Introduction to Terminology and Actions

Delving into the issue of Islamic banks is something that prompts me to pose questions rather than hastily issue judgments and provide answers. Since the questions are primarily the result of critical thinking, this initial criticism of what has commonly been referred to as the "Islamic bank" necessitates an introduction, which is the terms and concepts themselves. I assumed from the beginning that the root of the problem and the indicator of it lies primarily in the problematic confusion about the concepts. The combination of these concepts and the way they are arranged trick our minds, subtly and delicately, to accept illusions as absolute truths, to accept assumptions as established constants, and to surrender to deception without criticism, review, or scrutiny.

The first of these concepts is what the term "Islamic" itself refers to, meaning related to Islam or described by it. I assert that there is much deception in the use of this term today. It necessitates revealing its sometimes diverse and at times contradictory meanings. It is crucial to isolate Islam (as a divine religion, belief, and law) from the terms added to it (when we attribute them to Islam or describe them as Islamic).

For example, when we speak of "Islamic history," we do not mean the history of Islam itself. Instead, we refer to the history of generations of diverse humans, subject to various states, governments, and policies. Their societies witnessed varied conditions of rise and fall, progress and backwardness, defeat and victory. This means there is no necessary connection between Islamic history and Islam itself regarding its sanctity and ideals. The vast and significant difference between them is the same difference between the divine and the human. Likewise, none of the common concepts in this context should be associated with sanctity, such as Islamic civilization, Islamic art, Islamic society, Islamic sciences, the Islamic state, and Islamic politics, the latter being the focal point of our discussion.

I will start by providing an example of the clear and common distinction between two terms that are often used interchangeably: Islamic politics and political Islam. The first term is a neutral description of the accumulation of experiences, experiments, ideas, and philosophies related to politics and its various forms and sciences throughout the history of Islamic countries. This accumulation started more than 14 centuries ago and continues to the present day. It does not represent a sacred value, a stance, or a direction in itself.

As for political Islam, it has a different significance. I am not here to precisely define its concept or determine its comprehensive definition. It suffices to say that it is a clear position and a specific direction used to describe political movements that assert that Islam is not only a religion but also (and here I convey the opinions of supporters of political Islam without endorsing them) a political, social, administrative, and economic system to which the state, with all its institutions, apparatuses, and components, is subject. This term was coined for fundamentalist Islamic movements and became widely used at the beginning of the current century after the events of September 11, 2001. In this sense, the term political Islam is opposed to and explicitly contrasts with the concept of secularism, which, in its simplest meanings, implies the separation of religion from the state.

So, there is a significant and clear difference between the neutrality of the term Islamic politics, representing a broad space of experiences, knowledge, and political experiments, and the term political Islam as a specific ideological stance. This difference makes the term Islamic politics a subject of study and history, while the second term, political Islam, becomes a matter of faith, belief, embodiment in behavior and application. Therefore, you will not find anyone fighting for Islamic politics, but there are those who fight, kill, and are killed for the sake of political Islam.

Political Islam and Economic Islam: How Do They Intersect?

Political Islam, therefore, assumes that Islam is a comprehensive system that encompasses all aspects of society, including the economy. So, how can we interpret the term "Islamic economics"? Does it truly signify what the previous analysis and comparison between "Islamic politics" and "political Islam" lead to? Does it refer to the knowledge, phenomena, and economic ideas related to individuals and societies in specific historical periods and on specific lands? Or does it mean looking at Islam as a comprehensive economic system comparative to other economic systems such as capitalism or socialism?

From a theoretical perspective, there is almost no economy throughout human history that is directly attributed to a specific religion. There is no Christian, Jewish, Hindu, Buddhist, or any other religious economy, whether celestial or terrestrial. If the intent behind the term "Islamic" is to describe a group of nations, races, and diverse societies that share Islam as their common faith, then Islamic economics is the economy of these nations and societies, both ancient and modern. It would be analogous to what we refer to as Roman economy, Chinese economy, British economy, or American economy, without implying a direct association of the economy with the religion itself.

However, the matter differs fundamentally in the use of the term today by a wide segment of its proponents. They attempt to convey the idea that there is a comprehensive Islamic economic system capable of competing with global economic systems. Moreover, proponents of this term argue that Islamic economics is capable of overcoming the flaws and shortcomings of other systems. They claim it is the only way to implement economic justice, eliminate all forms of poverty and wealth inequality, and overcome economic crises by addressing their causes and solving their problems. These claims depict "Islamic economics" as an imaginary utopia or an ideal paradise that will be denied to humanity if it does not adhere to it.

