Understanding Islamic Finance - Doha Academy of Tertiary Studies

436 Understanding Islamic Financecompliance while working in a Riba-ridden environment? It gives rise to doubts abouttheir Islamicity/credibility.8. Islamic banks take collateral/security like their counterparts in conventional finance.They should facilitate people who are not in a position to offer any security withoutany requirement of collateral, while practically they demand security, even in the caseof Musharakah/Mudarabah.9. For the legality of fixed returns, Islamic banks prepare a number of documents andenter into different agreements in respect of one overall transaction. They make theclients their agents for various activities without payment of any agency fee, enter into“promise” in almost all modes of financing and combine a number of contracts againstthe Sharī´ah injunction that prohibits two contracts in one contract.10. If money has always to be linked to real assets and real sector business, as claimed inIslamic finance theory, how can the needs for cash for paying salaries to employees,utility bills, etc. be fulfilled?11. The Holy Qur´ān advises granting more time to a debtor who is in difficulty, or evenforgiving/writing-off the whole debt; but Islamic banks charge penalties from defaultingclients.In the following paragraphs, we critically examine the above myths and criticisms. Insome cases, we briefly touch on the area by referring to different chapters of the book.17.3 APPRAISAL OF CONCEPTUAL CRITICISM17.3.1 The Connotation of the Word RibaThe meaning and connotation of Riba has already been discussed in detail in Chapter 3(Section 3.2.1) and Chapter 7 (Section 7.3). Here, we shall briefly analyse the relatedobjections and try to remove the common myths. First, saying that the Qur´ān and theSunnah have not explained the connotation of Riba is not correct. Although the Qur´ān hasnot given any legal definition of Riba, as in the case of other terms used by the Holy Book,it has quite sufficiently elaborated its connotation. In the related verses of Surah Al Baqarah(2: 274–281), it differentiates between business and charity on the one hand, and tradingand usurious activities on the other hand, permitting the trade and its profit and prohibitingRiba. It ordains that whatever is sought over and above the principal of a loan or a debt isRiba and therefore prohibited. This explicitly or implicitly describes the liabilities and rightsof human beings and ordains the avoidance of exploitation of each other’s rights. Similarly,the holy Prophet (pbuh) has categorically prohibited any increase sought over and above theprincipal of a loan or a debt, due to its being Riba.While Islam encouraged Qard al Hasan, or loaning free of any charge, it prohibited thebusiness of exchanging monetary units and other goods of the same ‘Illah (effective causeof prohibition), except for hand to hand (in case of heterogeneous goods) and hand to handand equal for equal (in case of homogeneous items of exchange). This is to ensure thatwhen one party to exchange is giving resources/purchasing power to the other along withthe opportunity to use, the other party should also give in exchange the stipulated resourcesforthwith so that the other may also use the same at his discretion. If monetary units arenot exchanged simultaneously, a person can take benefit by use of a money/currency whichhe has received while he has not given its counter value from which the other party couldderive benefit.