Islamic Financial Movement

By Yousuf Ibnul Hasan, Program Consultant Islamic Banking & Applied Finance, IQRA University, Karachi, Pakistan*

logoThis is the second contribution by Yousuf Ibnul Hasan islamicworld.it hosts with the purpose of highlighting the riba issue. Other articles will be proposed in the near future

Purpose of articles to analyze concept of Riba free financial system to give basic information to readers a detail instructive material concerning existing Islamic Banks with regard to philosophy, idea, organization, establishment and implementation.

Introduction

Only two systems are customary in the financial world. The first one is Riba based monetary system and the second is Riba free financial system.  The Riba based system dominating 86% of the present financial and monetary affairs of the world. Whereas Riba free financial and monetary system has only recently emerge as a result of a movement that started from Egypt, when the first Social Bank which was in fact an interest free bank with aim to be socially beneficial for community was launched in the Egyptian city of Cairo.

Background

It was in the year 1960, when a group of economists, jurists and bankers from Egypt, made an effort to establish an interest free finance house. The operational system that was developed for this finance house was in accordance with the principles of Islamic Economics.  It was hoped that the Muslim business community would support the aims and objectives of this achievement. However the government of that period treated this establishment as a part of a fundamentalist movement and imposed several conditions. Some of the founders were arrested.

In the same period, a bank by the name, Interest Free Bank was launched in Karachi, the biggest metropolitan city of Pakistan. Unfortunately due to lack of public response, confidence and faith in Interest Free banking and also due to the Central Bank’s lack of knowledge on the Islamic financial system and a pre-mature attempt against the interest free monetary system, the bank had to wind-up its operations within a period of three years.

Two test attempts were enough to open the eyes of the Islamic world. In 1971, Nasser Social Bank in Egypt and then in 1974 Islamic Development Bank in Saudi Arabia was established. Then Dubai, Sudan, Kuwait and Jordan entered the Islamic Bank’s club.

Though Egypt is an Islamic country, yet like the other countries of the world, it used to consider Islam, merely as the religion for worship. The truth is that Islam is the religion which gives a perfect system of life. The Holy Quran is its theory, the Hadith is the explanation and Sunnah is the practical proof.

The movement of implementation of interest free economy, which started from Egypt, gave new ideas to the economists and jurists, who considered interest as the only way to get the return of money. Scholars from Islamic countries as well as from non-Islamic countries started their research on the parallel economic system. Results of their research have opened a way of development to a theory, which does not confirm that interest is the only way of return on money.

Islamic Banking & Finance Institute Malaysia (IBFIM), Kuala Lumpur

The world has now accepted that socio economic development is the only solution, which eliminates interest from money. Islamic Economics encourages socio economic development and considers “Financing” instead of “Lending” of money. A financial system based on the principles of Islamic Economics gave a new concept of banking which is an alternative to the interest base banking system.

History reveals that in all the religions of the world, interest has been condemned and prohibition on the usage of interest in financial matters was emphasized. Archives of Christian society in Europe verify a cold war between the Church and the Capitalist group. This war lasted for many years. The church was demanding that the King must pass an ordinance to prohibit usage of interest in money matters.

The Bible and other holy Books have clearly prohibited interest and justified its prohibition, clearly, with rational reasoning. The ancient church argued with the king to impose its ruling against interest so that the society could be saved from the filth and cruelty of interest. However due to the strong grip of plutocratic society, the king could not favor the Church and instead, manipulated the situation in such a manner that the capitalist group succeeded in making changes in the religion which gave the victory to Interest based system and not to the system desired by the church.

That was the period when interest strengthened its roots in the financial world.  With the passage of time, the Bible started losing its originality. Changes were made according to the need of time as well as for the social, economical and environmental requirements. These changes diluted the importance of Church in the society and its argument on interest. As a result, this SIN in the Christian religion became the necessity of financial affairs and matters, throughout the world.

In Islam, the case is different because the Holy Quran is in its original form and it cannot be changed due to the preservation of its text in the human memory. From the pre-Islamic period, till today, interest is considered as the prime factor of all financial matters and obligations.  Today, the interest based financial system itself is passing in total mistrust.  Western economists and scholars are considering interest, as the evil, plaguing society. They blame interest, as the root of all social injustices and economic instability. The economists and scholars are now bringing their achievements to the theory of ZERO RATES of INTEREST and interest free economy. The concepts of socio economic system described in Islam and its monetary system as defined in Islamic Economics have started influencing western economists and scholars.

Acceptance of the System

The movement for elimination of Interest from the financial system now develops into the one and only opened door for the upturn of humanity from the dryness of materialism and spiritual bankruptcy in which it has become apparent.

A great number of Muslim and non-Muslim jurists, economists, thinkers and financial professionals have accepted this reality to the extent that the certainty of solution, which is to introduce Interest free financial system has turned out to be a collectively approved case.

Islam is the religion that teaches Muslims that prior to others’ liabilities and responsibilities, they should develop then and crop the determination of men and the loyalty of struggle. The first responsibility is the practical belief of the glory of Islamic applications, their influence and ability to fill the gaps in life by widening the scope of socio-economic activity.

Having faith in Allah’s reward and destiny, Muslims should confirm the practicability of the concept, strength of principles and basis of Islamic system of economy in the life of people and the community with the application to be materialized through the Interest – Free financial institutions.

Within a few years many Interest free financial institutions emerged in the Islamic and non Islamic countries. Muslims with the teaching of Islamic Economics should struggle hard to achieve new positions in the financial market. If they are able to achieve strong and effective positions in application and practice, they will not only be benefited by the reward of Allah, but will also eliminate the evil to humanity and reach a stage where their abilities cannot be rejected or denied due to the effectiveness of their economic intelligence. Also their strong grip on the interest free financial system cannot be reduced in value or disregarded by any.

Scope

It is beneficial to develop a chain of cooperation among Muslim Ummah to establish an association among the existing Islamic Financial Houses in order to support each other. The secretariat of the association should be the organization that would take care of the idea, give consultations, offer support and make every effort for spreading the idea of these Financial Houses in accomplishing new positions in the financial market of the world. The association should then direct people towards the right path and be a guide-work for the Islamic banks and for those who are seeking to establish new Islamic banks.

There is no economic system in the world that can secure the dignity of mankind other than the inspiring Islamic economic system with firm believes of Socio-economic development and not the only economic development and its legislation. Almighty Allah is the only Guardian to the superior goal because of the only Protector and the Excellent Helper.

 

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