Therefore, before delving into the issue of Islamic banks, it is necessary to name things accurately and adjust the term "Islamic economy" according to the intended meaning above to become " economic Islam." This is similar to "political Islam," considering that the theoretical foundation for both is the same. In a previous article I explained how both terms are based on the same ideology adopted by Islamists when they extract religion from its fundamental system based on belief, worship, and behavior-oriented ethical values. They claim that Islam, in addition to being a political system, is also an economic system to which all economic phenomena, activities, institutions, transactions, etc., must be subjected.

 Worth noting in this context is that this Islamic ideology is no longer limited today to politics and economics alone. It has also become common to discuss Islamic media, Islamic law, Islamic sociology, and other concepts that are now organized within the academic disciplines labeled as "Sharia/Islamic sciences." These are taught in universities with a clear religious identity, and this is a subject for a separate article that I intend to publish soon.

The "Islamic Bank" and "Economic Islam"—a Heresy Founded on Illusion

In any existing economic system, a bank functions as an executive institution that embodies the theoretical philosophy of that system and applies it in practical operations. Therefore, no country today is without a central bank that regulates its monetary issues and exercises, while, through its powers, exercises a supervisory role over all forms of economic transactions and levels. Meanwhile, other banks, whether public or private, act as intermediaries between clients on one hand and the central bank, and, consequently, the adopted economic system on the other hand.

As for banks labeled as Islamic, they often have a dual identity. They are connected to the general economic system through their necessary relationship with the central bank and other banks. However, they also attribute themselves to the religious economic system they claim to exist. A discerning look into the structure of these banks reveals directly that the main essence on which they base their Islamic label is the replacement of conventional banking transactions or products (deemed usurious and religiously prohibited) with those permitted by Islamic Sharia. Other than that, an Islamic bank is essentially a replica of any other bank, with its laws primarily based on the capitalist banking system, which is closer (compared to its socialist counterpart) to the nature of Islamic values that uphold economic freedoms, competition, and property.

The Islamic bank, like other banks, deals with two main entities. The first is the clients and customers, including individuals and companies. The second entity comprises other banks, local and international financial markets, and the central bank of the country. While the Islamic bank can regulate its relationship with the first entity (individual and corporate clients) and offer its products to them through special laws that it declares are in harmony with religious principles, adopting murabaha (profit) instead of interest, it is obligated to adhere to general laws governing its relationship with other banks and the central bank. In these interactions, interest remains an essential pillar that cannot be rejected or circumvented.

In summary, the Islamic bank adheres to Sharia (as it presents itself) when dealing with clients and deviates from it when dealing with other banks and financial markets.

Even when we differentiate between the levels of transactions, a significant number of scholars and experts assert that the products and transactions deemed legitimate and in accordance with religious rulings by these banks are not always so. For example, many scholars believe that the loans provided by the bank through the profit-sharing (murabaha) system involve several violations of religious principles.

 One such violation is that when the bank initially agrees with the client to sell a certain commodity, it is not part of its actual possessions. Islam prohibits selling what the seller does not own. Moreover, the buyer is obligated to purchase without the right of withdrawal, which is also prohibited in Islamic law. (Both parties in a business transaction have a right to annul it so long as they have not separated.) Additionally, if the buyer delays payments, he is obliged to pay a late fee, which is considered a form of usury according to most Islamic jurisprudential councils.

Banking Interest and the Usury of the Usurers: Do They Equate?

In this context, it is essential to address the issue of "bank interest" and its connection to usury. The mere existence of Islamic banks and their declaration that they do not engage in usury has led the general public to perceive traditional banks as usurious and greedy regardless of what is considered halal (permissible) or haram (forbidden). Unfortunately, this perception involves significant oversimplification and naivety because the interest added by banks to their transactions and products is purely an economic matter imposed by the regulations of systems, considerations of business activities, and financial interest laws.

Banks do not aim to acquire money and accumulate it unlawfully or monopolize it in the hands of a few, as usury forbidden by Sharia law does. Instead, interest within the prevailing global banking systems is an integral part of their ongoing operations. The bank offers its own product, which is money in the form of loans, in exchange for a specified return added to it over the repayment period. The determination of this added return is not subject to the whims of the bank's owners or shareholders but is governed by a set of laws that consider purely economic considerations.

These laws ensure the continuity of banks and financial institutions in providing their services and meeting essential needs. Additionally, the added increase guarantees the preservation of the real value of borrowed money in the face of inflation and its natural potential rate.

