I was asked by ISNA to produce a short guide to Islamic Banking and Finance for
the Muslims of North America. To keep this guide short, we had to define our
target audience rather carefully. This introductory guide is meant to address
the Muslim who is familiar with the fundamental tenets and sources of
legislation in Islam. The reader is not assumed to have elaborate prior
knowledge of Islamic financial contracts, but a certain degree of financial
sophistication will be required.
This is not a full survey of the field, and it is not a religious guide. It is
the work of a single individual, who does not claim any religious authority
beyond that which is derived from quoted texts. I tried my utmost to steer away
from issues which are or may become controversial. Therefore. I have been
careful to limit the discussion of recent fatwas and decisions of jurists and
juristic councils. In that sense, this guide falls short of providing the reader
with full information about "state of the art" Islamic financial
instruments.
This apparent shortcoming is intentional. The field of contemporary Islamic
finance is rather young, and marred by a number of shortcomings of its own. It
is easy for an economist such as myself to fall prey to the temptation of
claiming religious authority from translated texts and quoted opinions. It is
also easy for specialized jurists to assume that they understand both the
religious and the financial aspects pertaining to a specific contract or
transaction. In both cases, there is a great danger for scholars of religion as
well as students of economics and finance to speak falsely in the name of
Islam.
I hope to succeed in minimizing this danger by speaking generally about the
basic types of contracts used by "Islamic financial institutions" in North
America and elsewhere. The generic forms of those contracts have been subjects
of extended study by traditional jurists. My goal is to provide a concise
summary of the nature of those contracts, and their Islamic foundations in Qur'an, Hadith, Sunnah, 'ijma `, and where necessary
qiyas. The primary
objective of this introductory guide is to explain to the non specialist curious
Muslim the difference between the forbidden financial transactions commonly used
in conventional finance, and their Islamically permitted counterparts.
It is important for me to make it clear that I am not endorsing any particular
institution or industry which labels itself "Islamic". There are many honest,
sincere, and hardworking Muslim men and women who are currently struggling to
make it easier for Muslims in North America to lead their lives in accordance
with the Shari`ah, without having to make unreasonable financial sacrifices.
Such individuals and groups deserve our support and du'a. However, prudence also
dictates that we recall that religion has often been used by individuals with
sick hearts to exploit the gullible.
The humble educational aims of this work are two fold:
- By alerting the North American Muslims to the differences between
conventional and Islamic. finance, we may be able to boost the efforts of the
sincere Muslims developing or dealing with Islamic financial institutions.
- By providing a clear basic understanding of the underlying contracts, Muslims
may become less prone to making inadvertent errors, as well as less likely to
fall prey to the inevitable exploitative efforts of some unscrupulous
individuals.
I beg the forgiveness of Allah for the mistakes I make, and pray that He makes
this effort a fruitful one.
