Thursday, May 20, 2010

Touched By The Evil One... (Al-Baqarah, 2:275)

A fellow student from INCEIF emailed my CIFP group this link. It is a blog post by one Syed Akbar Ali. I think he is really funny when he tries to say that conventional banking and Islamic banking are of the same genus.

There are many ways to approach conventional and Islamic banking issue. A more technical explanation about its differences would allow people to really understand why these two systems are not the same and can never be the same. It would be useful to bankers and “people who are really into this stuff”. For most of you, I guess you would want a simple enlightenment. Something solid enough to ensure you that you have made the right choice by changing your conventional deposit accounts to the Islamic ones.

Righto!

The most elementary difference between the two lies in how banks utilize its funds. Conventional banks give out loans to its customers. The bank does not care about how its customer uses the money just as long as it pays back the principle sum and some additional interest sum.

This is the major underlying difference. Interest. In Arabic it is called Riba’. Actually there are no specific word to describe riba’ in Malay. I was told by my lecturer that Tunku Abdul Rahman, being conventionally educated, translated riba’ into “faedah”. I don’t think that is the right translation. Riba’ is prohibited in Islam but Faedah, (in its general sense, it means to benefit) is not prohibited. However, the term Faedah in banking world is now customarily understood as riba’. Hence, Malaysians must now regard faedah, in the banking world, to be prohibited.

Islamic banks can only give interest free loans. In other words, if Bank Islam gives RM50,000 loan to me, I will have to pay only RM50,000 when the loan matures. Anything more that is stipulated in advance or being asked by Bank Islam is considered as riba’ and is prohibited.

How can Islamic banks make money than?

Well, from the funds that they get, they are allowed to do trade. Instead of using the funds that they have to trade money with money and make money, they instead use the money as a medium of exchange of an asset, to be traded. From such trade, the bank would make profit. This profit is allowed in Islam as profit from trade is not similar to interest.

Why is it not similar? Well, the reason is because in the Quran chapter 2 verse 275 (2:275) which reads:

"Those who devour usury (riba') will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). "
Therefore, the initial agreement between the bank and its customer must be in compliance with the Shariah. The terminologies used must be correct in order for the product to be a Shariah compliant product. The contract (or sighah) is very important and cannot be regarded as trivial.

Just like how nikah (or zawjah) must be used in solemnizing marriages, the terminologies for Islamic finance must also be accurate.

One cannot have illegitimate sex, produce bastards and say that that bastard is just the same as a child conceived from a legitimate marriage.

In summary, the difference between these two financial creatures lies in how the bank utilizes its funds. One lends and the other trades. In order to make money out of money, interest is involved. Interest is Riba’. Riba’ has been prohibited by Allah whilst trade is permissible.

It is better to learn about the technical differences before you write about these issues less you would be misleading your readers.

I have posted a short comment to Syed Akbar Ali’s post. He has yet to approve it at the time I write this post. In my comment I said that the decision by Justice Abdul Wahab Patail regarding BBA has been overruled by the Court of Appeal. I also suggested that he should apply for the Bank Negara scholarship and complete his CIFP at INCEIF before he writes about Islamic finance. He has a lot of followers and depicting a wrong picture about Islamic finance to his readers is certainly misleading.

It would certainly be interesting to see how he views on Islamic finance after graduating from INCEIF.

It would be even more interesting to see him as a student there! hehe.
 :)

Blog adjourned.

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3 obiter dictum:

Andrei said...

'One cannot have illegitimate sex, produce bastards and say that that bastard is just the same as a child conceived from a legitimate marriage.'

From a religious perspective, why should a child be labelled as a 'bastard' when the child has done no wrong? How exactly is such a child different from 'a child conceived from a legitimate marriage'?

I apologize in advance should you find my comment irrelevant to your post. I am simply curious as to your view on the above matter

two_one said...

Hello Andrei. Thanks for dropping your comment. :) Regarding your question, the term "bastard" is used to refer that the child is an illegitimate child. It is not meant as a foul language. Just as how we call a cat as a cat, an illegimate child is known as a bastard in English.
A bastard child is not regarded as the same as a legitimate child in Islam (especially according to Shafie school of thought.) For example, they do not have the right of inheritance; the man who is responsible for the concievement of a bastard girl cannot be her wali (or marry her in Islam). According to Imam Shafie, that man can even marry that bastard girl because Islam does not recognise her relationship with that man as being a father to daughter.
In the protection of lineage as part of the protection of the five fundamentals in Islam, adultery is strictly prohibited and its consequences are not tolerated as well.
I hope this is good enough. If it isn't please tell me and maybe I can draft a post to satisfy your query. :)

Andrei said...

I have been wondering for quite a while though: as you mentioned above, they do not have have the right of inheritance. Don't you think this is slightly unfair considering a child has no say whatsoever in whether or not he/she is conceived legitimately?

While i appreciate your informative reply i would really appreciate it if you made a post on this subject as i have always been curious about this particular aspect of religion.

Thanks in advance :)