Islamic Finance By Dr. Humaira Awais Shahid

7/27/2019 Islamic Finance By Dr. Humaira Awais Shahid

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Dr.Humaira

AwaisShahid

MUAMALAATTHEALTERNATIVETOTHERIBA

SYSTEMEXISTS(BasedontheresearchworkoftheScholarShaykhUmarVadillo)

AnEvidenceofthattoeradicateRibaisPOSSIBLEandthealternativehasALWAYSexisted.


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1 Preamble

1.1 AllahsaysintheQuran:Allahhaspermittedtradeandforbiddenriba.Intrading

thereisthecuretoRiba.SeenasasystemtradeisMuamalaat.

1.2 WecontendthatanyattempttoeradicateRibamustfocusonwhatisthe

alternativetoRiba,thatistosay,understandingwhatishalalmustprecede

understandingwhatisharam.Thisisbecausewecannoteliminatewhatis

forbiddenwithoutprovidinganalternativefromwithinwhatispermitted.

1.3WecontendthatRibaisasystem,notjustmerelyacontract.ThisisbecauseRibahasdevelopedandevolvedoverthecenturiesintoacomplexsystemthataffects

allaspectsoftheeconomyandthereforeitiscrucialtounderstandRibainthe

contextofthoseinstrumentsandinstitutionsthatmakeRibapossiblesuchas

banks,credit/papermoney,centralbanks,financialmarketsandotherfinancial

institutionsandinstruments.

1.4 WecontendthatitisimpossibletoeradicateRibawithoutconsideringhow

credit/papermoneyandbankshastransformedRiba.Thisisbecausethe

introductionofcredit/papermoneyallowedbankstolendmoneyinexcessof

whattheypossessthroughtheprincipleoffractionalreservebanking.Theeffect

ofthisextracreationofcreditistotransferpartoftheburdenofRibatoathirdparty(otherthanthelenderandtheborrower)unawareofitsinvolvement.That

thirdpartyisthecommunityofpaper/creditmoneyuserswhoareunfairlytaxed

withthelossofvalueofthepapermoneytheypossess.Thatlossofvalueis

relatedtotheincreaseofcredit/papermoneyincirculationwhicheveryactof

lendingcreates.ThereforethistransformedRibahasnowthreeparties:

Thelenderwhichbenefitsfromlendingcreditmoneyinexcessofwhat

theyhave.

Theborrowerwhichbenefitsfromareductionontheburdenof

repaymentduetothelossofvalueofthemoneyhehastorepay.

Thecommunityofusersofpaper/creditmoneywhichsufferstheunfair

burdenoflosingpartofthevalueofthemoneytheypossess.

1.5 WecontendthatitisimpossibletoeradicateRibawithoutconsideringhowcentral

bankshavetransformedmoneyfrombeingafreelychosencommoditytoalegally

compulsivecredit/papermoneyorfiatmoney.


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1.6 Wecontendthatthemodelofwhatishalalexistsanditcanbeimplemented

withintheframeoftheIslamicLawandtheConstitutionofPakistan.Thismodelis

thesocio-economicmodelofallIslamicsocietiesfromthebeginningofIslamuntil

thefalloftheKhalifate.Thismodelissurprisinglymoreorlesscommontoallpre-

capitalistsocieties(includingsomenon-Islamicsocieties)anditwasperfected

duringthetimeoftheMessengerofAllah,salallahualaihiwasalam,inthecityofMadinaal-Munawara.ThismodelofMadinaisknowninthefiqhastheamalof

theahlal-Madina,andinitslegalformisknownasMuamalaat.

1.7 WecontendthatMuamalaatistherightalternativetothequestionofhowto

eraditateRiba.Theproofofthisisthatthepresentpetitionchallenges

Governmentsavingbanks,negotiableinstruments,cooperativesocieties,

insurancecompanies,StatebankofPakistan,moneylendersandbanking

companies.AlltheseinstitutionswillnotbeabletooperatewithoutRibaasthey

havethemselvesstated.ThereforethequestionoferadicatingRibaistransformed

intohowtocreateanalternativeallthoseinstitutionsthatlivewithRiba.IfRibais

seenasasystemthequestionisthereforehowtotransformthesystemofRiba

withthesystemofMuamalaat.

1.8 MuamalaatisthesystemofhumaninteractionsinIslam.Itencompassesall

economic,politicalandsocialinteractions.Ithasbeenpracticedfromthe

beginningofIslamuntilthefallofCaliphate.Itisasysteminasmuchthatnotonly

involvescontractualmattersbutalsoinstitutionsandinstrumentsthatsupport

andpromulgatewhatishalalsuchasGolddinar,silverdirham,Wadiahs(safe

keepinginstitutions),Suqs(openmarkets),Caravans(opentradinginstitutions),

Guilds(Openproductioninstitutions),Waqf(welfareinstitutions),BaiSalam

(agriculturaltradingsystem),Baitulmaaletc.

1.9 WecontendthattheintroductionofthegoldDinarandsilverDirham,knownas

Shariahcurrency,isfundamentaltothematterofintroducingMuamalaatand

thereforetheeradicationofRiba.

1.10 WecontendthatintroductionofgoldDinarandsilverDirhammustbedone

graduallyandprogressivelywithinareasonableframeoftimeinwhichsocietyas

awholecaninitiateaprocessoftransformationfromRibatoMuamalaat.

1.11 WecontendthatatthesametimetheShariahcurrencyisintroducedother

elementsofMuamalaatshouldbeintroducedsimultaneously.Themost

importantoftheseotherelementsistheintroductionoftheSuqsorPublicMarkets.MarketsorsuqsinMuamalaatarepublicinstitutionsandcannotbe

privatized,justlikethemosquescannotbeprivatized.Thepublicmarketisan

institutionthatbelongstohumanhistory.WefinditamongtheancientRomans,

theancientGreeks,inoldMesopotamia,etc.Thepublicmarketmustbe

accessibletoallandtherecannotbetaxesorfeesimposedtoitsusers;justlike

therearenotaxesorfeestothosewhowishtoprayinamosque.


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1.12 Wecontendthataftertheintroductionofpublicmarketsintoourcitiesthe

restorationofthecaravansandtheguildsmustfollow.Caravansandguilds,like

themarkets,arepublicinfrastructure.Theydonotbelongtoaneliteofpeople,

buttheyareawqafforthebenefitofanyonewhowishestobecomeamember.

ThecaravansystemisthemodelofexporttradinginIslamicsocieties,wherebyallthelogisticalandwarehousingmeansrequiredforthetrade

arecommonlyownedbythemembersofthecaravan,whichbyvirtue

ofthecaravanbeingapublicinstitutionmeanstheyarepublically

owned(awqaf,likethemarkets).

Theguildsystemisthemodelofproductionofallpre-capitalist

societiesandMuslimsocietiesinparticular,wherebythemeansof

productionarecommonlyownbythemembersoftheguild,whichby

virtueoftheguildbeingapublicinstitutionmeanstheyarepublically

owned(awqaf,likethemarkets).

1.13 WecontendthattheintroductionofbusinesscontractsinIslam:shirkatorsharika

andqiradormudharabawillbecomeenormouslyeasier(thanitisatpresent)to

implement.ThereasonofthiseasingisthatqiradisinthemodelofMuamalaat

thecontractofthecaravans:99%ofthoseqiradcontractshappenedwithinthe

contextofthecaravans.ItfollowsthatiftherewerenocaravansinMadinait

wouldhavebeenmoredifficulttoimplementqirad.Thesameisapplicabletothe

contractofshirkatinthecontextoftheguilds.

1.14 WecontendthattheideaofIslamizationofcapitalistinstitutionsandinstruments

isadeceptionwhichinsteadoferadicatingRibaithasmadeRibahalal.Islamic

banksaredeceptive,andthefurthermoretheislamizationofpapermoneyisdeceptive.FromIslamicbanksithasfollowedtheislamizationofinsurance

companies,centralbanks,statedebtbonds,futurecontracts,creditcards,Dow

Jones,etc.Thisisonlyfurtherevidenceoftheirdeception.Islamicbanksarethe

centralpieceofthisdeception.Theirdeceptionisdeceptiveonthreeaccounts:

ItdoesnotalterthesystemofRibaitonlymakessuperficialorcosmetic

changes:itmantainsthemodelofcentralbanks,banksandcredit

money.Tacitlyendorsesthemodelofcreditmoneyandthepresent

worldmonetarysystemdominatedbytheUSdollar.

Itignoresandimplicitlydeniestheexistenceofourownsocio-economicmodelorMuamalaat.ArdentlydeniestheexistenceofaShariah

currencybecausebankscannotoperatewithnon-creditcommodity

currency.


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Ithasalteredthenatureofbusinesscontractsinordertomakethemfit

intoalieninstitutionsandpractices,asitisthecasewithshirkat,qirad.

AndithasaddedalienpracticesforbiddeninIslamiclaw,suchastwo

salesinone,aspartoftheirbusinesspracticesallunderthedeception

ofusingArabicnames:murabaha.

1.15 WecontendthatIslamicbanksareharam.ThecontractofMurabahahasbecome

oneofthemajorinstrumentsofIslamicbankstodisguiseRibaunderafacadeof

Islamiccontracting.Murabahaisasalecontractandnotafinancialcontract.The

mark-upinMurabahaisonlyawayofstatingthepriceofthegoodssoldand

cannotbeconditionaltoaprioragreementasintheforbiddencaseoftwosales

inone.

YahyarelatedtomefromMalikthathehadheardthattheMessengerof

Allah,mayAllahblesshimandgranthimpeace,forbadetwosalesinone

sale.[Inat-Tirmidhiandan-Nasa'i]

YahyarelatedtomefromMalikthathehadheardthatamansaidto

another,"BuythiscamelformeimmediatelysothatIcanbuyhimfrom

youoncredit."'Abdullahibn'Umarwasaskedaboutthatandhe

disapprovedofitandforbadeit.

(Al-MuwattaofImamMalik,Chapter31,72-73)

1.16 Murabahahisaparticularkindofsale,wherethesellerexpresslymentionsthe

costhehasincurredonthecommoditiesforsaleandsellsittoanotherpersonby

addingsomeprofitormark-upthereonwhichisknowntothebuyer.Themark-up

inmurabahaisnothingbutan"honestdeclarationofcost"anditdoesnotimply

anyprioragreementwiththeseller.Murabahahisoneofthreetypesofbayu-al-

amanahwhicharetawliyah(saleatcost)andwadiah(saleatspecifiedloss).Noneofthemimplyanyprioragreement.Makingaprioragreementwiththebuyer

meanstotransformthecontractintotwosalesinone.


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1.17 WecontendthattheeradicationofRibainPakistanisthemostimportantpolitical

andeconomicworldeventofourtimes.Therepercussionoftheintroductionof

MuamalaatwillhaveanechointotheentireMuslimNationprovidingamodelfor

eradicatingRiba.InparticulartheintroductionofthegoldDinarandsilverDirham

willbethemostimportanteventforthedesiredunificationoftheMuslimNation

bythecreationofacommonbimetalliccurrencyanditwilltriggerthefinaldemisetheofUSdollardominium.

2 TheProblem:Riba

2.1 WhatisRiba?AClassicalDefinitionfromEarlysources.2.1.1 ThereasontodefineRibainthispetitionistoemphasizethatRibaisnotmerely

interestasitisoftenreferredtobutitismorethanthat.Thereforethedefinition

ofinterest-freeisnotidenticaltoRiba-free.

2.1.2 RibaliterallymeansexcessinArabic.QadiAbuBakribnal-Arabi,inhisAhkamul

Quran,definesitas:Anyexcessbetweenthevalueofthegoodsgivenandtheir

counter-value(thevalueofthegoodsreceived).Thisexcessreferstotwo

matters:

1]Anextrabenefitarisingfromunjustifiedincreaseintheweightormeasure,

and

2]Anextrabenefitarisingfromunjustifieddelay.

2.1.3 ThesetwoaspectshaveledourscholarstodefinetwotypesofRiba.IbnRushd

said:ThejuristsunanimouslyagreedaboutRibainbuyu(trade)thatitisoftwo

kinds:deferment(nasiah)andstipulateddisparity(tafadul).