Therefore, I believe it is a grave mistake to both view and judge banking interest as usurious in isolation from the overall economic system to which it belongs, especially after the global concept of money has changed and its value has been detached from precious metals, notably, gold. The bank that offers its products in these circumstances and considerations bears no resemblance to usurers, especially since usurers primarily exploit the borrower's need. Therefore, the percentage of increase they stipulate far exceeds banking interest by multiples.

When usurers demand collateral to secure the recovery of their money and the conditional increase, they insist that the collateral be a relinquishment of ownership worth much more than the borrowed money. This is because when the borrower is unable to repay the debt and the stipulated increase, which is what the usurer wants, the latter will obtain complete ownership of the pledged collateral. The value of this collateral can sometimes be 10 times or more than what the borrower should have paid.

These oppressive and unjust conditions employed by usurers make them adversaries to the borrower from the beginning by exploiting their need. Then, by stipulating a substantial increase, often leading to the borrower's default and delay in repayment, the usurer causes the borrower to lose complete ownership as a consequence.

In contrast, a bank is not an adversary to its clients in any way, neither in the minimal interest rate it charges nor when the borrower faces difficulties in repayment. Traditional banks always follow a policy of restructuring the repayment for those facing challenges and they provide multiple opportunities to do so. Even when the borrower fails repeatedly, the bank takes only the collateral equivalent to the borrowed amount and returns the remaining value to the owner.

In short, the bank's aim is for the borrower to repay what was borrowed within the repayment period, while the usurer's goal is for the borrower to face difficulties that enable them to seize the pledged property.

On the other hand, banks operate in providing their products within a financially abundant and stable economic environment. Consequently, they consistently seek to accelerate the pace of development, market activity, increase trade, and promote engagement in various forms of economic projects. This conducive climate is essential for their growth and the sustained provision of their services. Conversely, usurers thrive in adverse conditions, particularly when money is scarce, economic activities are in a slowdown, unemployment is on the rise, and poverty is increasing. This implies that the development and continuity of banks act as the optimal safeguard against compelling individuals to resort to usury—a situation the latter certainly does not desire.

Are Economic Ethics Sufficient for the Establishment of an Economic System?

Traditionally, when discussing the economic system as most people understand it—capitalist, socialist, or mixed—we refer to the existence of a comprehensive economic theory, meaning a cognitive and philosophical framework that begins with defining the concept of economics itself. It is built on a set of principles, concepts, and abstract definitions, as well as the tools and mechanisms that apply these principles and concepts in human economic activities. In reality, this is something that Islam does not encompass in any form. This judgment may seem shocking to some, so let us examine it from within Islam itself.

Islam is a divine religion and law, and it is not appropriate to take it out of its scope so that its purpose is not lost. Advocates of economic Islam often assert that Islam explicitly prohibits usury and has established a comprehensive legal system regarding various types of transactions, distinguishing between what is corrupt, forbidden, and permissible. They also emphasize the importance of contracts, covenants, and the recording of debts in financial transactions. Some expand the scope of economic transactions in Islam to include inheritances and their regulations, considering them mechanisms for transferring ownership and distributing private wealth. All of this is indeed encompassed by Islamic Sharia.

However, Islamic Sharia does not create an economic theory or establish an economic system. The simple and intuitive evidence for this lies in the fact that the ultimate goal of Islamic Sharia in establishing economic transaction rules such as sales, contracts, and debts is to remove injustice from humanity and safeguard their rights from infringement.

Despite the enthusiasm shown by proponents of political Islam for the views of its theorists who approached the topic of the economy in a general and secondary manner—especially in works by figures like Hassan al-Banna and Sayyid Qutb, who consistently advocated for changing the economic system from an impermissible usury-based one to an "Islamic" one, as is the case with the political and social systems—their views do not extend beyond highlighting the goal of removing injustice and safeguarding people’s  rights. Instead, they represent a repetition of the same echo, affirming that permitting certain economic transactions and prohibiting others does not deviate from the Sharia's aim to safeguard individual rights and alleviate oppression.

These views cannot be considered valid as the basis and ideas upon which an independent and comprehensive economic system can be built, or even just a clear economic doctrine. Upon closer examination of the ideas and opinions of proponents of Islamic economics, attempting to construct an independent economic system with an Islamic identity reveals nothing more than a blend of capitalist system values from a legal and rights perspective—economic freedom, competition, and private ownership—with socialist system values from an ethical and social perspective: equality, solidarity, social security, and the prevention of monopolies. History is replete with evidence confirming that reconciling opposing systems does not create a standalone system in itself.

In any case, what many may be unaware of is that the prohibition of usury as a means of preserving rights and preventing injustice is not exclusive to Islam alone. It is a principle also emphasized by both Jewish and Christian teachings, and adherents of these religions continue to abide by this prohibition. This was confirmed to me when I met a Jewish usurer in a European country. Interestingly, his father was a rabbi responsible for upholding religious duties and preaching to the people. I asked him directly: "Isn't usury forbidden in your religion, and your father is a rabbi?" He replied, "Yes, but my father issued a ruling allowing usury with non-Jews."

The point to emphasize from this incident, despite deviations in the application of religious rulings, is that usury is prohibited in all three Abrahamic religions because they all aim to preserve human rights and regulate ethical relationships among people. Therefore, when we carefully examine the religious rulings governing financial transactions among people, we find that they are general and absolute, not attributed to a specific economic thought or philosophy. The believer is bound by them, whether living under a capitalist, socialist, feudal, or any other economic system known to human societies.

In short, this means that Islam, like other religions, does not impose a specific economic system. The economic aspects within it are meant to complement divine guidance in human interactions.

I believe, based on what has been discussed, that the relationship between religion and the economy should be of a guiding and moral nature, similar to its connection with politics. This is why I always advocate for and call for separating religion from any economic goals to emphasize its authentic role as a moral and ethical guide for economic transactions—not as a tool among its instruments.

There is a hadith in Sahih Muslim narrated by Anas ibn Malik (may Allah be pleased with him) that when there was inflation during the time of the Prophet Muhammad (peace be upon him), someone said to him, “O Allah's Messenger, prices have become high, so fix them for us." Allah's Messenger replied, “Allah is the One Who fixes prices, Who withholds, gives lavishly and provides.”

There is also a hadith in which Anas reported that Allah's Messenger happened to pass by the people who had been busy in grafting the trees. Thereupon he said: “If you were not to do it, it might be good for you.” (So they abandoned this practice) and there was a decline in the yield. He (the Holy Prophet) happened to pass by them (and said): “What has gone wrong with your trees?” They said: “You said so and so.” Thereupon he said: “You have better knowledge (of a technical skill) in the affairs of the world.”

And what is the economy but a significant aspect of our worldly matters.

The Trojan Horse

 Islamic banks are the visible part of an iceberg, and the problem is larger than it appears. I mean here the problem of the ideology of “economic Islam,” which represents, in essence, the closest sideline to political Islam. It constitutes one of the most important arms of its soft power in countries and societies. The insistence of political Islam on emphasizing the economic aspect of Islam is just a part of this comprehensive ideology. Through it, there is an attempt to gain access to power, the state, and society by claiming victory for Islam and returning to it in all areas: political, economic, social, scientific, and artistic. However, the truth is that it seeks and has always sought victory for itself by using Islam to dominate politics, economics, and societyTop of Form

If the tool of political Islam is exploiting religion to stir the conscience and emotions of believers to gain their votes, sympathy, and support, then Islamic economics seeks with the same tools (exploiting religion and playing on people’s emotions and faith) to gain the money of depositors and their savings, or to share the profits of borrowers, making them bear costs that exceed those of traditional banks.

It's not to be overlooked that the procedures adopted by Islamic banks in selling their products, especially the system of profit-sharing (murabaha), also involve additional financial burdens. These include paying transaction fees that are not part of the sale and purchase amounts; paying the added profit twice instead of once (once to the merchant and once to the bank); and paying ownership transfer fees twice—first when the bank owns the commodity and second when the commodity transfers to the client's ownership at the end of repayment. This is in addition to late payment and default fines, which are often escalating. Many times, this delay and default occur due to the increase in these financial burdens.

Ultimately, what Islamic banks do is not free from illegitimate suspicions and does not serve the values and purposes encouraged by Sharia law.Top of Form

Finally, and after all the questions I have endeavored to raise in the reader's mind, I would like to pose a fundamental question regarding the "murabaha system" itself, upon which the legal analysis is based for granting loans and reclaiming them with added interest. The essence of this question is: Doesn't mudarabah represent a form of circumventing Islamic Sharia provisions by inventing a new system that is not just a "good loan" because the borrower is required not only to return what was borrowed but also with an additional amount?

It is also not a commercial partnership from the perspective of Sharia rulings because the bank always guarantees its fixed share of the profit and does not waive it, whether the repayment becomes difficult for the borrower or not. In other words, loans are guaranteed for repayment when the bank pledges something with a value double that of the loan. Isn't this a clear violation of Sharia? 

With this question, I conclude.

Author: Hasan Ismaik STRATEGIECS Chairman