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ALLAH in the name of, the Most Affectionate, the Merciful.
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Hafiz Abubakr,
‘Issues and problems in Islamic Banking’,Kingston University of London,UK
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Supervisor:
Yiannies Anagnostopoulos’
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K1056365, Hafiz Muhammad Abubakr
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9/22/2011
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‘Declaration’ I hereby solemnly declare that this dissertation
has been carried out by me during the year 2010-2011 under the guidance and
supervisor of ‘Yiannies Anagnostopoulos’’. The work itself is satisfactory
and has not been previously submitted to any other institutes for any
degree level or other qualifications to best knowledge and I provide all
references at the end of my work.
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ABSTRACT
Over the past
several decades, Islamic Banking System has been steadily growing, as well as
the importance of the Islamic Banking system for the economy of many countries.
Recently, the attention given to the importance of Islamic Banking system in
economic growth has significantly increased. Therefore, it is essential that
this industry is managed through parameters that will help the stakeholders
understand and plan for a better Islamic Banking development. This dissertation
attempts to understand the issues and problems that Islamic Banking is facing
in becoming a successful Banking industry. Moreover, this dissertation also
investigates the issues and problems and impact of the rules of Islamic banking
system, structure and activities focusing on banking supervision issues. It
points out and discusses these issues within paradigm version of Islamic
banking, as in frames that lie between paradigm version and traditional
banking. The case of Islamic banks operating in a conventional system was also
investigated. A careful consideration has been given specifically to the
cooperation between public and private sectors in Islamic Law related matters.
The study is supported by literature review related to Islamic background,
Islamic Banking in Muslims and western countries.
Acknowledgement
First of all, I would like to say thanks to our
Allah (Azwajallah) and Prophet Muhammad (Peace be upon him).
There are those close to home who contribute to the
completion of a dissertation putting the author in a position to start, sustain
and finish the dissertation. For this reason I would like to dedicate this
dissertation to my Wife: Mrs Hafiz and Son: Mohammad Abdullah Attari who have
supported me throughout the entire journey. Also, a huge respect goes to my
family back home who have supported me morally especially to my Father and
Mother who did not spare anything in offering the right support in the right
time. I will never be able to thank you enough for the support you have given
to me since the first day of my study.
My sincere appreciation also goes to my Saint
Muhammad Ilyas Attar Qadri Rizvi and Mufti Ishfaq Ahmad Qadri Rizvi and His
son, Imam Hafiz Jamel who have always been there for me in helping me in
issuing Fatwas with the study and all others professionals who spent some extra
time for me to give interviews and fill questionnaires.
Finally, I am very grateful I had as my project
supervisor ‘Yiannies Anagnostopoulos’ and
I really enjoyed working with him, he sure did a great job of supervision to
enable me get through with this project. When I told him about my project topic
he liked it and his interest in it made the whole process easier than I ever
imagined. Top of all is the advice and support she gave me which kept me on the
right path all the way.
Thank you.
Front page
& Declaration 0
Abstract 1
Acknowledgement
2
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Chapter
No.1
Issues and
problems in Islamic Banking system
1.0
Introduction
This is the first chapter of my dissertation topic
‘Issues and problems in Islamic Banking system’. In this chapter, we look at
the objective, research question and structure of dissertation. Later on also
look at some basic definitions of a term’ Islamic banking’ and the history of
Islamic banking according to different researchers or writers and also discuss
the main section in details which consist of ‘issues and problems in Islamic
banking’. This chapter will further
examine the growth of Islamic Banking system in the United Kingdom and in some
other countries and also discuss issues surrounding Islamic Banking System.
1.1 Aim of Study
This study aims
to examine the ‘Issues and problems’ that Islamic
banking is facing in becoming a successful banking sector, with a focus on the
planning for Islamic banking development and on the cooperation between public
and private sectors on Islamic banking matters.
1.2
Objectives of the Study
This is achieved through the following objectives:
v Conducting primary research to examine community involvement
(means Islamic scholars and professionals etc.) and using Quran and Hades in
Islamic banking planning, and the level of awareness in community and taking
government initiatives in increasing awareness regarding Islamic banking
industry in all around the world.
v Undertaking primary research targeting Islamic banking industry
stakeholders by face to face interviews and also uses some other techniques
which I will discuss in chapter No.3in order to find out the level of the
communication between the sectors and its importance in banking sector.
v Reviewing secondary literature such as journal articles, books,
newspapers, government documents, websites from relevant and reputable bodies,
and other secondary sources related to the Islamic baking development in the
whole world.
v Focusing on the literature
that is based particularly on co-operation between private and public sector
regarding to solve ‘issues and problems in Islamic banking’ system.
v Develop an understanding on
the challenges that Islamic banking system is facing in becoming a successful
banking destination by analysing the primary research with secondary research
in order to reach the conclusion and be able to make recommendations.
1.3 Research Questions
This dissertation will address the
following research questions:
·
What are the issues and problems that Islamic banking system is
facing in developing a successful banking industry?
·
Government’s role towards public and private cooperation in the
banking related sector?
1.4 Structure of the
Dissertation
This report presents four chapters.
1. First
chapter gives the background of the research project and contents included in
the dissertation followed by aims and objectives of the research, the research
questions and the approach used in carrying out the research.
2. Second
chapter examines relevant literature on the Islamic banking system and also
about different Islamic law.
3. Third
chapter, in dissertation will use the detail approach and research
methodologies applied to execute this dissertation. Furthermore, the researcher
will also look at the research design; an understanding of the research
approach and data analysis. A justification has been given for each approach
supporting it by literature.
4. Last
chapter provides the conclusion which is specifically related to the aims of
the research and it provides guidelines and recommendations for a successful
Islamic banking system in different parts of the world and improvements in
cooperation between banking sectors.
1.5
Definitions of Islamic Banking
Islamic banking, financial innovation has come to be regarded as the
most ‘visible’ aspect of Islamization. Whether it is new, has made significant
progress, as measured by the speed with it was adopted in the Muslim countries
as well as in Non-Muslims countries in a relative short period. At this point
of the chapter, I am going to discuss different definitions of ‘Islamic Banking
system’. ‘A banking system which works or functions according to Quran and
hades guidelines provided and gives or provides benefits to Muslims and
Non-Muslims’ (Mufti Ishfaq Ahmad Rizvi ,
UK ,2011 ). ‘Islamic banking system provides interest free products and helps
the community in financial problems’ (Imam Hafiz Jamel, UK, 2011). ‘Islamic
banking system should be informed with a serious knowledge of the ethical
objectives of the Islamic economic system, the truth, which can only be based
on the quality of social justice and leadership that meets the needs of the
underclass. If Islamic banking is leaving the economic consequences, and still
is based on ‘pure’ process, it will wither on the vine public apathy, even in
disagreement’ (Nawab Haider Naqvi, 2000 vol.8, p41-70).
‘The idea of an interest free Islamic banking system under the legal
concept musharakah (partnership) and mudarabah (profit sharing), has gradually
developed over the past thirty years’(Monzeer Khaf, the Islamic Economy,
op.cit, p72). According to (Abdul, 2007)’ Islamic
banking system has to be followed two main principles; sharing profit and loss
(P&L) and, ominously, the prohibition of the payment and collection of
Riba(Interest)’. ‘‘Islamic banking system is the best banking system, which is
based on justice and welfare for Muslims and Non-Muslims’’ (Sanosi, President
Central Bank of Nigeria, 2011). From all above definitions i find five key Characteristic of Islamic banking system;
- According
to Islamic law
- Riba
free
- Fulfil financial needs
- In its purest form, it is equity
related,
- invests ethically,
1.6 History of
Islamic Banking
If we go back in a history to find out about
interest free banking system duration,’’ It is not surprising for us to know
that the first documented interest free bank ‘Agibi Bank’ was
established (circa 700 BC), in Babylonia, and functioned exclusively on an
equity basis’’(Baron, 1952). To support this above history of interest free
banking system, in chapter two i will discuss about ‘Riba’ which was not allowed
in old time as well. Therefore, i also find some references from old
testaments. But if we look in 19the century, in 1963 Egypt introduced interest
free accounts only in some conventional banks. ‘Islamic finance rose to
popularity during the Islamic golden age which ranged from the 8th
to the 11th century. It was a time when many skilled people from
architects, engineer’s scholars, artist, and sciences etc., contributed
directly and indirectly to the rest of the world’ (Turner, 1997).
However
the Islamic influence of finance fell and western conventional banking took
control; this is because Islamic empires lost control to invasion and the
control of the British Empire across Asia and northern Africa.) A great
revolution started in Islamic banking system in the early 1970s after the first
international conference held in king Abdul Aziz university in Kingdom of Saudi
Arabia, city ‘Makkah’ on Islamic Economics. In that important conference participants
agreed to establish first real Islamic Bank. In 1975, United Arabia Emirates
(UAE) government established first ‘Islamic Commercial Bank’ in the world,
‘Dubai Islamic Bank’. After this but in same year ‘Saudi Arabian government
also established ‘Islamic Development Bank’, in city of Jeddah. After 1970s a
series of Islamic banks came into the market which names are as follows;
Islamic finance house, Luxembourg; Faisal Islamic Bank of Sudan, Egypt; IBU of
United Bank of Kuwait; Meezan Bank, Pakistan; ANZ First ANZ International
Murabah Ltd; HSBC Amanah Fund.
1.7
Growth in Islamic Banking
"The
leading growth right now is in Islamic consumer banking and investment
products" (Mohsin Nathani 4 -03-2008).
‘Islamic
Banking and finance system has multiplied substantial global exposure over the
past some decades and has changed from an industry with a limited geographic
reach to one that is now prevalent across key Islamic markets in the Middle
East and Asia Pacific. If we talk about globally, total global Islamic Banking
assets have witnessed extraordinary growth from US$137 billion in 1996 to $895
billion in 2010. Assuming the current trajectory, total industry assets are
likely to surpass $1.0 trillion by 2012’ (Yakub Bobat and Romy Buchari, 2010).
Recent times have shown a revival of Islamic finance
not only in Muslim countries but also in the UK. It is known that many countries such as Pakistan,
Malaysia and other Arab countries such as Bahrain are fully compliant Sharia
based economies based around Islamic finance. However due to events such as the
financial crisis and other factors such as Oil rich nations, Islamic banking
has become popular to Non-Muslim countries that have large number of Muslims. As
I discussed above, it was after the establishments of the Islamic Development
Bank in Jeddah that enlightened the rest of the Muslim nations to spur on an
increase in Islamic banking, products such as Sukuk were introduced which is a
Islamic bond but with no interest which proved to be revolutionary.
According to the International Monetary Fund (IMF), ‘Islamic banking
assets have grown 15-20% annually with more than 300 institutions established
since 2000’. For example, In United Kingdom 2004 the government permitted its
first fully Sharia compliant bank to be established known as the Islamic Bank
of Britain. Investment was carried out by investors from the UK and the Gulf
region. Subsequently conventional banks have also started offering Islamic
products in the UK. HSBC has offered Islamic pension schemes and ‘Halal’
stockbroking services, other banks have followed suit such as Royal Bank of
Scotland (RBS) and Lloyds banking Group. With its great success is has landed a
stock market listing on the London stock exchange.
Islamic banking in the United Kingdom is now in fact larger than that of
Pakistan according to a report by the International Financial Services (IFS).
It was Gordon Brown who promoted Britain to become global hub for Islamic
finance which has led to the Times 2009 reporting the
$18billion (£12billion) in assets of Britain’s Islamic banks are said to dwarf
those of Muslim states such as Kingdom of Saudi Arabia, Pakistan, Bangladesh,
Turkey, Malaysia and Egypt. And there are also 55 colleges and professional
institutions offering education in Islamic finance in Britain – more than
anywhere else in the world. Furthermore the Financial Service Authority (FSA)
approved the first European Islamic Investment bank, with global assets of all
Islamic Banks are now said to be worth well in excess of £500bn pounds.
The
graph further illustrates that Islamic Banks performed considerably better than
the conventional banks leading up to the financial crisis. As mentioned
previously many forms of trading are disallowed under Sharia and it can be seen
that the Islamic Banks did not suffer as much as the conventional Banks did.
Profitability drop 7% for Islamic banking whereas conventional banking it
dropped over 35% a huge gap which shows
why under Sharia law Gharar and Riba are disallowed. It can be seen that
Islamic finance hub Bahrain and Malaysia hold a very strong infrastructure for
Islamic banking as they show that they are supported by Islamic Development
Bank as well as many other large International Financial Islamic Institutions.(Source:
International Monetary Fund ).
1.8
Issues and problems in Islamic Banking System
Despite the recent revival of
Islamic Banking and Finance system, there are still much Issues and Problems
with Islamic finance to be analysed because Islamic banking has grown from a
mere niche market to a multi-billions dollar industry. Ayub 2007 states that
there needs to be more dialogue between scholars and that there should be more
experts in Islamic finance to help drive innovative Islamic Sharia compliment
products and increase the awareness of Islamic Banking. Britain already has the
most number of educational programmes supporting Islamic Banking in the world.
This clearly manifests that Britain is keen to follow Gordon browns
footsteps in order to make Britain the financial hub. It also shows that the UK
being a Non-Muslim country has taken more initiative than the Muslim nations.
Critics may argue that if there are more scholars and experts then it may cause
further confusion and cause people to be misled. This is because as Verandas
2010 explains that there are ‘different school of thoughts’ in Islam which
conflict each other’s. As we know, in Islam there is almost 72 different sects
that is why there is a difference in opinion among Islamic scholars. ‘’Islamic Banking system needs more
qualified professionals and they have to be known about Islamic finance needs
fully’’ (Sanosi, President Central Bank of Nigeria,
2011).
The risks associated with profit sharing seem to be so high that most
banks have resorted to such financing techniques to bring them to a fixed
guaranteed return. As a result, there is very real criticism that these banks
have no interest to the other side, but had actually changed the nomenclature
of their transactions. Big issue is, for Islamic Banking system is to be
provide interest free products to their customers. Because, in Islam, Riba
(interest) is defined as any effortless profit gained on a loan or debt. It is
also defined as any increase without a specific cause. Both effortless profit
and increase on the loan amount to injustice and are prohibited in Islam. This
prohibition is a major issue of concern for many Muslims, especially those
living in Non-Muslim countries. To
provide an interest free mortgage to Muslims is also a debateable topic now
days.
There is no doubt especially in United Kingdom some banks offer interest
free mortgage but most the Muslims does not understand this interest free
mortgage mechanism, in other words especially Muslims are confused about this
interest free mortgage type. For example, HSBC Amanah Home Finance plans. Some
other issues surrounding Islamic finance or Islamic Banking system is that
financial institutions are regulated by Sharia Law.
This would not be a problem if in a Muslim country but when there are
corporations and banks that offer Islamic products in accordance to Sharia law
it is difficult to know whether to follow Sharia law as the Quran states or
follow the UK accounting standards and UK law and regulations. Thus many
critics argue as with the case of an article in the Times 2009 which reported
that Sharia law does not comply with UK law and regulation and called for
Islamic banking to stop being promoted. The Financial Service Authority which
regulates the banks and large business firmly stated that Under the FSA ACT
2000. The FSA's policy towards Islamic
banks, and indeed any new or innovative financial services company, can be
summed up simply as "no obstacles, no special favours".
We are keen to promote a level playing field between conventional and
Islamic providers. One thing we are clear about is that we are a financial, not
a religious, regulator. Thus although
the UK does have a firm base for Islamic
Finance it is clear that the Financial Service authority wants them to
abide by UK Law and regulations , whether conflicting issues will arise between
the Sharia and UK law is not widely spoken of, but then again Islamic Banking
is still very much small overall to their Gulf counterparts. Accounting
standards need to be drawn up that are compliant to both Islamic law and
International Accounting standards through dialogue as has been witnessed by
Pakistan which drew up a framework for both’( Ayub, 2007).
Furthermore, other issues surrounding Islamic Finance are that due to
global media since the September 11 attacks there has been constant media
propaganda against the Muslims. Muslims have been persistently been associated
with acts of terrorism. For this reason, it is quite obvious why there are not
much advertisement campaigns regarding the benefits of Islamic Banking to the
whole of the UK. The only advertisements noticeably are in high desist Muslim
populations such as London and Birmingham. There have been no real newspaper adverts
or TV adverts showing the benefits of an Islamic Banking system. Islamic
Banking is said to be very complex compared to normal banks. Can this change? I
very much doubt so in the short term but with universities offering courses and
providing education to people about Islamic banking, the number of Non-Muslims
and Muslims adopting this revived finance method could increase in the future.
Other critics argue there is a lack of Liquidity management and that some of
the Islamic Products are actually not very Sharia compliant at all.
It can be seen that throughout
history of Islamic finance stood on firm grounds until the Western Conventional
Banking systems took control. However in recent time there has been much
revival, and despite the advantages of Islamic banking brings to the economy
and society as a whole. Lack of education and awareness by the media has meant
many people are sceptical and ignorant of the advantages. On the other hand
Islamic Banking is now being introduced to more and more countries but it is
also prone to different interpretations of Sharia law and other issues such as
regulations and law in Non-Muslim counties may be of an obstacle which Islamic
banking system will need to overcome through producing the framework and
promotion in order for it to become a mainstream product in the UK.
1.9
Conclusion
At the end of this
chapter we can summaries that,’ The Islamic Banking system is governed by
Sharia law. Sharia law is the “Divine (SWAT) guidance as given by the Holy
Quran and the Sunnah (teachings) of the Holy Prophet (Peace be upon him)”).
There is no doubt about, Islamic banking system is surrounded by different
problems and issues since last thirty years but Islamic banking system, is the
fastest growing industry in the banking sector‘ (Independent 2008).
Although most
United Kingdom banks also offer Islamic products not many people understand how
Islamic Banking works; partly this is due to fact that it is not really
promoted. But we have to be investigating more about the process of Islamic
Banking system problems with the help of the Quran, Hades and also with the
help of the Islamic Scholars (Mufties).
Now, i can say one thing, if i succeed in my investigation; then Islamic
Banking system can become a mainstream product in the United Kingdom and in
other parts of the world.
Chapter No.2
2.0
Literature Review
2.1
Introduction
This chapter will review existing literature that relates to the ‘Issues
and problems in Islamic Banking system’ which are facing now days all around
the world. This chapter is really important for every dissertation. If the
researcher makes mistake in this chapter then the researcher cannot achieve his
objective of the study or cannot reach at the specified destination (Miles
Taft Bryant, 2004, p64).
I had used so many books and articles to review for my dissertation topic
’issues and problems in Islamic banking system’ that i am confused where to
begin.
According to Fredrick ‘’ the literature review is the problem’’.
According to folks ‘’ writing a dissertation is like ‘running a marathon’ or
‘learning a Martian language or is like ‘climbing a mountain’ This chapter will
began with a discussion of the Sharia Law (Islamic Law) and the importance of
the Islamic law in Islamic banking. The next section will examine the
importance the Islamic way of trading (musharakah and mudarabah etc.) and will
discuss some of the important elements that make easy understanding to the
reader about the difference between conventional and Islamic banking system.
These Islamic elements include Quran, hadith, Ijmaah and Islamic fatwas etc.
In this
chapter, I am also going to discuss the differences in conventional and Islamic
banking system such as Interest (Riba) in more details. ‘Due to the Riba’
element in the banking system, Muslims are confused about Islamic and
Conventional banking system all around the world’ (Ezry Fahmy, 2011).
2.1
Islamic law
‘’He (Allah) has directed you to the religion (law),
which He enjoined upon Nuh and that which we revealed to you and that which we
enjoined upon Ibrahim, Musa and Isa (Jesus Christ) saying, "set the
religion right and cause not dissension therein (Al-Quran, Chapter No.25, Surah
No.42, Verse No.13)’’. According to this Quranic definition we can
say ‘Islamic law’ is not a new law brought by Prophet Muhammad (peace be upon
Him). But we can say that ‘Prophet Muhammad (Peace Be upon Him) introduces
purified form of Islamic law according to the Quran laws (words)’.
As we know Quran is Allah’s (SWAT) last book came on the last messenger
prophet Muhammad (peace be upon him). According to Quran conclusion about the
Islamic law is as follows; ’’ Quranic law comprises of Allah (SWAT) orders and
prophet Muhammad (peace be upon him) saying or actions which we call Hades or
‘Sunnah’’’ (N.J Coulson ,2011). ‘Obey the Messenger of Allah and leave ignorant
of the law, and these are the limits of Allah, and for the infidels is a
painful torment’ (Al-Quran, Chapter No.28, Surah No.58, Verse No.4).
Essentially this is the embodiment of all aspects of the Islamic faith
including beliefs and practice.
2.2
What is a Fatwa?
The
word ‘Fatwa’ gives a wrong perception to those, who do not know the actual
meaning. Some people think the meaning
of ‘Fatwa’ means in Islam to issue a death warrant against a non-believer or
issue an order in Islam about anything etc. According to (Mufti Ishfaq Ahmad
Qadri, 2011) A Fatwa is a legal opinion in answer to any specific question. If
this answer is in accordance to Quran, Hadith or Fiqah or Shariah then it is binding
to act upon it.
2.2.1
How Islamic scholars become a Mufti?
Fatwas are
issued by only a Mufti; an Islamic scholar who has a firm grasp of Islamic
knowledge can issue a Fatwa. Religious knowledge; According to Hazrat Imam
Ahmed Raza Khan (Allah pleased with him) ‘’is that knowledge which is in
accordance to Quran, Hadith, Tafseer, Principles of Islam, Ilm-ul-Adad
(numerology) and the timings of Salat (Prayers) calculations (Tauqeeq
Knowledge) etc. A Mufti has to be an expert in all these fields of knowledge
and have an open and clear mind with his Islamic ideas means free of Bias. He
must have practical experience of dealing with religious affairs and answering
people’s questions. If a mufti makes a mistake, then it is incumbent on him to
accept his mistake’’ (Fatwa-e-Razawai, volume 18, p590).
2.3
History of Fatwa
This is really important for us to understand the importance and History
of fatwa in Islam. According to Quran
Allah (SWAT) issued first Fatwa, ‘In old time (Zmanh ignorant) people of
Arab did not want to give share of deceased’s property or wealth to wife’s and
small children as there were heirs of the deceased’s property’. And they were
asking questions from prophet (Peace be upon him) about the property or wealth
division among children’s and wife’s.
Therefore
Allah (SWAT) gave Fatwa or direction, how to distribute the deceased’s
property’ (knaz-ul-iman, Imam Ahmad raza khan, 1920). ‘’And they ask you your
‘Fatwa’ concerning women. Say them, Allah gives Fatwa to you concerning them
and that which is recited to you in Quran concerning the orphan girls whom you
give not what is prescribed for them, and turn your faces from marrying them,
and concerning the weak children, and concerning this that you maintain justice
towards orphans. And whatever good you do, then Allah is aware of it’’ (Al-Quran, Chapter No. 5, Surah No.4,
Verse No.127).
Therefore, as we know Quran orders not for that
specific old time these orders are also for whole of the life or till at the
end of the world. That is why prophet (peace be upon) and his companions were
issuing Fatwas and in current time Islamic scholars (mufties) are also issuing
fatwas whenever Muslims are in problems or have a doubt about any Islamic issue
(Fatwa-e-Europe, mufti amjad , p2). I took a lot of fatwas from different
scholars (mufties) relating my topic according to above Quran instruction.
2.3.1
Ijmaah
According to Islamic
(sharia) law guidance, if Muslims have any kind of issues or problems, then
there are two main sources which they can use to find out the solutions; which
include Quran and Hadiths. If they are in a doubt or do not understand the
answer of the Quran or hades then there is one more way to find out the answers
which Muslims call ‘Ijmaah’ or ‘Ijtihad’. We can find almost same words in one
‘Hades’ about the importance of ‘Ijmaah’ in Islam. ‘One day Prophet Muhammad
(Peace Be upon Him) was sitting with his companions and was discussing
something about Islam. Suddenly He (Peace Be upon Him) asked from one of his
Companion ‘If you are in a different country or area and you do not have any
communication with me, and if someone asks you one Islamic ‘Maslaah’ Question
then how you give the answer? The companion of prophet replied, ‘‘first i will
try to find out the answer from Quran then Hades if unfortunately i did not get
the answer from these two sources, then ‘i will do ‘Ijtihad’ or ‘Ijmaa’ meaning
I use my religious knowledge or consult with different Islamic scholars,’’ then
Prophet Muhammad (Peace Be upon Him) Replied, ‘Allah’s hand on Jammat’. Almost same words we can find in Quran, Allah
(SWAT) also ordered Muslims in Quran ‘if u do not know or confused about any
Islamic issue asked the guidance from those who have knowledge (Al-Quran, Chapter No. 17, Surah No.21,
and Verse No.7).
·
Musharakah
·
Mudarabah
·
Istijrar
·
Salam
·
Istisna
·
Ijarah
·
Murabah
·
Alwadiah
2.4.1 Musharakah
This word came from
Arabic word ‘Shirkah’, which means ‘sharing’ or partner. According to shariah law ‘Musharakah’ means a joint partnership established for conducting
a business in which all partners shared profit according to a predetermined
ratio and on the other hand loss is shared according to the ratio of the
contribution (Abdulkader
S. Thomas, Stella
Cox, Bryan
Kraty – 2005, p35). This approach is based on Riba (interest)
free financing. We also find one Hades words on ‘Musharakah’ which is
Hades-e-Qudsi ‘’ Allah (SWAT) has declared that, ‘He will become a partner in a
business between two ‘Mushariks’(Partners) until they indulge in cheating or
breach of trust’’ (Bahar-e-Shariat, 1935). According to Islamic law
‘Musharakah’ further have two types which are as follows;
i- Shirkah
al-uqood
ii- Shirkah
al-milk
2.4.2 Shirkah al-uqood
This type also called ‘contractual
partnership’ in Islamic Fiqah. Under this type of partnership business, both
parties are agreed to start a joint business venture and sharing of profits and
risks of the business equally. It can be oral and informal and not necessarily
in written form. But losses of the business shared according to the proportion
of capital contribution. In Islamic finance law books we find furthermore four
types of ‘Shirkah-al-uqood’.
2.4.3 Shirkah al-milk
This type also
called ‘partnership by joint ownership’ in Islamic law. Shirkah al-milk means
joint ownership of two or more people in a specific property or asset. For
example, Mr Leo and Romeo receive a gift or inheritance of land or property
after the Death of his Dad (Mr Neo). According to the ‘will’ of Mr Neo, Leo and
Romeo cannot divide this specific property after his death but they can enjoy
the benefit from this property according to their shares.
2.4.4 Mudarabah
According to this type of
Islamic financing one partner gives money (Ras-ul-Maal) to another (wakeel or
agent or also called ‘Mudarib’) for investing in a commercial enterprise. Mudarib
function in this type use their skills on behalf of first person try to make
good or reasonable profit in any investment. Profits generated from this
commercial enterprise are shared in a predetermined ratio and losses are shared
by the first partner and Mudarib.( Bahar-e-Shariat, p795,v12, 1935).
2.4.5 Istijrar
Istijrar Islamic finance is a new
type in Islamic law. This type means purchasing goods time to time in different
quantities. The Istijrar involves two parties, a buyer which could
be a bank or company looking for financing to purchase the underlying asset and
a financial institution.
Now we
look how ‘Istijrar’ works with the help of one example. ‘ABC ltd needs raw
material to run their production department but ABC ltd dos not have sufficient
funds to buy this. ABC Ltd approaches
(Muslim commercial Bank (MCB) ltd) for finance. MCB purchase raw material for
ABC ltd at the current price say Po, and resell it to the ABC ltd and make an
agreement for future payment with the MCB. Say ABC ltd has to pay the price
after 75 days. The price at which settlement occurs on maturity is contingent
on the underlying raw material price movement from time say T0 to T75. Where T0 is the day the contract
was initiated and T75 is the 75th day which would be the maturity day’’ (Dr
Obi, 24-06-2005).
2.4.6 Salam
Recently this type of
Islamic financing used by financial institutions and banks specifically to sell
some goods (agriculture) at a future date in exchange of an advanced price
fully paid at spot. According to Salam price is in cash but the transfer or
supply of specific goods is deferred. According to the prophet Muhammad (Peace
be upon him) hades ‘Salma’ is associated with subject to certain conditions’’
whoever wishes to enter into a contract of Salam, he must effect the ‘Salam’
according to the specified measure and the specified weight and at the
particularly date of delivery (Fath-ul Qadir V6, P205 and Ibn-ul-humam)’’. The
main objective of ‘Salma’ was to help small farmers who needed money to grow
their crops and feed their family up to the time of harvest. ( Muhammad Taqi
Usmani, 2010 ,p186-187).
2.4.7 Istisna
‘Istisna’, like ‘Salam’,
is a special kind of sale Transaction/contract where a sale of the goods is
transacted before the goods come into existence. For examples in a gold market,
buyer gives an order in advance for a special design of jewellery
set to prepare. In this type of contract, price must be decided only not full
price paid in advance and the specifications of the goods also decided with the
consent of both parties in advance.( Frank
E. Vogel, Samuel
L. Hayes – 1998, p147).
2.4.8
Ijarah
If
we look in the Holy Quran we also find ‘Ijarah’ financing type with detailed
explanations.
According to Arabic Dictionary (Al-lughat,
p65) this word gives two meaning;
i-
To give something on rent.
ii-
To hire someone as an employee or hired
his or her services for a job.
For example, If Mr Ali wants to go
Birmingham from Slough he hires a cab (driver name: Naveen) for this journey.
Mr Ali called ‘Mustajir’ and Mr Naveen called ‘Ajir’. Another example, If Mr
Usman works for BAC ltd as Employee called ‘Ajir’ and employer (BAC ltd) called
‘Mustajir’.
1-
According to Quran ‘’ One of the two
women said, 'O my father (Mustajir) employ (Ajir) him'. Undoubtedly, the best
employee is he who is strong and trustworthy’'. (Al-Quran, Chapter No. 20, Surah No.28, Verse No.26)(Kanz-ul-iman).
2-
‘’If you wish that your children should
be suckled by ‘nurses’ (midwifes), then there is no blame on you, provided what
was agreed to salary is paid by you with kindness, and remain fearing from
Allah and know that Allah is seeing your work’’(Al-Quran, Chapter No. 2, Surah No.2, Verse No.233)(Kanz-ul-iman).
In this verse of Quran parents are ‘Mustajir’ and Midwifes are ‘Ajir’.
2.4.9 Murabah
Murabah is one of the most commonly
used types in Islamic financial and banking systems. This type refers to cost plus financing and
also known as letter of credit. Meaning of ‘Murabah’ is ‘when the actual price
of the good is disclosed to the customer in advance’. ‘’ Murabah is a special
kind of sale where the seller clearly mentions the actual cost of the sold
goods he has incurred and sells it to another buyer by adding some extra money
(profit) thereon’’(Dr Muhammad Imran Ashraf Usmani, 2010).
According
to ‘Murabah’ a bank buys goods for its customer and then resale it to the later
on with cost-plus profit basis. But important point for the bank, it has to be
disclosed the actual price of the goods to the customer. ‘The price of the
goods in Murabah may be at spot, and may be later on some time it is totally
depends on the agreement between both parties’ (Siddique, 1986). The important
point in ‘Murabah’ is the bank can only charge extra money (profit) if
transaction is completed according to the agreement. This type of finance is
used most of the
time to assist short-term business transactions.
2.4.10 Alwadiah
This type is equivalent of the cash account use in the
conventional banking system, and it assist for day to day cash management. In
this type of bank account, account holder cannot make any return. Most high
street Islamic banks have no charges for such accounts, and provide facilities
similar to any conventional bank.
2.5 Riba
(Interest) in Quran
Islamic finance fundamentals forbid any form of interest which is
detailed in great form in the Quran. According to Quran, ‘’those who devour
interest shall not stand on the Day of judgement, but like the standing of one
whom the evil spirit has by touching made mad. This is because they said ‘the
trade too is like interest, ‘and Allah made trade lawful and made interest
unlawful so he, who received admonition from his lord and refrained, then
whatever he took before is lawful to him, and his affair is with Allah. And now
whoever shall commit such Fault, then he is men of hell, they will live therein
for longer period’’ (Al-Quran, Chapter No. 3, Surah No.2, Verse
No.275). ‘’Allah destroys interest and increases charity and Allah
loves not any ungrateful big sinner’’ (Al-Quran, Chapter No. 3, Surah No.2, Verse No.276). ‘’O believers! Devour not interest,
doubled and redoubled; and fear Allah, in the hope that you may get
prosperity’’ (Al-Quran, Chapter No. 4, Surah No.3, and Verse No.130)
‘’ whatever you give to take back more that it may increase the
wealth of the givers, then it will not increase with Allah, and whatever you
give as charity desiring Allah's pleasure, then those have two fold increase
(Al-Quran, Chapter No. 4, Surah No.3, Verse No.130). ‘’ And because they took
usury whereas they were prohibited from it, and they consumed people's wealth
unjustly, and those of them who became infidels, we have prepared a painful
torment for them’’ (Al-Quran, Chapter No. 21, Surah No.30, Verse No.39). ‘’And
whatever you give to take back more that it may increase the wealth of the
givers, then it will not increase with Allah, and whatever you give as charity
desiring Allah's pleasure, then those have two fold increase’’ (Al-Quran,
Chapter No. 21, Surah No.30, Verse No.39). ‘’And because they took usury
whereas they were prohibited from it, and they consumed people's wealth
unjustly (includes, Bribery and unlawful methods), and those of them who became
infidels, we have prepared a painful torment for them’’ (Al-Quran, Chapter No.
6, Surah No.4, Verse No.161).
2.5.1 Riba in Hades
There
are different of hades on Riba, but I use for this chapter only six.
i-Abdullah
ibn Hanzalah (Allah pleased with him) narrated: the messenger of Allah (Peace
be upon him) said, ‘A dirham of Riba which a man receives knowingly is worse
than committing adultery 36 times’ (kitab al-bayn, Mishkat al-Masabih, chapter
Al-Riba, on the authority of Daraqutni and Ahmad). According to Bayhaqi above
hades came in shu-ab-al-iman with the additional words’ Hall befits him whose
flesh has been nourished by the unlawful’.
ii-The
companion of Prophet ‘Abu Hurayrah(Allah pleased with him) narrated: the
prophet (peace be upon him) said: ’ On the Night Ascension i came upon people
whose stomachs were like houses with snacks visible from the outside. I asked
Gabriel (Allah pleased with him) who they were. He replied that they were
people who had received Riba’ (Musnad Ahmad, Chapter al-taghlizi fi-al-Riba,
Ibn-Majah Sharif, v9, Hades No.986).
iii- Second
Hades from ‘Abu Hurayrah (Allah pleased with him)’, the messenger of Allah said
‘there will definitely come a time for mankind when everyone will take
Riba(interest) and if he does not do so, it dust will reach him’’(Ibn Majah,
Abu Dawud, book al-buyu, v4, Hades No. 678).
iv- Again
‘Hazrat Abu Hurayrah (Allah pleased with him)’ reported, the prophet Muhammad
(peace be upon him) said:’ Interest has seventy types, the least serious being
equivalent to a man committing adultery with his own mother’ (Ibn Majah, p109, V,25).
v- Abu
Hurayrah reported , the prophet (peace be upon him) said: ‘‘Allah would be
justified in not allowing four persons to enter paradise or to taste its
blessings: he who drinks habitually, he who takes ‘Riba’, and last one he who
is disobedient to his/her parents’’(book Al-Buyu, p654, v1, and Mustadrak
Al-Hakim p167, Hades N0. 987).
vi- On the Day
of Judgment,’ interest bearer feels his stomach too heavy and cumbersome and
because of that he will fell down. This the punishment for those who think
interest is ‘Halal’ lawful in this world’ (Saeed Bin Jubear, knaz-ul-iman,
p275).
2.5.2 Types of Riba
This
is really important section of this chapter. When i was conducting my research
from my selected samples all participants except ‘Islamic scholars’ all were
saying there is only one type of Riba in Islam. Now, i am going to discuss
‘types of Riba’ are as follows;
a-
The first type name, ‘Riba Al-Jahiliyyah or Riba An-Nasiyah this type also
called ‘Riba Al-Quran’.
b- Second type
has three names, ‘Riba Al-Bai, Riba Al-Fadl or Riba An-Naqd this type also
called ‘Riba Al-Hades.’
The reason to call these specific names because
first type of Riba An-Nasiyah definition/explanation came in the Holy Quran and
second type Riba Al-Fadl definition/explanation did not come in the Holy Quran,
second type explained by the Prophet Muhammad (Peace be upon him).
2.5.3-Riba Al-Nasiyah
Ali ibn-a-talib (Allah pleased with him) reported: The
prophet Muhammad (peace be upon him) said: about ‘Riba Al-Nasiyah’ in following words;
‘’Every Loan that Draws
interest is Haram’’.
If we look at some old testaments has declared as
‘Haram’. For references see Ezakhiel 18:8,13,17 and 22:12, proverbs 28:8,
Leviticus 25:35-36, Psalms 15:5,Exodus 22:25, Deuteronomy 23:20 20 (Dr Muhammad
Imran Ashraf Usmani, 2002). According to Imam AbuBakr Hassas Raze has defined
as follows; ‘’ that kind of loan where specified repayment period and an amount
in the excess of capital is predetermined’’.
According
to above definitions; -Riba Al-Nasiyah is
categorically haram has never been disagreement among the Muslims. One
important thing for this type of interest; ‘simple and compound interest also
come under this category.
2.5.4- Riba Al-Fadl
According to (Dr Muhammad Imran Ashraf Usmani, 2002)
’’Riba Al-Fadl, actually means that excess which is taken in exchange of specific
homogenous goods and encountered in their hand to hand purchase and sale.’’
According to hades of Prophet Muhammad (peace be upon him) said: ‘’sell
good in exchange of equivalent gold, sell silver in exchange of equivalent
silver, sell dates in exchange of equivalent dates, sell wheat in exchange of
equivalent wheat, sell salt in exchange of equivalent salt, sell barley in
exchange of equivalent barley, but if a person transaction in excess, it will
be Riba (usury). However, transaction of silver anyway you please on the
condition it is spot (hand to hand) and transaction of barley for dates anyway
you please on the condition it is spot’’.
If we looked at above hades we can find six
different commodities names;
i-
Gold
ii-
Silver
iii-
Dates
iv-
Salt
v-
Barley
vi-
wheat
These above six types can only be used in hand to
hand (spot) transactions in equal quantities and weight. As we know in Islam
there is four Scholl of thoughts. This is really important for me to discuss in
this chapter about their point of view about ‘Riba Al-Fadl’, otherwise reader
of this paper get confused. In Islam this is my responsibility try to make clear
each and everything with the help of the Quran or Hades or from different
Mufties point of view. Otherwise un-clarity creates a big problem in Islam.
2.5.5 First school Name: ‘Hanfia’
According to ‘Imam Abu-Hanifa’ (Allah Pleased with
him) all above six goods are sold or purchased by either ‘weight or volume’
equally.
2.5.6 Second school Name: ‘Shafi’
According to ‘Imam Shafi’ (Allah Pleased with him)
Law ‘’apply on everything eatable or having the natural ability of becoming a
medium of currency (exchange).
2.5.7 Third school Name: ‘Maliki’
According to ‘Imam Malik’ (Allah Pleased with him)
law identified the following features: 1- Preservable, 2- Eatables;
2.5.8 Fourth school Name:
‘Hanmbli’
Imam Ahmad Bin Hanbal, ‘he agrees with first and
second Imam’s explanation and he also include three more features;
·
Volume
·
Weight
·
Eatable
2.6
Possible Reasons to say haram (unlawful) of Riba in
Islam
Interest is said to haram to have many reasons
according to Quran, hades and also according to different Islamic scholars
which are as follows;
·
The excess amount is charge on the
actual amount which is not allowed because it is injustice.
·
Practice of interest is to disturbed the
business because to make money from the interest is easy way for the interest
bearer. Therefore, if interest bearer does interest business it is really hard
to make money without effort. In interest business interest bearer just earns
money in an easy way to charge interest.
·
Interest also disturbs the personal
relations. When a person is an addicted of interest business, then he/she
cannot afford to provide an interest free loan to the needy people in the
community.
·
A human nature can be changed to the
ruthlessness because of the interest.
Western
economies working within the conventional banking system are feeling the strain
of interest payments. The current European debt crisis which has reached
countries such as Spain, Portugal, Greece and most importantly Ireland Banks
means they have had to be bailed out with taxpayer’s money due to the spending
spree of cheap debt borrowing.
When the
government borrows money, it must be paid back along with the interest
incurred. Now with Islamic finance due to the prohibit of interest , during the
economic crisis , banks and other businesses were not as much affected as
Sharia compliant Islamic banks are prohibited from investing in toxic assets(
The Nation 2009). This clearly manifests the reasons as to why interest is
forbidden and secondly that Islamic banking is an alternative to the
conventional banking. Thus Islamic banking provides initiative for risk sharing
and profit sharing whilst still compliant to Sharia law. Whereas conventional
banking has a pre-determined interest rate at which, profit maximisation is the
ultimate aim where compound interest is regularity (BBC 2005).
