One of the most contentious issues discussed in relation to Islamic banking and finance is whether the whole concept is in line with Islam or not. On one side are those sceptics who argue that there is no difference between Islamic banking and conventional banking. To them Islamic banking is simply conventional banking in Islamic garb. The argument often offered by this group is the practice in Islamic banking of using interest rates in the calculations of the `selling price’. The only difference from conventional banking is that the rates are not variable whereas in the former the rates are variable. In the final analysis, according to them, transactions in Islamic banking, even though couched in terms that are halal, are essentially `lending contracts’ with interest rates still an integral part of them.
Defenders of Islamic banking on the other hand highlight the fact that halal transactions can never be considered haram and that Islamic banking contracts are halal even if the determination of the contract price involves interest rate calculations. What is important is the `aqad’ or the contractual terms of the transactions. Since the people who are involved in devising the contracts are scholars or experts in Fiqh or Islamic jurisprudence, many of whom are also very pious in their personal life, the contracts are indeed halal in nature. These Islamic banking products include `Mudarabah’, `Musharakah’, `Al Bai Bitahaman Ajil’, `Al Istisna’’ contracts.
What irks many of those opposed to Islamic banking is the fact that in numerous cases, the contractual prices of these halal Islamic banking transactions are more expensive than conventional banking contracts. Moreover, in a recent case involving a `halal' housing loan contract, the defaulter ended up with a debt obligation to the bank which was much higher than if he had purchased his house using a conventional non-halal loan. This was because the basis for the calculation of the debt obligation arising from the ‘halal’ housing loan was the final `selling price’ of the house payable over the full period of the loan whereas in a conventional case, the calculation of the debt obligation would have simply involved the unpaid monthly instalment up to the point of default plus interest.
Critics of Islamic banking are also upset with the scholars-defender of Islamic banking for what they perceive to be attempts by this latter group to defend and maintain the status quo. This view is reinforced by the fact that many of these scholars are advisers to conventional banks which have opened up `Islamic windows’ or Islamic banking divisions. These divisions are in other words merely parts of the riba-based conventional banks. The critics of Islamic banking therefore perceive the scholars to be collaborators of riba-based banks.
My own personal opinion is that much of the confusion and conflict are in reality unnecessary. For the critics of Islamic banking their error is in the excessive focus of their criticisms on Islamic banking rather than on conventional banking. Consequently, the defenders expend much effort in defending Islamic banking rather than attacking riba-based conventional banking. In other words, instead of being united on the one area on which they are both in absolute agreement which is that riba-based banking is haram, evil and therefore harmful to society and as such must be completely eliminated, they are focusing their efforts on attacking each other.
To make my point clearer vis-a-vis the role of Islamic banking, allow me to use the analogy of Syariah divorce lawyers. If we study the history of Islam we will find that, just like Islamic banking, syariah divorce lawyers is a new phenomenon. During the time of the Prophet and his companions, divorce issues were settled by the parties involved and later on with the intermediation of the Qadhi (or judge). It was much later when the Syariah family legal system and institutions became more developed that the need arose for people who were highly versed with the intricacies of the Islamic family law system. Nowadays judges in Syariah courts would prefer to preside over divorce cases where the parties are represented by divorce lawyers to ensure smooth proceedings. But of course for the parties involved the costs are higher because of the syariah divorce lawyers’ fees. Clients, especially those who felt that the outcomes of the cases were not in their favour, may feel quite upset with divorce lawyers who are sometimes be perceived to be `vultures’, benefitting from other people’s troubles. The higher the incidence of divorce, the fatter will be these `vultures’. The smaller the number of divorce cases, the skinnier will be these vultures. But does this mean that divorce lawyers are `unIslamic’ or that their profession is not in the Islamic spirit? Most certainly not. They are there because they serve to fulfil a need which is to alleviate the problems faced by divorcing Muslim couples. For couples that are happily married, the need for divorce lawyers of course does not arise and therefore little time and attention is given to them. Similarly, in the case of Islamic banks. They are there to serve those Muslims who are in need of financial assistance, either for personal or business objectives. They therefore alleviate the problems of these groups of Muslims. But for Muslims who prefer to avoid being in debt , Islamic banks are irrelevant to them.
Having said that, there is one issue that must be recognised. Just as syariah divorce lawyers is not a solution to the problem of increasing number of divorces in our society, Islamic banking is similarly not a solution to the problems associated with the phenomenon of increased indebtedness in our society. Islamic banking , as stated ealier serves simply to alleviate the problems faced by those Muslims who are in dire need of financing assistance. The long term solution for the Muslim ummah remains the same which is to eliminate riba-based banking in its entirety. In actuality, efforts to eliminate riba-based banking system are not merely a long term solution but also an Islamic obligation of all Muslims, that is, it is a fardhu a’in. This is what all Muslims should be focused on. Wallahu'alam