Understanding Islamic Finance - Doha Academy of Tertiary Studies

An Appraisal of Common Criticism 44117.3.5 Charging Interest from Rich DebtorsThe argument that, in the present age, the borrowers from financial institutions belongmostly to the rich business community, and charging interest from them is not unjust, isnot convincing at all. This argument would be tenable only if all indebted businesses wereearning a profit significantly higher than the interest rate. But if some earn less than theinterest rate, some earn out of proportion while some others incur a loss, the claim losesground. This criticism rather strengthens the case against interest, because the relativelyricher class takes funds at much cheaper rates vis-à-vis their profits from the business. Theygive a small part of their profit in the form of interest to the banks, which is treated asan expense and ultimately charged to the consumers. If some of them incur a loss in thebusiness, they normally resort to different unethical practices to avoid the loss, causing harmto society as a whole. Thus, the rich become richer, leaving the poor poorer. The solution tothe problem lies in making available a framework in which one may earn profit/return/incomeonly through exerting mental or physical labour, or taking responsibility and business risk.Interest leads to exploitation of any of the parties, i.e. the debtor or the creditor, and henceit is prohibited, irrespective of who is the exploiter in any particular transaction. Due to theinvolvement of interest and gambling on a massive scale, the conventional financial systemhas become a means for exploiting savers or depositors and the general public.17.3.6 Different Sharī´ah InterpretationsAnother criticism of Islamic finance is that its products are not standardized because anumber of its concepts are subject to different Sharī´ah interpretations. Islamic scholarsdo not resort to Ijtihad and therefore, Islamic finance cannot become a solid basis for afinancial system to replace the present conventional system. However, as the Islamic bankingmovement has already passed a significant milestone of having evolved a general consensuson the philosophy and products for business, with large-scale acceptance of mainstreamtheory and practice, slight differences in the concepts are no longer an issue of concern. Asregards standardization of the products, this will take time. For the time being, evolving theproducts along with their process and procedures is the main challenge. Further, institutionslike the IDB, the AAOIFI and the IFSB are working on this line; this may increasingly leadto standardization in the future.Islamic Sharī´ah has provided flexibility for Ijtihad to respond to changes and diversity inday-to-day life. Remaining within the Sharī´ah boundaries, a great deal of Ijtihad is neededto infer from the original sources the appropriate rules relating to transactions of businessand finance. In the recent past, the Sharī´ah scholars have very rightly used this source ofderiving principles to facilitate the growth of Islamic finance on a wider scale. But Ijtihadhas its own limitations. It is neither a source of anarchy nor a means of transforming theIslamic Sharī´ah from Divine to man-made law. The concepts of custom, general good,utility and necessity are also taken into consideration in the process of Ijtihad, based onproper analogy, but these factors are relevant only when the basic principles given in theNass (clear texts of the Qur´ān and Sunnah) are taken care of and the outcome conforms tothe objectives (Maqasid) of the Sharī´ah.The development of ethical and belief-based disciplines depends on the acceptability oftheir conceptual underpinnings and their implementation procedures. The mainstream theoryof Islamic finance has got this acceptance and the industry has to be developed on the basisof the acceptable concepts. Some concepts that serve as the basis for application in some