Muslims and their (Islamic) Banking (July 2012)

During a friendly discussion, a person working in an Islamic Bank was asked, “How much Islamic is your Bank”? The reply was, “as much as are we Muslim”. (Conversation was in Urdu: Jitne hum musalman hain utna hamara bank Islami hai.)

A Muslim is the one who has surrendered to injunctions of Allah and one of His injunctions is to abstain from riba. Verse 279 of Sura Baqra declares war by Allah and His messenger against riba takers. After revelation of the verse money lending on riba became criminal offence in an Islamic society. ( Today one can argue that he is not living in a society where riba can be a criminal offence. Well, there is a hadith to warn him that the sin of riba is 70 times the sin of incest with one’s mother (Ibnmaja, Baiaqi,, page#22). Anyone having some moral sense can conclude, on the basis of this prophetic saying, that there is nothing more immoral than taking riba. Why such stern warnings against riba? Because Allah, the All-Knower knows that man has limitless lust to wealth. “And you love the wealth with all your hearts” (al-Fajr 89:20). Money is such a weak point for mankind that the general tendency is, to take the Divine restrictions in a light way? The warning on riba is not only to the lenders but includes all who are involved. The Apostle of Allah (pbuh) cursed the one who accepted usury, the one who paid it, the witness to it, and the one who recorded it.  (Sunan Abudawud Book #22, Hadith #3327). In a capitalistic economic system, one is free to enter race of money making without any ethical limitation but Islam cuts the root of such a system.

In olden time when riba was charged by individual lenders it was easy to perceive the sufferings. In modern time the financial institution’s dual role of lending and borrowing appear quite innocent in spite of its destructive fallouts. Banks take deposits from their customers at a certain rate of interest and lend to other customers at a higher rate, the difference is their earning. Interest is the modern term for usury or riba. Lending on riba by financial institutions puts an extra liability on the economic system. To understand this let us assume that a country starts its financial system from scratch, with issue of first lot of fiat currency of amount (x) by its central bank. The bank lends the first lot of currency to the entrepreneurs on interest after taking substantial collateral and expects return of (x+y) amount. The interest amount (y) is an extra liability created by bank, which doesn’t exist in the economy. Entrepreneurs invest their borrowed money in the market and a trade battle starts as everyone tries to increase his money. The gain of one is the result of loss of another because sum total of currency has to be same as (x) issued by the bank. At the end of the term the gainers repay the principal and interest while the losers default and their collateral are forfeited by bank. The vicious cycle continues and the bank’s asset grows at the cost of borrower’s valuables. The destructive mechanism is further augmented by another devil’s tool called fractional reserve banking, which allows banks to multiply the deposited amount and create virtual money, which causes inflation in the economy.

Banking takes working class to a deceitful world of enticements. The moment a professional joins his first job, bank offers all the comfort and lavishness of life to his doorstep – a new model car, a furnished new flat in an apartment and a credit card for shopping. Who can resist the temptations of this dajjalic civilization? Only those who possess firm belief in the life hereafter.

Islamic banks claim that their transactions are free of riba. How true is their claim? Islamic banks have their paid sharia board, which issues compliance certificates to their products. Is that enough for an educated Muslim who is bound to not cross the limits set by his Lord? If it is an affair of worldly benefit he will delegate all his knowledge and wisdom to find out the pros and cons. On the other hand in religious matters any favorable edict is adopted blindly without bother to check its authenticity and applicability. Here is an example, which I have witnessed. One of my friends took a cash loan from an Islamic bank to spend in marriage and education of his children. I asked him, “under which contract did the bank give you cash loan”? He replied, “Bai-al-Salam”.

I said ‘Bai-al-Salam’ is an advance payment against future delivery of a sale, so what did you sell to the bank? I did not dare to point out the mistake on his part; I just told him that this is a gross violation by bank. He uttered an edict; “yes, the weakest point of Islamic banks is that they indulge in paper transactions (without any physical exchange of goods) to satisfy the sharia council”. What about his own weakness? I know he is well educated and there is no reason to think of his ignorance.

I borrow money from a bank and return a higher amount. What else could it be if not riba? If my dealing with an institution is in clear violation of Divine law, which I am aware of, will the ‘Islamic’ tag of the institution save me from the wrath of my Lord?

Imran Ahsan Neyazi in his book “The Prohibition of Riba Elaborated” writes on page # 129 (

“If Islamic banking has to become Islamic the idea of “cash loans” has to go. In other words, the concept of credit has to be altered radically and the creation of fake money by the banks has to come to an end. Till this is done, it will be difficult to call these banks “Islamic”. The obvious question that will be raised is: Will such banking be banking? Maybe not, and in our view this is not important as long as a system that is truly Islamic is put into place. We feel that even though the banking industry in Muslim countries is dominated and remotely controlled by Western banks, it is possible to have truly Islamic banks or institutions that perform similar services.”

Many Muslims, though aware of the prohibitions in financial dealings in Islam, argue that such dealings are unavoidable in this age. Well, prohibited is permitted sometime, but when? Only when one is forced by absolute necessity (muztar), there is no intention of willful disobedience (ghair-a-baghin) and does not take more than what is absolutely indispensable (wa la aadin). Do they really meet these conditions set by their Lord (al-Baqra, 2:173) or just indulge freely without any remorse in pretence of necessity?

Shakeel Ashraf (

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