Friday, November 15, 2013

The Bastard Child Analogy

When distinguishing between Islamic finance and conventional finance / riba’ based finance, the common analogy is the Halal and Haram Meat Analogy. There is another analogy which is better in distinguishing between Islamic finance and conventional finance. To start, let me explain briefly the Halal and Haram Meat Analogy.

The Halal and Haram Meat Analogy

Using this analogy, Islamic finance is regarded as the halal meat, whereby the halal animal is slaughtered in accordance to the Shariah and its meat is permissible to be eaten as compared. Conventional finance on the other hand is the haram meat where the animal is sourced illegitimately and it is not slaughtered according to the Shariah making it not permissible, under the Shariah, to be eaten.
The fact is that both meat, if eaten, would give the same physical outcome (feeling satiated) however, the Shariah only permits one to eat the halal meat and not the haram meat.
In other words, if you opt for an Islamic house financing, the monthly instalment that you pay is Shariah compliant as compared to a conventional house financing based on riba’ which is not Shariah compliant. The outcome of both financing are somewhat similar, pay your instalment and you will own a house at the end of the tenure.
As I have mentioned above, I don’t quite agree with the above analogy. I prefer the Bastard Child Analogy. What is it? Please read on.

The Bastard Child Analogy

The Bastard Child Analogy is based on the following two examples.
Example 1: A guy and a girl committed adultery, the result of which the girl got pregnant and gets a child.
Example 2: A guy and a girl got married and had sex, the result of which the girl got pregnant and gets a child.
In example 1, the child is a bastard child. In example 2, the child is a legitimate child. The process that the guy and the girl did to get the child is the same i.e. they had sex. The outcome of that sexual intercourse is that they got a child.
The only difference between example 1 and example 2 is that the guy and the girl were validly married in example 2. They had a contract / aqad between them that the Shariah recognises, and out of which, the child is recognised as a legitimate child. The Shariah did not recognise the mutual consent to have sex in example 1. As a result, the child is a bastard child.
Both children in example 1 and 2 are somewhat similar, just like the end result in both Islamic finance and conventional finance.
However, only the child in example 2 is recognised by the Shariah.
In other words, the Shariah compliant contract in Islamic finance is the crux that distinguishes it with conventional finance.
This is one of the many reason why in Surah Baqarah, Allah states clearly that He has permitted trade and forbidden Riba’. Trading, based on principles approved by the Shariah will result in profits that is recognised by the Shariah to be legitimate income (just like the child in example 2). Riba’ however, will result in illegitimate gains that is NOT recognised by the Shariah (just like the child in example 1).

The Difference?

In the Halal and Haram Meat Analogy, the process of obtaining the meat is the distinguishing factor. The Halal meat is Islamically slaughtered whilst the Haram meat is not.
In the Bastard Child Analogy, it is the underlying contract / aqad that is the distinguishing factor. The Bastard Child is the result of adultery whilst the Legitimate Child is the result of a valid marriage contract.
In my humble opinion, the Bastard Child Analogy is a better analogy to describe the difference between Islamic Finance and Conventional Finance.


Blog Adjourned.

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