Understanding need for interest free financial products to Muslims

Bait-ul-Maal staff at their Pioneer House offices.

NAIROBI, KENYA: The most glaring of all Islamic prohibitions is the ban on rib’a,-rib’a- is commonly translated as interest rate or excess.

The prohibition of rib’a is the cornerstone of Islamic finances and trade. Rib’a symbolises both the earning of money on money via a predetermined rate on a loan and a social injustice codified in two simple verses of the Qur’an with a dire threat “O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.”

The Prophet Muhammad is quoted as having said "Rib’a has seventy segments, the least serious being equivalent to a man committing adultery with his own mother."

Muslim jurists are in agreement that rib’a is the third of the seven deadly sins and worse than drinking alcohol, eating pork or even committing adultery. Needless to say it is touchy and emotive subject in this day and age. The collapse of the Islamic Khilafah in 1924 left the Muslims into turmoil. The only Islamic financial institution they knew the Bait-ul-Ma’al (Islamic Treasury) disappeared over night to be replaced by commercial banks. Initially shunned by Muslims, time and circumstances saw Muslims reluctantly use commercial banks but never fully accept them. It was not until the early sixties- about some forty years later-when the older generation of Muslims had passed on that banking began to take root. But it would not be for long.

By the late sixties, the matter of rib’a was being examined afresh in the context of banking and the western financial system. By the 1970’s a district core of scholars had emerged with strong views of the matter and looking for solutions. It was not until the late nineties that their efforts began to bear fruit. Western bankers keen on tapping vast amounts of petro-dollars sitting on the sidelines of the financial system began to accept that it would be possible for elements of the Sharia’h to be applied to banking to accommodate members of the Islamic faith. Discussions began about Sharia’h compliant windows.

These windows would allow Muslims to place their monies with commercial banks and for those monies to be held separately not to be used in the fractional reserve banking system and would not be lent with interest. A majority of Muslim jurists were not convinced, but a section broke off and accepted this compromise. The vast majority of Muslims however remained deeply skeptical and stayed put outside of the system as much as they could.

It was then that the notion of Islamic banking was floated, banks that would be licensed under regular banking regulation and prudential norms but allowed to apply the Islamic Fiqh-ul-Muamalat (a branch of Islamic jurisprudence that deals with commercial and business activities in an economy) for the purposes of lending transactions and the like. Again another section of Muslims jurists broke off from the main body of Islamic scholarly consensus that stated that banking “all banking is about rib’a, it cannot be separated into parts.” Ignoring the calls for caution Islamic bankers and those that supported Sharia’h complaint windows moved on at speed against loud protests by Muslims jurists worldwide for caution.

“In fact what is surprising is that one cannot find a single ruling legalising or legitimising the marriage if banking with the Fiqh-ul-Muamalat. You will find banking and then you will find the Fiqh-ul-Muamalat never the two married together in a single ruling to show how they should operate together” Islamic scholar Sheikh Ibrahim Sheikh says.

“What you do find is myriad scholarly rulings condemning the practice, thirty-five in total excluding the recent five. So forty. All stating clearly that the way banking is designed it is the completely antithesis of everything Islamic” he continues.

In Kenya the drive to have Islamic banking began in 2001 but it was not until 2007 when the first Sharia’h compliant windows appeared on the market and then later full blown Islamic banks. In the intervening six years, a debate waged between the regulator the Central Bank of Kenya, the Treasury which is the parent ministry and those who wanted to introduce Shariah complaint windows and Islamic banking. The problem was as simple as it was complex. “The basic tenant of banking is that you cannot trade with customer’s deposits and that is exactly what the Fiqh-ul-Muamalat is, partnerships between the lender and the borrower and an agreement to share in profits and losses” Hassan Mohammed an ex-senior banker at Gulf African Bank explains.

“But the problems didn’t end there. Banks must maintain cash ratios. That is money on deposit at the Central Bank of Kenya. Those deposits are then lent through overnight lending to cover individual banks short positions,” he explains further.

The compliance to Islamic banking principles by either the conventional banks offering sharia compliant products or purely Islamic banks is out there for the public to judge. Youth against rib’a (YAR) a grouping of some seventy young Muslim professionals came together to tackle the matter of rib’a amongst the Muslims. Through word of mouth their numbers grew to nearly one thousand in two weeks of formation. They then began a campaign of information all the while the numbers of YAR continued to swell. With greater diversity and a national footprint they did something bold. They sought the intervention of the scholars. They approached five internationally renowned Islamic scholars and placed four questions before them.

Sheiklh Mohammed Muhsin, Sheikh Abdul-Walid Ahmed, Sheikh Ahmed Hassan Ahmed, Sheikh Faisal Nuh and Sheikh Hassan Ibrahim in a series of well-reasoned and well written fatawa (Islamic rulings) that have come to be distributed in English, Swahili, Arabic and Somali as a booklet titled “A Selection of Fatwa On Money and Banking Indicating The Necessity of the Muslims Establishing A Modern Day Bait-ul-Maal To Deal With The Problem Of Rib’a In Our Time” answered these questions and set in motion a series of events that have culminated in the establishment of a modern day Bait-ul-Maal in Kenya.

As soon as the rulings were out, YAR set about mobilising its membership and resources to enable the Muslim scholars in Kenya to sit down and deliberate on the matter of the four rulings, particularly to verify if the rulings were sound and if they were to set about establishing the tenants and foundations of a modern day Bait-ul-Maal. To do so a new movement was created “Muslims for the Establishment of a Bait-ul-Maal in Kenya”. “Our aim was simple. To circulate a petition and explain the rulings to Kenyan Muslims and ask them to sign the petition to do a very simple thing. To sit down and deliberate on the matter of whether or not the rulings were sound and if as a result should they establish the tenets for the establishment of a modern day Bait-ul-Maal,” explains Maimuna Pertat, a member of the lobby group Youth against Riba.

The end of Ramadan would see Muslims scholars sit in Nairobi, Mombasa and Kisumu to deliberate on the creation of the modern day Bait-ul-Maal. “Over the month of Ramadan we collected more than 21,000 signatures and as a result independent scholars stepped forward and agreed to sit down and hold deliberations,” says Pertat. The modern Bait-ul-Ma'al will be a financial institution seeking to eliminate rib’a and to provide financial liberation in the financial realm.

The Bait-ul-Ma'al is managed by a core company whose shareholders have put together capital to enable it to have a Sh200, 000,000 valuation enabling it to come to market. In a manner befitting the great endeavors that is the modern day Bait-ul-Ma'al, the first Bait-ul-Ma'al commenced its operations opening its doors to the Muslims for the first time bring to reality the effort of nearly 20,000 Kenyan Muslims who signed and followed the petition to create the same to eliminate rib’a amongst the Muslims.