One of the most outstanding aspects of the contemporary Islamic world is its particular conception of banking, considered by many in the West as a true utopia. Certainly, it may be somewhat implausible —from our Western perspective— to conceive of the development of a financial activity without considering one of its essential elements: interest.
Although the emergence of Islamic banking is a relatively recent phenomenon, its fundamental principles are already set out in the Koran; hence, since its origins, the Islamic religion has condemned the charging and payment of all interest as a source of harm to social coexistence and human freedom.
In the initial stage of shaping the Islamic community (umma), the Prophet Muhammad could not tolerate this threat, since the entrenchment and expansion of the new religion depended to a large extent on social cohesion.
Therefore, the current rejection in the Islamic world of the Western banking system and, specifically, of financial speculation, is the result of religious interpretation.
In general terms, the essential principles of Islamic banking proclaim responsibility, transparency and moderation in financial transactions, and are committed to the pursuit of equity and justice in the distribution of wealth. All of this leads to a concept of finance in which the ethical and moral component plays a very important role.
Condemnation of ‘usury’
Usury is a moral and legal term for charging excessive interest on a loan. The original word used in Arabic is riba, referring directly to interest on loans and literally meaning ‘excess or addition’.
In verse 275 of Sura Al-Baqara, the longest chapter of the Koran, the practice of usury is explicitly condemned:
“Those who swallow the proceeds of usury will rise on the day of resurrection as the one whom Satan has defiled with his touch. And this because they say: Usury is the same as sale. The Lord has permitted sale and forbidden usury. He to whom this warning of the Lord comes and who puts an end to this iniquity, will obtain forgiveness of the past; his lot will then depend on the Lord. Those who return to usury will be given to the fire where they will remain forever.»
Islam does not seek to deprive man of his pursuit of economic well-being, but to censure those activities considered destructive of moral values. In this sense, interest is forbidden because it generates injustice, since it ends up undermining the principle of the equitable distribution of wealth through work.
Islam considers that money should not generate more money, i.e., it cannot be conceived as a legitimate source of wealth accumulation (as is the case in Western financial exchanges), since the main source of wealth should reside in effort and work.
In addition to usury, Islamic banking also establishes as prohibitions in the field of finance the assumption of excessive risks (gharar), speculation in the sense of gambling (maysir) and financing any activity that is considered sinful.
Alms management
One of the mechanisms that Islamic banks usually have at their disposal are the Zakat Departments. Zakat or ‘legal alms’ is the third pillar of Islam, and consists of the annual monetary satisfaction that the rich must make to the poor.
According to Islamic law (Sharia), the State is responsible for the collection and management of Zakat; however, this function is usually delegated to the banks, which, through a series of specific departments, are ultimately responsible for the collection and allocation of funds to charity, beneficial projects, construction of public works, etc.
The Halal Guarantee Mark in Islamic finance
In the Islamic imagination, halal is that which is permitted, while the ethical concept of haram represents the opposite (i.e., that which is forbidden).
Today, the Halal Guarantee Mark is an instrument used in the Islamic world to certify that a product has the necessary characteristics to be consumed (always from a religious/moral point of view).
Thus, in the field of finance, the Halal Guarantee Mark will be a way of guaranteeing that the transaction we are carrying out complies with the requirements established by the ethics of Islamic banking.
Islamic banking in the contemporary landscape
In general, Islamic banking arose as a reaction to the implementation of Western banking models in Muslim-populated countries, as these did not comply with the fundamentals of the Shariah.
Some specialists maintain that Islamic banking originated in the 1960s, specifically in 1963, with the creation of the first Islamic bank, the «Mit Ghamr Savings Bank» in Egypt. However, it was not until 1971 that the first interest-free financial institution, the Nasser Social Bank, was established in Egypt.
Thereafter, a number of Islamic banks emerged in the Middle East, such as the «Dubai Islamic Bank» in 1975, with considerable expansion occurring in the 1980s and 1990s. However, it was in the first two decades of the 21st century that Islamic banking experienced a real boom globally.
Arabic in the finance sector
Despite the increasingly notable international expansion of Islamic banking, much of the business related to Islamic finance has its origins in the Middle East, generated by the oil-derived economic activity of the Arabic countries.
In fact, the main countries for the development of Islamic finance are still the Persian Gulf States. As a result, Arabic has become one of the most important languages in the financial sector, as it is the dream of many Western financial institutions to operate in the markets of Dubai or Qatar.
Carlos Sánchez Luis