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Muslim Australians - Religion Cultural Diversity Resource Manual

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ISLAMIC BANKING<br />

In the time of the Prophet, the Arabs used to engage in a practice called<br />

riba, which involved lending a person some goods or money. If they<br />

could not repay the loan after a certain amount of time, then they would<br />

end up having to repay much more, sometimes double the amount or over.<br />

The Qur’an prohibited the practice of riba saying: ‘O ye who believe! Devour<br />

not riba (usury), doubled and multiplied; but fear God; that ye may [really]<br />

prosper’ (3:130). Because of the prohibition of riba, many <strong>Muslim</strong>s view<br />

Western banking practices involving interest as being riba-based and therefore<br />

forbidden to <strong>Muslim</strong>s. However, some <strong>Muslim</strong>s argue that interest and riba are<br />

two different things and that riba was prohibited because it was unjust. As such,<br />

in their view, if interest is not unjust it does not need to be prohibited.<br />

Rather than taking and paying<br />

interest, Islamic banks offer a<br />

partnership arrangement so that<br />

customers share in profits made<br />

For those <strong>Muslim</strong>s who do not wish<br />

to take or pay interest, an alternative,<br />

Islamic banking, has been set up<br />

in many places around the world,<br />

including in Australia, which is home<br />

to the <strong>Muslim</strong> Community<br />

Co-operative Australia (MCCA). 32<br />

The principles of Islamic banking are<br />

as follows: 33<br />

» Only ethical investments must<br />

be made. Islamic banks will not<br />

invest in companies that trade in<br />

products such as pork, alcohol,<br />

gambling, and pornography.<br />

» Rather than taking and paying<br />

interest, Islamic banks offer a<br />

partnership arrangement so that<br />

customers share in profits made,<br />

but also take a share of the risk if<br />

there is no profit or an investment<br />

fails. This is a bit like having<br />

shares in a company.<br />

» Customers can arrange with the<br />

bank to receive finance for buying<br />

major things like cars and houses.<br />

Both the customer and bank agree<br />

to a fixed amount which will be<br />

paid over time including a known<br />

amount of profit for the bank.<br />

» The bank and its partners have<br />

a responsibility to contribute<br />

to social development through<br />

Islamic investments and the<br />

paying of zakat.<br />

» The bank usually has a<br />

supervisory person or board to<br />

ensure that the bank is acting<br />

in accordance with Islamic<br />

principles and ethics.<br />

32<br />

See http://www.mcca.com.au/<br />

33<br />

See http://www.islamicbankingonline.com/ovrv3.htm<br />

58 <strong>Muslim</strong> <strong>Australians</strong>:THEIR BELIEFS, PRACTICES AND INSTITUTIONS

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