RNS
by Omar Sacribey
Rizwan Kadir liked working in finance, but when he read a
verse in the Quran that said engaging in usury was the same as “waging
war” against God and Islam’s prophet Muhammad, fear struck him.
“When you come across an aya (verse) like this, it makes you start
wondering what you’re doing with your life,” said Kadir, an investment
banker in Chicago.
He started reading about Islamic views on interest and talking to
workers at Islamic banks that offered interest-free finance as a
foundation of their business.
Kadir eventually concluded that the prohibition on interest didn’t
jibe with Islamic logic and that the “interest free” arrangements touted
by Islamic banks were just usury under another name.
“What they’re doing is calling the same thing with a bunch of
different names,” said Kadir, who has a mortgage, auto and student loan
payments.
The prohibition on charging and paying interest is a cornerstone —
along with withholding investments from trades like alcohol and
pornography — of the rapidly emerging industry known as “Islamic
finance.”
There are some 270 Islamic banks with more than $265 billion in
assets, according to sponsors of the International Islamic Finance
Forum, a semi-annual industry conference that meets in Switzerland this
fall. Most of the banks are found in wealthy Muslim nations like Saudi
Arabia, Bahrain, Dubai and Malaysia. In addition, many Western banks,
such as industry giants Citibank and HSBC, have established Islamic
finance departments.
But a growing chorus of critics say the idea that Islamic law
forbids all forms of interest is incorrect. Moreover, they argue, some
of the bankers, lawyers and clerics who draw up and bless “interest
free” transactions are profiting off the pious with arrangements that
look a whole lot like usury.
Islamic scripture condemns riba, an Arabic word meaning “excess,”
which is commonly interpreted as usury. Some Islamic law scholars assert
that all interest is prohibited. Others say only excessive interest is
prohibited, and that interest is an indispensable part of society that a
logical God wouldn’t condemn.
“The notion that the spirit of the Quran is against modern forms of
interest, like on a mortgage or a consumer loan, this to me makes no
sense,” said Timur Kuran, chairman of Islamic studies at Duke
University.
Throughout history, interest was common in the Islamic world, in
places such as the Ottoman Empire, Kuran said. Controversy over the
practice only emerged during the 1940s when Indian Muslims cited the
need for an interest-free banking system as one reason they needed a
homeland separate from Indian Hindus, the scholar said.
Since then, the Islamic finance sector slowly developed, before
taking off in the last 20 years, with Islamic financial institutions
offering a growing number of transaction models, such as profit sharing,
that avoid interest.
One example is a “murabaha” mortgage. Say a Muslim family wants to
buy a home for $100,000. It might go to an Islamic bank, which would buy
the house and sell it to the family for $120,000. The family would then
have a certain amount of time to repay the bank. A similar practice was
common in medieval Europe when interest was prohibited by the Roman
Catholic Church.
Mahmoud El-Gamal, chair of the Islamic economics department at Rice
University, argues that such transactions amount to a “bait and switch.”
“The whole is, I want to lend but I don’t want to call interest,
`interest,”‘ said El-Gamal. Such transactions cost more than other
financial arrangements and hurt Muslim consumers, according to El-Gamal.
“They’re trapped because they’re told they’ll fry in hell if they go
to regular banks,” he said.
El-Gamal said obedience to the form of the contract often supersedes
the spirit of Islamic economic values, such as serving the poor.
Industry advocates counter that even if some financial transactions
serve the same purpose as interest that doesn’t mean they are forbidden
by Islam.
“It’s possible, as it is in many ethical and legal systems, for two
different actions to have the same outcome but because of the way
they’re done — for one to be wrong or illegal in that ethical or legal
system, and for the other to be permissible or lawful,” said Taha
Abdulbasser, an Islamic law scholar with the Islamic Finance Project at
Harvard Law School.
Hussan Qutub, a spokesman for Guidance Financial Group, an Islamic
bank based in Reston, Va., that offers interest-free mortgages, said
Islam draws a difference between monetary lending agreements and
agreements based on commodities.
“We’re trying to reach the same end result that other financial
organizations are trying to reach, which is putting people in homes,”
Qutub said. “But how are you going to get me there, that’s where we
differ.”
Skeptics like Kadir remain unconvinced. “For me, Islamic finance is
nothing more than affinity marketing, you market your services to
someone who you have an affinity with,” he said.

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