2.6.1 Profit is allowed in Islam
After all above discussion relating to ‘Riba’
unlawfulness or Haram in Islam and as we know for in real world there are two
types of organisations;
1-Profitable
2-Non-profitable
The primary objective of
profitable organisation is only make good profit and the primary objective of
Non-profitable organisation is to serve the community. Islamic or conventional
banks come under the firs type which aims to make profit. According to
Islamic finance law, ’Making extra money from lower money is not allowed’. If
money is to be borrowed or it is exchanged, the payment on both sides must be
equal, so that money is not used for trade itself (money is treated as
‘potential’ capital). In short ‘money use is limited to its basic purpose i.e.
money act as a medium of exchange. Islamic law allows making reasonable profit
for the transactions. ‘According to Islamic law, profit is allowed (Halal), it
can be zero or positive or negative, even profit sharing ratio is decided in
advance but profit is still uncertain and it is unknown until the activity is
completed’(Shakeel Ahmad, 2004). When money is used in trading, its uncertain result is
profit. If we talk about the definition of profit which is equals to revenue
minus cost of production.
2.7 Gharar
Islamic finance also
forbids ‘Gharar. According to Ayub 2007 he states that ‘Gharar is uncertainty
or hazard caused by lack of clarity regarding the subject matter or the price
in which a contract is exchanged’. Examples of these are sales of items, where
the item is not present or where the consequence is not known. However Islamic
scholars have differentiated between uncertainty and risk and have found a
normal level of risk of which they recognise which is known as Gharar e Khalil
(Ayub 2007).Some more examples of ‘Gharar’; an excellent example of where
Gharar has taken place is with the subprime mortgages which were handed out to
millions of people without properly assessing ones income level. (
Gharar-e-kathir too much uncertainty) ,
the western economies would not have created a huge housing bubble and instead
of high short term profits we would have better risk sharing and stable profits
which are all promoted by Islamic Finance. Other examples of major ‘Gharar are
financial instruments such as derivatives, futures, puts and options all
elements of which caused the financial depression’(Obiyathulla
Ismath Bacha, 2009). Such financial products can also be
argues to hold elements of ‘Maysir’ which is known as gambling and strictly
forbidden.
2.8 Maysir
‘Maysir’, According to
(Al-Quran, Chapter No. 7, Surah
No.7, Verse No.89-90) ‘ 'O believers!
wine and gambling and idols and divining arrows are only unclean things, a work
of devil (Satan) then save yourselves from them, so that you may prosper.’’ ‘’The devil (Satan) desires only to put hatred and enmity
among you in regard to wine and gambling and to bar you from the remembrance of
Allah and from prayer, will you then desist?’’. Sheikh Hussain Hassan a
famous expert in Islamic Finance states that "$600
trillion were wasted on options, futures and derivatives, all gambling. Sharia
prohibited these kinds of risks 14 centuries back" (BBC 2006).
In essence Islamic banking promotes honesty in business transactions so that
both parties are not misleading in any investments. Furthermore it suggests
that there is not much complexity in contracts thus suggesting that there is a
clear line of definition between rights and liabilities.
2.9
Differences
between Conventional & Islamic Banking systems
·
‘A conventional and Islamic banking
system differs in many different ways which are as follows; after all above
discussions we can say that Islamic banking system follows Riba (Interest) free
principle and also use profit and loss sharing principle and on the other side convention banking
system follows interest based
principle’(Arif 1988).
·
‘Conventional banking system followed by
primary motive profit only, with no ethical and religious consideration. But
Islamic banking system followed shariah law which includes Quran and Hades
guidance’ (Muhammad
Ayub - 2009).
·
‘Deposit account holder in conventional
banking gets their interest (share) before shareholders. But in Islamic banking
system both will have same rights for their shares’ (Kabir
Hassan, Mervin – 2007, p97).
·
‘Idle money in conventional banking
system earns return, But in Islamic banking system idle money cannot earn any
return’ (Fuad
Al-Omar, Mohammed
Abdel-Haq – 1996, p53).
·
‘Investor or depositors enjoy most of the time risk free
return in conventional banking but in Islamic banking system Depositors or
investors have an opportunity to earn higher returns’(Abu Umar Faruq Ahmad – 2010,p28).
·
‘Conventional banks collect Government
taxes as an agent from deposit accounts and from different accounts as well tax
rates are different. Islamic banks
collect ‘zakat’ only from Muslims accounts at a rate of 2.5% at the end of
every year and deposit in Bait-ul-Mall’(Brian
B. Kettell – 2011, p116).
·
‘Investments or trading in derivatives
(uncertainty) are widely considered as the main source of liquidity in
conventional banking system. And on the other side in conventional banking
system investment or trading in derivatives are prohibited e.g. options’ (Mohamed
Arif, Munawar
Iqbal - 2011).
·
Islamic banking is more complex.
·
There is more use of Islamic banking in
Europe especially the UK, but need accounting standards to help comply with FSA
compliancy as well as Sharia law.
·
Lack of knowledge of Islamic
products - less promotion, less
education (although these are improving)
3.0 Conclusion
In this chapter an extensive review of the
literature on Islamic and conventional banks systems, and detailed discussion
about different Islamic finance modes and also about Riba (interest) in the
light of Quran and Hades. The next
chapter is the Methodology demonstrating the methods used by researcher and
justifying those.
Chapter
No.3
Research
Methodology
3.1 – Introduction
In
this chapter, I have described the research methodology that has been used in
carrying out my research work for the given topic of ’Issues and problems in
Islamic Banking’ ’I consider it really important and helpful for the reader of
my ‘dissertation’ to have a clear picture of the research findings and analyses
contained in the ensuing chapters. This chapter is designed to explain as
comprehensively as is reasonably possible about my choice for the research
approach i have adopted to do justice for the completion of my dissertation on
the given interesting and currently hot topic of ‘Issues and problems in
Islamic Banking’’.
3.2 - What is Research Methodology?
Therefore, researcher will try to explain about ‘Research’. ‘’Research
is a way of finding, examining and critically evaluating the data and
information etc. which are going to support my research work’’ (Hussay &
Hussay 2006). Some more definitions and descriptions given by well-known
writers and researchers are cited in the following:
-
‘’Research
is, an organized enquiry that develops acceptable scientific methodology to
solve problems and create new knowledge that is normally applicable (Dawson,
Catherine, 2005).’’
-
‘’Research is a process being carried out
within a defined framework of a set of philosophies (approaches); Apply
techniques, methods and procedures that have been tested for their reliability
and validity, Research is also can be used to be unbiased and
objective.(Dawson, Catherine, 2002).’’I am now going to be more elaborate about
the meaning of the above lines in an easy way to help the reader to understand
what ‘a research activity’ actually is ? I have used the word the ‘philosophies’
(see above), which simply means the approaches adopted in any research will
that include ‘quantitative and qualitative’ aspects depending upon the nature
of the topic given or chosen.
Therefore, researcher is going to use ‘Qualitative’ approach for his
dissertation topic ‘Issues and problems in Islamic Banking’ is to do with
feelings of diverse people, caused by their opinions on Islamic banking
principles and systems, including legislation and regulations of banking
industry the quantitative approach will serve little even if there was any
sensible and acceptable quantification of the subject matter is possible. To make it meaningfully relevant to the
discursive nature of the subject matter (i.e. topic) researcher have consciously
chosen the ‘qualitative’ approach that will be considered more justifiable
research on topic and complete his dissertation for it submission to the
relevant tutor / authority.
‘’Meaning of validity’ is to apply the correct procedures to find out
the right answers to the questions.
Reliability states to the excellence of a measurement procedure that provides
scientific exactness. Unbiased and objectiveness are really important elements
in any appropriate research relating to any topic and mislead the new
researchers to follow on.
Compliance to the two principles mentioned above enables the method to
be called a best ‘research’’ (Kothari, C.R., 1985)([i]). ‘’Research is
a way of life dedicated to discovery (Laurie Rozakis, 2007).’’ Research is a
way of examining your practice (Dawson, Catherine, 200). ‘’Research word is a combination
of ‘’Re + Search’’ (Plutchik).
Research is a tool which we can use to find comprehensive and
intellectually examining for facts and their inference with reference to the
problems under study. According to Elisa (1986) Research is
equal to aim, ‘’the aim, as far as I can see, is the same in all
sciences. Put simply and cursorily, the aim is to make known something
previously unknown to human beings. It is to advance human knowledge; to make
it more certain or better fitting the aim is discovery”. Therefore it is really
important to justify the research methodology to be used for my dissertation
topic as above.
3.3 - ‘Qualitative’
versus ‘Quantitative’ Research
3.3.1 Qualitative
Research:
We can use to analyse the behaviour of the social society and the people
live in and their experiences about any event (Immy Holloway, 1997, p18). ‘’There is no such
thing as qualitative data. Everything is either 0 or 1" (Fred Kerlinger,
p.40) Qualitative research
provides guidance in obtaining a better understanding of the topic. Qualitative
research is cheap and easy to conduct (Hine and Carson, 2004). Qualitative
research also helps to the researcher to understand the opinions and thoughts about
any issue/topic to give clear understanding (Elias 1986). The idea of qualitative research lies in the
interpretive approach to social truth (Immy Holloway, 1997, p18). Interpretive
model/approach deals in history, philosophy and human science. ‘’The approach
centres on the way in which human beings interpret and make sense of their
subjective reality’’ (Immy Holloway, 1997, p19).
According to, Denzin and Lincoln (1994) qualitative research is equal to
different things to different people. Therefore, researcher uses for his
research topic more than 95% qualitative research to find out the best
answers/solutions of my research questions.
3.3.2 Quantitative Research:
Furthermore, researcher intend to give a
brief reference and short discussion about quantitative research for the ample
reason that he is going to use qualitative research methods as opposed to
quantitative ones in his chosen topic basically warranted by its nature.
‘’Quantitative method tool is used to predict and measure, leading to a final
course of action (mouly 1970)’’. It is referred to as hypothesis-testing
research (Kerlinger, 1964). It involves
mathematical and statistical tools to find out the answers of the empirical
investigation (Hussey and Hussey, 1997).
·
Interviews
·
Self-Completion Questionnaires
·
Personal Observation
·
Sampling
Therefore, researcher used for his topic above types of data collection techniques
to find out the answers to his research questions. First of all, researcher is
going to discuss about ‘interview’: Therefore, an interview is a common
process of collecting required information in which interviewers question
people on the topic of the survey.
Interview can be face-to-face or conducted by Skype or on phone.
