The Muslim World
BOOK REVIEW
Professor Rodney Wilson is emerging as one of the leading Western interpreters of development in the Muslim world relating to Islamic banking in particular and Islamic economics in general. Under his guidance a number of research projects on Islamic banking experience are in progress in the University of Durham. The Economist Intelligence Unit is widely regarded as one of the major sources of ‘authentic analysis’ of the worldwide economic scene. All these factors genuinely built up hopes about the EIU Report on Islamic Business: Theory and Practice, but, which, sadly enough, remain rather unfulfilled.
The Report is divided into seven chapters. ‘The Significance of Islam’ in the contemporary world is sketchily explored in the introductory chapter followed by a thumbnail description of ‘Islamic Business Environment’. The next two chapters survey the main theme of the report. Islamic prohibition of riba and alternative instruments of Islamic financing are discussed in chapter three. ‘Survey of Modern Islamic Banking’ is covered in the next chapter. After some concern on the absence of Islamic banking institutions in history, and a cursory reference to the Pilot Schemes of the 1950s, the story begins with the emergence of the Nasser Social Bank and goes into the advent of contemporary Islamic banks, grouped in seven major countries, and active in 45 different countries.
The relationship between ‘Islam and Insurance’ is discussed in the following chapter, outlining Muslim objections to insurance and its chequered growth under heavy constraints. Chapter six is devoted to a study of Islamic labour laws and a unique climate of Muslim society somewhat different from the cash nexus society of the West. Finally, the author discusses some aspects of macro-economic policy of an Islamic state, particularly emphasizing the monetary policy constraints because of the non-availability of interest rate as one of the major instruments. Fiscal policy perspectives are also touched upon and certain implications of Zakat as a tax on wealth are spelled out. There is a glossary and a short bibliography.
Let it be said at the very outset that the Report aims at fulfilling a long-felt need to inform the Western entrepreneur and policy-makers of new developments in the world of Islam. By and large the attitude of the author is sympathetic and not negative. He has tried to interpret the emerging Muslim economic scene to the Western businessman and economic policy-makers by covering a vast area and a different cultural landscape. His main problem lies in paucity of authentic information, inability to grasp completely the inner dynamics of the Muslim tradition and use of a style that lacks rigour and precision. One is left with the impression that the learned author has, instead of using those very tools of economic research and analysis in which the West enjoys a comparative advantage, somehow chosen a style which is closer to that of a ‘running commentary’ by a jack-of-all journalist. The study abounds in errors and lacks a depth much needed for building bridges of understanding between the West and the Muslim world.
Let us start with the glossary, which, one expected, would explain the very concepts with precision and authenticity. Gharar has been defined as ‘deal based on unknown factor(s) and/or based on deceit. In fact gharar means ‘uncertainty’, ‘risk’ and ‘speculation’. Hadith is explained as ‘traditions of the sayings and actions of the Prophet Muhammad’. A more precise statement would have been ‘record of actions, sayings and/or silent approvals of the Prophet Muhammad’. Ijara and Ijara wa Iktina (sic) have been defined as ‘leasing contract’. The fact is that while Ijara is a ‘leasing contract’, Ijara wa Iqtina’ is a kind of hire purchase agreement. ‘Imam’ is ‘prayer leader’ and ‘supreme decision-maker, particularly in Shi’a Islam’. In fact, Imam only means leader and as a technical term can be used for ‘prayer leader’, ‘a religious authority’ or ‘head of the community or state’. There is no difference between the Sunni or Shi’a on this, although the status and authority of Imam as head of state differ in the two traditions (not the terminology). Khalifa is explained as ‘representative, secretary by extension the successor to the Prophet Muhammad’. In fact, Khalifa means successor, representative, deputy and vicegerent. First political use of the term was as successor to the Prophet Khalifaturrasul. Mudaraba, supposed to be one of the central concepts of contemporary Islamic economics, is explained as ‘equity-sharing between bank and client’. There is no reason to confine this arrangement to the bank and client. Mudaraba is a specific equity-sharing agreement where one party provides capital and the other labour/entrepreneurship. If both provide capital and labour it will be an equity-sharing agreement but not a Mudaraba. Mudaraba can be between individuals or between individuals and institutions/organizations. Islamic banks have used this instrument but it is not exclusive to banks. Qard al-Hasan is defined as ‘interest-free consumer loan’. Again, making such a loan specific to consumer loans is not correct. Qard al-Hasan is any loan given without charging interest only to seek the pleasure of God. It can be for any purpose; consumption or for production purposes, social services, developmental needs, defence requirements, etc. Qiyas is described as ‘argument by analogy in legal and theological areas’. This explanation is somewhat inexact. Qiyas is a legal process of inference by analogy. It has nothing to do with theological areas. Sunnah is defined as ‘body of belief of the Sunna sect’. This is totally incorrect. Sunnah means the example of the Prophet Muhammad (peace be upon him) and belief in Sunnah as source of law is common to the Shi’a and the Ahl-as Sunnah, the two major sects. Ahl-as Sunnah or Sunni is the term used for the mainstream of the Islamic Ummah. The author has confused these two different uses altogether.
