Islamic Financial System
In the context of the financial crisis that taunts the super-geniuses of the time, (who, whenever there is a boom, promise another boom and grab prizes or sell their books well), the Islamic finance system is much in talk. Seminars, symposiums, speeches, and table talks fill the halls and fill the idle hours. Articles on Islamic economy stand out in bright colors, on every Internet Islamic site. Everybody thinks everybody is talking about Islamic economy. But in actual fact, almost everybody is talking about economy. That is, during the discussions Islam is secondary; economy is the deity of true concern. Notable absence from the seminar halls is the business class, share & stock traders, insurers & bankers, the moneyed & the propertied; in one word, the financial community. Welcome the rest.
There is not much substance that is said in the bulk of articles and speeches that appear on various platforms, including the C++, Java, or other such platforms. Indeed, there is not much that can be said, if the outlook and the agenda are as narrow as the halls of discussion (turned spacious through the vacancy of three-fourths of sitting space). Zakah, interest-free banking, re-selling only after full ownership, and a few tidbits make up the bulk of the talks. What more can be said in the time or space allotted? Any attempt at exploring the details is too taxing on the time of the speaker or writer, and too complex. Even Umer Chopra is perhaps too complicated for the majority. Greed is considered too simple an answer for the crime this ultimate villain commits.
As always, the public’s interest is in knowing how quickly their personal economic vows can be redressed by a system that will not demand anything from the individual but allow continuation of the slothful way of life, perfected through centuries of practice. Change, yes; revolutionary change, still better; immediate revolutionary change, the best. But it has to come from outside, without the individual’s participation or contribution. It is the system that has to bring about the change, and not the individual or the people. That is the mood of the audience. The speakers (and writers) take note of the mood. But at heart they know the lacuna, the disease, the unreasonableness, the greed. So, they use the sessions to talk about the quick-fix solution, (i.e., the Islamic Economic System) but in truth plead (while the audience sip there tea): “Will you, (now that I have explained how our economic woes will evaporate), agree to a little more serious commitment to Islam?” A little more commitment is indeed won, at least of a few, in which lies the justification for the efforts of the conductors. What more can one do in the prevailing mindset?
Looking into the vast Islamic literature of the past, the most conspicuous absence is the subject entitled “The Islamic System of Finance,” or “Islamic Economic System,” or “Islamic Economy,” and the like catch-titles. No books, no articles, no chapter-headings, nothing. If one wished to gather together directives about the “economic system” from the Qur’an and Hadith texts, he would not need a whole page. As late as even Hasan al-Banna’s time, (he is a good reference for traditional religious perceptions that ended with him: his talks and writings hardly touched on the Islamic financial system) – even as late as his era – there was no talk of Islamic Financial System; indeed any Islamic System.
At best, and more practical, Fiqh books carry a bulky section titled “Abwaab al-Bay`.” Hundreds of case-studies give details of various kinds of dealings and interactions – the lawful of them and the unlawful – are offered as signposts of a straight path. These are laws, injunctions and instructions that govern financial dealings, safeguarding the rights of the weak among the people. And, since human beings can interpret laws the way they wish, very specific cases are taken up under sub-headings and delineated in such detail as to leave no room for doubt, and no chance for wishful interpretation: if you face a similar case, you are bound to act in a particular way that accepts no deviations. Rights are obtained, injustice is defeated and peace prevails. These rulings, thousands of them in some Fiqh books, are a wonderful contribution of the past. `Umar al-Farooq used to say, “He who does not know what usury is, may not take a place in our markets.” And, “Let none sit in our markets except he who is knowledgeable (of allowable and not allowable dealings), otherwise he will feed on usury: whether he liked it or not.”
Works on “The Economic System of Islam,” (once we all read them with a devotion that should be reserved for Qur’an and Hadith) began to appear (after Banna’s era) when Islam began to be presented as a system of life, without consideration of the fact that by the time the “system” is brought in place, millions of individuals would have passed out. How should they live out their lives? The priority had surreptitiously changed, few but the most penetrating realizing it. Even the deep-sighted Ahsraf Ali Thanwi could only say about the writings of a certain scholar whose books and ideas were selling like hot cakes, “There is something wrong with the ideas of this writer, but I cannot pin-point what it is.” It was the change in priorities. It was Islam alright. But the eyes were focused downwards and not upwards: “Nay, you prefer the life of this world, but the Hereafter is better and longer lasting” (The Qur’an, 87: 17).