2.1.4 Thatistosay,therearetwotypesofRiba:

1]Ribaal-Fadl(excessofdisparity)2]Ribaal-Nasiah(excessofdeferment)

2.2 RibaAl-Fadl2.2.1 Ribaal-fadlreferstoquantities.Ribaan-nasiahreferstotimedelay.


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2.3.5 ImamMalik,mayAllahbemercifultohim,illustratesthispointinhisAl-

Muwatta:YahyarelatedtomefromMalikthathehadheardthatreceipts

(sukukun)weregiventopeopleinthetimeofMarwanibnal-Hakamforthe

produceofthemarketofal-Jar.Peopleboughtandsoldthereceiptsamong

themselvesbeforetheytookdeliveryofthegoods.ZaydibnThabit,oneofthe

CompanionsoftheMessengerofAllah,mayAllahblesshimandgranthimpeace,wenttoMarwanibnHakamandsaid,Marwan!Doyoumakeusury

Halal?Hesaid,IseekrefugewithAllah!Whatisthat?Hesaid,Thesereceipts

whichpeoplebuyandsellbeforetheytakedeliveryofthegoods.Marwan

thereforesentguardstofollowthemandtakethemfrompeopleshandsand

returnthemtotheirowners.

2.3.6 ZaydibnThabitspecificallycallsRibathosereceipts(dayn)whichpeoplebuy

andsellbeforetakingdeliveryofthegoods.Itisallowedtousethegoldand

silverorfoodtomakethepayment,butyoucannotUSEthepromiseof

payment.Initthereisanexcessthatisnotallowed.Ifyouhavedayn,youhave

totakepossessionoftheaynitrepresentsandthenyoucantransact.You

cannotusedthedaynasmoney.

2.3.7 Ingeneraltheruleisthatyoushouldnotsellsomethingwhichisthere,for

somethingwhichisnot.ThispracticeiscalledRamaanditisRiba.

2.3.8 ImamMalik:YahyarelatedtomefromMalikfromAbdullahibnDinarfrom

AbdullahibnUmarthatUmaribnal-Khattabsaid:Donotsellgoldforgold

exceptlikeforlike.Donotincreasepartofitoveranotherpart.Donotsellsilver

forsilverexceptforlike,anddonotincreasepartofitoveranotherpart.Donot

sellsomeofitwhichisthereforsomeofitwhichisnot.Ifsomeoneasksyouto

waitforpaymentuntilhehasbeentohishouse,donotleavehim.Ifearrama

foryou.Ramaisusury.

2.3.9 Ramaistodaythecommonpracticeinallourmarkets.Dayncurrency(paper

money,receipts)hasreplacedtheuseofayncurrency(GoldDinar,Silver

Dirham).ThispracticeiswhatUmaribnal-KhattabmeantwhenhesaidIfear

ramaforyou.Sellingwithdefermentisnotrestrictedtometals,italsoincludes

food.Maliksaid,TheMessengerofAllah,mayAllahblesshimandgranthim

peace,forbadesellingfoodbeforegettingdeliveryofit.

2.4 Therefore,whatisprohibitedinRibaan-nasiah,istheadditionofanartificialdelay

thatdoesnotbelongtothenatureofthetransaction.Whatdoesartificialandthenatureofthetransactionmean?Itmeansthateverytransactionhasitsown

naturalconditionsoftimingandprice.

2.5 DefermentandDisparityAccordingtoContracts2.5.1 ContractsinWhichGoodsAreoftheSameGenus.


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2.5.1.1 Ribaal-fadlreferstoquantities.Ribaan-nasiahreferstotimedelay.To

understandwhatisjustifiedandwhatisnotjustified,onehastounderstand

thedifferentnatureofeachtransaction,inparticularthosetransactionsthat

involvethesamegenus(thesamegoodsaregivenandreceived),suchasloans,

exchangeandrental:

2.5.1.2 Aloaninvolvesdefermentbutnotquantitydisparity.Onepersongivesan

amountofmoney,andafteraperiodoftime(deferment)thepersonreturns

themoneywithoutincrease.TheexcessintimeisjustifiedandisHalal,but

disparityisunjustifiedandisHaram.Thattypeofunjustifiedexcesswouldbe

Ribaal-fadl.

2.5.1.3 Anexchangeinvolvesnodefermentandnodisparity.Onepersongivesan

amountofmoneyandwithoutdefermenttheequivalentisgiven.Defermentis

unjustifiedinanexchange.Ifyouwanttodelaythepayment,youhavetomake

aloan,youcannotobtainaloandisguisedasadelayedexchange.Thattypeof

unjustifiedexcesswouldbeRibaan-nasiah.

2.5.1.4 ArentalinvolvesbothdefermentanddisparityanditisHalal.Whenyourenta

house,youtakepossessionofthehouseandyoureturnitafteratime

(deferment)andinadditionyoumustmakeanextrapayment,therent

(disparity).Thesetwoexcessesbothintimeandquantityarejustifiedandthey

areHalal.Youcanonlyrentmerchandisethatcanbehired.Youcanhireacar,a

houseorahorse.Butyoucannothiremoneyorfoodstuff(fungiblegoods).To

pretendtohiremoneyistocorruptthenatureofthetransactionandit

becomesRiba.WhattypeofRibaisrentingmoney?Ribaal-fadl,becausethe

rentingofmoneyisthesameasaddingadisparityinaloandefermentisHalal,

anddisparityisaccountedforinadifferentmanner.

2.5.2 ContractsinWhichtheGoodsAreofDifferentGenus.2.5.2.1 Howdoyoudeterminedisparityinasaleofgoodsofdifferentgenus?The

disparityisdeterminedbythedifferencebetweenthepriceofferedonspot

salesanddelayedsales.ThisiscalledintheFiqhthestipulationoftwopricesor

twosalesinone.Thespotpriceisconsideredtheprice;andtheexcessoccurs

whenthereisanincrease(inrelationtothespotprice)inthepriceofferedin

delayedterms.Thiscanhappeninthefollowingcases:offeringanincreased

priceifthegoodarepurchasedondelayedterms;orofferingadiscountifthe

buyerpaysonthespot;orsellingonlyondelayedtermsanddenyingthepossibilityofpurchasingonthespot(thushidingthatthereisanincreaseasit

happensinmanyofthe0%financeoffersthatweseetoday).Acomplete

discussionofthistopicfollowslater.Wewillsimplyoutlinetwocases:

1]WhenthesellersaysIsellatthispriceifyoupayincash,andatthis

otherone(higher)ifyoupayindelayedterms.


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2]Whenthesellermakesasalam(asalewithdelayedpayment,whichis

Halal)andatthetimewhenthemoneyisduehesaystothebuyer(who

mightnotbeabletopay):Youcandelayitfurtherifyoupayanexcess

(disparity);andalsowhenthesellersaystothebuyer:Ifyoupaybefore

theendoftheterms,Iwillofferyouadiscount(disparity).Thisisthe

typeofRibaknownasRibaal-jahiliyah.WhattypeofRibaisapplicablehere?Ribaal-fadlbecauseinsalesthesourceofunjustifiedexcessis

disparity.

2.5.2.2 IbnRushdwrote:Asforusuryinsales,theulamaareinagreementthatitisof

twotypes:deferredpayment(nasiah)anddisparity(tafadul)exceptwhathas

beentransmittedfromIbnAbbas,whoreportedthattheProphet,maythe

peaceandblessingofAllahbeuponhim,said:Thereisnousuryexceptin

deferredpayment.Themajorityofthefuqaha,however,haveconcludedthat

usurydoesexistinthesetwotypesbecausethishasbeenaffirmedinother

statementsfromhim,maythepeaceandblessingsofAllahbeuponhim.

2.5.2.3 Thefoursectionstowhichthelawofusurymaybereducedare(1)thingsin

whichneitherdisparitynordefermentispermitted;(2)thingsinwhichdisparity

ispermittedbutdefermentisnot;(3)thingsinwhichbotharepermitted;and

(4)whatconstitutesasinglegenus.

2.5.3 Thuseverytransactionhasitsconditionsrelatingtoitsnature.Youcannottake

theconditionsofonetypeoftransactionandtrytoapplythemtotheother,

withoutcorruptingthetransaction.Toaddunjustifiedconditions(alsoexcess)to

atransactionisRiba.


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2.6 TheProhibitiontouseDayntopayzakat2.6.1 ZakatinIslammustbepaidinayn,thatistangiblemerchandiseand

cannotbepaidindayn,thatis,adebt,aliabilityorapromisorynote.Thisimportantmatterhasbeenignoredformanyyearsappealingtodarurah

(exceptionality),sincetheDinarandDirhamwerenotavailable.Thefact

thattheDinarandDirhamareavailableagainbringthismatterforward

onceagain.

2.6.2 Property(mal)isowned(milk)aseitheraynordayn.Aynisaspecific

existingthing,consideredasuniqueobjectandnotmerelyasamemberof

acategory(thishorse,notathoroughbredmare).Daynisany

property,noanayn,thatadebtorowes,eithernoworinthefuture;orit

canrefertosuchpropertyonywhendueinthefuture.Propertyownedasdaynisusuallyfungible,suchasgoldorwheat.Sometimesnon-fungible

manufacturedgoodsdefinedbyspecificationaretreatedasdayn.

Althoughdayn,literallymeansdebt,infiqhitrefersnottothe

obligationperse,butrathertothepropertythesubjectofthe

obligation,whichisconsideredtobealreadyownedbythecreditor.

Clearly,sincesuchpropertyisnotyetidentifiedandmaynotevenexist(it

isnotanayn),referringtodaynaspresentpropertyisfictive.

2.6.3 Daynmeanswealth,thepaymentofwhichattachesasaliabilitytoalegal

person(dhimmah),astheresultofatransaction(aqd)oraloan,orasdamagesforpropertydestroyed(istihlak).Daynbyextensionmeansthe

classofgoodscalledmithli(fungible);thatis,goodswhoseprice(thaman)

insaleisdeterminedonthebasisofweight(wazn),orvolume(kayl),or

number(adad),andamongthevariousunitsofwhichthereisno

differenceofvalueduetohumanart.Thedefinitionofdayngiveninthe

Majallahinawaycombinesthesetwomeanings.Accordingtoit,astated

portionofaheapofwheatisdaynbeforeithasbeensetoff.Aynisthe

oppositeofdayninthelastsense,meaningthatisdefiniteandhasa

bodilyexistence.Thus,intheaboveexample,thesaidportionbecomes

aynbybeingsetoff.

2.6.4 ItfollowsatextoftheGreatScholarImamAbuBakral-Kasani(d.587H)

wrote:


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Ifthepropertyonwhichzakatfelldueisdayn,asdistinguished

fromayn,itszakatmaybesettledintermsofaynwealth.Thusa

personhavingaclaimoftwohundreddirhamsonwhichzakatis

due,maygive,insettlementofthesame,fivedirhamsincash,

becausedaynascomparedwithaynisdefective(naqis)andthe

ayniscomplete(kamil),andasettlementofthedefectiveinterms

ofthecompleteisvalid.Onthecontrary,thesettlementofthe

completeaynintermsofthedefectiveisnotvalid,andtherefore,

thezakatdebtisnotdischargedifapersonwantstopaythezakat

oftwohundreddirhamswhichhepossesses(i.e.ayn)intermsof

thefivedirhamswhichapoorpersonoweshim(i.e.dayn);namely,

byabsolvinghimfromthedebtintendingitforhisownzakatdebt

onthetwohundreddirhams.Finally,asregardsthesettlementof

thezakatofdaynwealthintermsofdaynwealth,ifthewealthon

whichzakatisdueofthekindofdaynwhichbecomesaynisnotvalid;otherwiseisvalid.Thusifapersonhasfivedirhamsowedto

himbyapersonandtwohundreddirhamsbyanotherperson,he

cannotsettlethezakatofthetwohundredbymakingapresentof

fivetothedebtorasalms,becausethetwohundreddirhamswill

becomeaynwhencollected,andthesettlementofthezakatofayn

wealthintermsofdaynisnotvalid.

Anexampleoftheoppositecasewouldbethatapersonwho

wantedtosettlethezakatoftwohundreddirhamsowedhimby

anotherbymakingapresentofthosedirhamstothedebtorandintendingitforhiszakatdebt.However,thisisallowedonlyincase

ofthedebtorisapoorperson,althoughthereisalsoaviewtothe

contrary.Itgoeswithoutsayingthatthezakatofaynwealthis

dischargedifpaidintermsofaynwealth;if,forinstance,onepays

thezakatoftwohundreddirhamshepossesesbypayingfiveoutof

thosetwohundred.