The number of independent Muslim states is stated to be 40; in fact it is 45. The author seems to be obsessed with the phenomenon of ‘fundamentalism’ and the ‘Iran factor’. ‘Muslim scholars’ and ‘fundamentalists’ have been mentioned as two parallel streams but nowhere is the difference between the two explained.
The author tries to dispel a number of Western misconceptions about Islam and the Muslims, but again and again the spectre of fundamentalism keeps on emerging and sending waves of scare and unease. Traditional Islamic education is alleged to have ‘largely consisted of learning to read and write by using religious texts’ and mostly ‘learning by heart lengthy passages from the Koran’. Nothing could be farther from the truth. Traditional Islamic education covered every aspect of learning and experience. Geography, physics, chemistry, astronomy, logic, literature, medicine, law, were as much a part of it as religious sciences. It faltered because it did not keep pace with developments in society and the world, particularly during the period of colonial rule, but to accuse the system of having been confined to reading, writing and memorizing religious texts is unfair.
Saudi Arabian money is referred to as funding Islamic institutions from Malaysia to Pakistan and as responsible for ‘prompting some states to Islamicize’ . Such a statement could be commended in a London Evening but not in an ‘authentic study’ like this.
The author tries to justify ‘little reference’ in the Qur’an ‘to manufacturing’ and more profuse references to ‘trading’ by reference to the seventh-century situation, ‘when the Koran was written down’. All this is confused thinking. First of all the Qur’an was not written down in the context of the seventh century. To the Muslims it represents the word of God and is not conditioned by any particular time situation. It was not ‘written down’ by men of the seventh century but was recorded as it was revealed by God, the author of time and space. Trading and agricultural activities are not the only activities mentioned in the Qur’an. Steel, ship-building, wood-work, construction, communication, all have been referred to in appropriate contexts. The classification between ‘productive’ and ‘non-productive’ labour is a latter-day innovation. The Qur’an employs its own terminology for all activities beneficial to mankind and they are not confined to simple trade and agriculture. They cover the whole gamut of human life and activity, economic and otherwise.
The role of competition in an Islamic economy has not been properly understood. Too much obsession with the Saudi situation seems to be the reason. Islam accepts private enterprise and a competitive market. It is opposed to monopoly and control and manipulation of the market by vested interests. This has been made abundantly clear in the literature. Some of the weaknesses of the market-mechanism in certain Muslim countries are due to historical geo-economic and institutional reasons, along with a number of international factors and not due to any Islamic norms or institutions.
Abolition of riba and development of alternative banking and financial systems that constitute a major challenge for the Islamic Ummah, are the central theme of the study. The author has every right to mention the weaknesses of the Muslim society and the difficulties that lie in the way of transformation. But at least concepts should be clearly understood and projected. We agree that the Muslim society is not monolithic and that certain quarters are not at all enthusiastic about elimination of riba. Nonetheless the movement for bringing socio-economic life in conformity with the Shari’ah deserves to be studied in the light of its own principled position and not as this or that deviation.
Riba is any pre-determined fixed return on capital, irrespective of whether the loan is for consumption or production purposes, whether given by individuals or institutions, simple or compound, private or public.
Interest is as much prohibited for the government and its agencies as for individuals. Differentiation between interest charged by communal banks and traditional money-lenders is spurious. The issue is not merely of quantity – what rate of interest is reasonable? – but of quality, the very legitimacy of any rate of interest. Islam accepts the principle of return on capital, but prohibits a fixed pre-determined return. Profit-sharing is permitted, which includes risk-sharing and the principle of variable return on the basis of actual performance.
There are communal banks in the Muslim world which do not bother about interest but it is incorrect to suggest that ‘communal bank interest charges is much more debatable’ and that there is a tendency amongst ‘Islamic banks to consider that such charges might be permissible’ is incorrect. The fact of Ottoman government debts is not in dispute, but it is not a correct presentation of the Islamic position that ‘a distinction was often drawn between transactions involving state borrowing, where interest was permissible, and private borrowing for personal needs, when interest was not allowed’, or that ‘interest was also permitted for business borrowing’. The fact of certain deviations from the norm must not be confused with the legitimacy of such deviations. The whole movement for Islamic banks is based on this very realization. It cannot be explained away as yet another expression of fundamentalism.
It has also been suggested that ‘some Islamic scholars believe that it is real interest charges which should be prohibited but nominal rates which merely keep up with inflation should not be condemned’. Who these Islamic scholars are and whether the Islamic society accepts these heretical aberrations as authentic does not seem to be the concern of the author. It would be dubious to suggest that those who want adherence to Islamic norms are fundamentalists, while those who go for compromises and changing the norms to suit the practice are ‘Islamic scholars’. The whole discussion on interest is confused and very much rooted in the way interest is understood to function in a capitalist framework.
The author is incorrect in assuming that Islamic banks have ‘no interest in sitting on the board of a company’ and are at best ‘sleeping partners’ both in Musharaka and Mudaraba. In Musharaka arrangements Islamic banks have actually played a more positive role in Egypt and Sudan. The author has not fully appreciated the role of Mudaraba in Islamic banking and it is not correct to tie ‘such investments to long-term projects only’. Mudaraba can also be a one-shot operation and can be wound up in short and medium time horizons, depending on the nature of the project.
In Murabaḥa contracts if payment is further deferred, no additional premium can be charged ‘according to Islamic law’. In Pakistan originally there was provision for mark-up over mark-up but it was withdrawn on the recommendation of the Islamic Ideology Council.
The most useful part of the study for Western readers relates to a survey of modern Islamic banking institutions and the techniques they are using. The position of interest in the 1956 Constitution of Pakistan is not correctly presented. Prohibition of riba was very much evident and steps were to be taken to eliminate it in seven years. In this chapter also ‘Islamic fundamentalists’ come in for a swift lashing which hardly raises the academic value of the study.
The discussion on Insurance also contains serious confusions. Islam is not against genuine business risk; in fact the moving force behind the Islamic economic system is business risk. Gharar deals with certain specific types of uncertainties which render an economic deal dubious. Similarly, genuine risk coverage is not alien to the Islamic system. Mutual insurance was developed by the Muslims in Spain. Marine insurance in Europe developed under the influence of the system of mutual insurance practiced by trade-guilds in Spain. Risk-taking and risk-sharing must not be equated with uncertainty and speculation. Islam disapproves the latter and commends the former.
The Islamic position on insurance has not been correctly presented in this report. Similarly, the suggestion that most Islamic governments emphasize maintenance of strict law and order ‘as otherwise the cash-based tradition would have to be replaced by cheques and other banking facilities, together with insurance’ is unfounded and rather imaginary. To relate the mutual insurance societies to the Qur’anic verses about Qiṣaṣ is far-fetched and unnecessary. The way the quotation from the Qur’an is given shows the author’s lack of familiarity with the Book. In the bibliography the only translation of the Qur’an quoted is N.J. Dawood’s which is most unreliable and in which the sequence of the surahs has been arbitrarily changed to an alleged chronological one.
The author is correct when he says that monetary policy in an Islamic state would be subject to newer constraints. But he has not tried to appreciate the alternative instruments Muslim economists are suggesting. We agree these new instruments have yet to be tried. Yet, they bear great potential.
