We Don’t Go to Bars, Why Do We Go to Banks? (Part II)


By Douglas Kelly

Part IPart II

4080473349_e464d6081e_bYou don’t have to be a scholar or an economist to see that usury was at the heart of the global financial crisis.  Everybody wants a “guaranteed” return on his or her money, but Allah (swt) is the only One who can guarantee anything.  The world’s greed for interest, coupled with its lack of risk tolerance (or lack of faith), made triple A-rated mortgage-backed securities look like good safe investments a few short years ago.  After all, who’s not going to pay their mortgage?  We now know the answer to that question.

Lost your job?  Got sick or hurt?  Can’t pay your mortgage?  Can’t sell your house because the value has plummeted to less than what you owe on it?  No matter how many years you’ve paid your non-Islamic mortgage on time, the minute you can’t, the bank forecloses on you.  They pocket all that interest you paid for all those years, sell your house, cash, for pennies on the dollar, and start all over again, giving some other sucker a high-interest loan on its full appraised value.  Like a casino, they win and you lose.

Long before I embraced Islam, I noticed that even the Bible warned against interest and instead encouraged investing in people:

“If you should lend money to my people, to the afflicted alongside you, you must not become like a usurer to him.  You must not lay interest upon him.”  (Exodus 22:25)

“Cast thy bread upon the waters: for thou shalt find it after many days.”  (Ecclesiastes 11:1)

“He who is kind to the poor lends to the Lord, and He will reward him for what he has done.”  (Proverbs 19:17)

It seems that Prophets throughout human history advised  those blessed with wealth to take a chance with their money and trust in God for the increase.   The system of interest-free lending that the Prophet Muhammad ﷺ revealed—and upon which Islamic Finance is based—reads a lot like traditional Investment Banking.  So does Mufti Usmani’s description of a Shariah-compliant financial product called Musharakah (an Arabic word that literally means “sharing”).  It sounds to me as if Allah (swt) wants the lender and the borrower to be partners, sharing in the profits and losses of trade.  If the borrower is successful, the lender profits in kind.  If he fails, Allah (swt) accepts the lender’s loss as a charity (according to his intentions):

“And whatever you lay out as usury, so that it may increase in the property of men, it shall not increase with Allah; and whatever you give in charity, desiring Allah’s pleasure—it is these (persons) that shall get manifold.”  (30:39)

When I was a stockbroker in the 1980s, there was a lot more Investment Banking activity than you see today.  If you owned a business and you needed capital, you didn’t necessarily have to go to a commercial bank for a business loan.  You could go to a Wall Street investment bank and “go public,” by selling shares of your business to investors.  If your business did well, everyone who bought the shares of your IPO, or Initial Public Offering, could make many times what they invested.  If it failed, however, they could lose their entire investment.  It was all about taking a chance.

These days, it is considerably harder for businesses to raise capital through Investment Banking.  Google, VISA and Tesla are among the few well-known successful IPOs in recent years.  In the US, people are losing jobs because small businesses can’t get loans because banks aren’t lending.  If commercial banks aren’t lending like they used to, clearly investment banks aren’t helping businesses “go public” like they used to.  In fact, if you aren’t an already-successful business prepared to raise somewhere in the tens of millions of dollars in capital, most investment banks won’t even look at you.

Wall Street was created shortly after America’s birth, in order to put people to work by putting their money to work, taking a chance by investing in people’s businesses.  These days, no one wants to take a chance anymore, and everyone wants a “guaranteed” return on his or her money.  When the “housing bubble” burst, and even the most seemingly “guaranteed” investment—mortgage-backed securities—went belly-up, you would think that the world would finally get it:  that man can’t guarantee anything.  Nor can he create something from nothing.

When you buy shares of a company’s stock, you are, for all intents and purposes, loaning that company your money with no guarantee of getting it back.  When that company makes a profit, your stock goes up.  If it loses money, your stock goes down.  Life in this dunya is full of ups and downs.  Masha’Allah.

“Sons of Adam speak against [the vicissitudes of] Time, and I am Time, in My hand is the night and the day.” (Muslim)

Of course, not all stocks are halal.  Islamic Banks would obviously not finance companies that deal in pork products, pornography, alcohol, gambling or anything that is haramShariah-compliant financial institutions are overseen by councils of scholars who adhere strictly to the Qur’an and Sunnah in making decisions.  While no organization run by man is perfect, it is clear that banking with Islamic Banks is a more pious alternative than the status-quo institutions that put the world in crisis.  Believers may have no control over whether their government complies with Shariah law, but if they have access to Islamic Banks, they can certainly control whether their money is borrowed and leant according to Shariah.  If Islamic Banks are following the Qur’an, they are lending  believers’ money as if lending it directly to Allah (swt):

“Who is he that will lend to Allah a goodly loan so that He may multiply it to him many times? And it is Allah that decreases or increases (your provisions), and unto Him you shall return.” (2:245)

