. But, modern financial activities differ in kind from anything that existed at the time of Revelation. One may wonder, therefore, with Abdullah Yusuf Ali, about the legitimacy of extending to them the riba prohibition, based on “qiyas” and “ijtihad”.

Says Ali, best known for his classic translation of the Qur’an into English: “Our Ulema, ancient and modern, have worked out a great body of literature on Usury, based mainly on economic conditions as they existed at the rise of Islam. I agree with them on the main principles, but respectfully differ from them on the definition of Usury… My definition would include profiteering of all kinds, but exclude economic credit, the creature of modern banking and finance.”

Modern banking structures and financial instruments were introduced in Muslim countries at the time of their occupation by foreign Western powers, in the 19th and 20th Centuries. When Islamic jurists saw how these modern banking institutions and their assorted financial tools were used to develop the national economy, they understood the positive role that interest could play in modern society. They realized that its total prohibition in economic and financial dealings could conflict with society’s economic and social needs and aims, and could hamper the country’s development.

The voices of al-Azhar

For these reasons, from the 19th Century on, Egyptian Grand Muftis and Sheikhs of al-Azhar, as well as numerous religious leaders in various Muslim countries, have been earnestly looking for ways and means to convert the total prohibition of interest into a selective one, in order to reconcile the prevailing definition of riba with the economic and financial requirements of modern society.

Muhammad Abduh, the mufti of Egypt and Sheikh of al-Azhar, was a pioneer in this field, when he wrote a fatwa to the effect that interest paid by the Egyptian Post Office on “personal savings accounts” was lawful.

He also explained to the readers of “al-Manar” that the use of interest could be quite licit in some financial dealings, and have nothing to do with a riba situation. He wrote: “When one gives his money to another for investment, and payment of a known profit, this does not constitute the definitely forbidden Riba, regardless of the pre-specified profit rate… This type of transaction is beneficial both to the investor and the entrepreneur. In contrast, Riba harms one for no fault other than being in need, and benefits another for no work except greed and hardness of heart. The two types of dealings cannot possibly have the same legal status (hokum).”

Another Sheikh of al-Azhar, Mahmud Shaltut, wrote a fatwa in which he declared that interest paid on State bonds was licit, when issued by the State to meet public needs, and to further the country’s economic development. He even asserted that any transaction which was offered by the State, with a fixed interest in advance, was licit, since there was no exploitation of either party in such cases.

Muhammad Sayyed Tantawi, the present Sheikh of al-Azhar, though a traditional, orthodox scholar, worked for decades along the same lines as his predecessors, to try to disentangle interest from riba. As Grand Mufti of Egypt (1986-96), he ruled that fixed interests on bank deposits were “halal”, even suggesting that the legal terminology used for bank interest and bank accounts be changed, to avoid their assimilation to riba.

Furthermore, in 2002, the ulema of Al-Azhar, working under Tantawi’s direction, revised the 1965 stand of the institution on riba. They approved a fatwa which stated that “investing funds with banks that pre-specify profits or returns is permissible, and there is no harm therein.” For Tantawi: “…the bank investing the money for a pre-specified profit becomes a hired worker for the investors, who thus accept the amount the bank gives them as their profits, and all the excess profits (whatever they may be) are thus deemed the bank’s wages. Therefore, this dealing is devoid of riba.” He adds : “We do not find any Canonical Text, or convincing analogy, that forbids pre-specification of profits, as long as there is mutual consent.”

Bankers and shari’ah

One could quote many other efforts by distinguished Muslim jurists, aiming at separating interest from riba. For instance, Abd al Mun’im Al Nimr, a former Minister of Awqaf in Egypt, explained in a 1989 article that the prohibition of riba was essentially justified by the harm caused to the debtor. Therefore, since there was no harm caused to depositors in banks, the prohibition of riba did not apply to bank deposits.

Explains Nasr Farid Wasil, Tantawi’s successor as Grand Mufti of Egypt: “So long as banks invest the money in permissible venues (halal), then the transaction is permissible (halal)… The issue is an investment from money. Otherwise, it is forbidden (haram)…” He adds: “There is no such thing as an Islamic or non Islamic bank. So let us stop this controversy about bank interest.”

The banking debate revolves, therefore, essentially, around the definition of riba. A conservative definition of riba equates it with banking interest. On that basis, modern banking systems in Muslim countries are described as “illicit”, because they use interest in their operations.

But, according to a number of Grand Muftis of Egypt, and Sheikhs of Al-Azhar, this is an outdated view of the banking issue. In their opinion, riba should be equated with usury only. Since modern banking does not use usury in its operations, it is not concerned with the riba issue, and raises no problem of compliance with the shari’ah.

Explains Moroccan law professor Ahmed Khamlichi, in this respect: “The ulema don’t have the monopoly of interpretation of the shari’ah. Of course, they must rank high in consultations on shari’ah issues. [But] they don’t make the religious law, in the same way that it’s not the law professors who make the law, but the parliaments”.

Sovereign States have promulgated their own national codes, whose contents take into account the specifics of the country, which may differ considerably from one country to another, and over time. One shouldn’t be surprised, therefore, to discover that what’s licit in one country may be considered as illicit in another, and that the items in these categories may also change over time. The important thing to remember is that, in each country, it is the law of the land which applies, as defined by its national institutions. That’s what’s “licit” in that particular country, at that particular time.