Riyadh, Asharq Al-Awsat – When the international financial crisis erupted and stock markets collapsed and large financial institutions began to oscillate between being on the brink of bankruptcy and declaring bankruptcy, one growing financial sector avoided being hit directly by the crisis, namely the Islamic banking sector. This drew the attention of many specialists at the time and prompted them to call for applying Islamic measures to the international financial industry to avoid this kind of financial crisis happening again.
The situation motivated zealous theorists of the Islamic banking industry to announce the collapse of international capitalism and in its place herald the rise of Islamic banking. Some of them even appointed themselves preachers to the world and sought to explain the causes of the crisis, stating that it was the result of practices that are prohibited by Islamic Sharia law, such as usury, short selling and trading in derivative contracts, which is like gambling.
There is no doubt that what was said about the causes of the crisis was absolutely correct and agreed upon by sensible people at the time. However, the question that poses itself today is this: was Islamic banking reluctant to use those tools by virtue of its belief that they are unlawful and its awareness of their threat to the economy or rather due to its inability to customize those tools in a way that would grant them the religious stamp that Islamic banking requires in order to promote those tools among its clients?
The answer is in what we see, not what we hear. Islamic banking is now preparing to launch a market for Islamic finance derivatives. There are more Islamic hedge funds being formed today and they are likely to increase in the future as soon as they gain the approval of clients. It is common knowledge among experts in the field that even though these tools seem compatible with Islamic Sharia law on the outside they actually are not. Transactions that take place under these contracts are purely conventional. Those, for example, who draw up down payment contracts, for example, cover them up with conventional derivatives contracts and similarly, those who draft Murabaha contracts in order to exchange the price of the Murabaha, cover them up with exchange contracts for the interest rate, and so on and so forth. I challenge any Islamic financial institution to draw up those contracts without involving a conventional bank in the process.
Unfortunately, those hybrid contracts find jurists of Islamic banking to authorize them though they are fully aware of their essence, dangers and the devilish seed they are bound to sow that would wreak havoc on the Islamic banking industry similar to what happened to conventional banking. The content of those contracts is the same though the external form might differ.
The jurists who permit those products must understand that they are actually preventing the tools adopted by Islamic financial institutions from developing; tools that are supposed to achieve the objectives of Islamic Sharia law and highlight its features and its merits instead of following in the footsteps of conventional banking. By passing those contracts, these jurists are virtually destroying the identity of Islamic banking, wiping out its positive attributes and eliminating its distinct and powerful elements. This might be a hidden goal on the agenda of some of those who develop the tools of this industry.
I call on the scholars and jurists of the Muslim world, who are the guardians of our creed and faith, to confront those tools by warning the nation against them and exposing its faults. This is one of their duties. The Holy Quran says: ‘And remember Allah took a covenant from the People of the Book, to make it known and clear to mankind, and not to hide it…’ Let us hope they will not be among those the Quran criticized by saying ‘…But they threw it away behind their backs, and purchased with it some miserable gain! And vile was the bargain they made!’ (Surat Aal al Imran: 187).
I call upon Muslim investors in the field of investment to favour the interests of religion over their own and the goodness of products over anticipated gain and to question how those tools are used before approving of their use in the investment process.