Kasani,pp.42-3.QuotedinIslamicTheoriesofFinancebyNicolas

Aghnides,NewYork:ColumbiaUniversity,1916;pp334-335.


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2.7 TheUsageofDaynasMeansofPayment2.7.1 Sincedaynisinitselfadeferment,theuseofdaynisrestrictedtoprivate

transactionsanditisprohibitedasageneralmeansofpayment(money).While

daynperseisHalal,itisnotHalaltouseitasmoney.Daynisaprivatecontract

betweentwoindividualsandmustremainprivateandbetweenthem.ThetransferofdaynfromonepersontoanothercanbedoneIslamically,butonlyby

theeliminationofthefirstdaynandthecreationofanewone.Thedayncannot

circulateindependentlyfromwhatitrepresents.Theownermusttake

possessionofthegoodsandliquidatethedayn.Dayncannotbeusedinan

exchangeanditcannotbeusedasameansofpayment.

3 TheSolution:Muamalaat3.1 TheGeneralIdeaofMuamalaat3.1.1 MuamalaatNegatestheMissionCivilicatrice3.1.1.1 Muslimssocietieshadasocialandeconomicmodelbeforecolonialismand

beforemoderncapitalismorfinancialcapitalismarrived.Thatmodelexisted

andwassuccessfulandwasknownasMuamalaathavingitsrootsinIslamic

Law.Todenythisisacceptingthecolonialistprincipleofmissioncivilicatrice,

thatistheideaofcivilizingmissiontothebackwardnatives.Thisisinline

withtheevolutionistprincipleofmodernizationtheoristswhodeclaredthat

traditionalcustomshadtobedestroyedandtraditionalsocietieshadtoadapt

ortodisappear.TheEuropeancolonialpowersfeltitwastheirdutytobring

Westerncivilizationtowhattheyperceivedasbackwardspeoples.

3.1.1.2 Muamalaatwasdestroyedbythecolonialpowers.Wefindourselvesinthe

awckwardpositionofhavingtoproveitsvalidityagainstalegalframethatstill

todaypersistsandderivesfromthecivilizingmissionoftheBritish.Ourviewis

torejectthatwebelongtothecategoryofbackwardspeople.Ourviewisthat

weneedtorestoreourownsocialandeconomicmodel.Thatmodelis

Muamalaat.


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3.1.1.3 Itisimportanttounderstandhowourpresentlegalandeconomicsystem

originated.BritisheducationinIndiacreatedanideologicalhegemonythrough

theestablishmentofaneducatedIndianeliteimplicitlyreceptivetoBritish

orderbyperforminglocaladministrativefunctions.AneducationinEnglishwas

intendedtodepositWesternvaluesintothesouloftheeducated,andat

thesametimedetachfromWestern-educatedindividualsdiscoursesoftraditionalscholarship,therebyalienatingthemfromtheirtraditionalwayof

life.AsenseofBritishnesswentalonghandinhandwiththeempireand

nativeadministrationthatwasinthemaking.Thisevokedacivilisingbelief

thatEnglandshouldassistinadvancingbackwardpeoplestowardsgreater

refinement,justastheearlyRomanswerebelievedtohavebroughtcivilityto

England.ThemissionoriginatedwiththeconquestofIreland,andthedesireto

becomethenewRomansofEurope,whichjustifiedtheIrishconquestand

thesubjugationofforeignpeoplesfromAmericatoIndia.

3.1.1.4 AsthelocaleducatedeliteassimilatedfurtherintotheWesternvaluesof

liberty,democracyandnationalism,theynotonlysoughttooccupytheirlower

administrativepostsbuttheytriedtoacquirethosehigherpositionsonce

exclusivelyreservedforEuropeans.Althoughtheywantedtoacquirepower

theydidnotrenouncetothevaluesandthesystemunderwhichtheysought

thatpower.

3.1.1.5 Theconceptofprivatepropertyovercommonlandwasintroducedbythe

Britishin1793,whichdifferedsignificantlyfrompre-colonialdays,duringwhich

landwasheldcommunallyandapercentageoftheproduceremittedtothe

state.Theintroductionofprivatepropertyoverlargequantitiesoflandwas

fundamentaltosecureandmaintainbytheWesternlawsystem,despitealteringthetraditionalmodesoflandtenure,whichweretheheartof

traditionalIndiansociety.Accompanyingthesepolicyshiftswerethe

socioeconomicchangesthatresultedinthemodificationsintheclassstructure.

Thesepoliciestransformedformerrevenue-collectingofficialsandprominent

individualswhocollaboratedwiththecolonialregimeintolandowninggentry.

ThepropertylawsaffectedprofoundlyIndiaspowerdistribution,aswhoever

controlledthelandcouldnowcontrolthosewhohadnoland.Consequently,

theBritishcouldnowrelyonthenewlandedclasstoperformdomestic

administrativedutiessuchasthecollectionofrevenue.Thenewownership

wasnotchangedandtheeliminationofcommonlandwasneverrestoredafter

independence.

3.1.1.6 BankingwasintroducedinIndiain1770withthecreationoftheBankof

Hindustan.In1786theGeneralBankofIndiawascreated.In1806theBankof

Calcutta,immediatelyafterknowasBankofBengalwhichlaterbecamethe

StateBankofIndia.TherewerenobanksinHindustanbeforethe18thcentury,

yetthismodelwhichisrepugnanttotheinjunctionsofIslam,remainedwithus

upuntiltoday.


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3.1.2 MuamalaatisnotIslamicEconomics3.1.2.1 TheIslamisationofCapitalismdoesnotresultinMuamalaat.

3.1.2.2 OverthelastfiftyyearsagroupofMuslimsunderthebannerofreformhas

beenengagedinwhattheycalltheislamisationofknowledge,theheartof

whichhasbeentheislamisationofEconomics.Underthebanner,the

islamisationofknowledge,somescholars,takingknowledgeforWestern

humansciences,undertooktheludicroustaskofIslamiseallhumansciences:

sociology,psychology,politics,anthropologyandmostimportanteconomics.

3.1.2.3 IslamicEconomicsproducedIslamicbanks,IslamicStockExchange,Islamic

insurance,Islamicmortgages,andIslamiccreditcards.Thesystemremainsthe

same.

3.1.2.4 Theirmethodologywassimple.First,arejectionofthemadhhabsystem,seen

asmedievalscholarship.Second,thetransformationoftheShariahfromits

existentialjurisprudencebaseintoanormativesetofabstractmoralprinciples

andvalues,thatcouldbeaccessedatrandom.Forexample,theprinciplesof

equalityandjustice,seenasIslamicvalues,ifassignedtoanyinstitutionor

financialprocedurecanservetoIslamisethem.

3.1.2.5 IslamisingthebanksinordertoeliminateRibaisasabsurdasIslamisingthe

brothelsinordertoeliminateprostitution.

3.1.2.6 Islamisationhasreachedapointofevidentabsurdity,anihilisticconclusion,

thatistosay,theirIslamicvalueshavebeendilutedintoahollow

pragmatism.Theironicresultofislamisationisafullassimilationtocapitalism,

akindofreversesecularism.HowcanIslamisingresultisthesame

institutions,toolsandproceduresascapitalismbutwithdifferentwords?This

farcemustend,becausenotonlyisanon-sensicalexercisebutitpreventsthe

realIslamicmodelfromeverreturning.

3.1.2.7 Wedonotwanttoislamisecapitalism,wewanttocreateanalternativetoit:

TheEndofEconomics

3.1.2.8 Economicsisnotneutral,itisanideologybasedonpresumptionsquite

oppositetoAllahsinjuctionAllahhaspermittedtradeandhasforbidden

usury.Economicsrevealsadifferentone,Economicshasforbiddentradeand

haspermittedusury.


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3.1.2.9 TheaimandmethodologyofEconomicsarenotacceptable.Wedonotneedto

makethemacceptableeither,becausewehaveasuperiorwayofthinking

emanatingfromtheSunnaoftheMessenger(MayAllahblesshimandgrant

himpeace).Weneedtoovercomethispseudo-scienceandcreateourown

understandingoutsidetheirparameters.ThisisnotIslamisingEconomics,but

endingEconomics.

3.1.3 MuamalaatasaModel:TheModelofMadina3.1.3.1 TheShariahisbasedontheKitabwaSunna.TheSunnaisthecomplete

recordofwhatRasulullah,salallahualaihiwasalamsaidanddid.Thishasbeen

transmittedtousbythewrittentextsoftheHadithandtheactionsofthefirst

threecommunities,thisisknownastheamaloftheahlal-Madina.

3.1.3.2 WhatmatterstousisthattheMadinawasacityofpeoplethatistosayitwas

alivingmodel.Inalivingmodelwehaveallthecomplexityofsocialrelations

andinstitutionsinoperation.Ifweexaminetheeconomicmodelwefindalltheelementsrequiredtounderstandhowtheserelationsmustbearticulated.

WhenwelookatMadinawearelookingattheperfectcity.Webelievethat

humanhistoryhadneverreachedthatperfectionbeforeandwillneverreachit

againafter.Madinaisthezenithofhumanhistory.


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3.1.4 MutualConsentinMuamalaat3.1.4.1 MutualConsentisthefoundationoftrading.Againstofthemoderntendency

ofmonopolization

3.1.5 SharingInfrastructureinMuamalaat3.1.5.1 WaqfisfoundationaltounderstandMuamalaat.Itissaidthatupto60%ofall

realestateinOttomanIstanbulwerewaqf.Thewaqfispresentinmosques,

markets,caravansandguilds.Thewaqfisnotprivatenotpublicproperty,itis

thepropertyofAllah.Onlytheusufructoftheassetsinwaqfisgiventotheuse

ofitsgivenbeneficiaries.

3.1.5.2 Propertyistheftwhenwerefertomosques,becausemosquesareawqaf.Only

Allahhaspropertyoverthemosques.Butsoiswiththephysicalmarkets,with

thelogisticalinfrastructureofcaravansandthemajormeansofproductionof

theguildsinMuslimsocieties.Theywereallawqaf.

3.1.5.3 Sharingistheoutcomeoftheextensiveestablishmentofawqaf.

3.2 TheElementsofMuamalaat3.2.1 Shariahcurrency3.2.1.1 ThegoldDinarandsilverDirhamarementionedinQuranandtheyareknown

astheShariahcurrency.TheweightoftheDinarwasthemithqalwhichisequal

to4.25grofgoldandtheweightoftheDirhamwas7/10ofthemithqal.ThisisknownasthestandardofUmaribnalKhattab,radhiallahuanhu.Togetherwith

theDinarandDirham,peopleinMadinausedfulus,typicallymadeofcopper.

Fulusisnotmoneybutonlyhasalimiteduseasmallchange,anditsvalueis

dependenttothevalueofthedirhamsuchas:100fulusequals1dirham.


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3.2.1.2 InMadinamoneywasacommodityanditwasfreelychosenwithoutany

governmentimposition,underthegeneralrulingthatoverseesalltrading

relations,whichiswhatAllahtaalasaysintheQuran:tradewithmutual

consent.Thenwesaytoourselvesmoneymustbealsochosenwithmutual

consent.Weknowthatgoldandsilverhavethemostcommonmediaof

exchangeforover5,000yearsofhumanhistoryatthetimeinwhichtheideaofimposingacurrencytothepeoplewasalientosociety.Webelievethatif

freedomisrestoredpeoplewillchosegoldandsilver.Thisisnotbackwards,but

thisisthewayofthebestsocietyinhistory.

3.2.1.3 TointroducetheDinarandtheDirhamamongtheMuslimswilltransformthe

worldmonetarysystem.Sincegoldandsilverarethesameitdoesnotmatter

whereweareintheworld,theDinarandDirhamhavethepotentialtounify

theMuslimnationunderabimetallicmonetarysystem.

3.2.1.4 OnechickenatthetimeofRasulullah,salallahualaihiwasalam,costone

dirham.WecanbuyonechickentodayinPakistanforapproximatelyonedirhamorevenless.Whatitmeansitthatthereisnolossofvalueingoldor

silveroverlongperiodoftimes.Unlikepapermoneycommoditiescannotbe

artificiallyinflated.

