A Comparative Study of Islamic Finance in Australia and the UK

Imran Lum

• Editorial: Routledge
• Año: 2021
• ISBN:
  9781000450132
• Edición: 1
• Categoría: Business
• Categoría: Sistemi bancari e finanziari nei paesi islamici

This book provides valuable insights into the practical challenges faced by the nascent Islamic finance industry and compares the Australian experience to developments in the UK. It contributes to a greater understanding of how Muslims living as a minority in Australia and the UK negotiate Islamic doctrine in secular societies by focusing on one aspect of this negotiation, namely the prohibition of rib?.

There is little debate in the Islamic tradition on the prohibition of rib?. The differences, however, lie in the interpretation of rib? and the question of how Muslims live in a society that is heavily reliant on interest and conventional banking, yet at the same time adhere to Islamic guidelines. Through the words of religious leaders, Muslim professionals and university students, Imran Lum provides real accounts of how Muslims in Australia and the UK practically deal with conventional banking and finance products such as home loans, savings accounts and credit cards. He also explores Muslim attitudes towards Islamic finance and queries whether religion is the sole determining factor when it comes to its uptake.

Drawing on his own unique experience as a practitioner responsible for growing an Islamic business in a conventional bank, Lum provides a firsthand account of the complexities associated with structuring Islamic finance products that are not only sharia compliant but also competitive in a non-Muslim jurisdiction. Using ?uk?k bonds as a case study, he highlights the tangible and non-tangible barriers to product development, such as tax and regulatory requirements and the rise of Islamophobia. Combining academic and industry experience, Lum unpacks the relationship of Islamic finance with Muslim identity construction in the West and how certain modalities of religiosity can lead to an uptake of Islamic finance, while others can lead to its rejection.

1

Introduction

DOI: 10.4324/9780429294808-1

Muslim minorities in the West face many challenges. For many practising Muslims, trying to balance the requirements of their faith with the realities of Western cultures and environments is a constant negotiation. While there has been a lot written on integration, Islamophobia and socio-economic barriers, little has been written on one aspect of these challenges and that is how Muslims negotiate Islamic doctrine in the economic sphere, which is traditionally a very secular space. This book will focus on one aspect of this negotiation, namely the prohibition of ribā (interpreted by many as interest) in a modern economy. This stems from my own personal journey as a Muslim born and raised in Australia, seeking to navigate the economic sphere and understand the parameters of the faith. This book, therefore, explores the intersection of religion with the secular economic sphere in order to understand the diverse experiences within Muslim economic negotiation in Australia and the United Kingdom (UK). There is little debate on the prohibition of ribā itself; rather, the differences lie in the interpretation of ribā and the question of how to live in a society that is heavily reliant on interest and conventional banking, yet at the same time remain observant of the prohibition of ribā. This is an obstacle often faced by religious leaders¹ and practising Muslims² alike, in both Australia and the UK. Islamic banking and finance (IBF) has taken a small foothold in the Muslim communities of these two countries, creating niche markets. This book focuses on how Australian and British Muslims negotiate ribā in the economic sphere by addressing two central questions: First, is there consistency in Australian and British Muslim responses to the prohibition of ribā? And second, how have their responses affected Muslim banking practices – both conventional and Islamic – in Australia and the UK?

IBF is financial activity that is consistent with Islamic law (sharia). The term ‘sharia’ can be translated in several ways. Tariq Ramadan illustrates how different scholars understood the term:

Fiqh specialists often tried to reduce the notion of sharia to their field of specialisation alone that is to law only. Other scholars, and in particular those who were conversant both with law and with mysticism, recalled that the meaning of sharia is far broader than that and that the word literally refers to the notion of the path leading to the source, that it expresses the idea of the Way.³

This translation of sharia as ‘the Way’ is reiterated by John Esposito, who describes sharia as ‘the divinely mandated path, the straight path of Islam, that Muslims were to follow, God’s will or law’.⁴ In this book, I define the sharia to be the Qur’ān, the revealed text of Islam, and the Sunna⁵ of the Prophet Muhammad (pbuh)⁶ (d. 632).⁷ Fiqh (Islamic jurisprudence), on the other hand, is a detailed and technical discussion seeking to understand and implement the sharia that is essentially a product of human reasoning (ijtihād) and not a revelation from God.⁸ According to Abu Zahra (d. 1974), from a linguistic perspective, fiqh connotes deep insight and understanding that comes with being cognizant of the ultimate objectives stemming from the Prophetic saying: ‘Whoever Allah wants to bestow goodness, he gives them understanding of the religion’.⁹

Fiqh covers a wide range of aspects of Muslim life, including economics and financial matters that are derived from proof and evidence found in the Qur’ān and Sunna.¹⁰ Because fiqh is based on human interpretations, Islamic law is not static. Rather, it is a dynamic set of rules, principles and parameters that have evolved over approximately 1,400 years of philosophical and legal reasoning. While some aspects of Islamic law are fixed, much of Islamic law is based on scholarly interpretation. There are four main schools of jurisprudence known as madhhabs within Sunni Islam, with varying levels of differences of opinions, between and within the different schools of thought.¹¹ All schools, however, derive their rulings from the two primary sources of Islamic law – the Qur’ān and the Sunna. I shall now discuss these in greater detail.

