Some observations on contemporary financial proposals

• DOI: https://doi.org/10.1108/IJOES-03-2021-0067
• Published date: 03 August 2022
• Date: 03 August 2022
• Pages: 464-480
• Subject Matter: Economics,Social economics
• Author: Salman Ahmed Shaikh

Some observations on

contemporary financial proposals

Salman Ahmed Shaikh

Department of Research and Publications,

Islamic Economics Project, Karachi, Pakistan

Abstract

Purpose –This paper aims to discuss the views of scholarshipin South Asia regarding Riba and Riba-free

finance, including the conservative and realist schools in mainstream thought and the assimilative and

interpretiveschools in liberal thought.

Design/methodology/approach –The paper uses textual analysis to critically reviewthe writings of

scholars in South Asia on contemporary issues regarding Riba and Riba-free finance. It provides a critical

review in thelight of Islamic jurisprudence and extant Islamiceconomics literature.

Findings –There are several characteristics in conventional banking and finance products that do not

comply with Islamic teachings. In this scenario, Islamic banking is comparatively a better alternative to

conventionalbanking and finance products to achieve Shari’ah complianceand avoid indulging in Riba.

Practical implications –Voluntary financial exclusion to avoid Riba is significantin Muslim-majority

countries.Increased penetration of Islamic finance requires clarityon what is Riba and confidence in Riba-free

alternatives. Outreach efforts of Islamic financial institutions use conventional banking as a frame of

reference to provide a critique of interest-based banking. However, the apprehensions within the Islamic

finance literature also need to be answered to change perception and enhance people’s willingness to use

Islamic banking. Doing this can expedite the process of financial inclusion as well as help in the

transformationof the economy on Riba-free foundations in a reasonablyquick timeframe.

Originality/value –This is the first study to critically evaluate the financial proposals presented and

propagatedby the contemporary interpretive school in South Asia.

Keywords Islamic banking, Riba, Bank interest, Usury

Paper type Research paper

1. Schools of thoughts in understanding of Riba and Riba-free finance

This section discusses the contemporaryunderstanding of the scope and application of Riba

in modern forms of banking and financeby focusing especially on the views of scholars who

are apprehensive about the mainstream Islamic banking movement. Since the mainstream

Islamic banking movement in Pakistan is flourishing ever since the establishment of

Meezan Bank in 2002, there is no lack of literature on what mainstream Islamic banking is

and how is it different from conventional banking, as understood by scholars who are

spearheading the Islamic banking movement in Pakistan. Chief among them is respected

scholar Mufti Muhammad Taqi Usmani whose writings are widely available in Urdu,

English and also in the Arabic language.

Nonetheless, as mainstream Islamic banking flourished in Pakistan and elsewhere, the fringe

views became less visible in mainstream discourse. However, a major reason why there is still

apprehension about Islamic banking in public is that the fringe views also have a grounding and

influence on public opinion. Therefore, it is important to identify the views and opinions of

contemporary scholarship other than the views of the mainstream Islamic banking movement as

well. A critical analysis of those views will prove to be beneficial in facilitating informed opinion

as well as provide a chance for reflection and improvement in the practice of Islamic banking.

IJOES

39,2

464

Received22 March 2021

Revised26 June 2021

6 November2021

17March 2022

1 June2022

Accepted12 July 2022

InternationalJournal of Ethics and

Systems

Vol.39 No. 2, 2023

pp. 464-480

© Emerald Publishing Limited

2514-9369

DOI 10.1108/IJOES-03-2021-0067

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/2514-9369.htm

The schools of thought in the understanding of Riba and Riba-free finance can be

classified into the mainstream school and the liberal school. The mainstream school

represents classical scholarship whose views are grounded in classical Fiqh. The

mainstream school can be further classified into conservatives and realists. The liberal

school can also be further classified into assimilative and interpretive school. Figure1 gives

an illustration of the schools of thought related to contemporaryunderstanding of Riba and

Riba-free finance.

Conservatives are the scholars who want to avoid not only Riba, but also want to stop

backdoor ways of indulging in Riba as Sadd-e-Zariya (a precautionary step). They suggest

caution and emphasize that it is vital to ensuresafety from Haram (impermissible activities)

than to engage in Mubah (a lawful activity). Safety from impermissibility is a must while

engaging in a lawfulactivity is only permissible at best.

The conservatives include two kinds of scholars, i.e. those following any major school of

jurisprudence in Classical Fiqh in all mattersand those who take inspiration from Classical

Fiqh schools and scholarship,but do not bind themselves and others to follow one particular

classical Fiqh school in particular. The former scholars are known as Muqallid (binding

themselves to follow one particular classical Fiqh school) and the latter are known as non-

Muqallid (not bindingthemselves to follow one particular classical Fiqh school).

In the context of South Asia and especiallyPakistan, the former includes scholars which

hail from mainstream religiousschools, such as Jamia Farooqia, Jamia Uloom-ul-Islamia and

Jamia Ahsan-ul-Uloom. It is known that the rectorof Jamia Farooqia, Maulana Saleemullah

Khan and Chancellor of Jamia Uloom-ul-Islamia,Maulana Abdul Razzaq Iskandar had been

critical of Islamic banking. They had expressedtheir views in a jointly published Fatwa, i.e.

legal opinion (Jamia Uloom-ul-Islamia, 2008). Likewise, the principal of Jamia Ahsan-ul-

Uloom, Mufti Zar Wali Khan had also written a critique of Islamic banking (Khan, 2014).

These scholars not only condemn conventional banking interest, but also criticize Islamic

banking on the premise that it uses Hiyal (legal stratagems)to achieve the economic results

of conventional banking transactions. Thus, in their views, Islamic banking merely mimics

and serves the objectives of financial capitalism by compromising on the higher goals and

ideal objectives of Islam (Maqasid-e-Shari’ah).

In the context of South Asia and especially Pakistan, conservative scholarship also

includes scholars who do not hail from any particular classical Fiqh school, but who,

nonetheless, align themselves with classical scholarship overall. Maulana Maududi, Dr Israr

AhmedandSheikhImranHoseinarefewexamplesofscholarsinthisgroup.Maulana

Maududi regards bank interest as Riba and condemns interest, no matter how small or large it

is and whetherit exists in personalor commercial loans(Maududi,1960, 1969). Ahmed (1985)

Figure 1.

Schools of thoughtin

contemporary

understandingof

Riba

Contemporary

financial

proposals

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