Mufti Taqi Usmani presents paper at World Economic Forum Annual Meeting 2010

Mufti Taqi Usmani presented a paper at this year’s World Economic Forum Annual Meeting at Davos, entitled, “Post-Crisis Reforms: Some Points to Ponder”.
OST-CRISIS REFORMS: SOME POINTS TO PONDER

In modern economics, we are used to a purely materialistic and secular
approach that does not allow religious concepts to interfere with its theories and
concepts, on the premise that economy is outside the domain of religion. It is,
however, an interesting irony that every dollar note has the admission: “In God
we trust”, but when it comes to develop theories to earn dollars or to distribute
or spend them, trust is placed only on human ideas based on personal
assessments; God is held totally out of picture, as being irrelevant to economic
activities!!!

It is perhaps for the first time that, as an aftermath of the present financial crisis,
when different quarters are coming up with different suggestions to solve the
problem, the ‘World Economic Forum’ has invited representatives of religion to
give their input to the initiative of reshaping the economic set-up on the basis of
values, principles and fresh thoughts. This commendable initiative deserves full
support from religious circles. As a humble student of Islamic disciplines, and
particularly of Islamic economic principles, I would like to highlight some basic
points, derived from Islamic economic precepts, that I believe, are essential for
independent and fresh consideration while seeking solutions to our economic
problems.

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Mufti Taqi Usmani

Mufti Muhammad Taqi Usmani is one of the leading Islamic scholars living today. He is an expert in the fields of Islamic Jurisprudence, Economics, Hadith and Tasawwuf. Born in Deoband in 1362H(1943 CE), he graduated par excellence form Dars e Nizami at Darul Uloom, Karachi, Pakistan. Then he specialized in Islamic Jurisprudence under the guidance of his eminent father, Mufti Muhammad Shafi, the late Grand Mufti of Pakistan. Since then, he has been teaching hadith and Fiqh at the Darul-Uloom, Karachi.

He has authority to teach hadith from his father Mufti Muhammad Shafi, Maulana Idrees Khandhelawi, Qari Mohammed Tayyeb, Maulana Saleemullah Khan, Mufti Rasheed, Moulana Sehban Mahmood, Allama Zafar Ahmed Usmani, Sheikhul Hadith Moulana Zakariya Khandelawi, Sheikh Hassan Meshat (ra) and others.

In tradition to the scholars of Deoband, recognizing the importance of Tasawwuf, he traversed the path under the guidance of Sheikh Dr. Abdul Hayy Arifi and Moulana Maseehullah Khan both khulafa of Hakeemul Ummat Moulana Ashraf Ali Thanvi (rahmetullah ajmaeen). And is authorized by both of his mentors in Silsila e Ashrafia: Chistiyyah, Naqshbandiyah, Qadiriyah and Suharwardiyah. In addition to his busy schedule he is himself a mentor to numerous spiritual aspirants all over the world.

He also holds a degree in law and was a Judge at the Sharia Appellate Bench of the Supreme Court of Pakistan till recently.

He is a consultant to several international Islamic financial institutions and has played a key part in the move toward interest free banking and the establishment of Islamic financial institutions. He is considered to be an authority on this subject.

He is the deputy chairman of the Jeddah based Islamic Fiqh Council of the Organization of Islamic Conference (OIC).

He has been writing on various Islamic topics and is author of more than 60 books and numerous articles.

Presently he is the Vice-president of Darul-Uloom, Karachi, Pakistan, where he teaches Sahih Bukhari, Fiqh and Islamic economics.

He also conducts a weekly session for the public interested in spiritual improvement.

Reality

• Profit margin that Islamic banks charge in their trade operations is permissible if trading principles given by Islam are properly taken care of.
• PLS modes have preference but Debt creating modes also permissible; Banks can use any modes keeping in view the Risk Profile of the investors and nature of business and cash flow of entrepreneurs.
• Money cannot be rented

"They used to say that it is all equal whether we increase the price in the beginning of the sale, or we increase it at the time of maturity. It is this objection which has been referred to in the verse by saying “They say that the sale is very similar to Riba.” (Ibn-Abi-Hatim)

Some other Myths

Credit and cash market prices of a commodity must be same
Profit margin on credit sale by banks resembles Riba.
Sharing vs. Non Sharing instruments:
Permissibility & Priority two different aspects
Money can be rented like other assets

Riba versus Bai

Those who protested and argued that lending on interest was like an act of trade, were admonished through revelation that while ‘trade’ was permitted, ‘riba’ was forbidden and in loan transactions they were entitled to their principal sums only.