The prohibition of ribā

The Qur’ān was revealed in seventh-century Arabia in a context that was relatively familiar with trade and commercial activity. The caravan trade between the Indian Ocean and the Mediterranean Sea would often pass through Makkah, the birthplace of Islam, and Medina, the second holiest site in Islam. There were two seasonal caravans that would often pass during the summer and winter periods, and these were communal undertakings in which various tribes took part.¹²Although barter trading predominated, Byzantine and Persian coins circulated through Makkah, creating a relative familiarity with transactions involving money. The Qur’ān and Prophetic traditions permitted certain modes of trade and prohibited others.

Of all the sharia injunctions associated with financial transactions, the most well-known prohibition relates to ribā. Ribā is categorically prohibited in the sharia regardless of the amount.¹³ Linguistically, the lexical meaning of ribā connotes increase, increment, growth and augmentation.¹⁴ There are four sets of verses in the Qur’ān that relate to ribā. These are Ṣura al-Rūm 30:39,¹⁵ al-Nisā’ 4:161,¹⁶ al-^cImrān 3:130–32¹⁷ and al-Baqara 2:275–81,¹⁸ three of which relate specifically to the prohibition of ribā.¹⁹ The ribā that was mentioned in the Qur’ān is typically described by the early jurists (fuqahā’) as ribā al-jāhiliyya or ribā during the time of pre-Islam. This form of ribā involved an increase from the principal and a delay in the repayment.²⁰ Some companions such as Usāma ibn Zayd, ^cAbdulla ibn Mas^cūd, ^cUrwa ibn Zubayr and Zayd ibn Arqām would go so far as to say this is the only prohibited form of ribā. Aḥmad ibn Ḥanbal commented that there is no dispute on this form of ribā.²¹

One of the most prominent ḥadīth²² in the discourse on ribā is the ‘six commodities ḥadīth’ (al-aṣnāf al-sitta), which comes in a variety of transmissions and is related by Bukhāri, Muslim, Aḥmad, al-Nasā’i, Abū Dawūd and Ibn Mājah:

Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt, like for like, equal for equal, hand to hand. If the types of the exchanged commodities are different, then sell them as you wish if they are on-the-spot transactions.²³

Another ḥadīth that further illustrates the prohibition of ribā is narrated by Muslim on the authority of Abū Sa^cīd al-Khudri:

Bilal visited the Messenger of God with some high-quality dates, and the Prophet inquired about their source. Bilal explained that he traded two volumes of lower-quality dates for one volume of higher quality. The Messenger of God said: ‘This is precisely the forbidden ribā! Do not do this. Instead, sell the first type of dates, and use the proceeds to buy the other’.²⁴ (Muslim)

These ḥadīths and others became the foundation of the doctrine of ribā in Islamic law. While the prohibition of ribā was clearly stated in the Qur’ān and in the ḥadīth, what constitutes ribā became an issue of contention because there was no clear definition in the Qur’ān and Sunna.²⁵ Even the second Caliph, ^cUmar b. Khaṭṭāb (d. 644), lamented that the verse on ribā was among the last to be revealed, and the Prophet Muhammad (d. 632), died before he could explain what ribā was exactly:

The Qur’ānic verse regarding ribā was among the last part of the Qur’ān revealed, and the Prophet died before interpreting this verse. So give up ribā and anything that you doubt. (Aḥmad, Ibn Mājah, al-Ṭabarī)²⁶

After the death of the Prophet in 632, the Muslim world rapidly expanded across the three continents of Africa, Europe and Asia. Approximately 100 years after the death of Prophet Muhammad, the rightly guided Caliphs (al-khulafā’ al-rāshidūn)²⁷ and the Caliphs of the Umayyad Dynasty had established an empire that was geographically greater than Rome at its zenith. Over time, major international trading cities were established; for example, Baghdad was a commercial metropolis by the tenth century.²⁸ By the fifteenth century, other cities, from Cairo to Gujerat and Melaka, became major centres of trade.²⁹ A highly sophisticated international financial network supported international trade between Muslim communities through financiers known as the ṣarrāfiyya.³⁰

In this context of growing trade and commerce, early jurists (fuqahā’) sought to define which transactions were permissible and which were not. They did this by attempting to understand precisely what constituted ribā. Some of the earliest commentary about ribā appears in the Muwaṭṭa’ of Imām Mālik (d. 796), and it discusses ribā from the pre-Islamic period (jāhiliyya):

Mālik related to me that Zaid ibn Aslam said, “Ribā in the jāhiliyya (pre-Islamic period) was that a man would give a loan to a man for a set term. When the term was due, he would say, ‘Will you pay it off or increase me?’ If the man paid, he took it. If not, he increased him in his debt and lengthened the term for him”.³¹

Ibn Rushd (d. 1198) makes the point that during this period, they used to stipulate excess in loans and then delay the period of repayment. He argues that this is what the Prophet meant when he said at the farewell pilgrimage, ‘take heed, verily the ribā of jāhiliyya is annulled and the first claim of ribā I cancel is that of al- ^cAbbās ibn ^cabd al-Muṭṭalib (d. 653)’.³² Based on this understanding of ribā, jurists of the four main schools of Islamic jurisprudence³³ particularly focused on the ‘six...