NEWHORIZON

NEWHORIZON April to June 2013
FOOD FOR THOUGHT
b. Some scholars have
recently allowed Egypt
to borrow from the IMF
(International Monetary
Fund) at 1.1% interest,
considering it as the
administrative cost to
IMF for processing and
managing the loan.
c. The IDB (Islamic
Development Bank) is
allowed by its Shari’ah
advisors to charge an
increase on its charitable
loans, provided it
represents the actual
administrative costs
involved in appraising the
loan application, processing
and servicing it. These
service charges do not
make IDB charitable loans
(qard hasan) interest-based
loans.
d. Depositors in current
accounts in Islamic banks
(who are considered
lenders) do not receive
a return in cash. They
receive, however, a host
of in-kind benefits and
services from the bank free
of charge. Most Islamic
banks do not charge for
the safe keeping of money,
use of checks, credit cards
service, ATM machines
accessible around the
world and free electronic
transfers, just to name a
few. No one considers
these additional in-kind
services received by a
depositor as riba resulting
from lending to the Islamic
bank.
2. RCG in the conventional
banks is for time alone.
Time alone is not a valid
consideration for which
compensation can be
charged under the Shari’ah.
FRCG under the proposed
solution is for the usufruct.
A charge for usufruct is
permitted in the Shari’ah.
3. The use of LIBOR as a
benchmark is a charge
for time. Its use in sale
contracts does not change
the substance and the
nature of the charge. It
should not have been
allowed by scholars. If
FRCG on Islamic finance
contracts were based
on usufruct, a genuine
and workable Islamic
benchmark based on
usufruct would have been
developed long time ago,
removing one of the most
contentious and criticised
practices in Islamic finance.
4. It has to be acknowledged
that it appears the two
financing systems, the
conventional and the
proposed, look similar.
Once closely examined and
developed into contracts
and standards, however,
the difference between
the two can be rationally
explained and consistently
followed without creating
conflicts and tensions
between Islamic finance
contracts and other laws
needed for a modern
society.
Efficient and workable
bankruptcy codes are as
important for the economic
wellbeing of a society as
hospitals are for treating human
ailments and diseases. The
present bankruptcy codes,
with only slight changes to
comply with the principles of
the Shari’ah, can be developed
to adequately deal with Islamic
financial distresses and defaults.
The challenge does not lie in
developing a workable and Shari’ah
compliant bankruptcy code; the
real challenge lies in changing the
modes of Islamic banking and
financing to make them rationally
fit with other laws, which are
genuinely needed to organise and
govern an Islamic society.
Al-Imam ibn al Qayyim states in
A’alam al-Muwaqq’in ‘an Rabb
al’alamin:
‘The foundation and
components of the Shari’ah
are based on the benefits of
the people in this world and
in the Hereafter. Thus it is
the ultimate source of justice
and benevolence; it is all gains
and all wisdom. Thus any
scheme which diverges from
justice to oppression, from
mercy to its opposite, from
benefit to harm and wisdom
to nonsense; it is not from
Shari’ah even if is inserted in
it by construction’.
Efficient and workable
bankruptcy codes are as
important for the economic
wellbeing of a society as
hospitals are for treating
human ailments and diseases.
Shaikh Muddassir Siddiqui
is uniquely qualified both as
a Shari’ah scholar and as a
U.S. trained attorney. He is
a member of the AAOIFI
Shari’ah Standards Committee;
the Fiqh Council of North
America and a Research Fellow
at the International Shari’ah
Research Academy for Islamic
Finance, in Malaysia. Shaikh
Muddassir is a member of
New York Bar and a registered
foreign lawyer with the
Solicitors Regulation Authority
(SRA), in the U.K. He has extensive experience in advising on
transactions involving Shari’ah-compliant financing.
www.islamic-banking.com IIBI 39