With that perspective, we may now look at the ingredients that make up the Islamic Financial System. It will immediately tell us that Islamic financial system will not see the light of the day without granting Islam central place in life.
Wealth belongs to the people. It does not belong to the state, or to a certain class, or even to individuals in the absolute sense. It is in their legal custody, but is not theirs in the absolute sense. Today it is with one, tomorrow it is made to flow into another’s hand. It can be taken away any time from anyone and reallocated according to the demand of contingencies. For instance, in case of severe shortage of food, everyone will be forced to bring out all he or she has, and hand over to the authorities for equitable distribution. Government cannot grant lands that contain national resources. If granted, the grant can be rescinded. For example, land containing salt at one time granted to an individual was rescinded by the Prophet.
The state is in charge of, and responsible for, every basic function and need, social or economic, that a community or individual, Muslim or non-Muslim, cannot perform on their own, for any Islamically valid reason. Therefore, if any individual is hungry, feeding him in an honorable manner, is not the primary responsibility of his neighbors, charity organizations and such. It is primarily the responsibility of the state. It is the state’s business to be aware of the condition in which each individual lives under its jurisdiction. `Umar ibn al-Khattab said, “If a goat goes hungry in Iraq, I shall hold myself responsible.” (Today, while speech-makers and writers fill the stages and monitor screens, most Iraqis are hungry most of the time). The huge chunk of money that is now allocated from the budget, for secret service agencies, and the setup that they have for spying and collecting information about every individual, (whether he is pro-governmental or not, and, is he Islamic), is the share of a department that should be set up to “spy” on every individual of the state, keep record of his financial situation and pass the information to the authorities for necessary action. (To the discomfiture of governments that survive in the name of Islam, a simple organization – Rahat Trust, Mumbai – is an example, which, run almost single-handedly, held records of 10,000 slum-dwelling families). The responsibility of individuals around a man incapable of obtaining his basic needs, is only secondary and moral. It is not legal. On the other hand, a government may be replaced, if it cannot provide, one and all, the basic needs of life, especially, feed the hungry and house the shelterless. It is only when the state fails, (and it has been failing for several centuries now), the community-leaders must spring to action (which has also been failing for several centuries now).
A third element is that the Islamic System of Finance assumes a moral-based society. Its individuals trust each other, and are conscious of the rights of others in close range or at a distance. One of the first things the Prophet spoke of after the hijrah journey was, “People. Spread the Islamic greeting, offer food .. enter Paradise.” When asked what kind of Islam was the best, he answered (among other things), “That you feed (the poor), ..” He said to Abu Dhar, “When you prepare soup, add on a little more water and gift some to your neighbor.” Accordingly, it is reported of the early Muslims that they assumed the rights of the hungry in every of their meal, and so, would not take a meal without sharing it with a poor and, moreover, from the same dish, to ensure that bureaucratic fumbling at the family level did not hinder the poor from having his meal. Ibn ‘Umar never broke his fast unless he had a poor or an orphan with him. There were others who fed others while they themselves were fasting. Whenever Ibn al-Mubarak wished to eat a dainty, he would order it prepared for the guests, and then share it with them. Some others got special dishes prepared to feed the poor saying, “These people never have a chance to eat food of this kind.” Yet others got special foods prepared, but would not eat out of them since they had no personal desire for them. One of them would get special sweet dish prepared and then feed it off to an insane. If somebody remarked, “This man doesn’t know what he is eating,” he would reply, “But Allah knows.” In fact, whole clans, e.g., Banu ‘Adiyy, never ate their food alone. When smoke rose from certain settlements in Madinah, people knew they had guests.
The Islamic Financial System assumes that the individuals of the Islamic state are brothers unto each other. One of the earliest Muslims would enter the market, pick up an item and ask the price. When quoted, he would remark, “Man. You have underpriced it. It should cost so much more.” Then, he would pay the higher amount and buy the item. In dealings with each other, the individuals of an Islamic society wishing to harvest the benefits of an Islamic financial system have open hearts and open purses. One of the Salaf would visit a friend’s house. When told by the maid that the master was out, he would say, “Bring me his purse.” When she brought, he would remove some money from it and say, “Tell your master when he is back that I have taken some money.” When the master was told, he would spend the rest of the day celebrating the fact that his brother trusted him. One of the Salaf would tell another that he owed him some money. The other would say, “No problem, I’ll arrange for payment.” Next day the man would say, “You know, I made a mistake. It is I who owes you this much.” The other would say, “No problem. Pay up when you can.”