3.2.1.5 TheReturnoftheShariahcurrency,theDinarandDirham,posesanew

understandingofwealthandprosperitythatdiffersfromconventional

Economics:anewparadigm.Thisparadigmcanonlybeunderstoodinthe

contextofMuamalaat.OnlythroughMuamalaatcanwerealisethefull

potentialofthereturnoftheShariahcurrency.Thefullimplementationof

MuamalaatproposesacompletelyreplacementcapitalismastheRibasystem.


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3.2.1.6 ShariahCurrencyversusLegalTender

3.2.1.6.1 TheGoldDinarandSilverDirhamknownasShariahcurrencyorShariahcoins

intheFiqharenotlegaltender.TheShariahcurrencyhasnorelationto

presentfiatcurrenciesonmanyaccountsandshouldnotbelegallyorpracticallybecomparedortreatedasthesame.TheGoldDinarandSilver

Dirhamrelatestoreligiousmatters,mostimportantofwhichisthematterof

paymentofZakat,ratherthanconstitutionalmatters.Itsintroductioncanonly

occurredonvoluntarybasissincefreedomisacommandfromAllahinall

commercialtransactionsincludingtheacceptanceofmoney.Itsusagehas

beenthroughouthistoryopentoMuslimandnon-Muslimsalike.

3.2.1.6.2 TheGoldDinarandSilverDirhamarenotlegaltender.Legaltenderorforced

tenderisanofferedpaymentthat,bylaw,cannotberefusedinsettlementof

adebt,andhavethedebtremaininforce.Personalcheques,creditcards,

debitcardsandsimilarnon-cashmethodsofpaymentarenotlegaltenderonlythenotesandcoinsoftheCentralBanksareLegalTender.

3.2.1.6.3 TheDinarandtheDirhamareknowninthefiqhastheShariahcurrencyor

Shariahcoins.ThetermShariahcoinsisspecifictotheDinarandDirham

andisnotapplicabletoanyothercoinmadeingold,silveroranyother

material.Anyothercoinisknownasnon-sharii(ibnKhaldun).

ImamAbuZaydIbnKhaldun(d.1406)

TheRevelationundertooktomentionthemandattachedmany

judgmentstothem,forexamplezakat,marriage,andhudud.Therefore

withintheRevelationtheyhavetohavearealityandspecificmeasurefor

assessment(ofzakat,etc.)uponwhichitsjudgmentsmaybebasedrather

thanonthenon-sharii(othercoins).

Knowthatthereisaconsensus(ijma)sincethebeginningofIslamand

theageoftheCompanionsandtheFollowersthatthedirhamofthe

shariahisthatofwhichtenweighsevenmithqals(weightofthedinar)of

goldTheweightofamithqalisseventy-twograinsofbarley,sothatthe

dirhamwhichissevententhsofitisfiftyandtwofifthsgrains.Allthese

measurementsarefirmlyestablishedbyconsensus.

Al-Muqaddimah


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3.2.1.6.4 Properlyspeakingthetermalternativecurrencyisnotapplicabletothe

ShariahcoinsorcurrencybecausethetermShariahcoinsisspecifictothe

DinarandDirhamandthereforeisnotalternativetoanyothercoinsor

currency(nonsharii).Itstandsonitsownwithoutalternative.Theuseofthe

expressionalternativecurrencycanonlybeusedifproperexplanationis

giveninregardstothefundamentaldifferencesthatexistinrelationtothelegaltendercurrenciessuchastheMalaysianRinggit.TheMalaysianRinggitis

anentirelydifferentlegalconceptandhasdifferentfunctions.TheMalaysian

Ringgitisnotbasedonacommodity(inArabicayn,meaningtangible

merchandise)liketheDinarandDirham,theMalaysianRinggitapromissory

note(inArabicdayn,meaningdebtorliability)withnointrinsicvalue(its

valueasayn/tangiblemerchandiseisthevalueofthepaperclosetozero)but

withafiatvaluewhichestablishedbythecompulsionlawoftheFederal

GovernmentthroughtheLawofLegalTenderanditcanchangefromtimeto

time.Ontheotherhand,thevalueoftheDinarandDirhamdependsentirely

onthemarketvalueofthecommodity(goldandsilver)onwhichitismanufactured,justlikeakiloofricedependsonthevalueofrice.This

differenceinimportantinreligiousterms,forexample,zakatwhichisalegal

obligationoftheShariahhastobepaidinaynbutcannotbepaidindayn.

Muslimsshould,ifhavingthechoice(ifnochoiceisgivenornoaynis

availablethendarurah,thatisexceptionality,istemporarilyapplicable),pay

withaynratherthandayn.

ImamAbuBakral-Kasani(d.1191)

Ifthepropertyonwhichzakatfelldueisdayn,asdistinguishedfrom

ayn,itszakatmaybesettledintermsofaynwealth.Thusaperson

havingaclaimoftwohundreddirhamsonwhichzakatisdue,maygive,

insettlementofthesame,fivedirhamsincash,becausedaynas

comparedwithaynisdefective(naqis)andtheayniscomplete(kamil),

andasettlementofthedefectiveintermsofthecompleteisvalid.Onthe

contrary,thesettlementofthecompleteaynintermsofthedefective

(dayn)isnotvalid,andtherefore,thezakatdebtisnotdischargedifa

personwantstopaythezakatoftwohundreddirhamswhichhe

possesses(i.e.ayn)intermsofthefivedirhamswhichapoorpersonowes

him(i.e.dayn);namely,byabsolvinghimfromthedebtintendingitforhis

ownzakatdebtonthetwohundreddirhams.

Badai`al-Sanai


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3.2.1.6.5 Inlinguisticsense,theDinarandDirhamarenotfacevalues,butnamesthat

indicatespecificweights.TheDinarisaspecificweightof4.25gramsanditis

alsoknownasmithqalinArabic.TheDirhamisaspecificweightof2.975

gramsor7/10ofthemithqal.Inawaytheyarelegallythesameassaying

1kgofrice.Thereforetheyarespecificweightsofcommodity(goldand

silver)whicharementionedinQuranandinmanyaspectsoftheShariahregardingzakatandlegaljudgments;andthustheycannotbealteredintheir

weight.

3.2.1.6.6 Inhistory,theShariahcoinshasneverbeenlegaltender.Inthepracticeofthe

earlyMuslimcommunitytheShariahcoinswerenotonlycurrencyusedas

meansofpayment.Barley,datesorsaltwerealsousedasmeansofpayment

andthereforenoexclusiverightwasgiventotheShariahcoins.Thereason

forthisfreedomtochoosethemediumofexchangeisthatmoneyis

consideredapartoftradingitisregulatedunderthesameQuranicinjunction

thatregulatestrade:tijaratunaantaradimminkum,themeaningofwhich

istradeaccordingtomutualconsent.Mutualconsentexcludestheideaof

compulsionormonopolyinregardstotrading.Thisisanotherreasonwhythe

DinarandDirhamarenotlegaltenderandhaveneverbeenlegaltender.

Freedomtochoosethemediumofexchangeisafundamentalrightgranted

byAllahtoMuslimsandnon-Muslimsalike.TheuseoftheShariahcurrencyis

thereforeinclusiveofnon-Muslims.

ShaykhJalaluddinal-Mahalli&ShaykhJalaluddinal-Suyuti

AllahsaysintheQuran(4,29):

{ # }Tafsir:

Oyouwhobelieve,consumenotyourgoodsbetweenyouwrongly,

unlawfullyaccordingtotheLaw,throughusuryorusurpation,exceptitbe

trading(tijratan,alsoreadtijratun),sothatthegoodsbefromtrade

effected,throughmutualagreement,throughmutualgood-will:such

[goods]youmayconsume.Andkillnotyourselves,bycommittingwhat

leadstowardsdestructiononaccountofsomeaffiliation,beitinthis

worldortheHereafter.SurelyGodiseverMercifultoyou,whenHe

forbidsyousuchthings.

Tafsiral-Jalalayn


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3.2.1.7 Thetermcurrencyiscommonlyunderstoodaslegaltenderorasfiatmoney

thatcarriesafacevalue.SincetheShariahcoinsarenotlegaltenderanddo

nothaveafacevaluetheShariahcoinsshouldbebetterunderstoodasa

commodityratherthanascurrencyinthecommonuseoftheterm.

Regardingcurrentcommonpractices,theuseoftheShariahcoinsbelongsto

thecategoryofbarter,thatis,themutualexchangeofproductsandservices.Itisarguablethatinthepast,beforetheintroductionoflegaltenderlaws,

transactionsmadewithgoldandsilverwereconsidernormaltransactionsand

thetermbarterwasapplicabletoallothertransactions.Thereforetheuseof

thetermShariahcurrencyshouldbeunderstoodwiththelimitations

explainedaboveandinconsiderationtothehistoricalpracticeoftheMuslims

asitisrelevantintheIslamicJurisprudence.

3.2.1.8 Untilveryrecentlyinhistorypapercurrenciesweredefinedaspromissory

notesintermsofgoldandsilver.Inthatsensetheyrepresentedanamanah

(trustingwealthtosomeonewhowillkeepitforyouuntilyoudemandit)that

isanobligationtopayondemandacertainamountofgoldandsilver.We

knowfromhistorythatthisobligationwasoftennotfulfilledandeventuallythe

governmentsoftheworlddecidedgraduallytoeliminatetheobligationtopay

inspeciealtogether.TheclosestcaseofthedefaultistheUSdollarandits

unilateraldecisiontobreaktheirBrettonWoodsAgreement.Thisconceptof

brokenamanahisknownintheQuranandcarrieslegalimplicationsastothe

prohibitiontoacceptamanahfromnon-MuslimsunlesstheyliveunderMuslim

rulesothattheycanbeobligedtopaytheircontractualobligations.Thislegal

injunction,whichintheoryimpliestheprohibitiontoacceptBritishpounds,US

dollars,etc.(oranyothercurrencybackedbythem),hasbeenabrogatedlong

agosincethecolonialdaysbynewlawsthatconsiderthatthislegalinjunctionisnolongerapplicable.Undertheinspirationofthecoloniallegalsystems,the

constitutionalLawofallMuslimcountriesincludingPakistangrantstherightto

acceptforeignpromissorynotesfromnon-Muslimcountries(suchasUSD)to

theirownCentralBankasareservevaluefortheirownfiatcurrency.Because

ofthismanyMuslims(andnon-Muslims)stillmistakenlybeliefthattheirown

fiatcurrencyisbackedbygoldandsilverwheninfactnolegaltenderinthe

worldisfullybackedbyspecieanymore.Thegolddinarandsilverdirhamare

commoditiesandthereforetheyarenotanamanah:theyareatangible

commodity(ayn),thatis,whenyoupaywiththem,youhandoveracertain

amountofgoldandsilverandthereforetheydonotrequiretobebackedby

anyotherassetorauthorityotherthanitself.Thisisanotherreasonwhythe

Shariahcurrencycannotbecomparedorconsideredanalternativetopaper

currencies.

QadiAbuBakrIbnalArabi(d.1148)

AllahsaysintheQuran(3:75):


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AndamongstthePeopleoftheBooktherearethosewho,ifyouwereto

entrustthemwithatreasure(qintar),hewouldreturnittoyou.And

amongstthemishewho,ifyouweretoentrusthimwithadinarwould

notreturnittoyou,unlessyoukeptstandingoverhim.

Tafsir:

thebenefitthatcanbetakenfromthisistheprohibitionofentrusting(amanah)thePeopleoftheBookwithgoods.Thequestionconcerning

entrustingpropertyislegislatedbythetextofQuran.

