Islamic banking and social reforms

Islamic banking is not just about conducting financial transactions in compliance with shari’a. Rather, it is fast becoming part of a new Islamic financial lifestyle, which in turn is giving rise to a modern Islamic lifestyle. While most observers of Islamic banking refer to Islamic banking in the context of an Islamic economic system, it is equally important to look into social implications of Islamic banking. What are these social implications?
Firstly, Islamic banking is popular amongst modern and moderate Muslims. Mostly, conservative Muslims shy away from Islamic banking because they are not sufficiently convinced of the shari’a authenticity of Islamic banking. The profile of a user of Islamic banking services includes those who are relatively young (up to the age of 30), educated (mostly to a degree level)- many of them having been educated overseas and hence exposed to living in a multicultural and plural society – and professionals or those with business backgrounds. Trading communities, who happen to be observant Muslims, are perhaps one exception amongst conservative Muslims who prefer to patronise Islamic banking.
Secondly, Islamic banking provides one of the very few credible examples of an application of Islamic principles to the modern phenomenon of business activity. Another notable example of the successful application of Islamic principles to contemporary society is in education (there are several international Islamic Universities in Muslim countries, and a large and increasing number of modern Islamic schools). But Islamic banking and finance remains by far the only modern application of shari’a, which has spread all over the world.
Thirdly, Islamic banking and finance is serving as a catalyst for rapid developments in islamic juristic thinking. Continuous search for new tools and innovative use of nominate islamic contracts for product development has initiated a lively debate on “dos and don’ts” in contemporary islamic jurisprudence. While the principles of Islamic jurisprudence (called usul al-fiqh) remain intact and undisputed, applied Islamic jurisprudence is evolving
accounting for the developments in the financial markets and Islamic banking and finance. A number of madrasas (notably Darul Uloom Karachi) have started producing graduates who are experts in fiqh and finance. Many of these graduates now serve as shari’a advisors with Islamic banks and financial institutions – a clear divergence from the traditional careers such graduates used to go for in the past. Consequently, we find graduates of madrasas and Islamic universities in the fields of economics, banking and investment management. This is bringing about new social trends that are in favour of engaging the religious intelligentsia in the mainstream of business and finance.
In a country like Pakistan where the ethical fabric of society is almost ruptured, there is a need to make Islam relevant to the socio-economic needs of ordinary people. Islamic banking can potentially play an important role in this respect. It can serve as a training academy for ethical behaviour and islamic principles of trade and finance. For example, there are three fundamental prohibitions in Islamic banking and finance: riba (interest), gharar (decep-
tion and concealment of information), and gambling. These three prohibitions are based on the principle of justice and fairness. interest is prohibited because it allows one party (eg., lender) to “eat another person’s belongings unjustly.” Deception and hiding information is not allowed for obvious reasons. Gambling has its own socioeconomic implications.
If these three prohibitions are inculcated in the behaviour of users of Islamic financial services, this will lead to the development of a new ethical code in the society. “Devouring others’ property unduly,” deception and fraud, and gambling and taking excessive risks are the types of hazards that can not only destroy individual lives but also ruin societies. The movement against interest, a “casino model” of banking, and reckless investing by banks and financial institutions is gaining momentum in the West. This is perhaps time for Muslim countries to devise a new model of financial intermediation, which is based on social justice.
Apparently, there is an added emphasis in Pakistan on justice in the wake of the increasing popularity of Pakistan Tehrik-e-insaf (PTI). Islamic banking can certainly play an important role in bringing up socio-economic justice to the country. While other parties have by and large failed to capture the opportunity of using Islamic banking as a tool for socio-economic reforms, it is high time for PTI to embrace Islamic banking as part of its election manifesto, and appeal even more to the younger generation in the country. Let us see if Imran Khan pays attention to this important phenomenon, in addition to welcoming defecting members of other parties into the PTI.

The writer is a Shari’a advisor to a number of banks and financial institutions and can be contacted at humayon@humayondar.com



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10 Comments

  1. hadi khatib said:

    This is an interesting topic Humayon. Would you like to publish an article on this trend in Business Islamica, keeping specific politics aside? I have tried to reach you on several occasions.

    regards,

  2. @ZerbAer1 said:

    Is fiat currency acceptable for Muslims to use?
    What is Pak Rupee backed by?
    Is fractional reserve banking Sharia compliant?

  3. Is Islamic Finance D said:

    To answer your question.

    Is nika between 2 men Islamic?

    Is ziba on pig Islamic?

    Is contract combination Islamic?

  4. Is Islamic Finance D said:

    http://www.thestar.com/iphone/business/article/11

    Mystery of the missing $2 million in gold bullion

    December 31, 2011 00:12:00

    John Goddard Business Reporter

    The head of an insolvent mortgage company unloaded $2.2 million in gold and silver from his car at a Rexdale parking lot at night, according to his own testimony, and handed it to a man who has since disappeared.

  5. Andrei Juravliov said:

    Pitiful as it is, the piece by Dr. Dar once again demonstrates the normative rather than positive nature of Islamic banking as part of a larger construction called Islamic economics. The text is so densely populated with ‘ifs’, either direct or indirect, that a huge question mark shows through: can we seriously expect the ideal model to take hold? Coming from a country with a long and painful history of an attempted creation of a New Man (in the communist sense of this phenomenon) I can testify that the human’s nature is pretty stubborn. I am not comparing an ideological faith and faith in god, not at all! But as the author rightfully remarks, the ethical fabric has become too thin in Pakistan. I don’t think that this nation is an exception.
    The point I make is that Islamic finance, or Islamic economy are not going to change people, they can mostly introduce new technical banking habits. For a lasting effect things should be done the other way around: first change the people, then they will embrace the moral ways of doing business themselves. But again, is it possible to change man so radically? Do you think that the discussion that has started in the West in the aftermath of 2007-2009 about the present setup of the global financial system can deliver the much needed change?
    Naturally, thinking in cosmic terms we may say a pretty firm yes to this query. However, cosmic timing is ill-suited for us earthlings.

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