“Indeed Allah took the covenant from the Children of Israel, and We appointed twelve leaders among them. And Allah said: ‘I am with you if you perform As-Salat and give Zakat and believe in My Messengers; honor and assist them, and lend a good loan to Allah, verily, I will expiate your sins and admit you to Gardens under which rivers flow (in Paradise). But if any of you after this, disbelieved, he has indeed gone astray from the Straight Path.’”  (5:12­)

“Who is he that will lend Allah a goodly loan: then (Allah) will increase it manifold to his credit (in repaying), and he will have (besides) a good reward (i.e. Paradise).”  (57:11)

“Verily, those who give Sadaqat (i.e. Zakat and alms), men and women, and lend Allah a goodly loan, it shall be increased manifold (to their credit), and theirs shall be an honorable good reward (i.e. Paradise).”  (57:18)

“If you lend Allah a goodly loan (i.e. spend in Allah’s Cause), He will double it for you, and will forgive you. And Allah is Most Ready to appreciate and to reward, Most Forbearing.”  (64:17)

“Verily, your Lord knows that you do stand (to pray at night) a little less than two thirds of the night, or half the night, or a third of the night, and also a party of those with you. And Allah measures the night and the day. He knows that you are unable to pray the whole night, so He has turned to you (in mercy). So, recite you of the Qur’an as much as may be easy for you. He knows that there will be some among you sick, others traveling through the land, seeking of Allah’s Bounty, yet others fighting in Allah’s Cause. So recite as much of the Qur’an as may be easy (for you), and perform As-Salat and give Zakat, and lend to Allah a goodly loan. And whatever good you send before you for yourselves (i.e. Nawafil non-obligatory acts of worship: prayers, charity, fasting, Hajj and ‘Umrah), you will certainly find it with Allah, better and greater in reward. And seek Forgiveness of Allah. Verily, Allah is Oft-Forgiving, Most-Merciful.”  (73:20)

The Prophet Muhammad ﷺ also outlawed derivatives like commodities futures, as they involve betting on the future, or hoarding foodstuffs people need in order to wait for a higher price:

“If anyone keeps goods till the price rises, he is a sinner.”  (Muslim)

“He who brings goods for sale is blessed with good fortune, but he who keeps them till the price rises is accursed.”  (Ibn Majah, Darimi).

“If anyone withholds grain for forty days, thereby desiring a high price, [he has] renounced God and God has renounced him.”  (Razin)

“Whoever pays in advance the price of a thing to be delivered later should pay it for a specified measure at specified weight for a specified period.”  (Bukhari)

Only Allah (swt) knows the future.  The Prophet ﷺ also spelled out the loan guarantee that only Allah (swt) can make:

“He who grants a respite to one who is in straightened circumstances or who remits his debt, will be saved by God from the anxieties of the Day of Resurrection.”  (Muslim).

“If anyone accepts others belongings meaning to pay back, God will pay back for him, but if anyone accepts them meaning to squander them, God will on that account destroy his property.”  (Bukhari)

“Every fault but a debt will be forgiven to a martyr.”  (Bukhari)

“A believer’s soul is attached to his debt till it is paid.” (Shafi’i, Ahmad, Tirmidhi, Ibn Majah, Darimi)

“May Allah’s mercy be on him who is lenient in his buying, selling, and in demanding back his money.”  (Bukhari)

Besides dealing in interest and trading in haram businesses, the biggest difference between Wall Street and Islamic Finance seems to me to be, once again, people vs. profits.  Many publicly-traded companies pollute the environment, make harmful products, or overwork, underpay, injure or even kill their workers, all in the name of maximizing profits.  My understanding of to “lend Allah a goodly loan” is to use one’s wealth to develop earth’s resources by putting people to work safely and paying them properly, with the hope of a reward from Allah (swt) according to one’s intentions.

One need only study the outcome of the sovereign debt crisis in Europe vs. the sovereign debt crisis in Dubai to see the benefit of Shariah-compliant instruments such as Sukuk Bonds.  While far from perfect, those instruments brought the UAE to a relatively soft landing, compared to the still-unfolding developments in Europe.

Even the way in which banks decide where to invest people’s money has become less focused on people’s needs, and more focused on banks’ need to “guarantee” profit.  Back when I was a stockbroker, almost all stock-picking was based on fundamentals.  Financial analysts made recommendations to buy or sell a stock based on the basics of that company’s business:  its management team, market capitalization, market share, earnings-per-share, balance sheet, business model, etc.  Today, technical analysis, or stock research that tries to forecast the direction of a stock price by studying trends like changes in price and volume over time, has overtaken fundamental analysis as the main method of figuring out whether an investor should buy, sell or hold a given stock.  Every day in the business news media, market strategists fall over themselves (and often contradict each other) to interpret moving averages, advance-decline lines, support and resistance levels and other statistical factors, in a sophisticated but flawed effort to “scientifically” predict the future.  A future that only Allah (swt) knows.

I mentioned the increasing use of technical analysis to illustrate the gradual shift away from human factors in investing, and towards a reliance on statistical models and raw numbers.  I remember years ago a TV commercial for Janus mutual funds that touted how their analysts visited a construction site to physically count the number of cables a company was installing.  This was billed as their “hands-on” approach to determining if a company was a good investment.  Contrast that with today’s Ameritrade commercials that promote things like “heat mapping” and “advanced charting tools.”  It’s as if no one cares any more about the human element of business.  Managers decide where investors should put their wealth by looking at charts, graphs and algorithms of the past, instead of looking at where that wealth will employ the most people at the best pay, which would in turn create the most demand, which is what drives an economy.

In the debate over the Bush tax cuts for the rich, those who favor them expiring on schedule, as well as those who favor extending unemployment benefits to those still out of work understand the Keynesian economic principle that helping the poor stimulates the economy.  Many of those in favor of permanent tax cuts for the top 1% argue that such cuts would spur job growth.  History tells a different story.  Both methods increase the US federal budget deficit.  Relief money for the poor gets spent immediately and the increased demand keeps people working and even creates jobs.  Meanwhile, tax cuts for the rich get saved in banks and investments, which only helps the bottom line of the banking industry in terms of commissions, fees and, yes, interest.  History also shows that the amount of those tax cuts that the rich spend on luxuries does little for the overall economy.

A glaring example of this is what is happening with the banks as of the time of this writing.  Instead of lending to businesses and consumers, banks are hoarding cash and buying Treasury bonds.  So they’re lending to the government, to make “guaranteed” money off interest, but they’re not lending to you and I.  And even when they do, it’s not to share in our profits but to make us guarantee theirs—when we pay them far higher interest than what they pay to get the money they lend to us.   Yet if we lose our jobs and can’t pay, they put us out of business and put us out of our homes no matter how much we’ve put into them.  Banks borrow their money for next to nothing, but they want everything from the people who need that money the most.  Meanwhile, the largest ones got bailed out handsomely (with the people’s money) when they got in trouble.

But the deeper issue is about society as a whole.  Allah (swt) made usury haram for a reason.  It enriches those who have money at the expense of those who need it.  We suffer as an Ummah when we can’t get money to launch our businesses, or go to school, or buy big-ticket items like a home or a car.  We go to banks because we think we don’t have a choice—and the result is that all our hard-earned money goes to institutions that make their money from the usury they charge when they lend out the money we deposit.

If you think about it, every Muslim doing business with a traditional bank is, in a very real way, funding usury.  Which is haram.  Non-Islamic banks have no reason to care about the financial needs of the Muslim community, and may even fund activities that are destructive to Muslims.  Aren’t the financial needs of the Believers the very reason the Prophet (ﷺ) revealed the hadith on usury in the first place?

Imagine what would happen if every Muslim in the world who had a bank account suddenly withdrew all their money and put it into an Islamic Credit Union, or a Shariah-Compliant Investment Company?

What if your business was financed with an interest-free loan you paid back according to your profits?  No profits, no payments.  The more you profit, the greater the dividend to your lender.

What if your student loan payments were based on the salary of the job you got once you graduated?  What if that loan was forgiven as long as you couldn’t find work?

What if your home mortgage allowed you to own a greater percentage of your home with each payment you made?  The more payments you made, the more of the home you owned.  If you couldn’t pay, the home would get sold and everyone would walk away with what they put in.

Only Allah (swt) knows if these high ideals of Islamic Finance can be put into practice in precisely this way in the real world.  But what if when you borrow money you’re not just a number, but a human being and a beloved member of a community that takes the time to get to know you, your family, and your needs?   What if your lender was your partner—instead of your slavemaster?  What if the institution that financed your business, your home and your education rode with you through life’s ups and downs, and didn’t make money unless you made money?  Call me naïve, but I think this is what our Prophet ﷺ had in mind.

Again, I’m no scholar.  I’m just a recent revert to Islam who couldn’t help but notice that there’s a credit crisis going on that was caused by banks dealing in usury.  Those dealing in usury want to create money out of nowhere with their Wall Street wizardry.  And they expect borrowers to guarantee their profits, when only Allah (swt) can guarantee anything.  So it would seem to me that if Believers don’t eat pork, drink alcohol or gamble, neither should we support usury by keeping our money in banks.  Maybe if we all moved all our money to Islamic credit unions and Shariah-compliant financial institutions, jobs might get created, real assets might get created and, inshaAllah, wealth might get created.  And even if it didn’t, we would at least stop enabling usury, which is haram.  Thus avoiding the painful chastisement promised by Allah (swt).  And thus pleasing Allah (swt) because any money we lost in the process would count as charity.  But what do I know?  Allah (swt) knows best.

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27 Comments

  1. Anon says:

    Excellent as usual. Just a correction/clarification: the word you’re looking for is *interest*, not usury- which usually refers only to exorbitant interest.

    • Astaghfirullah. You’re right, it’s just that many of the Qur’an and Hadith translations I quoted use the terms interchangeably, allowing some to argue that interest is “ok” and only exorbitant interest is haram. My position is that it’s all haram by it’s very nature. The Prophet ﷺ was crystal clear.

  2. Zishan says:

    AOA,

    I feel like your comparison of a of a stock investment partnership to a house venture to be adventurous at best. When you purchase a stock you purchase it in its entirety. The means is to purchase that stock. You are not looking to lend, you are looking to own.

    When you look to buy a house, you might purchase 10 percent of the home. Your goal is to purchase the whole ninety percent. You are not looking to buy 10 percent and borrow 90 percent. This does not change no matter how you word it. If you truly care for further insight please see islamicviewpoints.tumblr.com

    • Zishan says:

      I did not proof read my post. The phrases are supposed to be read
      “Your goal is to purchase the 100 percent.” &
      “You are looking to buy 10 percent and borrow 90 percent.”

      • I was very careful to compare apples to apples and mangoes to mangoes. Like for like. I compared common stock to Musharakah, not mortgages. I never said that Islamic Finance–as we know it–is perfect. Only Allah (swt) is perfect. All we can do as His servants is “lend Allah a goodly loan” and patiently wait for the increase.

        I read the Islamic Viewpoints piece on riba and it was excellent, in that it offered the simplest possible solution. Just don’t borrow. The problem is, as a former stockbroker, I was talking more about how businesses get the capital they need–in order for you to have an INCOME to buy a home in the first place–than I was about how to get a mortgage.

        All these things are connected, just as we are all connected as an Ummah. My intention is to get as many Believers as possible to start thinking about how we can pool our resources, inshaAllah. Islamic financial institutions are flawed in that they are run by humans. But they’re WAY better than the alternative. I’d rather have my money overseen by scholars than by scheisters.

  3. Nihal says:

    Great Article Douglas. Thanks for the detailed and thought provoking insight into Riba in the current day and providing actionable steps. InshaAllah may Allah help us in distancing ourselves from the clutches of the global banking system. Ameen. I am seriously considering your advice.

  4. hamayoun says:

    Salam Br Douglas

    Jazak Allah for this, excellent article which clears up a lot of things. I have started using this place for savings, and may transfer all my banking needs there after reading this:

    http://www.universityislamicfinancial.com/

    Are you familiar with this institution? On their recommendation page, they have a lot of recommendations from some prominent Imams from NJ, which is where I live.

    • JazakAllahu khair to you. I AM familiar with them, although I am not currently affiliated with any financial institutions and I’m nobody’s endorser, paid or unpaid.

      May Allah (swt) guide your actions and accept the best of your intentions. I’m looking into doing just what you did.

  5. Economics are a tremendous challenge for modern Muslims. Allahu Musta’an.

  6. ZAI says:

    I think most people can be persuaded to avoid interest if it concerns luxuries…
    A house, luxury car or whatnot are not essentials and one can be persuaded to rent or buy a less opulent vehicle respectively…

    There are some things that are essential in todays world though: education for example.

    Sorry, but no one is gonna pass up an education to avoid interest. We cannot all have the luck to be born into a rich family and many of us need loans to get get educated.

    Education isn’t just about paying the bills either, but is intricately tied into many other areas of life. For example, its tied into socio-economic STATUS which in turn influences things like marriage.

    In an ideal world we would all abide by the Qoran e karim and Rasulallah(s)’s hadith and be faced with more Islamic societies, but Muslim society is far from ideal. With our traditional way of marriage in which parents and society act as matchmakers, etc. or even with the general cultural mileau of our ethnic communities, what we do for a living affects whether a proposal gets accepted or whether you will even be given the chance to send one.

    I’m an Afghan -American and if I went about getting married in a halaal way by sending a khastagari to a girls family, I’d get laughed at before I reached their door or thrown to the curb FROM the door if I didn’t have an education, a good job or a stable small business. They would hardly be sympathetic to my pleas that I wanted to avoid interest. I’m sure many Arabs, South Asians, etc. would face the same in their communities.

    Muslims scholars need to deal w/ the realities of our lives. Either the way our parents control/act as gaurdians for marriage needs to change( won’t happen if the sanctity of Islamic marriage is to be maintained) or Muslim societies must turn away from being obsessed w/ status/money( unlikely as it’s a universal human problem made more severe by modern consumerist society) or finally they need to come up with a plausible Islamic system of finance( been waiting 1400 years for that, so wouldn’t hold my breath).

    We cannot keep engaging in this abstract thought that looks good on paper though and accepting the status quo in all areas, but then declaring this or that haraam. That’s easy to say, tough to do. Maybe European Muslims or Muslims back home have it easier with interest ’cause university is subsidized or free, but America charges us through the nose. Giving up education is not an option…there are too many ramifications that ripple through every other area of life if we don’t get one.

    I don’t want to sin, but I also I do not wanna be single and working for minimum wage my whole life while someone who committed the sin of paying interest says “forgive me Allah”, then drives his Benz to the masjid to sit on the masjid board. Until Muslim scholars come up with a realistic solution I’m also gonna say “forgive me Allah” and leave it at that.

    Good post Br.Kelly…but I’m going to rely on Allah’s mercy on this one and hope for a solution in the future.

    • As salaam alaikum, Brother Zai. May Allah (swt) forgive you and me both!

      I am an African-American full-time college student who almost didn’t get back in school (after dropping out 20 years ago) because of defaulted student loans. I’m just poor enough (after consolidating) to qualify for financial aid, Alhamdulillah. And I’m writing a book about how I wasted my life trying to make enough money to have enough “status” to meet a suitable wife. The only thing good that came out of it was that I got in trouble, went to prison and embraced Islam. All praise is due to Allah (swt), the Lord of the Worlds.

      “There will dawn a time over people when the destruction of a man will be at the hands of his wife, parents, and children. They will humiliate him because of his poverty and will make such demands which will induce him to engage in such activities (to gain more money) which will finally destroy his Deen.” (Baihaqi)

      I, too, rely on Allah’s mercy, and hope that the solution is that we provide our own student loans (home loans and business loans) because we all have all our money in our own Islamic banks. Allah (swt) knows best.

      • ZAI says:

        Br. Kelly,
        As salaam alaikum and alhamdullillah that Allah has guided you to a more fulfilling life. Thank you for your response. It was kind of you to take the time to do so…

        Let me say first, that I do not disagree WHATSOEVER with the fact that the modern interest based financial system is evil. I agree that it is. Your analysis spot on correct about it’s structures and consequences.

        I’m simply pointing out that having diagnosed the problem, we need a realistic SOLUTION. We have not arrived at one yet. Again, there are so many complex factors regarding this, that it’s too simple to simply say it’s haraam but provide no immediate alternative.

        I gave marriage as an example simply because one’s social status when trying to get married is a big issue amongst recent immigrant communities. I give African-American, Caucasian or Latino Muslims here credit that they DEFINITELY follow the ideals of Islamic egalitarianism much more than we immigrants do. You do have to understand the position a lot of us are in though…

        Our parents have brought this garbage over from the old country and it is a big factor. Many, if not most of them, abuse their position as our gaurdians in marriage to engage in ALL TYPES of unislamic behavior like refusing suitors based on racism, nationalism and yes, education. There is an obsession with social/material status in our communities and God knows the South Asian and Arab communities also KNOW what I’m talkin’ about…

        Did you know that in Afghanistan, most men cannot get married WELL into their 30′s or even forties because they cannot afford the mahr? Then we scratch our heads and ask why rape and homosexuality is so prevelant there. It’s not enough to say it’s haraam to rape or engage in homosexuality…though it is…we need to examine why so many Afghans are engaging in that…

        In Dubai, Abu Dhabhi and other gulf nations mahrs are so ridiculously expensive that the government has to subsidize them. We have to ask what’s going on in Muslim societies. It’s TOO easy to just say don’t do this or don’t do that.

        In the hadith you mentioned, no doubt the Prophet(s) hit the nail on the head as always…but the question is HOW do we change those wives, parents and children…and for that matter husbands and everyone else…so that someones religion does not suffer. It’s not enough to just tell that person not to go after wealth. When there is a HUGE decay in the society wherein it becomes close to impossible for a man to live up to religious ideals, we need solutions that go beyond just labeling this or that haraam…we need applicable solutions and/or a change in society…

        Again, I just gave marriage as an example of many things that are intricately tied into one another. Rasulallah(s) changed peoples hearts before he laid down the law…and he also tried to make things easy for them. We have a lack of both those strategies in the Muslim communities nowadays and just engage in abstract arguments that don’t solve anything.

        We need more Scholars and imams like Br. Suhaib who tackle these issues head on. Most of our traditional ulema are too busy measuring the length of pants or beards. I don’t mean to be rude, but it is the harsh reality. Our religious leaders in most cases do not provide relevant advice anymore. It’s just “haraam” this or “haraam” that….no attempt to realize that shariah cannot be applied piecemeal upon a population that 1.) isnt ready for it’s ethics or morality or 2.) has no recourse to halaal alternatives.

        I commend you for your article and atleast trying to think of realistic alternatives. Until that day comes though, I’d say that Muslims in general must be less judgemental and realize that we are an imperfect society as all societies are and these issues are more complex and too woven into eachother to be idealist.

        Maybe in one or two generations the immigrant Muslims will get over these hurdles and be more in tune to the holistic fabric of Islamic ethics…or maybe we’ll atleast get a tangible alternative system to ease our burden by then. Either way, may Allah have mercy on us all. I’m not trying to cause any fitna or promote a sinful practice…I’m simply pointing out that these things are societally complex…

        • Ameen, Dear Brother. Yes, these are complex issues–especially when the State goes against Sunnah and imposes unreasonable mahr. I don’t know how sound this hadith is:

          Narrated Jabir ibn Abdullah: The Prophet (peace_be_upon_him) said: If anyone gives as a dower to his wife two handfuls of flour or dates he has made her lawful for him.

          but didn’t the Prophet ﷺ time and time again allow marriages with a dower as simple as a garment, a lamb, or even a single meal? Allah (swt) knows best, but on the Day of Judgment, I don’t want to be standing anywhere near those who destroy societies by making it difficult for men and women to marry each other by choice. According to Qur’an and Sunnah, and not culture.

          I’m in no position to tell anyone simply “don’t do this or that because it’s haram” and leave it at that. So here’s my solution, as plainly as I can put it:

          All Muslims who can find a Shariah-compliant financial institution in their country should open an account there immediately, and close all their accounts with banks that are not Shariah-compliant. If you already have an interest-bearing loan or credit card, of course you should pay it like you’ve been doing. Even the Prophet ﷺ said a deal’s a deal.

          But if enough of us make that one simple move, and at least do our day-to-day banking with an Islamic bank, we will begin the process of capital formation. It won’t happen overnight, but one day, inshaAllah, Believers with capital and Believers who need capital can come together in a halal way that benefits everyone according to Allah’s will. That’s all I’m saying. May Allah (swt) accept the best of our intentions and take away from us anything that is not of Him.

    • Anonymous says:

      Yes an education in America can cost a lot of money. There are other ways, and these options should be sought after BEFORE a muslim even thinks about getting in bed with these loans. There’s scholarships, grants, community college, all of which can offset the heavy cost of an American education. Allah swt doesn’t command us to go to a specific university, or become a doctor or lawyer. Im just saying, you think the person has such a good life with a Benz and their small castle in the Hamptons, and their expensive degrees hanging on the wall, but what you dont see is the absurd amount of debt that they are in. Im not talking about a couple thousand, try a couple hundred thousand. It keeps adding up, once you get the high paying degree, you need the high maintenance wife, then you need the big house, and then you got to have the luxury car, kids need to go to the best schools, etc… Before you know it, you turned all your “essential” purchases into garbage by divulging in such a usurious system. Honestly, Id rather be living paycheck to paycheck than live my life with such a heavy weight, I have enough “debt” to repay. Our umma needs this wake up call, the dunya is in our hearts and it shouldnt be. With the collapse of the economic system in America it should shake us to our very core, because as muslims we should know better than that. Shame on us for thinking about how we look and how others perceive us while ignoring what pleases Allah.

  7. SAS says:

    For a great primer explaining what brother Douglas refers to as ‘creating money out of nothing’, search for ‘Money as Debt’ on youtube. It is very informative with straightforward examples.

    For a much more detailed exposition, in video format as well (lucky for the youtube generation), search for ‘The Money Masters’ on youtube. A historic look at the fight between ‘fiat’ money systems backed by nothing (totally able to be manipulated) versus real, honest money over the ages.

  8. Bilal Khan says:

    An easy way to differentiate between Conventional banking and Islamic banking is that Islamic banking is Asset backed (or based).
    To put that into perspective, you can walk up to a bank and get a loan for $10,000. All the bank cares about is getting their $10,000 + accumulated interest back.
    Where in an Islamic system, the bank would go into partnership with you. You and the bank would invest as partners into your business and both will share profit & loss.

    I don’t know how Islamic banks would loan money for Education, as banks need to make their share of profit as well.

    I would also highly recommend watching “Money as Debt” youtube videos as SAS suggested.

  9. As Salaam Alaikum Wa Rahmatullah,

    First and foremost, many blessings to Br. Douglas Kelly for putting this together, and BR. Suhaib Webb for featuring such important articles on Islamic Finance and deconstructing the Western Banking System, which to put it mildly is an illusion of wealth. It’s really just a matter of playing “musical chairs” with debt by rolling it over and handing that debt to the next individual/company, and when the “music stops”, the collapse ensues (i.e Financial Crisis of 2008, S&L Crisis, Black Monday, dotcom bubble (more of asset speculation than debt)

    Like many others who have posted, I’m also involded in, if you will, “de-ribafying” all my investments and urgently paying down any oustanding debt so I can be 100% halal in my financials. (inshallah). At this present moment there is no economy that was able to rely on a “risk over time” interest strategy (time preference theory of interest) without debasing or moving to a fiat based currency to plug in the financial short-comings of interest. Dating back to the Veneitan Bankers in the 1300s to now, interest has never been to able to account for risk over time. Not that it matters, because even it did, and the world was awash in wealth (which it’s not), it would still be haram, but even using their own riba mathematics, the numbers still don’t add up, whether ethically or financially.

    I would encourage everyone to read Part I and II of the Case Against Interest by Abu Ubaydah Andrew Booso which is on this site, not to mention forward it to every Muslim you know. Very clear, concise, and thorough in regards to explaining the historic significance of Riba and it’s shortcomings from an economic and Islamic perspective.

    I have also thrown my hat into the “Anti-Riba” blogosphere, and for those interested can read my blog post Casino Capitalism by Malik Abdul Rasheed http://www.whyihatethejoneses.com/2010/02/casino-capitalism/

    Islamic finance is a critcal area that EVERY Muslim needs to be understand in hopes to put the tools to use that Allah has given us. (inshallah)

    JazakAllah Khair,
    Abdul Malik

  10. Ameeeeeeeeen!!!!!! As we say in the Bronx, daswhatI’mtawkinabout!

    Unfortunately, I don’t know how halal student loans would be done, either. After my own ordeal, I think student loans should be outlawed altogether and governments should be responsible for educating every citizen who can’t afford it. But don’t let them get me started….

    Awesome YouTube video, btw. JazakAllahu khair.

  11. Anon says:

    Salam,

    All very well in theory, but how to do that in countries where muslims are a minority and no islamic banks exist?

    Practical answer please

    jazakallah khair

    • The only practical answer I can give you is the pious answer: Ask Allah (swt) to forgive you if, by no fault of your own, you are paying, receiving or contributing to the proliferation of usury. Allah (swt) is the Best Knower, and knows if you have no access to ribaa-free banking in your country and there’s nothing you can do.

      It may not be practical (or legal in your country) for you to open an account with an online bank such as University Islamic Financial. As well, Barclay’s Islamic Finance division and HSBC Amanah may not be available where you are. I am not affiliated with any of these institutions, and I only mention them for reference so that you may look into them and determine for yourself if their services can help you in any way.

      But I think the most practical thing I can suggest is that you talk to your Imam, and/or the learned elders of your community, about how the Believers in your country can pool your resources. Ask how you can all join together in not only the mutual teaching of truth, patience and constancy, but also the mutual creation of a Shariah-compliant mutual fund that can be used to finance the businesses, homes and other big-ticket expenditures of the Believers in a halal way.

  12. Zahid says:

    You say “every Muslim doing business with a traditional bank is, in a very real way, funding usury.”

    I agree with most of what you say in your article but I have an issue when you make such statements. Your love-hate relationship with interest is something we all go through living in the U.S. and you have idealistic solutions the way every other Muslim talking about this issue has.

    The problem is, you are demonizing a segment of society that has no other viable option because trust me, if there was another option… we would all embrace it.

    Let me give you a personal example:

    I have non-interest checking account but my employer doesn’t. According to the law, accrued salaries are set aside and it is illegal to touch that money because employee has already earned it but is waiting for the pay period to end. That money is earning interest… when I get my pay, it is tainted with interest.

    Does that mean I am doing Haram? Does that mean that my hard work is down the drain because I can’t control whether my accrued salary earns interest or not?

    You say “What if your business was financed with an interest-free loan you paid back according to your profits? No profits, no payments.”

    Are you willing to start a business like that where all you do is lend and expect nothing in return? That’s a “Fi Sabillalah” approach which in theory is amazing but not practical. The key element is missing in your approach, it’s known as incentive.

    If there was a Islamic credit union where I live, I would move my money in a heartbeat… but the problem is, there isn’t any. That’s the reason, I don’t think demonizing a segment of Muslim society that has no other resource is a way towards any kind of practical solution.

    I apologize in advance if you think I was disrespectful with my comment, my intention was to just voice a concern with the hope that people would understand that the solution has to mirror the context.

    • Br. Zahid and others, you mention some good points, but I think the intention of this post, and many similar posts are the following:

      1. Highlight the dangers of Riba from an Islamic and financial perspective.
      2. Get people to understand how they can move away from Riba
      3. Throw some ideas against the wall that will lead to us to build our own Riba-free institutions and economy.

      I don’t think any well intentioned Muslim is expecting any Muslim to overturn a 50 trillion dollar riba based global economy overnight, but like a jagged rock, over time it will be smoothed by drops of water. Each individuals effort will be another drop to smooth the rock. I spoke to my brother-in-law from Saudi Arabia and many economies are moving (albeit slowly) to Shariah compliant financial instruments, because the riba based system is too unstable. If the world government didn’t print money to “save’ the global economy, we’d all be on bread lines. Their Riba system failed them and they had to resort to the fiat approach of printing money.
      I don’t believe Br. Kelly was being judgmental (i.e trying to say who is doing haram and who isn’t in regards to riba), but was just trying to make it clear what is riba, and what isn’t riba, while showing how deep the well of riba is and it’s inter-connectivity to our day-to-day lives.

      Your float between your checking account and your employer example is perfect example, but there is also this hadith.

      “A time is coming to mankind when only the receiver of usury will remain and if he does not receive it, some of its dust will reach him.”  (Ahmad, Abu Dawud, Nasai, Ibn Majah).

      So lets use myself as an example. Even if 100% of my money is riba-free, I pay the MTA (NYC) to travel back and forth to work. The MTA municipality issues bonds which are tied to interest rate (riba), and that principal plus interest gets paid to the bond holders. Lets take it a step further. Lets say I choose to walk to work instead of taking the train, the road itself was tied to a municipal bond somewhere in the chain, so just merely walking on the newly paved road that was partially financed by bond holders with interest, am I intentionally doing something haram? Will Allah make me accountable for this, (only Allah knows), but in my humble opinion, probably not. But if some other option was there that was riba-free, and I didn’t take advantage of it, maybe so. (allahualem)

      Although crude and exaggerated examples, the bottom line is Allah wants are intentions to be true and whether we are in a situation where we can participate in a Riba free transaction. It depends on your situation. Not every person has the right riba-free banks or resources or in some instances knowledge to know how to distinguish from Riba and Riba-free transactions. It all goes back to the 1st condition of the first pillar of Islam. Knowledge with the right intention. Pray that Allah provides an alternative and keep it moving. I don’t think anyone should beat themselves up about this, but at the same time we need to do the due diligence about what Riba is and how to get out of it. (if we can). Simply..don’t procrastinate when it comes to your Deen. Do what you can but don’t make yourself crazy with a situation that you have absolutely no control over.

      We do the best we can considering our circumstances. We were born into this Riba world and only recently are we seeing a mainstream renaissance in thinking on how to alleviate and build alternatives to this Riba system. It’s going to take the effort (with Allah guidance) of all of us to change this. This has to happen on a grass-roots level all the way to major banking systems. In my case, I’m going though a measured step-by-stop process. Started with my checking/saving accounts while moving my treasury bonds to cash. Then lowered my lifestyle so I can save more and beat inflation. On my way to selling my house (Inshallah) and moving it to an Islamic bank or renting. For anyone in the NYC area the name of the bank is Devon Bank. Next, are my 401K and Roth accounts. I want to move them to Shariah compliant mutual funds.

      One other point. People should know is that the current Riba based western banking system is a fog of financial stability and inferior to a true Islamic banking system. They have printed money to save the system for hundreds of years. Trillions of dollars in bailouts to save the system while ignorantly sending the prices of basic commodities through the roof because of the tinkering of the money supply. How is this just and mathematically sound? For those interested, read A Free Nation Deep in Debt by James MacDonald, or This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart, Kenneth Rogoff or End the Fed by Ron Paul.

      Although the spiritual benefits (obedience to Allah) outweigh any material benefits, just in case people STILL think that Islamic Banking doesn’t work, here is the mathematical evidence. These are just a few but numerous articles out there on the long-term stability of Islamic finance. Allah would never give us a system that is inferior to another system. Allah knows best, we just need to follow through our our promise to Allah and our Deen. As they say, “The proof is in the pudding”.

      Islamic Housing Finance: A ray of hope for low-income grouphttp://ifresource.com/2007/12/05/islamic-housing-finance-under-diminishing-musharakah-a-ray-of-hope-for-low-income-group/#comments

      Islamic Banks fared better during financial crisis
      http://arabnews.com/economy/islamicfinance/article142384.ece

      Sincerely and respectfully,
      Abdul Malik

      • JazakAllahu khair, Brother Abdul Malik, you are precisely on point. My intention was to promote dialog on this monumental issue. It’s not just about avoiding the nearly unavoidable evil of ribaa, but enjoining the good that will undoubtedly come from the entire Ummah finally being in financial Shariah compliance, inshaAllah.

        Thank you also for the specifics. I will check out all of your recommendations.

        • Ma Salaam Br. Douglas. Another great resource is the Ascent of Money: The Financial History of the World. Here is an extremely revealing quote from page 24-25 in Chapter 1: Dreams of Avarice.

          “The Roman system of coinage outlived the Roman Empire itself. Prices were still being quoted in terms of silver denarii in the time of Charlemagne, king of the Franks from 768 to 814. the difficulty was that by the time Charlemagen was crowned Imperator Augustus in 80, there was a chronic shortage of silver in Wester Europe. Demand for money was greater in the much more developed commercial centres of the Islamic Empire that dominated the souther Mediterranean and Near East, so that precious metals tended to drain away from backward Europe. So rare was the denarius in Charlemagne’s time that twenty-four of them sufficed to buy a Carolingian cow. In some parts of Europe, peppers and squirrel skins served as substitutes for currency; in others pecunia came to mean land than money. This was a problem that Europe sought to overcome in one of two ways. They could export labor and goods, exchanging slaves and timber for silver in Baghadad or for African gold in Cordoba and Cairo, Or they could plunder precious metal by making war on the Muslim world. The Cursades, like the conquests that followed, were as much about overcoming Europe’s monetary shortage as about converting heathens to Christianity.

    • Dear Brother Zahid,

      I know that disrespect was not your intention and neither was demonization mine. I know that none of us who have had our income, savings or investments tied up in banks are intentionally contributing to the evils of ribaa. The fact is, in most cases we can’t help it, or do not have an alternative. I was not trying to tell people how terrible they were for having a bank account, but rather to remind them where their money is going when they do. Many of us do not have an alternative to traditional banks because we keep saying, “We don’t have an alternative.”

      Let’s at least start talking about the alternative that Allah (swt) prescribed for us.

      • By the way, the business where you lend money without any guarantee of a return is known in the West as an IPO, or Initial Public Offering. It’s very similar to Musharakah. The “incentive” is shared ownership in the underlying business, with the possibility of unlimited gains.

  13. metwaly says:

    subhan Allah

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