ISLAMIC v. WESTERN BANKING.

Makarram Abdul Hakeen

A great deal of publicity has been given in The Social Crediter over many years to the dishonesty of the West’s banking system. The predictions of final enslavement to a world-wide banking and financial cartel should have alerted a sufficient number of concerned people to force a change but, notwithstanding the warnings, the system continues. This is not surprising; even Lenin knew that theory without practice is sterile.
Islam recognised this long before Lenin however, and in Muslim countries where Western values are seen as defying those of Islam, an upsurge of Islamic fundamentalism has led to a restoration of the guidance to mankind given in Quran and separately in the teachings of the Prophet (peace be upon him) known as Hadith. Where this guidance carries the force of law, it is known as Sharia and must be adhered to individually and collectively where applicable.

As far as money is concerned, the Sharia does not regulate how a man spends it nor does it restrict his freedom to venture. Islam tolerates personal freedom and the right to accumulate wealth, but at the same time it rejects the materialism which brings about the exploitation of human labour by the possessor of capital.

There are a number of Quranic warnings against avarice, for example :

Oh ye who believe…..they who hoard up gold and silver and spend it not in the way of Allah, unto them give tidings of a painful doom. Surah Repentance (v.34)

Lo ye are those who are called upon to spend in the way of Allah yet among you there are some who hoard. Surah Mohammed (v.38)
Usury is forbidden in Surah Baqarah (v.275) :

Those who live on usury shall rise up before Allah like men whom Satan has demented by this touch: for they claim that usury is like trading. But Allah has permitted trading and forbidden usury.

Using injunctions such as these as guidelines, banks have to answer the challenge of developing a monetary system which is viable in economic terms. To meet it, the Association of Islamic Banks have stated their Code of Practice as follows :

The bank should work towards the establishment of an Islamic Society. Hence one of its primary aims is the deepening of religious spirit amongst the peoples.

So within Islamic boundaries, banking is not a complete self-contained activity as is practised in the West, but is part of a whole cultural ethic leading to the implementation of Islamic values throughout the society it serves. This ideal has necessitated a reappraisal of the role of money. In the West it is given an artificial status as a commodity and its accumulation is seen as a highly desirable aim. However, Islam prohibits hoarding and enjoins spending “in the way of Allah”. This entails voluntary acts of charity: help to others in time of need; promoting Islamic values in education and social welfare; transmitting Islam to Non-Muslims, etc.

Money, therefore, is not a commodity in its own right, but has a status only in so far as it can be put to good use. The enjoyment of wealth beyond one’s legitimate needs in not an Islamic virtue, nor is the desire for personal prosperity. Prosperity and adversity are both seen as necessary reminders of Allah and invoke thankfulness or mindfulness in their turn. Money is valuable only as a function or by-product of human effort, and human effort in its turn is the means by which a Muslim serves his Lord. This is the socio-economic theory of money which is now being put to the test in Islamic societies.

On the practical level, Islamic banking practices differ from those in the West in a number of important ways :

1. One of its main functions is investment financing: depositors authorise the bank to invest or transact on their behalf but run the risk of profit or loss. They of course receive no interest.

2. Banks do not grant overdrafts on current accounts and any loans they make are from depositors’ funds, so there is no overall increase in money supply.* This contrasts sharply with Western practice under which bank loans and overdrafts are the chief source of new money, ie. credits created under the “fractional reserve” system, and hence the basis of bank profits.

3. Loans made by a bank to a permissible venture are not subject to fixed repayments. Justice and fair play prevail in all contracts, and rates of profit and loss cannot be determined beforehand. So long as the business continues to function, the risks as well as the profits are shared by the Bank.

4. In the case of private loans, normally to needy people with no savings at all to fall back on, only the loan needs to be repaid. This service may carry a once-and-for-all charge, but no continuing interest payment. Such loans are rarely made, however.

5. No fixed interest-bearing deposit facility (for which a considerable level of liquidity is required) exists as in the West.

6.Islamic banks are permitted to purchase stock on behalf of a client and sell it to him at a profit on the purchase price. In some contracts the profit will take the form of an annual percentage addition. This should not be confused with interest which is profit on money against time and is prohibited. Islam allows profit on commodities against time and therefore banks can protect themselves against loss following rising prices in the event that payment by the client is delayed.

7. To ensure compliance with Islamic requirements, most banks will if necessary refer to a Sharia Supervisory Board to rule upon complexities.

8. Banks will pay the annual levy for the poor known as Zakat at the standard rate of 2.5% on both current assets and on other items of income as determined by the Sharia Supervisory Board.
The above illustrates that Islam stands as a major force capable of resisting usury and the artificial creation of money.

The principles of economics are a mystery to many Muslims as well as to non-Muslims. Those who carried Islam to the UK brought many defects with them. The principles of Islam, understood and practised by the home-grown Muslim capable of taking the lead, would present the most serious challenge to the belief that an economic ideology would solve the problems of our society — and for which, it seems, we are prepared to abandon our national sovereignty to the bankers of Europe.

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* Al Banouk al Islamiya, Dr Jamal al Din Attiya (Qatar, 1987).

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