A fourth element of the Islamic Financial System is that the society it has to work in, and produce good results, is spiritual based. Poverty to it is the poverty of the soul. To its individuals profits and losses, money come and money go, are just the same. Losses in business are bearable with no psychic consequences. Said Hasan al-Busri: “I have seen people (the Companions) to whom the world was as inconsequential as the dust on which you stride. They didn’t care whether the world was rising or declining, whether it was in this one’s hands or in that one’s hands.” The trend was set early. A Bedouin Companion was brought his share of the booty. “What’s this?” he asked. He was told, “Your share.” He said, “Take it away. I am not in these battles for money.” When Haroon al-Rasheed asked Buhlul, “Do you have any need?” Buhlul replied, “Your Lord and my Lord is one Lord. I don’t believe He will remember you and forget me.” Three people came to a Governor and complaining extreme nature of hardships, asked to be recommended to caliph `Umar for suitable governmental posts. He told them, “There are three ways: I recommend you to `Umar, you move into my house and share with me whatever I have, or you observe patience.” They said, “We shall observe patience,” and went away. Imam Abu Haneefah was informed of the sinking of a ship carrying his consignment. He bent his head down for a while and said, “Allah be praised.” Later he was told that it was another ship, not the one carrying his goods. He bent his down for a while and said, “Allah be praised.” When asked to explain he said that at both times he looked at his heart whether it was over-saddened or overjoyed, found no change, and, therefore, thanked Allah. Abu Yazeed al-Bustami was asked by someone from Balkh: “What do you consider as zuhd (asceticism)?” He told him, “If we find, we eat. If we miss, we observe patience.” He remarked, “This is the way of our dogs in Balkh.” He asked, “So what do you consider as zuhd?” He replied, “If we miss, we thank. If we find, we prefer others.”
In consequence of the above, a fifth character of the Islamic society among whom the economic system of Islam successfully works is that it is a low consumption society. It survives on little. Fatimah, the fond daughter of the Prophet and her husband slept at night on a goat skin, which was used for spreading their cattle’s fodder during the day. Imam Rabi`ah al-Ra’yi, had no problem pulling out roof timber from his ancestral home to buy food. Muhammad b. Nasr Al-Marwazi’s (3rd century) total cost of food, clothes, paper and ink was 20 Dirhams a year. Once four Muhammads (Muhammad b. Nasr, Muhammad b. Jareer al-Tabari, Muhammad b. Ishaq, and Muhammad b. Harun al-Ruwayani: all renowned scholars) were together in Egypt: all four penniless and hungry for several days. There were some among the Salaf who carried a bunch of keys that misled people to imagine that it was a rich man, whereas his only shelter were mosques. Ibn Abi Layla reported: “I ate with Caliph Abu Ja`far: the food was white brain with coarse sugar.” Some of the Salaf shuttered their shops for the day, the moment they had earned enough for the day. Many worked once or twice a week.
A sixth notable character of the society that creates the right Islamic Financial System is that it is an economically active community. Its individuals would give the right share to the Next World, but, once through with it, they devoted themselves to earning livelihood, or working to provide another widows and orphans. Imam Abu Haneefah regularly financed several of his students, which, obviously, entailed that he work harder for their sake. Some Companions worked at night for the widows and orphans, since their day earnings sufficed the needs of their own families. Women Companions could be seen carrying wood on their heads heading home from nearby forests. Fatimah complained to the Prophet that her hands had become coarse from running the mill-stone round and round, grindings floor; and `Ali added that he suffered chest-pain from working for hire as a bucket-puller in the orchards. `Umar inquired an old man why he was sitting idle. When he replied that he had gotten old, he instructed him, “Rather, keep doing something. Don’t sit idle.” The community that creates the much desired Islamic Financial System, is a community that works even on the so-called auspicious days. Allah ordered them close businesses with the Call to Prayer on a Friday, and informed that there was no harm in business activities after the Prayers. This community does not know what a weekly holiday is. Whatever the day of the week, they are either in search of this worldly gains, or the next worldly gains; and there is no contradiction between this paragraph and the previous one: neither they went after the world like someone out of mind, nor did anyone sit at home drawing unemployment dole (through deceit in their guest countries in Europe), or waiting for charity to fall in. If one of them suffered hunger, he knew how much he himself had contributed to it, and so quietly went through it; none knowing his condition.