Ahkamal-Quran

3.2.1.9 LegalTenderisoftenamisunderstoodconcept.Coinsandbanknotesdonot

needtobelegaltenderinordertobeusedasmoneytobuyandperform

othertransactionsforwhichmoneyisintended.Legaltendermustbeaccepted

tosettleamoneydebt.Forexample,USfederallawdoesnotrestrictprivate

businesses,personsororganisationsinwhatmethodsofpaymenttheychoose

toacceptorrefuse.Businessesarethereforefreetoinsistonpaymentbycredit

card,forexample,ortorefuselargerdenominationbanknotes.InCanadafor

example,onlyCanadiandollarbanknotesissuedbytheBankofCanadaare

legaltender;however,commercialtransactionsmaylegallybesettledinany

manneragreedbythepartiesinvolved.Asignificantamountofbusinessin

CanadaistransactedinUnitedStatesdollars,despiteUnitedStatescurrency

notbeinglegaltender.Legaltendercanberefusedunlessoruntilapersonisin

debt,thereforevendingmachinesandtransportstaffdonothavetoacceptthe

largestdenominationofbanknoteforasinglebusfareorbarofchocolate,and

evenshopkeeperscanrejectlargebanknotes.However,restaurantsthatdonotcollectmoneyuntilafteramealisserved(adebthasbeencreated)wouldhave

toacceptanylegaltender.Therightofatradertorefusetodobusinesswith

anypersonmeansapurchasercannotdemandtomakeapurchase,andso

declaringalegaltenderotherthanfordebtswouldberedundant.


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3.2.1.10ThemintingoftheDinarandDirhamisaknownpracticeoftheMuslimsfrom

theearlydaysofIslam.Thefirstdatedcoinsthatcanbeassignedtothe

MuslimsarecopiesofsilverdirhamsoftheSasanianYezdigirdIII,struckduring

theKhalifateofUthman,radiallahuanhu.Thesecoinsdifferfromtheoriginal

onesinthatanArabicinscriptionisfoundintheobversemargins,normally

readinginthenameofAllah.SincethenthewritinginArabicofthenameofAllahandpartsofQuranonthecoinsbecameacustominallmintingmadeby

Muslims.Intheyear75(695)theKhalifAbdalmalikorderedAl-Haddjadjtomint

thefirstdirhams,officiallyestablishingthestandardofUmaribnal-Khattab,

radiallahuanhu:7/10ofthemithqal.Thenextyearheorderedthedirhamsto

bemintedinalltheregionsoftheDaral-Islam.Heorderedthecoinstobe

stampedwiththesentence:AllahuAhad,AllahuSamad.Themintingofthe

coinsisconsideredanobligationoftheSultanthatneedstobefollowed.

ImamAbuAbdallahAl-Qurtubi(d.1273)

AllahsaysintheQuran(4:59):Oyouwhobelieve!ObeyAllahandobeytheMessengerandthosein

commandamongyou..

Tafsir:

TheayatisanordertoobeytheSultaninrespecttosevenobligations:

themintingofthedinarandthedirham,fixingweightsandmeasure,

legaljudgments,Hajj,Jumuah,thetwoEidsandJihad.

Al-Jamili-Ahkamal-Quran

3.2.2 Markets3.2.2.1 MarketsinMadinawerepublicinstitutions(awqaf).TheIslamiccitieswere,

aboveall,amarket-city.TheimportanceoftheSuqintheformationand

developmentoftheMuslimcitycannotbeunderestimated.Muslimcitieswere

foundedonthecombinationofaGreatMarketandaGreatMosque.This

combinationwastheheartofeverycity.Ottomandeveloperscalledthis

combinationtheImaret.TheImaretisthedistinctivefeatureofeveryIslamic

city.

3.2.2.2 SoonafterhisarrivalinMadinaal-Munawwarah,theProphetofIslam,

sallallahualaihiwasallam,createdtwoinstitutions,amosqueandamarket.

Hemadeclearbyhisstatementsandexplicitinjunctionsthatthemarketplacewastobeaspacefreelyaccessibletoeverybody,withnodivisions(suchas

shops)andwherenotaxes,leviesorrentscouldbecharged.

3.2.2.3 TheMarketislikeaMosque:

TheMessengerofAllah,sallallahualaihiwasallam,said:Marketsshould

followthesamesunnahasthemosques:whoevergetshisplacefirsthasaright


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toituntilhegetsupandgoesbacktohishouseorfinisheshisselling.(suqal-

musliminka-musallal-muslimin,mansabaqailashayinfa-huwalahu

yawmahuhattayadaahu.).

(Al-Hindi,Kanzal-Ummal,V,488,no.2688)

3.2.2.4 itisasadaqa,withnoprivateownership

Ibrahimibnal-MundhiralHizamirelatesfromAbdallahibnJafar,that

MuhammadibnAbdallahibnHasansaid,TheMessengerofAllah,sallallahu

alaihiwasallam,gavetheMuslimstheirmarketsasacharitablegift

(tasaddaqaalal-musliminabi-aswaqihim).

(IbnShabba,K.Tarikhal-Madinahal-Munawwarah,304)

3.2.2.5 withnorentcharged

IbnZabalarelatesthatKhalidibnIlyasal-Adawisaid,TheletterofUmaribn

Abdal-AzizwasreadouttousinMadinah,sayingthatthemarketwasa

sadaqaandthatnorent(kira)shouldbechargedonanyoneforit.

(As-Samhudi,Wafaal-Wafa,749)

3.2.2.6 withnotaxesleviedonit

Ibrahimibnal-MundhirrelatesfromIshaqibnJafaribnMuhammad,from

AbdallahibnJafaribnal-Miswar,fromShurayhibnAbdallahibnAbiNamir,

thatAtaibnYasarsaid,WhentheMessengerofAllah,sallallahualaihiwa

sallam,wantedtosetupamarketinMadinah,hewenttothemarketofBani

QaynuqaandthencametothemarketofMadinah,stampedhisfootonthe

groundandsaid,Thisisyourmarket.Donotletitbelessened(layudayyaq),

anddonotletanytax(kharaj)beleviedonit.


3.2.2.7 wherenoreservationsorclaimscanbemade

IbnZabalarelatesfromHatimibnIsmailthatHabibsaidthatUmaribnal-

Khattab[once]passedbytheGateofMamarinthemarketand[sawthat]ajar

hadbeenplacedbythegateandheorderedthatitbetakenaway.Umar


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forbadehimtoputanystonesontheplaceorlayclaimtoit[inanyway](an

yuhajjiralayhaawyahuzaha).

(As-Samhudi,Wafaal-Wafa,749)

3.2.2.8 andwherenoshopscanbeconstructed.

IbnShabbarelatesfromSalihibnKaysanthatTheMessengerofAllah,

sallallahualaihiwasallam,said:Thisisyourmarket.Donotbuildanything

withstone(latatahajjaru)[onit],anddonotletanytax(kharaj)beleviedon

it

(As-Samhudi,Wafaal-Wafa,747-8)

Abur-RijalrelatesfromIsrail,fromZiyadibnFayyad,fromoneoftheshaykhs

ofMadinahthatUmaribnalKhattab,radiyallahuanhu,sawashop(dukkan)

whichsomeonehadnewlyputupinthemarketandhedestroyedit.


3.2.2.9 OpenMarketsversusSupermarketsOpennessandcompetitioncanonlybegrantednotonlyifthelegalconditions

permitthemtoexist,butalsoiftheinfrastructuralandpracticalconditions

supportthemtoo.

Forexample,wecannotspeakoffullandfaircompetitioninBritainwhen80%

ofallretailingiscontrolledby4supermarkets.Thesesupermarketshavedriven

outtensofthousandsofsmallshopsandsmallmanufacturersthroughout

Britain.ThesamephenomenonistakenplaceacrossEurope.Allsectorsof

industryareconsolidatinginfewerandfewerhands.Thenumberofplayersis

diminishingandtheSMEsaresuffering.Thekeyconcernbehindthenational

protectionistmeasuresthatresistfurtherintegrationintheEUsinglemarketis

theeffectthatitwillhaveintheirsmallbusiness.Carrefourisnowthesecond

largestretailerintheworld,justbehindWalmart.


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3.2.2.10SuqsintheMuslimCity3.2.2.11Suqswereanintegralpartofeverycity.Thenumberofsuqsvaried

considerablyfromonecitytoanother.Cairohad145,Aleppo77,Baghdad,

DamascusandAlgiersonlyaround50.Withinthecentralzonethemarkets

werelocated,broadly,indecreasingorderofimportance:themarketsforgoldsmithsandmoneychangers(sagha),forspices(attarin),andforthecloths

(suqal-qumash)normallyoccupiedtheareaclosesttothecenter.Thedivision

ofactivitiesinTunisaroundtheZaytuna,isspeciallysignificantinthisregard.

3.2.2.12Thebasicelementofthesecentralquarterswastheshop(dukkan).Inthelarge

coveredmarkets,thespaceofthedukkanwasdividedintotwoparts:

thesellingareawhichbelongedtothesuqandwasfree.Itwasthe

visiblefrontalpartofthedukkanthatconnectedtothepassagesofthe

suq;

thestorageareawhichbelongedtotheservicesofthesuqwhichhadto

payarent.Itwaslocatedinthebackoronthetopofthesellingarea.

3.2.2.13AnExample:TheGrandBazaarofIstanbul

TheconstructionofthefutureGrandBazaar'scorestartedduringthewinterof

1455/56,shortlyaftertheOttomanconquestofConstantinople.The

constructionoftheinitialBedestenendedinthewinterof1460/61,andthe

buildingwasendowedtothewaqfoftheAyaSofyaMosque.Overthe

centuriesthemarketwasmadebiggerandnewsectionswereadded.

Accordingtoa1890survey,intheBazaarwereactive4,399shops,2Bedesten,

2195rooms,1Hamam,onemosque,10Medrese,19fountains(amongthem

twoadrvanandoneSebil),oneMausoleumand24Han.

Thefullextensionofthemarketcomplexis30.7hectares,protectedby18

gates,thereare3,000shopsalong61streets,the2Bedesten,13Hanor

caravanserais(plusseveralmoreoutside).

Bazaar'smerchantswereorganizedinguilds.Inordertoestablishanewone,it

wasonlynecessarytohaveenoughtradersofthesamegood.

TheethicsoftradeintheMarketuntiltheTanzimatage(halfofthe19th

century)wasquitedifferentfromthemodernone:indifferencetoprofit,

absenceofenvyinthesuccessesofothertradersandasingleandcorrectprice

werepeculiartraitsoftheOttomanbazaarduringitsgoldenage.Thereason


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forsuchbehaviorliespartlyintheethicsofIslam,andpartlyintheguildsystem

whichprovidedastrongsocialsecuritynettothemerchants.Afterward,the

westernizationoftheOttomansocietyandtheeliminationofthewaqfandthe

guildscausedtheintroductionofthenewpracticesthatweseetoday.


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3.2.3 CaravansandGuilds3.2.3.1 Caravans3.2.3.2 Fromanhistoricalperspectivetherearetwootherinstitutionsorganically

linkedtotheopenmarketplace:thecaravansandtheguilds.Theselasttwo

sharethesamephilosophyofopennesswiththemarketplace.Thecaravans

wereopendistributionnetworks(everyonecouldparticipateinexporttrading

sharinglogisticinfrastructure)andtheguildswereopenproductionsystems

(therewasnoemployer/employeerelationship,butmaster/apprentice;the

apprenticewasbeingincubatedtobecomeindependentwithintheguild).

3.2.3.3 Itisimportanttounderstandtheroleofthecaravansinthemarketplacesfrom

apurelyinfrastructurallevel.Initimpossibletoexplaintheinternational

commercialnetworkcreatedbythecaravanswhichstretchedfromChinato

thedepthofAfricawithoutconsideringthecommercialinfrastructurewith

whichtheMuslimscitieswereendowed:caravanseraisandsuqs.Withoutaplacetoarriveatthecaravanscouldnotexist.Thecaravantraderswere

installedinfunduqsorkhans(caravanserais)reservedforthem.

3.2.3.4 Caravanswereopendistributionnetworks.Thecaravanswereasopenasthe

marketplace.Smallproducerscouldparticipateinexportingactivitiesthatthey

couldnotaffordororganizeontheirown.Thecaravanwasanessential

infrastructureofopentrading,andcouldonlyexisttogetherwiththe

infrastructureofthephysicalmarketplace.Iftherewasnotmarketplacetogo,

thecaravanswouldceasetoexist.Ifthemarketceasestobeopen,thenthe

distributionceasestobeopen.Andconsequentlyproductionceasestobe

open.Themonopolizationofthemarketinfrastructurebringsaboutmonopolizationtrendsinthedistributionandtheproduction.Thatiswhythe

infrastructurehastosupporttheideaoftheopenmarket.Theeffectof

monopolizingtheinfrastructureisperfectlyillustratedwiththepresent

practicesofcompanieslikeCarrefour.NocaravancanarrivetoCarrefour,

becausethemarketisownedbyCarrefour.Tradingceasestoexist.Insteadof

tradingthereisonlymonopolisticdistribution.

3.2.3.5 Caravanseraiscontainedwarehousesandroomsforthetraders.Larger

caravanseraishadasmanyas100warehousesand200rooms.Thenumberof

caravanseraisinacityprovidesagoodindicationofitsroleasacommercial

center:Algiershad34,44inBaghdad,35inMosul,57inDamascus,around100inAleppoand360inCairoeloquenttestimonytotheeconomicimportanceof

themetropolisanditsparamountpositioninArabtrading.


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CaravanseraiofAcre,Palestine

CaravanseraiofNicosia,Cyprus


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3.2.3.6 Guilds3.2.3.7 Althoughcraftmanufactureisfoundinfamily-runworkshopsthroughoutthe

countryside,itisinthecitiesthatthespecializedproductionwaslocated,ina

highlyvariedsetoffieldsthatcateredfortheimmediateneedsnotjustofthe

citypopulationbutofthatoftheruraldistricts,too.Asamatterofexampleoftheimportanceoftheguilds,itisestimatedthat,intheeighteenthcentury,

craftsmenrepresentedhalfoftheactivepopulationofCairo.Theguildswere

connectedtothesuqs.AnexampleofthisistobefoundinCairoandalsoin

AleppoandDamascus:theSuqal-Nahhasin(thecoppersmithsbazaar)which

wereexpandedtobecometruecentersoftradingactivityopenedtoallthe

cititzens.

3.2.3.8 Theguildsnotonlyhadalocalcharacterbutinsomecasestheyacquiredthe

characteroflargespecialisedindustriesdedicatedtoglobalexport,suchasthe

productionofredcaps,duringtheseventeenthcenturyinTunis.Theguild

providedself-employmentto300mastersand15,000craftsmen.ThesecapswereexportedtoeveryregionintheOttomanEmpire.Anotherexampleisthe

textileindustryinCairowhichself-employedaround500mastersand12,000

craftsmen.AtthebeginningofthenineteenthcenturyinAleppo,itisestimated

thattheguildoftextilecraftmenconsistedofabout12,000loomsthat

providedforexportasfarasEurope.SoapproducedbyPalestinianguildswas

soldinthesoapcaravanserai(khanal-sabun)inCairo.

3.2.3.9 Theguildsrepresentthequintessenceofempowermentinaction.Therewere

notemployeesintheguilds.Individualenterprisingwasincubatedwithinthe

guild.Individualmemberscouldsharesomeessentialinfrastructuretodevelop

andacquireskillstothemaximum.Itofferedalevelledplayingfieldfor

manufacturersandserviceproviders.Thethemeissovastthatwewilldevelop

anotherpapertocoverthisissue.Atthemomentissufficientthatwenotice

thatwithoutthemarketplacetheguildsarenotpossible.Withoutthemarket

placetheguildsdegenerate,becomerigidandlosetheirbalanceefficiency.

3.2.3.10Theguildsstimulateandencourageindependententrepreneurship.AnIslamic

society,fromapurelyhistoricalperspective,isnotasocietyofemployees.In

pre-capitalistsocieties,Muslimshavelivedandworkedinguilds.Belongingtoa

guildwasthenorminMuslimsocieties.Businessesrelationsthrivedinsidethe

guild(withouttheneedofbanks)enhancedbytheexistenceofasharedproductiveinfrastructureandwelfaresystemsthattooktheWestcenturiesto

develop(andyethasneverfoundtheefficiencyoftheguilds).Theindividual

requirementstoestablishnewenterpriseswithintheguildwereallfavorable

andeasytofulfill.


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3.2.3.11Therelationshipemployer/employeewasreplacedbymaster/apprentice.

Therewasnotworkingclassinthedaysoftheguilds.Guildswerehistorically

eliminatedbylegalabolitionandbytheremovingoftheirrightsinfavorofa

newsetofStategivenprivilegesandmonopolies;andalsotheaccumulationof

capital(creditmoney)inprivatehandsproducedbybanking.Todayfree

competitionandfreeaccesstothemarketdonotexistforall.Thusitisnotseenasaproblem.Islamictradingguaranteesequalrightsforall.Islamic

tradingwilldecisivelycontributethere-establishmentoftheguilds,challenging

thesystemofthemoderncorporationbasedononeownerand14,000

employees.Itwillencouragenewmodelsofopenproductionprocesses

(guilds),whereproductionisopentothousandsoffreesmallowners

associated.ThisisalsopartofthewiderframeworkoftheIslamictrading

Initiative.

3.2.3.12Concerningthismatter,itisimportanttopointoutthatspeciallysincethe

beginningofthe1990s,quiteafewcorporationshaveunderstoodpartiallythe

benefitsofdividingtheirproductionprocessesintosmallerunits.Insteadof

onepyramidalstructurewithonesourceofdecision,theysawthebenefitof

manyautonomousunitsworkingincollaborationwhilecompetingamongeach

other.Thus,ToyotanowclaimsthatthereisnotoneToyotabuttwothousand

Toyotas.AseaBrownBoveri,theSwedish-Swissengineeringgiant,has

subdivideditselfinto1,300independentcompaniesand5,000autonomous

profitcentres.Theirprosperoussuccessisforcingotherstoadapttothesame

principle.Thepoliciesofdecentralisation,thoughtheyseemastepintheright

direction,arelimitedbecausetheyhaveallbeendesignedbycorporatestaff.

Corporatestaffcouldnotsuggesttheultimatestepwhichwouldbeto

eliminatethecorporationalltogether,orinotherwordstogivetotalindependencetotheautonomousworkshops.Thatcouldonlyhappenifthe

smallworkshopcouldhaveanidenticalaccesstothecustomerasToyotaitself.

Tomakethatstepweneedopendistributionnetworksandfreemarket-places

forall.TheseareallintegralpartsofIslamictrading.


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3.2.4 QiradandShirkat3.2.4.1 TheapplicationofIslamiccontractswillchangewithinMuamalaat.The

contractofQiradorMudharabahisacontractthattookplacehistoricallyinthe

contextofthecaravans.Thecaravanwasfinancedbyqiradandqiradwasthe

contractoftradingfinanceofthecaravan.EquallyShirkattookplacewithinthecontextofadifferenttypeofproductionmodel.Mostcontractsofshirkatwere

betweenmembersofthesameprofession.Thisnaturalassociationoftraders

ledtotheestablishmentoftheguilds.Shirkatandguildscorrespondtoeach

otherinthesamewaythatqiradcorrespondstocaravans.

3.2.4.2 Understandingthecontractsisnotdivorcedfromunderstandingothersocial

aspectsofthecommunity,thusMuamalaat.InIslamicLawalltheattentionis

onhowtheexchangeofgoodstakesplace,becauseitisunderstoodthatifthe

exchangeofgoodsiscorrect,thewholeedificeoftradingwillbecorrect,butif

theexchangeofgoodsisincorrectitdoesnotmatterhowmuchwetryto

remedythesituation,thewholeedificeoftradingwillremainincorrect.InIslamicLawtheactofexchangeofgoodsrepresentstheminimalunitof

trading.Thusalltheregulationsareguidedtokeepjusticeineverycommercial

andbusinessexchange.Theseregulationsaffecttheinstitutionsthatsupport

tradingandthoseinstitutionsalsoaffectthecontracts.Inordertohighlight

howMuamalaatbringsnewlightintothesecontractswewillexaminesome

basicprinciplesofqiradandshirkat.

3.2.4.3 Howtomakeacontractandthelimitationsofthedifferentkindsofcontractsis

thereforeveryimportantinIslamicLaw.Thecontractisonlynecessarywhen

delayedtermsarestipulatedbetweentheparties,suchasasalewithdelayed

payment,orarental.Alsoallthebusinesstransactions,suchaspartnerships

becausetheyinvolvedelayedtermshavetobewrittenaccordingtoIslamic

Law.Thebusinesscontractsorthosecontractswherethestipulationofa

businessorprofitisinvolvedaretwoaccordingtoclassicreferences(al-

MuwattaofImamMalik):ShirkatandQirad.Alltherestarecommercial

contracts.Non-commercialcontractsareforexamplethegraciousloan(ariya)

orthecontractofdeposit(amana).

3.2.4.4 Allbusinesscontractsneedtobewritteninaformofacontractspecifyingthe

negotiableconditions.TheShirkatisanIslamicpartnership,andtheQirad,also

calledMudharaba,isanIslamicbusinessloan.TheShirkatandtheQiradhavecertainpredeterminedconditionsthatcannotbealtered;otherconditions

needtobenegotiatedbytheparties.


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3.2.4.5 Theimportanceofthecorrectnessofthebusinessandcommercialcontractsis

suchthattheuseofparticulartypesofcontractswillaffecthowsociety

develops.Asocietywhereunjustcontractsareallowedi.e.Ribawill

produceakindofsocietydifferentfromtheoneinwhichtheyarenotallowed.

ThisisthereasonwhycontractuallawissoimportantinthebodyofIslamic

Fiqh.AlmosttwothirdsofallIslamicFiqhconcernstradeandbusiness.

3.2.4.6 IslamicLaw,derivedfromtheQuranandtheSunnaofRasulullah,sallallahu

alayhiwasallam,definestheparametersinwhichcontractsofcommercial

transactionsandbusinessshouldtakeplace.

3.2.4.7 Commercialtransactionsarebasedontheexchangeoftheownershipofgoods.

Iftheexchangeinvolvesdelayedpayment,thenacontractmustbewritten.But

itisnotnecessaryifthetransactiontakesplacehandtohand.

3.2.4.8 AcommercialorbusinesstransactioniscorrectaccordingtoIslamicLawifit

hasequity:thevalueofthegoodsgivenmustbeequaltothecountervalueofthegoodsreceived.Ifthesevaluesarenotequal,theexchangebecomes

usurious.

3.2.4.9 Abusinessconsistsoftwoormorecommercialtransactionsconnectedforthe

purposeofobtainingaprofit.Whentwoormorepersonsassociatethemselves

toexecuteabusinessthenacontractisrequiredbetweenthepartiesinvolved.

3.2.4.10AprimaryformofdefiningtheequityofabusinessaccordingtoIslamicLawis

thatallthetransactionsthatitinvolvesareequitable.Inaddition,whena

businesscontractiswritten,therearecertainconditionsthatmustbetaken

intoaccount.Wearegoingtoexaminethemostimportantoftheseconditions.

3.2.4.11Thegoodsthatmakeuptheinitialinvestmenteitherbelongtooneperson(no

contractisnecessary)ortheybelongtomorethanoneperson(acontractmust

bewritten).Itmayalsobethatthegoodsbelongtoonepersonbutthatthey

comefromabusinessloanthenacontractmustalsobewritten.

3.2.4.12Thereforetherearetwopossiblebasicformsofbusinesscontract:

a]theinvestors(everyone)transfertheownershipoftheinvestmentto

themselves,allofthemasagroup;or

b]theinvestor/s(everyone)transfertheownershipoftheinvestmenttoanother

party.ThefirsttypeofbusinesscontractiscalledinArabicShirkatwewillalsocallit

apartnershipandthesecondtypeofbusinesscontractiscalledinArabic

Qiradwewillalsocallitabusinessloan.


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3.2.4.13Shirkat(Partnership)

3.2.4.14Partnershipisinitsgeneralmeaninganyassociationofpersonswhosharethe

ownershipofsomegoods.Thereforepartnershiprequirescoownershipof

somegoods.Andifthesegoodsareinvestedinabusinessthenwehavethe

necessityofabusinesscontract.

3.2.4.15Co-ownershipiscalledinArabicShirkatMilk.Abusinesspartnershipiscalled

inArabicShirkatAkid.

Shirkat,initsprimitivesense,signifiestheconjunctionoftwoormore

estates,insuchamannerthatoneofthemisnotdistinguishablefromthe

other.InthelanguageoftheLaw,itsignifiestheunionoftwoormore

personsinoneconcern.Thetermshirkat,however,isextendedtothe

contracts,althoughthereisnoactualconjunctionofstates,becausea

contractisthecauseofsuchconjunction.(TheHedaya,translationby

Hamilton,pp217-31)QuotationsfromTheHedayabyBurhanuddinAbuBakrAl-Marginani,writtenintheeighthcentury,translatedbyCharles

HamiltonunderthepatronageofWarrenHastings,GovernorofBengal

andpublishedin1870inLondon.