Riba - Unanimity

• Banu Thaqif of Taif, not to forego interest on their receivables; Banu Amr
• ibnal Moghirah refused to pay interest; Referred to the H Prophet, the Revalation came:

"O you who believe. Fear Allah, and give up the Riba that remains outstanding if you are (in truth) believer”. (11:278)"

• And if you repent, then you have your principal. Wrong not, and you shall not be wronged ”. {without inflicting or receiving injustice}
• And fear the day when you shall be brought back to Allah.
• Then shall every soul be paid what it earned and none shall be dealt with unjustly.

Reality

Differentiating: Trading, loaning and leasing

• Return by way of pricing of goods and their usufruct needs to be fixed: permissible.
• Islamic banking is also a business, It does not mean availability of cost free money.
• Repayment of debts is must.
• Time value of money is accepted to the extent of pricing of goods but not in the form of conventional opportunity cost concept.

Misconceptions - Myths

• Any Return on deposits is Riba;
• Any prefixed return – Riba
• Islamic banking: cost-less money available – Approach of Businesses
• Repayment of loans not a serious issue –be waived of
• Trade profit similar to interest on loans / debts

Riba?

• All increases in wealth or benefits accruing to a person without any labour, risk, or expertise.
• One who wishes to earn profit on his monetary investment must bear the loss or damage accruing to the business where his money capital is to be used.
• Nature of transaction important.
• Trading- Bai- Risk taking, value addition
• Leasing – Ijarah - Risk taking, value addition
• Exchange transaction – Monetary transactions
• Lending – a virtuous act; not a business
• Hand to hand exchange of currencies

Quran Guides on Def of Riba

Financial Liability:
Qard (Loan) : to give anything in ownership of other by way of virtue - same or similar amount of that thing would be paid back on demand or at the settled time.
Dayn (Debt) : Incurred by way of trade or rent or any other credit transaction - ought to be returned at the settled time without any profit.
Verse 2: 279 guides that whatever is over and above the principal of loans or debts is Riba.

Riba Prohibition

• All revealed religions
• Severe Prohibition in Quran $ Sunnah
• Unanimity on Riba Prohibition;
• Problem then?
• Interpretation
• Consensus

Islamic Banking?

Banking encompassing Islamic injunctions

To avoid:

• Riba –Earning returns from loans and debts or Selling debt contracts at discount
• Gharar – Absolute Risk or Excessive uncertainty in contracts, Gambling and chance-based games (Qimar)
• General Prohibitions
• unethical practices

Shariah Compliance & Prudent Banking

PRINCIPLES OF CONTRACTS IN THE QURAN AND SUNNAH

Islam is a complete code of life. It deals with each and every field of life. Islam tells us how to live in a society. In a society a person have to live with others. He has to perform “Ibadat” as well as he has to perform “Muamalat”. There is a great difference between these “devotional acts” and “transactions”, but Islam deals with both of them. For the beneficiary of human kind, Allah Almighty has imposed some restrictions in doing and performing these devotional acts and transaction. In other words we can say that Allah almighty has set some rules about both, the devotional acts and transactions. As business law deals only with transactions, hereby we will see only those principles which are related to the business transactions.

Free mutual consent is the first principle of transaction which has been clearly mentioned in The Holy Quran. This principle tells us that all mutual contracts should be made mutual approval and all those contracts which will are made through coercion, fraud, misrepresentation or any other illegal mean, are invalid and illegal. This principle can only be act upon when all concerning parties have certain and definite knowledge of the subject matter of the contract and the rights and obligations arising from it.
A number of verses of the Holy Quran and Ahadith of the Holy profit (S.A.W) can be cited in the support of this principle.

Islam has tolled us another valuable general principle about mutual contracts. This principle tells that any contract which may harmful for one of the concerning parties, or which may create uncertainty between concerning parties is strictly prohibited. Through this valuable principle many contracts like Qimar (gambling), Mayser, Khilabah and Ghashsh (fraud) have been prohibited. Each of these contracts has its own definition and has been mentioned through the verses of Holy Quran and Ahadith of Holy Prophet (S.A.W).
The translation verses of The Holy Quran are following: