Legal rules needed for Islamic banking


IKIM Views with Dr Zainal Aznam Abd Rahman

BUSINESS and banking are not alien to the Muslim community. 

The Prophet of Islam himself was a successful trader long before he was made a messenger of Allah. 

As a religion, Islam is very supportive of business and finance.  

It teaches that children need to be taught about financial management from an early age.  

Riba’ or interest is greatly frowned upon by Islam as it leads to injustice and exploitation by the rich against the poor.  

But the Islamic way of doing business is not confined to eliminating riba’ from commercial dealings. 

Fraud and deceit are also other two big enemies.  

The Prophet was quoted to have said: “ Who cheated us is not one of us.”  

The prime objective of Islamic rulings on business and commercial dealings is to ensure that transactions are carried out in an equitable and fair manner based on the Islamic notion of justice. 

Justice dictates that contracts must be entered based on full knowledge about the subject matters involved and with the full consent of the relevant parties. 

Transparency thus is the key to the entire process so that each party to a contract knows exactly what goods are being sold and purchased and receives what he paid for. 

Unacceptable elements of uncertainty or gharar will make an agreement void.  

Conducting halal business is one of the noble ways to earn a living.  

A hadith even said sincere traders would be among the prophets, martyrs and truthful persons in the hereafter. 

Halal business needs an efficient legal regime to support it. High moral standards are also needed to complete the process. 

In Islam both moral and legal considerations work together to achieve perfection and justice. 

In modern Malaysia, Islamic business and finance started long before the advent of the contemporary Islamic banks and financial institutions. 

The first serious effort to carry out a systematic Islamic scheme for the saving of money was the establishment of Perbadanan Wang Simpanan Bakal-Bakal Haji in November 1962 to help Muslims save enough money through a non-interest saving scheme. The system started operating on Sept 30, 1963.  

Now Tabung Haji is one of the biggest players in Islamic business activities in the country.  

It has been said time and again that one reason for Malaysian Muslims' reservations against business and finance is that since before Independence up to the last 30 years or so, all business and finance activities could not escape from riba’ or interest elements. 

The Malay Muslims in particular would not involve themselves in such business and finance activities for religious reasons.  

Today however, with the presence of Islamic banking and financial systems, such reservations have started to decrease to some degree.  

This, among others, shows how imperative Islamic business is to the development of the Muslims' economic situation.  

It does not mean, however, that Islamic business concepts and products are meant only for Muslims. 

Islam propagates universal messages and its stance on justice and fairness in dealings is not difficult to be appreciated by sincere observers.  

Past generations of Muslims had played their role in advancing the role of the Islamic concept of business and finance.  

They gave us a vast ocean of legal literature on the Islamic law of contract containing detailed rules relating to commercial dealings known by the term fiqh al-muamalaat (science of commercial dealings). 

In fact it was the Muslims who introduced the method of payment via cheques, based on the principle of hawala or transfer of debt and suftaja

Islamic business law also knows the notion of sale and exchange of debts although it views negatively the possibility of debts being exchanged or sold for higher or lower than their face value to avoid riba’.  

In a wider sense, past Muslim jurists had discussed at length the issue of currency fluctuation, its effects on debts and obligations and the Islamic way to address it. 

Today the urge to return to the gold dinar as a method of payment remains as relevant as ever.  

Stability in the currency rate of exchange in itself is a pre-condition for a stable economy.  

Given the present interest in and acceptance of Islamic business and finance system the world over, and the prominent role played by Malaysia in introducing quite a number of Islamic financial products into the market, it seems we have already surpassed the initial state of development of this sector. 

What is needed now is to further cement the building bricks that have been built.  

The Financial Sector Master Plan in itself is quite obvious about the future direction of Islamic banking and finance in this country when it set the 20% target for Islamic banking assets by 2010. 

However, in the process of achieving the target, the legal environment and framework must be improved to further facilitate the growth. 

No matter how good a system or product is, unless there are enforceable legal rules to support it, in the final analysis, it cannot be practically applied or used. 

Perhaps it is high time for us to seriously consider the need to introduce an Islamic Commercial or Banking Code. 

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