Face-to-face interview is expensive, but gives the great opportunity for the
interviewer to explain problems/questions and to investigate more deeply into
any answers given. Interviews on a phone
or on a Skype are relatively cheaper but time saving. Interviews may be unstructured,
semi-structured or structured’ (Fontana & Frey, 2005).
a) Unstructured
Interviews
In this
type of interview, an interviewer does not have a set of arranged questions and
the importance is often on finding out the interview’s point of view on the
topic of the survey (Punch 1998). Thus, neither
the questions nor the answers are predefined. Instead, this type of interview
totally relies on social interaction between the interviewer and the interview
(Minichiello et al. 1990). According to Patton (2002) this type of interview
cannot be conducted without comprehensive knowledge and preparation, to achieve
full confidence.[1]
The
interviewer will keep in mind the purpose of the topic and the general scope of
the problems that he/she would like to discuss in the interview (Fife, 2005).
This is really important for an interviewer to get knowledge and experience
about how to conduct an unstructured interview (Minichiello et al., 1990). Researcher use most of the time this type of
interview for his research. Therefore it
is totally depend on his experience in religious field as well as other fields
meaning teaching in a college.
§ Importance of interview in Islam
If researcher talks about the importance of this type of interview in
his religious field, researcher entire religious teachers (i.e. Sufis) quote
one phrase in their saying. That is ’’
Whenever you are going to see a ‘Sufi’ or Islamic scholar to gain some
knowledge about Islam or asking some solutions/answers for your problems/questions
you have to think, your bowel 1 of knowledge is empty and you
need fill it with the followers 2 of his saying. If you
prepared yourself with the questions which you are going to ask from him you
cannot full your bowel properly (Sofi Abdul, 2009). With above explanations
researcher will conduct unstructured interviews to support his dissertation
topic to find out relevant answers.
b) Semi-Structured
interviews
In this type of interview,’ the interviewer has a set of organised
questions, but is happy to discover other appropriate problems elevated by the
interviewee’ (Tom
Wengraf, 2001).
c) Structured
interviews
In a structured interview,
interviewers ask predefined questions and interviewee listen the question with
great attention and try to give the answers with his or her best
knowledge/experience. For that kind of interview an interviewer use a
questionnaire to find out the answers. It involved ‘’closed’’ type of questions
(i.e. each question has a predetermined set of options for the response, such
as a box to be ticked).
For example: Q
– 1. Do Islamic banks provide real Islamic Banking system?
Answer Box to be ticked: Agree, strongly agree, disagree or strongly
disagree
‘Structured interview is
really useful if the information being sought is part of a clearly-defined
business research project’(Bruce Pfohl, Nancee
Blum, Mark
Zimmerman , 1997, p38).
3.3.4
Advantages of Interviewing:
The main benefit of the interviewing is collection
of data is fast and cheap. In face-to-face interview an interviewer will
usually get high response rate. In face-to-face interview the interviewer is
also in a good position to explain any question, although the amount of
explanation should be defined during training (Fred
Edward Inbau – 2004, p9).
3.3.5 Disadvantages
of Interviewing:
The main disadvantages of interviewing in
collecting data are that the use of a large number of interviewers leads to a
loss of direct control by the researchers of the project. In interviewing if
the interviewer is not properly trained and experienced then this is a waste of
the money, time and effort as well as not getting the required result of the
study (Leonard
Cargan – 2007, p118).
3.3.6 Self-completion
Questionnaires:
In this type of data collecting the respondent complete ‘Questionnaire’
without any help from the researcher.
Questionnaires can be sent by the interviewer to the respondent by an
email or send in post or just use any website who can design a survey form for
the researcher in ‘HTML’ format. The design or layout and the language used in
questionnaires should be easy and clear for the respondent. Following
principles should be used when designing a questionnaire: (Roland
P. Carpenter, David
H. Lyon, Terry
A. Hasdell – 2000, p54):
1- Each question should be short and simple.
2- The design of the questions should be in logical
sequence.
3- First explain the purpose of the research to the
respondents then they will feel happy to give the answers to the questions.
4- The answers provided by the respondents of the
questions will be treated confidential.
5- And respondent’s personal information (for example;
Name, Age, Address and his marital status etc.) will also be kept confidential.
6- If possible, only definite and short answers are
used; for examples ‘Yes’ or ‘No’(Sally
Brown, Philip
Race, Joanna
Bull – 1999, p29 )
3.3.7
Research Questions:
See
appendix No.1
3.3.8 Advantages
of Questionnaires:
This method of research
is economical and allows plenty of time to the respondent to think about the
questions with great attention and try to give the answers in an effective way.
I have personally experienced during my research time. And have also got some
useful feedback and/or suggestions from the experienced respondents about how I
can improve my research study. (Mark L. Mitchell, Janina M. Jolley -2008, p135).
3.3.9 Disadvantages
of Questionnaires:
Questionnaires results may be based on bias. In this method of research there must be the
scope and ability to get back the questionnaires from the respondents on time.
Because, some respondents based on some experience do not bother to fill the
questionnaire at all or on time. And the important issue in this method of
research is to send the questionnaires that are willing to fill it. ‘’This is a
limitation on the large filed as well as it is closer to selection process that
may be biased’’ (Stephen
Moore – 2001, p27).
3.3.10 Personal
observation:
This is also one of the methods which researcher use in his research but
it is used only 10% of this approach in my study. This is according to ‘Islamic law’ where a
person can use his or her own personal observation so long as he/she has
reasonably sufficient knowledge of/about Islam.
However, it is also vitally important that the person using hi/her personal
observation does so strictly in accordance to teaching of ‘Quran’, Hades’ and
Islamic Fiqah. ‘’Personal observation
means that the data collected is normally limited by the resources available’’
(Paul
Minar, 2006, p11).
The main advantage of this technique is that data is observed directly
instead of being obtained from different sources (Susan
Yuan, 1995). But
there is a big problem in this method which is ‘personal biases. This problem arises when only part of the
data available is being observed (Edmund
Ferreira, Annatjie
Erasmus, Darelle
Groenewald -2010
,p387).
3.3.11 Sampling:
As a matter of fact it is not possible for the researcher to include
each and every one in the research program. That is why almost every research
is based on sampling. According to (Sam
McGuire, Roy
Pritts – 2007, p1) sampling is a procedure, which involves selecting
right participants for a specific research. That is why it is really
important for me to choose right persons for my research to get relevant and
reliable results for my study. Therefore, I choose some Islamic scholars;
Bankers (include Muslims and non-Muslims) and Professionals for my sample (3).
Before further going more, researcher thinks at this point to discuss
further about sampling procedures, are as follows:
·
Population:
According to (D.
A. De Vaus - 2002) ‘’a population is the set of all the objects or
the individuals which have a given characteristics, for example the set of all
Islamic scholars who have some knowledge about Islamic finance’’.
·
Sample:
According to (David
S. Moore – 2009, p222) a sample is a subset of a population, for example
the Bankers selected for questioning about their views.
·
Sample
survey:
According to (Arlene
Fink – 2003, p34) the procedures which are used for collecting the
data from a sample is called a sample survey, for example asking the selected
Islamic scholars from the whole population on their views about Islamic
banking. This is called sample survey.
The question: What are the reasons to choose sampling procedures
in my research study?
a) Speed:
To collect the data for my research is not very
easily possible until the participants in a sample are divided. Once the division of sample is carried out, I
am able to collect the required information from my participants fairly easily
and quickly.
b) Cost:
It is
economical process to collect information from my sample instead of the whole
population.
c) Control:
If a sample is small then a researcher can easily control instead of
whole population. Because of the greater control on my sample size i got higher
response rate. It was possible for me
to conduct an interview of sample under the same conditions.
d) Accuracy:
The level of accuracy of a survey is assessed from
the size of sample chosen.
e) Quality
Researcher
needs only twenty five interviews from my whole of population which consist of
forty two participants. It was easier
to me to devote a greater degree of effort and control per interview than with
a larger number of interviews. And, because of that, researcher got quality
answers to his questions from interviewees.
Rest of the 17 people chosen by me to fill the questionnaire, but I got
the answers of my questionnaires with some Bias; Therefore, researcher choose
one sample of people for my research from the population 40% people have their
accounts in Islamic banks or thinking to have an account in Islamic banks and
thinking to buy Islamic products, for examples Islamic mortgages and fixed rate
Islamic bonds etc. which provided by the UK banks. But out of that 40% people
send me back my questionnaires on a different time like 20% of that send me
back after more than twenty five days later and 10% people take more than one
month and 5% people send me back within 10 days’ time and 5% people send me
back within 3 days’ time.
I got all 40% results back after some reminders sent to them. But this
sample dose not has any Islamic background, because I choose 10 Muslims and 5
christen and 2 other religion people for my sample. According to (financial
times 18-03-2011) report in UK’’ Muslims and non-Muslims are just getting
Islamic mortgages because they can save ‘up to 4% stamp duty if the value of the
property up to 0.5 million pounds’ according to 2005 mortgages policy issued by
the ‘Labour Government’.
According to (Pascal Ardilly, Yves Tillé, 2002) sampling has different methods to do sampling,
which are as follows:
3.3.12 Probability
sampling:
·
Systematic
sampling
·
Simple random
sampling
·
Cluster
sampling
·
Simple random
sampling
·
Cluster
sampling
3.3.13 Non-probability
sampling:
·
quota
sampling
·
snowball
sampling
·
convenience
sampling
·
judgemental
sampling
Researcher applied ‘systematic sampling’ method for his research.
‘’Systematic sampling involves the selection of a certain proportion of the
total population’’ (Wayne A. Fuller, 2009).
3.3.14 Advantages
of systematic sampling:
i)
speedy
method
ii)
close to
simple random sampling
iii)
Justify
its widespread use.
3.3.15 Disadvantages
of systematic sampling:
i)
There is
a chance of bias by the researcher
choosing participants for the sampling process;
ii)
Chances
of under-presentation or over-representation;
3.3.16 - Ethics
consideration:
It is really important for the researcher to show ethical behaviour
(Blumberg et al, 2005). . ‘’There are two types of the Ethics,
Normative and Descriptive. Normative Ethics is concerned with supplying and
justifying a comprehensible moral system of thinking and judging. Normative Ethics, we can use to pursue to
develop and justify basic moral principles that are proposed to guide behaviour,
decisions and actions. Descriptive Ethics is concerned with characterizing, and
studying the morality of an organization, a society or a culture. Descriptive
Ethics, we can also use to compare and contrasts different beliefs, values,
moral codes and practices’’ (A. Nelson 2010).