A seventh feature of a Muslim society is that it is a flat society. By virtue of a variety of factors, legislative, moral and spiritual, wealth is evenly spread in this society. Among the average citizens, the difference in economic standing is more or less negligible. It is a class-less society. If there are a few very poor, the most likely reason is that it is by choice. They despise wealth. A few could be very rich. But their status is not only under constant attack because of Zakah rules, but is not transferable to their offspring, who split his wealth among themselves after his death. Examples of leanings towards socialistic setup, (though not socialism) where every single individual is considered deserving survival rights were set right by the Prophet. When a hungry man in drought times entered an orchard and began to chew grains and bag some, and so had to be butted, minus the shroud, and the man complained to the Prophet, he gave the historical judgment that the rich, the influential and the ruling classes hate to hear. He ordered that the man be returned his shroud, but not empty and said, “If he was hungry, you did not feed him, and if he was uneducated, you did not educate him.” Islamic society is a flat society of the middle-class, as against the pyramidal capitalistic societies where 80% of the wealth is owned by 20% at the top, and the crush of the entire fat bodies is on the lowest of the low at the bottom. This is the proud picture of a Muslim society, proud of Islam. In the truer Muslim society, not merely wealth, but even the wealthy are disdained. The pressure of the scholars, reformers, ascetics, and their kind is plainly upon the rich. “Get poorer,” they are told through implications, insinuations and suggestions. When Haroon al-Rasheed asked Buhlul whether he could pay back debts on him, on his behalf, Buhlul bluntly retorted, “Debts cannot be paid from debts.” Imam Ahmed b. Hanbal was asked about someone who is invited (to a dinner) but, as he enters he finds the room lavishly carpeted. Should he sit thereupon or take a seat somewhere else? He answered, “Leave the place.”
Islamic markets are free, unregulated markets where demand and supply determine the prices. Inflation is allowed to take its own course to die out as quickly it takes birth. When inflation pinched the Madinans and the Prophet was requested to intervene to bring down the prices, he refused to do anything about it saying, “I hope not to see my Lord having done injustice to anyone.” He advised them to seek their Lord’s help against inflation. When people complained to Hasan al-Busri about the high prices of meat he answered. “Stop eating meat, prices will come down.” Trying to market products at unreasonable prices is defeated by the tendency of the people to consume as little as possible. Poor demand brings down the prices and fills the markets with goods. Ultimately, they have to tricke into the homes of the poor. `Uthman b. `Affan purchased the entire caravan of foodstuff at a forbidden price. But after the deal was done he said, “Take it free from me.” He was not in business to make money and knew how inflation could be got rid off in the interest of a society and people that he loved.
Islamic business is interest free, tax free, speculation free, and cash-based. Virtual money has no columns in the account books to be registered. At any moment, every investor knows where his financial situation stands. Neither can the market forces bring down the values of his goods in a big way, nor can he or his class existing in other societies create financial crisis. Capital for large-scale economic activity, such as heavy industries, is raised from a number of small investors or a guild representing them. Problems of bankruptcy of individual investors, if they occur, are overcome through social charity and not state bail-out schemes which are a way of passing the buck to the poor. Financial heads earn through participation (share in profits) rather than through direct payments, perks and bonuses. The head of a failed bank in the USA was asked by a Senate Committee, “Is it true that you took $475 million as salary and perks during last year or so.” He answered, “This is not true. I received only $300 million; and that was my legal wages.” The answer should say something about why Islam stands rejected in the non-Islamic world, and why restricted to rituals by the ruling class in the Islamic world.
In a word: acceptance of Islam as a whole by a community automatically gives rise to a system of finance that can be labeled Islamic. A separate Islamic Financial System has not been given by Islam and it cannot be created artificially. The Prophet had ample time, resources of material and manpower, to create a welfare state: as understood in modern times. He paid scant attention to it. Law books of old present rules governing financial interactions. There were no books on the Economic System of Islam until the middle of the last century when Economy and Finance became the main subjects of life and society. The preferences will have to change. The present desire appears to tinker with a few modules of the running system hoping to draw the benefits of an Islamic System of Finance, without having to implement the whole of Islam to life and society. But we need to remember that a whole is always greater than the sum of its parts. On the other hand, the parts of a whole when separated from it, are not simply incomplete, they are incongruously grotesque.