3.2.4.16Shirkatislawful.InthetimeoftheProphet,sallallahualayhiwasallam,men

wereaccustomedtopracticingpartnership.InhisMuwatta,Maliksaid:

Thewayofdoingthingsamongusisthatthereisnoharminpartnership

(ash-shirka),transferringresponsibilitytoadeputy(at-tawliyah)and

revocation(al-iqalah)whendealingwithfoodandotherthings,whether

ornotpossessionwastaken,whenthetransactioniswithcash,andthereisnoprofit,lossordefermentofitsprice.Ifprofit,lossordefermentorthe

priceformoneofthetwoentersanyofthesetransactions,itbecomesa

salewhichismadeHalal,andmadeHarambywhatmakesaleHaram,

anditisnotpartnership,transferenceofresponsibilitytoadeputy,or

revocation.

3.2.4.17Shirkatisoftwokindsdependingonhowitoriginates:

ShirkatMilk,orpartnershipbytherightofproperty,and

ShirkatAkid,orpartnershipbyabusinesscontract.

TheonethatweareinterestedinexploringisthebusinesscontractofShirkat,

whichiscommonlycalledShirkatAkidorbusinesspartnershipThemostsignificantconditionsare:

ThePrincipleofTakafu(Proportionality)

Theshareofapartnershipwhereallthepartnersworkandputincapital

dependsonthedifferentamountsofcapitalinvested.Iftherearedifferencesin

capitalamongthepartnersbuttheyallworkthesameamount,thenthelesser

investorcanbecompensatedforhisextrawork.


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IhaveheardfromMalikthatpartnershipisnotpermissibleunlessthere

existsabalance(takafu)inthecapitals.

(Sahnun,Mudawwana,12:41.)

TheNecessitytoParticipateintheWork

Apartnershipassumestheparticipationofallitsmembersintheactualwork.Anassociationinwhichalltheworkisassignedtoonepartner,whiletheother

providessomenecessarycapitalorequipment,butnowork,isnotavalid

partnership.Thenon-workingpartyisnotentitledtoanyshareoftheincome

andcanclaimonlythereturnofhisinvestmentand,ifithappenedtobeina

formotherthancash,someequitablerentalfeeforitsuse.

Surpluscapitalcannotbeusedasinvestmentinapartnershipwithoutphysically

participatingintheworkofthebusiness.Soyoucannothaveacapitalist

investingintheproductionmadebyotherpeople.Theonlyformulaforasilent

investorisabusinessloanorQirad.Inapartnershipallthepartnershavetowork,theyareallequallyownersandthereforeequallyresponsible.

Isaid:WhatisyouropinionofanarrangementinwhichIplaceaperson

inastallandsaytohim:Iwillacceptthegoodsandyouwilldothework

ontheconditionthatwhateverGodgrantsuswillbesharedbetweenus

equally?Hesaid:AccordingtoMalik,thisisnotpermissible.(Sahnun,

Mudawwana,12:41).

Isaid:Whatisyouropinionofapartnershipbetweenthreepeoplein

whichoneprovidesthemillstone,theotherthehouse,andtheotherthe

work-animal,ontheconditionthattheowneroftheanimaldoesallthe

work?Hesaid:Theentireproceedsoftheworkaretogototheowner

oftheanimalwhoexecutesthework,andheisobligatedtopaytherental

feeforthemillstonesandhouse.Isaid:Isthisalsothecaseevenifhe

doesnotearnanything?HesaidYes,evenifhedoesnotearn

anything.(Sahnun,Mudawwana,12:45).

IbnQasimrejectsthevalidityofapartnershipbasedincashonlywhichstipulates

thatalltheworkbedonebyonlyoneofthepartners.Heexplainshisrejectionas

follows:

ThebasisforthisisthataccordingtoMalik,apartnershipisnotpermissibleunlesstheycombineinitsworkproportionallytotheir

respectivesharesinthejointcapital.(Sahnun,Mudawwana,12:60).

Theresultsaremanifold:Thefirstoneisquiteobviouswhichisthatthere

cannotbecapitalistinvestorsusingonlytheircapitaltobenefitfromthe

manufacturingworkofotherpeoplewithoutoccupyingthemselvesinthework.

Thesecondoneisthefactthatalltheownersinacoownershipcanexercisetheir


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ownershipwithidenticalstatusindependentofthesharethattheymayhavein

thebusiness.BothprinciplesshowthefallacyoftheStockExchange.

TheestablishmentofaStockExchangeisaresultofthepreviouscreationofa

falseconceptofownership.Thisfalseconceptofownershipisbasedonwhat

theycallmajorityownership.Onthisbasisyoucanbetheownerofacompany

bycontractdespitenothavinganyexecutivedecisionoveryourproperty.Ownershipisdeclaredinapieceofpaper,butthesamepieceofpaper

guaranteesthatyoucannotdecidethereforeyoucannotowntheproperty.

Thisisthefalsehoodofthiskindofcontract.Thecontractofshareholdingwith

majorityownershipisaccordingtoIslamicLawnotacceptableandisconsidered

tobeaformofcheating.

3.2.4.18TheEssenceofOwnership3.2.4.19Ownershipisnotjustadocumentthatsaysyouaretheownerofsomething.

Ownershipmeansyouareentitledtoandalsocapableofdecidinghowtodisposeofyourproperty.Otherwiseyouarenottheowner.Decisionovera

propertyistheessenceofownership.

3.2.4.20Ownershipexistseverytimesomethingisusedorconsumed,although

ownershipislegallyregulatedonlywhenscarcityappears.Therewereno

regulationsforfishinginthesea,butasthefleetsincreasedandthefish

becamescarce,theregulationofownershipbecamenecessary.

3.2.4.21Everybodydisposesfreelyofairtobreath,buttheuseoftheflightpathsof

planesbecameregulated.Beforeregulationtherewasalsoownership,because

whenaplaneusedaflightpathnobodyelsecoulduseit.Thatwaseffectivelyownership.

3.2.4.22Therefore,explicitlyregulatedornot,ownershiphasanexistentialreality

connectedtotheuseofsomething.Ownershipconsistsofthecapacitytouse

something.Toholdthecapacitytodecideiseffectivelyownership.Modern

commerciallegislationallowsforatypeofownershipdisconnectedfromthe

capacitytodecide.Thisleadstotheideaofanownershipexclusivelydefinedby

thetitlebutwithoutdecision-makingpowers.ThisisnotpossibleinIslamsince

thetitleanddecision-makingpowersareboundtogether.

3.2.4.23Whenownershipisexercisedindividually,thereisnodifficultyinunderstandinghowthedecisionismade.Butwhathappenswhenthereis

collectiveownership?Iftheyareallownerstheymustallown.


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3.2.4.24Therefore,inIslamiclaw,theco-ownerssubmittothesetwoprinciples.

1.Alltheco-ownershavethesamestatusofdecision,regardlessoftheir

participationintheproperty.

2.Theresultsofthebusinessaresharedamongtheco-ownersinproportionto

theirparticipationinthebusinessasestablishedinthecontract.

3.2.4.25Ifthefirstconditionisnotfulfilled,thentheco-ownersarenolongerowners,

andsomeoneisusurpingthesharedownership.Islamiclawdemandsthat

everytimethereisacommercialagreementbetweentwoormoreparties,a

contractmustbewritten.Thiscontractiswhatconstitutestheprivatedecision

ofthebusiness.Thebusinesscontractclearlydefinesinadvancethenatureof

thebusiness:whoaretheinvestors,whoistheagent(ifthereisone),the

quantityoftheinvestment,theobjectiveofthebusiness,itsduration,andthe

sharingofitsresults.Therefore,whenyousignthecontract,youknowwhat

youareparticipatingin.Whenyouinvest,youknowwhatyouareinvestingin.Now,whatyouhaveinmoderninvestmentisanagreementwhichisnot

consideredacontractwithinIslamiclaw.

3.2.4.26Rather,theinvestorlendsthemoneytoanunknownowner,toanunknown

business,withnofixedduration,whoseprofitsordividendsaredecidedbythat

unknownowner.Thisisalldoneunderthefalsehoodofmajorityownership.

3.2.4.27TheDeceivingConceptofMajorityOwnership3.2.4.28Thisdeceivingconceptwasbroughtaboutforthepurposeofthecreationofa

mechanismofcontrolandmanipulationwhichendedupbeingthe

establishmentoftheStockExchange.Itisbasedontheprinciplethatwhoever

hasasimplemajorityofthesharesofacompanyownsthecompany.This

systemallowsthecontrolofgreatportionsofthemarketbyveryfewpeople.

Forexample:MrStonewhoowns51%ofcompanyAhascontrolofthe

company.IfheusesthecapitalofcompanyAtobuy51%ofcompanyB,hewill

havetotalcontrolofcompanyBalthoughheownsonlyapproximately1/4ofits

capital.IfhethenusesthecapitalofcompanyBtobuy51%ofcompanyC,he

willhavetotalcontrolofC,althoughheownsonly1/8ofthecapital.

MrStonecanthenbuyacompanyD,E,F...inthesameway.


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3.2.4.29Thefalseconceptofmajorityownershiphasenabledtheusurpingofthelegal

ownershipofmillionsofminorityco-owners.Throughthisprocedure,MrStone

haspoweroveranenormousamountofcapitalthatisnothis.Hecandecide

whattheresults,nowcalleddividends,are.Butdividendsarenotthesameas

theresultsofthebusiness.Thecompanymustbeliquidatedinordertoknow

theresultsofthebusiness.Thesystemofmajorityownershipmakesthesecompaniesexistwithoutresults,withoutliquidation.Becausethemajority

ownercandecidehowmuchisgoingtobere-investedandhowmuchwillbe

paidoutasdividends,youaretiedtothecompanyagainstyourwill.

3.2.4.30InIslamicLaw,youcannotforceanyinvestortore-investwithouthisapproval.

Theresults,therefore,mustbecompletelyshared,bytheliquidationofa

companyaftertheperiodstipulatedinthecontractasthedurationofthe

company.Iftheyallagreetocontinuetheycancontinue,ifnot,thecompanyis

liquidatedtostartagainwithanewcontract.Thusownershipisalways

protected.Themajorityownershipsystemonlyprotectsthecompany

ownershipofthemajorityowners,butdoesnotprotecttheownershipofthe

restoftheco-owners.

3.2.4.31Qirad(businessloan)

3.2.4.32Qiradisusuallyreferredtowiththreedifferentwords:

Mudharaba(originatedinIraq);thisiswhatthepeopleofIraqcalledQirad;

accordingtoal-Sarakhsi,thiswordisderivedfromtheexpressional-darbfi

al-ardwhichmeansmakingajourney.Thistermisusedbecausetheagent-

managerhastherighttoclaimtheprofitbyvirtueofhiseffortandwork.

Indeedheisregardedastheinvestorsassociateinmattersrelatingtotheprofitandcapitalusedonthejourneyandforarrangementsorancillary

expenses.Theinvestorisentitledtoreceiveashareoftheprofitonaccount

ofinvestingwithhiscapital.

QiradorMuqaradah(originatedinMadinah);thisiswhatitwascalledin

Madinah.ThewordcomesfromtheArabicqard,whichmeansthe

surrenderofrightsovercapitalbytheownertotheuserofthecapital[a

loan].AgentisinArabical-amilandtheinvestorinArabicissahibul-malor

rabbul-mal-

Commenda(originatedinMedievalEurope),fromthecontractofaccomendacioofthejuscommune.Theinvestorwascalledcommendator

andtheagentwascalledtractator.ThiscontractwasintroducedintoEurope,

especiallySouthernEuropethroughtheItalianseaportsofthelatetenthand

earlyeleventhcenturiesofthechristiancalendar.


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3.2.4.33IbnRushdsaid:

ThereisaconsensusofopinionamongtheMuslimswithregardtothe

legalityofQirad.Itwasinvogueinthepre-IslamicperiodandIslam

adoptedit.Thereisaconsensusofopinionthatitconsistsingivingsome

capitalbyonepersontoanotherforbusiness.Theuserofcapitalreceivesanagreedproportionoftheprofit,i.e.anyproportiontheymayagree,

one-third,one-forth,orevenone-half.