Therefore, it is really important for the researcher for this research
work have to be followed the Business Scholl (Kingston university) ethical
guidelines. The participants must be
informed in advance about the confidentiality and privacy of the information
gathered and assured the participants that the information (data) will be used
by the researcher and the supervisor of the research study. What happened with
me, when i was trying to conduct some interview from my sample frame? Some of
them need to see a written statement from me about the confidentiality of the
information which i collected from them.
3.3.17 Conclusion
Eventually,
I am just going to conclude at end of this chapter about the importance of
‘Research Methods’ to support my dissertation topic. In this chapter, i also
explained the importance of interviews, questioners, personal observations, and
sampling techniques. Moreover, this
chapter also discussed the importance of ethical considerations, in conducting
the research process. Therefore, with the help of code of ethics a professional
can try to minims the risk level. I used
all above methods to justify my research study and have attempted
to give as clear a picture as possible to any readers of my study.
3-
Researcher choose for my study 15 Islamic scholars
from all around the world and 13 Bankers from UK and from Pakistan.14 Professionals
which include accountants, lecturers and businessman from Pakistan and UK.
Total population =42 participants
Chapter
No. 4.0
Recommendations
and Conclusion
4.1 introduction
This last chapter presents the findings and results
of the interviews, questionnaires and some other research techniques which i
undertaken in throughout my research process. This chapter is based on the
views of Islamic banking system stakeholders from both public and private
sector. Furthermore, the importance of the Islamic finance planning is
discussed from the participant’s point of view together with the elements that
make Islamic banking system planning successful. These elements include public
and private sector cooperation, community involvement, implementation, right
interpretation of Islamic law monitoring and evaluation. Furthermore, a
detailed description of the methodology employed and interpretation of the data
has been given. This chapter also discusses the main findings from literature
review and research conclusion. It gives some recommendations drawing from its
further analysis and it is followed by the last bit which is limitations.
4.2
Findings of the Dissertation
Some issues and problems which are facing by
Islamic banking system I discussed in chapter No.1. In this chapter, I just try
to give some reasonable solutions for those problems to see real and successful
Islamic banking system in near future.
My topic name has a strong relation with Islamic law, means Quran and
hades. Therefore, I start my discussion with importance of holy Quran laws in this
specific banking system. Being a Muslim
or Non-Muslim we have to be having a firm Believe on Allah’s (SWAT) decisions
which he makes for us. Allah (SWAT) says in holy Quran you can find every
problem solution from this book. ‘’Did you not
know that Allah knows whatever is in the heavens and is in the earth. Undoubtedly, all this is in a Book. Verily this is easy for Allah’’ (Al-Quran,
Chapter No.17, Surrrah No.22, verse No. 70). During my findings about my topic,
i was surprised 75% professionals (excluding Islamic scholars) do not have
religious back ground. And even they do not know how to read Quranic verses
which is really important for a Muslim to understand the basics of Islamic law
and they just only know some famous Islamic finance terms e.g. Musharakah and
Mudarabah.
Furthermore, during my findings process, I was astonished, when i saw
Islamic finance advisors work in different Islamic banks in UK. They are also
confused about Islamic products. ‘’They told me if you want to know more, then
you have to contact with our shariah advisory board’’. I tried to make contacts
with one of the shariah advisory council but unfortunately i did not success in
my first few attempts. After that, luckily I had some meetings with some
mufties. Then i understood some points about Islamic banking system. During my
research i found some big problems in Islamic banking systems, which are as
follows;
·
Lack of communication between Islamic
banks advisors with Islamic banks shariah advisory council;
·
Lack of religious education or
knowledge;
·
Lack of training in Islamic financing
techniques;
·
Need a central shariah council
·
Lack of confidence about Islamic
products;
·
Need,
interest-free return on their investments
Some of the problems i already
discussed in last chapters in details.
4.3
General Recommendations
I start my general recommendations about the importance of effective
communication in an organisation. ‘’Communication is the soul of an
organisation’’ (Iftikhar Ahmad, 2004).
‘’Effective communication is the key success of an organisation’’ (S.Q
Hussain, FCA, 2003). After this point we are moving towards the importance of
religious education. According to Quran ‘’Are those who know equal to those who
know not? Only those who are endued with understanding receive admonition’’
(Al- Quran, chapter No.23, surah No.39, verse No.9). This is really strong
verse of the Quran about the importance of religious education in every filed
of life. According to hades words, Prophet Muhammad said; ‘’ to gain knowledge
is compulsory for every men and women’’ (Bukhari Sharif, volume 9, p345 old
publication).
For example, ‘if
a doctor wants to do a heart surgery without proper heart surgery experience
and full knowledge then there is 99% chance of a death of the patient’(Mufti Qazi, March,2011).
Therefore, this is compulsory for financial advisors for Islamic banks
especially to get appropriate knowledge and experience in Islamic finance
field. ‘’Lack of training in Islamic finance, is a big reason to raise
misunderstanding about Islamic banking system’’ (khan, 2007). Now days allot of
Islamic academies and financial institutions are offering short courses for
Islamic finance products. Islamic banks which want to offer training programs
to their employees they have to make sure about following things;
·
Selection of the employees
·
Choose training academy running by
Renowned Islamic Scholars;
·
Decide about the Length of course (e.g.
day release course, sandwich course, weekend course etc.);
Moreover, after the above points, for example, like Pakistan and
Malaysia have already formed one central sharia council body. The important
point formation of the body, it has to be acceptable of four schools of thought
followers. There is no doubt, in UK some shariah councils are already working
but majority of Muslims does not have trust on their works. Therefore, all
Islamic scholars from different school of thoughts choose their representatives
for that shariah body.
The advantages for that council
might be are as follows;
·
Liaison with Islamic banks advisors;
·
Issue a monthly new letter relating to
challenges facing by Islamic banking system with the solutions;
·
Facilitate to the banks on new Islamic
products;
·
Issuing timely decisions about any
Islamic finance problems;
·
Introduce standardisation across the
industry;
·
Provide trainings to new generations
about Islamic finance with the help of modern techniques etc.
After following all above points
there is great chance for Islamic banks advisors to get high confidence about
Islamic products. After that, Muslims
can go for more Islamic banking system Instead of conventional banking system.
4.4
Important recommendations
Now,
i start important part of this chapter with really important recommendations.
There
are some big dreams almost for every Muslim are as follows;
1. To
earn interest-free return on his or her investment;
2. To
have a house with interest free mortgage rate;
If we look back in a history again, we can see some important
suggestions relating to elimination of interest with any return. ‘These kinds
of recommendations made by Pakistan shariah advisory council board, that
advisory council board headed by the finance minister of Pakistan. This shariah
advisory board was established in 1980 by Pakistani government with the help of
different Islamic scholars and professionals from all around the world’
(Siddique, 2006, v4, p133). The report
issued by the advisory board consist of almost 127 pages is a valuable
contribution to the important literature on Riba-free banking system. This was
the great achievement of Pakistani government in Islamic banking history.
According
to paragraph No.1.27, ‘Qard-e-Hasan is really important element of Islamic
finance. Qard-e-Hasan, ‘is a loan with free of interest element’ (Ayub,
2007).Therefore, according to this type of Islamic finance banks and other
financial institutions issue Qard-e-Hasan for a short time to fulfil the
financial needs of the community or a business and banks can be charge some
specific fee with the name of ‘admin fee’ in advance only not with the name of
as an interest. This report paragraph No. 1.23 categorically state that’ the
loss would, however, be shared strictly proportionately to the respective
capital contributions’.
Prize Bonds is really
famous Islamic finance technique which is using currently in Pakistan and
issuing by Pakistani government whenever they need finance. It is totally
different with ‘Gharar’ because if you win in a lucky draw then you can make prize
or extra money otherwise your money is still safe. For example, Pakistani
Government Issue totals RS 2.0 million prize bonds for the public. One prize
bond price (face value) is Rs 200.00 with first prize Rs50000.00 and Second
prize Rs 25000.00 then 3rd prize Rs 10000.00. If the buyer of this
bond dose not wins he or she has a chance go to financial market and sell it
and recover his or her face value which was Rs200.00 at any time. But in
‘Gharar’ you can lose your actual money as well, for example, lottery system in
UK and Europe. Pakistani prize bond system is really helpful finance system for
the community and as well as for the government’s to raise interest free
finance from the nation at any time (Paragraph No. 1.48). According to (Mufti
Akmal Qadri, 2008), Fatwa’s on ‘Prize Bonds is ‘Halal’ in Islam.
Moreover, advisory council provide some more guidelines about day to day
business activities within the Islamic law framework. In short, advisory board
state some recommendations for examples, Islamic financing techniques which I
have discussed already in chapter No.2. Those recommendations have been
following by different banks in all around the world.
4.5
important Islamic Fatwas on Riba (Interest)
As I discussed in ‘literature review’ chapter, in
details the importance of fatwa in Islamic law. According to Quran and Hades
Riba is ‘Haram’ in Islam. That is why I took some fatwas, to understand in
depth what is actually interest and how it is Haram in Islam. During that
period of research, I found or took some really important Fatwas personally
from world renowned Authorities in Islam. First, I am going to write an important Hades
on Riba is ‘Halal’ for Muslims but when,
.’’
بي Ů„Řر ا ؤ لمسلم ا بين لاربؤا’’
Meaning of above Hades words is; ‘‘There is no
Riba (interest) between Muslims and Non-Muslims’’ (Hidyah Sharif, p978, v1 and
Kitab-ul- Bayuooh, p657).
Moreover
, I am going to discuss the first Fatwa on Riba is ‘Halal’, with the help of
above Hades, ‘’ There is no interest element, when Muslims do trade or business
with Non-Muslims and if Muslims earns or receives an interest on their
investment’’ (Mufti Ishfaq Ahmad Qadri Rizvi, UK, 16-08-2011).
Furthermore, (Mufti
Ishfaq, 16-08-2011) elaborates more on this above hades with issuing one more
Fatwa, ’’ In Hidyah Sharif , book name Al Bayuooh it states that the wealth of
a Non-Muslim is allowable for a Muslim providing such Muslims are living in
non-Islamic countries. The reason being that the responsibility, of looking
after the Muslims is in the hands of non-Muslims. In contrast, a ‘Dhimmi’ is a
Non- Muslim subject of an Islamic state and therefore governed to a large
extent by shariah laws.’’