Zakat is presented as a 2.5% tax on ‘net worth which includes industrial assets and real estate’. The position about real estate is different. Zakat has been described as a unique tax ‘as contributions are entirely voluntary’. This again is not correct. Only a part of the contribution can be voluntary, i.e. on amwal-baṭin (hidden wealth). Otherwise it is the duty of the Islamic state to collect Zakat and distribute it. The uniqueness of this financial obligation lies in the fact that it can be used only for specific welfare purposes and that it is a financial obligation as well as an act of religious worship. Zakat money can be used for the developmental needs of the poor. The idea is not to keep the poor on permanent dole but to enable them to become economically self-sufficient. It is not correct to suggest that ‘the tax is specifically for social and not economic purposes’. The Caliph ‘Umar gave three camels to a poor person with the historic observation that ‘next year I want to see him as a giver of Zakat and not its recipient’.
The apprehensions about the overall rigidity of the Muslim Tax System in view of fixity of Zakat-rate is not correct. Yes, the rate of Zakat cannot be changed. But new taxes can be levied over and above Zakat and the collection and disbursement of Zakat can be so regulated as to have contra-cyclical effects, if so required. The elasticity and buoyancy of the system is to be judged in the light of the totality of the system and not on one of its elements, however important and unique that may be.
Let us conclude by suggesting that while the report purports to fill a great need, the purpose may be achieved only by its thorough revision and updating.
Nabil Saleh’s work is provisionally a contribution towards developing a better understanding of Islamic law, particularly its three key concepts – riba, gharar and Mudaraba – which are playing an important role in bringing about the transformation of Muslim economics to bring them in conformity with the values and ideals of Islam. It is a well-researched work, presenting with clarity and legal precision the authentic position of five major schools of Muslim thought (Hanafi, Shafi’i, Hanbali, Maliki and Ibadi) on these central concepts of Islamic economics. Despite being a study of Islamic law it falls on the borderline of economics. Students and researchers in Islamic Economics will find it extremely useful as it enables them to imbibe legal aspects of certain Islamic economic concepts. Discussion on gharar and Mudaraba is of a high quality and is perhaps the first time such a clear and succinct exposition of these concepts has appeared in the English language. My only regret is that the author has not included any of the Shi’a schools of law; this would have added to the value of the book and would also have shown in the socio-economic realm the differences within. Islamic sects are neither too great nor of a nature that constitute barriers to Islamization. In fact they show the area of flexibility within the Islamic framework.
Nabil Saleh is a pupil of Subḥi Mahmasani and over-projects the views of his mentor, although Mahmasani is no match for the authorities he is otherwise presenting. The discussion on riba although of a high quality, suffers from certain distortions. The author has every right to have his own preferences, but a tilt in favour of those who have tried to confine riba to compound interest and to somehow open up an escape route for bank interest is too obvious.
The author has erred in understanding the position of Ibn ‘Abbas. While the hadith of Ibn ‘Abbas he quotes is correct, he has failed to take note of the fact that Ibn ‘Abbas later on retreated from this position after he came to know of other aḥadith on the issue, particularly the hadith narrated by Abu Sa’id Khudri which deals with prohibition of riba al-faḍl. In his final view, Ibn ‘Abbas regarded both forms of riba as forbidden. In his presentation of views of contemporary authorities on riba the author is rather too selective. He quotes Sanhuri, Dawalibi, and Zaydan Abu al-Karim Hasan but ignores the views of greater authorities like Shaikh Muḥammad Abu Zahra, Sayyid Mawdudi, and Mustafa Aḥmad Zarqa. There is no reference to the important document produced in Pakistan by the Council of Islamic Ideology: Report on the Elimination of Interest from the Economy, 1980. Discussion on riba lacks to some degree the even-handedness and objectivity one finds in other parts of the book. Despite a few lapses on the very first page (eighth line from bottom) there is a spelling mistake in reference to the Qur’an, in an otherwise carefully proof-read book. The book deserves to be read with care and profit and is a valuable contribution to the literature on Islamic law and economics.