(IbnRushd,BidayatMujtahidwaNihayatul-Muqtasid,Cairo,1329,p.205)

3.2.4.34TheProphet,sallallahualayhiwasallam,workedasanagentforKhadijah

beforehemarriedher.

3.2.4.35AlltheMuslimjuristsagreeonitslegitimacyasaformofbusinesstransaction

andtheyformedthisopiniononthebasisofitswidepracticebythe

CompanionsoftheProphet,sallallahualayhiwasallam,duringhislifetimeand

after.TheProphet,sallallahualayhiwasallam,knewitandapprovedofit.

3.2.4.36ThemainconditionsofQiradare:

1.TheagentofQiradwhoisaskedtobuycreditormakeanexchangeandthen

usethefunds,hastherighttochargeforthatworkwithasalary,withoutlosing

hisrightsofapartoftheprofitoftheloan.

2.Theagentcannotbeobligedtodoamanufacturingwork,suchassewingor

embroidering.Qiradisnotformanufacturing,itisonlyfortrading.

3.Everymutuallyconsentedloan,evenintheformofQirad,inwhichfundsaredestinedtopayforamerchandisethatthelenderknowshavebeenalready

bought,isnotaQirad.Itisaordinarygraciousloan.

4.Theagentisfreetobuyandsellwhateverhewants,andintheplaceandin

thetimethathewants.

5.Qiradisnotfortime.Itisnotpermittedfortheagenttostipulatethatheuse

theQiradforacertainnumberofyearsandthatitnotbetakenbackfromhim

duringthattime.

6.GuaranteesinQiradarevoid.ThestipulationofguaranteeinQiradisnullandvoid.Theinvestorisnotpermittedtostipulateconditionsabouthis

principalotherthantheconditionsonwhichQiradisbased.


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4 ImplementationofMuamalaat4.1 GradualTransition4.1.1 ThetransitionfromRibatoMuamalaatmustbegradual.Thegradualdiminishing

oftheRibaactivitiesmustbereplacedbyanequivalentdevelopmentofMuamalaat.Theobjectivemustbetomaintainorderinsocietyandtopreserve

wealth.

4.1.2 Afirstapproachinunderstandingthetaskofthistransitionistounderstandthe

evolutionoftherealeconomyinrelationtothefinancialeconomyinthelastfew

decades.FinancialTimesdefinesrealeconomyas:Thepartoftheeconomythat

isconcernedwithactuallyproducinggoodsandservices,asopposedtothepart

oftheeconomythatisconcernedwithbuyingandsellingonthefinancial

markets.

4.2 RealEconomyvsSpeculativeEconomy4.2.1 Therealeconomyrepresentstheeconomyofrealpeoplewithrealmoneyand

realproductsandservices.Thiseconomyhasbeenindecline.Insteadof

promotingtherealeconomygovernmentsaroundtheworldhaveattemptedto

replacetherealeconomyofvalueproducedwithafinancialmodelbasedon

creditgrowthandspeculation.Theyhavefailed,andtheirconstructsare

implodingbeforeoureyes.Aslow-growthrealeconomyhasbeenreplacedwith

acredit-basedspeculativefinancialeconomydependentonlowinterestrates

andsystemicfraudtosurvive.Itisnowimplodingonaglobalscale.

4.2.2 Thechiefcontradictionofourpresentgrowthmodelisashortageofprofitableinvestmentoutletswithinproductionaproblemendemictothemature,

monopolisticeconomy.Investment-seekingsurplusthatisunabletofind

sufficientprofitableinvestmentoutletstranslatesintolossesinthe(real)

economyasawholeandhenceaslowdownofgrowth.Corporationsand

capitalistsseektoholdontoandincreasetheirmoneycapitalinthese

circumstancesbyshiftingthesurplusattheirdisposalintospeculationinasset

prices.TheresultisadramaticexpansionofFIRE(finance,insurance,andreal

estate)andtheentirefinancialsuperstructureofthecapitalisteconomy.The

plethoraofmoneycapitalenteringfinancecreatesaddedopportunitiesfor

speculativegrowth,whichbanksandotherfinancialinstitutionsaccommodatethroughnewfinancialinnovations(todaytakingtheformofsuchexotic

instrumentsascollateralizeddebtobligations,creditdefaultswaps,structured

investmentvehicles,etc.).Variouswealtheffects(wherebyincreasesinasset

pricestranslateintoincreasedconsumptionandinvestment)partially

compensateforstagnationandtemporarilystimulatetherealeconomy,without,

however,materiallyalteringtheunderlyingconditions.


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4.2.3 Insofarasthefinancialsystemisgrowingnotbyservicingproduction,but

throughaprocessofmoneysimplybegettingmoremoney(whichisinessence

riba),withouttheinterveningproductionofcommodities,thistakestheformof

afinancialbubble,oranunsustainableexplosionofcredit/debt.Thismeansthat

thespeculativeprocessdependsforitsverycontinuationonthepilingupof

greaterandgreateramountsofdebt,andinordertodothis,itneedstohaveconstantcashinfusionsfromtherealeconomytoprovideadditionalcapitalthat

canbeleveragedup.InthenineteenthcenturyinFrance,CrditMobilier,the

prototypeoftodaysgiantbankswasleveragingatarateof10:1(debttocapital

ratio).Inthemostrecentfinancialbubble,majorbanksoftenleverageatarate

of30:1;Japanesebankshavebeenleveragingforthelastfourdecadesatarate

of50:1.Financialprofitsinthesecircumstancesexpandrapidly.Non-financial

corporationstoocometorelymoreondebtleveragingandcreatetheirown

financialsubsidiariestotakeadvantageofthebubble.Butinsofarasthe

underlyingsystemremainsstagnant,thebubbleeventuallyburststypically

afteraspeculativemaniainwhichtherapidriseinquantityofdebtleadstoamarkeddeclineinitsquality.Theresultisareturntotheunderlyingcrisis

conditionsandrealworldrepercussions.

4.2.4 Rightnowwearebeingtoldthatthesystemhasonceagainfounditsfooting

thatfinanceandevenproductionarerecovering.Butsincethestagnation-

financializationtrapremainsoperative,wehavenodoubtthatwhatweare

seeingrightnowismerelyabriefpauseifthatinthedevelopingstructural

crisisofglobalmonopoly-financecapital.Theproblemsofthesystemareonly

gettingbigger.

4.2.5TheForexSpeculationMadness

4.2.6 In1975,about80percentofforeignexchangetransactions(whereonenational

currencyisexchangedforanother)weretoconductbusinessinthereal

economy.Theremaining20percentoftransactionsin1975werespeculative,

whichmeansthatthesolepurposewasanexpectedprofitfrombuyingand

sellingcurrenciesthemselves,basedontheirchangingvalues.Today,thereal

economyinforeignexchangetransactionsisdownto1percentand99percentis

nowspeculative.Therealeconomyhasbecomejustasmallpercentageoftotal

financialcurrencyactivity.

4.2.7

Itisestimatedthatcloseon$5trillionincurrenciesbeingtradedeachday.Thisisequivalenttotheentireannualgrossdomesticproduct(GDP)volumeofthe

UnitedStatesbeingturnedoverviacurrencytradingeverytwodays.Thereare

threecumulativecausesforthisexplosiveincreaseincurrencyspeculation.


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4.2.7.1 Systematicredefinition.ThefirstimportantactwasformerPresidentRichard

Nixon'sunleashingofthedollarstandardin1973."Floating"thedollarallowed

currencyvaluestobedeterminedbytradersincurrencyexchangemarkets.

Currenciesfromcountrieswithstrongeconomiesandsoundmonetaryand

fiscalpoliciesweregivenmorevaluethancurrenciesfromweakcountries.

4.2.7.2 Legalderegulation.Inthe1980'sbothRonaldReaganandMargaretThatcher

introducedderegulationstrategies.TheBakerPlan,implementedbytheWorld

BankandtheInternationalMonetaryFund(IMF),appliedthosechangestoa

dozenkeyThirdWorldcountries.Thiscreatedalotmoreleewayformovement

ofcapitalinternationally,andforcorporationsthatpreviouslywouldnothave

participatedinspeculation.

4.2.7.3 Technology.Thestructural,deep-lyingphenomenonbehindthewholesystem

isthetechnologicalshift:theelectronificationofmoneyandthe

computerizationofmarketsystems.

4.2.8 Economictextbookssaythatcorporationsandindividualscompeteformarkets

andresources.Thisisnottrue.Corporationsandindividualscompeteformoney,

byusingmarketsandresources.

4.2.9 Theopeningofthestetswhichledto"floatingexchanges,"alsocreatedanew

assetclass.Traditionalassetclassesarerealestate,bonds,stocks,and

commodities.Todaywealsohavecurrencies.Thismeansthatmoney,the

mediumofexchange,hasitselfbecomeanassettobeplayedintoinvestment

portfolios.Thisshifthasdifferentimplicationsforbusinesses,dependingon

whetheryou'reaninvestorora"real"business.

4.2.10 Fromaninvestorsviewpoint,thisnewassetclass--currencies--hassome

significantadvantagesovertheoldones.

*Extraordinarilylowtransactioncosts.Placingafewbilliondollarsinforeign

exchangecostsverylittle,asmuchastenortwentytimescheaperthanastock

transaction.

*Twenty-fourhourmarketenvironment;onecanactuallyplayaroundthe

clock.

*Theforeigncurrencymarketisthelargestanddeepestmarketaroundbya

longshot.Ifyouhaveafewbilliondollarstoplace,bringingthemtothestock

marketisgoingtomovethestock'svalueandtip-offothertradersastowhat

youaredoing.thisistrueinmostbondmarkets(exceptfortheUSandsome

Europeanmarketsbecauseoftheirlargesize).Inforeignexchange,evenfiveor

tenbillionwon'tmakeablip.


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4.2.11 Soifyouhaveasubstantialamountofmoneytomovearound,thisistheplace

todoit.Youcangetinandoutwithoutaffectingthemarket.Becauseofthese

threeadvantages,theactoflendingmoneytopeople(tobuyhouses,cars,

expandbusinesses,orwhatever)isnolongerthebestwaytomakemoney.The

foreigncurrencymarketistheplacetodoit.

4.2.12 Banksarenolongerthebigplayersintermsofsupplyingcredit.Inthelast

twentyfiveyears,banksasasourceoffinancinginAmerica,havedroppedfrom

75percentofthetotalsupplyofcredittolessthan10percent.Forthemajor

internationalbanks,likeChaseManhattan,Citicorp,BankofAmerica,Barclaysor

Sumimoto,currencytradingtypicallyaccountsforatleast20percentoftotal

earnings.Inagoodyear,itwillbemorethan50percent.

4.2.13 Inconsideringtheviewpointofso-calledrealbusiness(thosethatmakecars,

mine,produceelectronicsetc.),the"foreignexchangerisk"hasbyfarbecome

thelargestriskininternationalbusinesstoday,oftenlargerthanpoliticalor

marketrisk.Forexample,ifaGermanchemicalcompanyinvestsinaplantinIndia,itmakestheinvestmentindeutschmarks.Thechemicalproductssold

locallyfromtheplantarepaidinrupees,India'scurrency.Ifthevalueofthe

rupeethendropsintermsofthedeutschmark,thereturnontheoriginal

investmentwilldropaswell.Inshort,thebiggestriskofsuchinvestmentisnot

whetherIndianswillbuythechemicals(marketrisk),butthechangesinthe

valuesofthecurrenciesinvolved(foreignexchangerisk).

4.2.14 Corporationshavefollowedtwomajorstrategiestodealwiththisrisk:

4.2.15 Thefirststrategyisthereorganizationofthecorporateconglomerate.

Productionandmarketingsectorsaredecentralizingbecausetheriskdoesn'tliethere,andbecauseadaptationtolocalcircumstancescanbestbehandledona

locallevel.Thisalsoleadstothedispersalofproductionfacilitiestoother

countries.Butwhilemarketingandproductionaredecentralizing,the

corporation'sfinanci

Islamic Finance By Dr. Humaira Awais Shahid

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