Second
Fatwa on ‘Riba, Halal’ issue to support my recommendations for this chapter, ‘’
Non-Muslims Banks gives profit to their Muslims customers which is not ‘Riba’
this kind of profit is allowed only from Non-Muslims banks according to above
hades’’(Mufti Abdul Wahid Qadri, Netherland, 2011, Book Name, Fatwa-e-Europe,
p487). Furth more, Mufti Abdul Wahid said’ if Muslims invest their money in
Non-Muslims institutions or investment companies and getting profit it is also
allowed’’ (Fatwa-e-Europe, v1, p487).
Therefore, i
just try to summaries above ‘Hades’ and’ Fatwas’ in an easy way to create
better understanding of the reader. Basic concept of the Riba in Islam, it is
not allowed only between Muslim to Muslim. Therefore, this is great
recommendations of this chapter for the Muslims investor, if they want to earn
profit on their investments. Therefore, they have to be open their accounts in
Non-Muslims banks and enjoy higher Profit rate and make clean money free of
Riba element in Non-Muslims banks. According to above ‘Hades’ and ‘Fatwas’
important point is, ‘Riba is only
allowed on receiving profit but on the other side paying interest is still not
allowed for paying loans’.
4.6
Important Islamic Fatwas on interest free Mortgage
As I mentioned
above to have a home is a dream for everyone but it is not possible to pay all
price of the home in one go. That is why majority of people including Muslims
and Non-Muslims apply mortgage and as we know mortgage includes two elements
capital plus interest. This is again a problem for Muslims to pay interest,
which is not allowed. Therefore, i just try to solve this problem
also for Muslims with the help of the Holy Quran and with some Islamic Fatwas
which I took in month of 17-08-2011.
According to Holy Quran ‘’and whatever they have done is in the Books’. ‘And
everything, small or big has been written down’’ (Al-Quran, Chapter No.27,
Verse No. 52-53, Surrrah No.54). These two above verses of Holy Quran clearly
states that you can find everything from this Holy book. In Islamic Law we use
one word, ‘SHARIAH HIALLAH’ this is
really important point to solve new modern Islamic problems with the help of
this.
4.6.1 SHARIAH HIALLAH
This is pure Islamic term which is not easy to understand for those who
do not have any proper Islamic background. That is why I gave two details
references from the Holy Quran about this Islamic term.
No.1 ‘‘Then they went
to Prophet Yusuf (Joseph), he gave his brother a place near to himself, he
said,’ Believe, I am your brother, therefore be not grieved of whatever they
do’. Then when he made ready their
baggage, he put the drinking cup in the saddlebag of his brother. Thereafter a
crier cried. O men of caravan, no doubt, you are thieves’.’ They said, 'we do not find the king' measuring cup, and
whosoever will bring it, He shall have a camel's load and I am his guarantor’.
They said, By God, you are well aware that we came not for creating mischief in
the land, nor we are thieves’.’ They said, what is the penalty of him, if you
be liars?’ ‘They said, its penalty is that he in whose baggage it is found be
himself the servant in recompense. Thus is the punishment of the unjust at our
place. ’Then first he began the search of their bags before the bag of his
brother; then he took it out from the bag of his brother. We taught Yusuf to
plan. He could not take his brother under the King’s law but this that Allah
willed. We exalt in degrees whomsoever we please and above every man of
knowledge there is one of more knowledge’. ‘the brother said, if he commits
theft, then no doubt his brother has already committed theft before, then Yusuf
kept this thing secret in his heart and did not disclose it to them. He said
within himself, you are at worse place, and Allah (SWAT) knows well what you
fabricate’’ (Al-Quran, Chapter No.13, and Verse No.68 to 76 and Surrrah
No.12).The important point of above all verses ‘Allah (SWAT) knows everything
about the ‘Fabrication’ of above story’. This is ‘shariah Hillah’s’ first
reference from the Quran.
No.2 Second reference from the holy
Quran,
‘’ and remember our bondman Ayub (Job). When he called his Lord (Allah) that
the devil has touched me with affliction and oppression’. We said, ‘strike your
foot with the ground, here is the cool, stream for bathing and for drinking’.’
And we bestowed him his family and others like them in addition to them as a
mercy from us and as admonition to the people of understanding’.’ And we said,
‘take in your hand a broom of dry grass
and strike there with and break not your oath. Undoubtedly, we found him
steadfast, what an excellent bondman was he? Verily he is of returning’’
(Al-Quran, Chapter No.23, Verses NO. 41 to 44, Surrrah No.38).
With references of above Quranic verses, (Mufti Ishfaq Qadri, 16-08-2011
and Mufti Akmal Qadri, 2-06-2008) issued two important Fatwas in details about
Interest free mortgage issue,’’ if anyone wants to buy a house but that person
does not have a finance then he or she has to be gone to the financial
institutions or banks owned by Non-Muslims. Banks or financial institutions buy
a house for that person then that person buy back from the bank or financial
institution. Bank charge not whole of price in full but make some instalments
with the agreement of buyer. As we know instalments of the house contains two
elements, one is capital and second is interest. Then Muslim buyer have to be
explain to the banks about ‘shariah Hillah’ process to the mortgage advisor and
say to the advisor, ‘ I will pay you the capital element straight but for the
interest element bank must sell say one ‘Pen’ and bank assume bank is charging
the price of the pen not the interest of the house price. This procedure is
totally based on assumption or agreement between both parties according to
above Quranic verses. This is not compulsory for the buyer or the seller to
sell something along with the house but to understand the ‘shariah Hillah’
process. ’’
Another Fatwa on Mortgage issue ‘’Consider for example the buying of a
house mainly financed using a mortgage: ‘’If it is ‘absolutely necessary’ to
buy a house, then a mortgage is permissible providing the founder and current
owners of the bank or lending institution are Non-Muslims. Imam Ahmad Raza Khan
(Fatwa-e-Razawai, v21, p276) defines absolute necessity as that necessity which
is acceptable under shariah and such that a person cannot survive without it on
a daily basis. In relation to housing, absolute necessity would apply if
renting accommodation was not viable; maybe the costs involved are too high or
the size of the accommodation is too small in relation to the size of the
family. Or it may be that rented accommodation cannot be found in a suitable
location where a family feels secure. In such cases ‘absolute necessity’ would
allow a person to buy his own home using a mortgage’’ (Mufti Ishfaq Qadri
Rizvi, 16-08-2011 and Book Name: Al- ishba Wan-Nazair, p876).
There are some limitations from above Fatwas only
one house for one family is allowed to fulfil the basic necessity not more than
one.
4.6.7 Conclusion
At
the end of this chapter, I just want to conclude for the reader to understand
any Islamic things must have to be making connections with Qualified Islamic
scholars (Mufties). Furthermore, for Islamic products, I just refer to above
fatwas which I used in my study. Remember above ‘fatwas’ are only applicable
for investments and mortgage problems and not for other Islamic banking
products. Furthermore, 1980’s shariah advisory council report’s recommendations
are really important for Islamic banking system because that was the first
report in Islam history made by the government of the country with the help of
different Islamic scholars and professionals.
4.6.8 Limitations for the study
There were
several limitations to this dissertation work. The big limitations appeared in
finding the right or appropriate participants for interviews. This is because
there were no replies received from some emails and telephone attempts done by
researcher. Therefore, the participants were chosen through sampling. Some more limitations which research were
facing, for examples, cost of the traveling for the field work and cost of the
collection of data and traveling cost.
Furthermore, translations of Quranic verses from Arabic to English
according to Islamic law and translating different Fatwas also from Urdu and
Arabic to English with the help Mufties. The interview schedule time which was
set up for July and August 2011, was in disadvantage to researcher because of
the ‘Ramadan’ as at this time of the year most of the Islamic scholars were
busy in their worships and went for ‘Umrah’ in Makkah. I tried my best to complete this report with
my heart and sincerity, if I make any religious mistakes; Allah (Azwajallah)
forgives me.
Chapter
No.5
REFRENCES
and Appendix
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2-
Angelo M. Venardos (2006). Islamic banking
& finance in South-East Asia. 2nd ed. UK: World scientific Publishing Co.
Ltd. p113.
3-
IBP USA Staff (2009). Islamic Financial
Institutions (Banks and Financial Companies). USA: USA International Business
Publications. p14.
4-
Miles Taft Bryant (2004). The portable
dissertation advisor. California: corwin press. p64.
5-
Kabir Hassan, Mervyn Lewis (2007). Handbook
of Islamic banking. UK: Edward Elgar Publishing. P401.
6-
Frank E. Vogel, Samuel L. Hayes - 1998
(1998). Islamic law and finance: religion, risk, and return. Netherlands:
Kluwer Law International. p147.
7-
Muhammad Nejatullah Siddiqi. (1983). Issues
in Islamic Banking. Available: http://islamiccenter.kau.edu.sa/english/Journal/Issues/Pdf/Old-1-1/MNSiddiqi_13.pdf.
Last accessed 19-07-2011.
8-
Ahmad Hidayat Bin Buang (1996). The
prohibition of 'Gharar' in Islamic law of contracts. London: University of
London. p34-56.
9-
Hisham M. Ramadan (2006). Understanding
Islamic law. UK: Rowman & Littlefield ,publisher. p100.
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Taqi Usmani (2002). An introduction to Islamic finance . Netherlands:
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Appendix:
No.1
i) Islamic Bank Mortgage rate move along
with the LIBOR Rate?
- Answer (Only one box to be ticked): Agree, strongly agree, disagree or
strongly disagree
ii) Do Some Non-Qualified
Islamic Scholars who are just selling their Islamic Believes to
issue wrong ‘Fatwas’ (Islamic decrees)
or doing wrong interpretation of the Quran or Hades ?
-
Answer (Only one box to be ticked): Agree, strongly agree, differ or strongly
disagree.
iii) Do Islamic Banks get one
Fatwa for one product but use same Fatwa for all products?
- Answer Box (only
one to be ticked): Agree, strongly agree, disagree or strongly disagree
iv) Do Islamic banks sell their products free of
interest Rate?
- Answer (Only one box to be ticked): Agree,
strongly agree, disagree or strongly disagree
v) Does Islamic banking is same
like Conventional Banking System?
- Answer (only one
box to be ticked): Agree, strongly agree, disagree or strongly disagree
vi) Are all Muslims happy with
current Islamic Banking system?
- One Answer boxes to be ticked: Agree,
strongly agree, disagree or strongly disagree
vii) Does Islamic banking really
possible?
- Answer (only one box to be ticket): Agree,
strongly agree, disagree or strongly disagree
Researcher used all the above questions as a
part of my dissertation as well as during my
field work.
Appendix N0.2
Fatwas in
actual writing:
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