*** Disclaimer: The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of ISRA
By Yousuf Ibnul Hasan
It does not require an extraordinary intellect and insight to banking concepts rather a mere common sense to discriminate between real long-term welfare and short-term outputs to the economy through an application of a well-established system of Riba less Banking. Dr. Ahmed Al Naggar is the pioneer proponent of banking system standing on the foundation of social priorities instead of bare economic and monetary operation in the form of institutionalized monetary services. He gave the concrete shape to this concept through laying the understructure in the form of "Mitgmir Saving Bank" in 1962 in the Egyptian city of Mitgmir. Perhaps this was the first commercial banking institution which was time-honored in providing Riba-less banking services to the people.
The bank was not titled as "Islamic" but was termed as "Saving Bank". The first major idea was to provide safe saving at an appropriate investment through participation between the bank and the depositor; furthermore to propose financial services with participated inputs and outputs considering the "Modaraba" concept as the base system of banking. Dr. Naggar considered Riba as the culprit damaging the economics of the world and an utter combination of evil and sins. He advocated the complete elimination of Riba as the only guard of an economic system. His concept of banking supported giving priorities to socioeconomic instead of only economic factors for the development and growth of humanity. It is only through his vision that today Islamic economics and finance is flourishing as world’s fastest growing system with a challenge to the conventional monetary world.
I, being the graduate in Islamic Banking and Islamic Economics (1983) from International Institute of Islamic Banking and Islamic Economics ((Egypt & Turkey) is a fortunate disciple and trooper of Dr, Naggar's workforce which he prepared for future challenges against Riba and Interest. The system demands the acceptance of the strong principle which recognizes the humans as the force behind all economic activities instead of treating the money which works only as a capital until it gets a purpose and support for exchange against commodity or services through efforts of men. It was his opinion which he transformed into the minds of his students that resources are unlimited against the human efforts which remains limited during the lifetime of a common man.
Between the period of 1960 to 1985 in which Islamic economics was in the developing stage against the strong opposition. Not only the non-Muslims but even the Muslim banking professionals, economists, jurists, and traders considered the wave of Islamic banking as the jugglery of a confused group. But the archives proved that the movement for Riba free monetary system kept on accelerating in the monetary market. On the conventional front, the bankers devalued the financial and banking movement and finally, Dr. Naggar and his team were arrested by the President of the time Jamal Abdul Nasir of Egypt. The reason was only doubts created by the conventional market accusing the movement as a support to Aqawam-e-Muslimin (Islamic Revolutionary Movement) against the regime of the President. Dr. Naggar was sent into solitary confinement at Cairo prison where he spent two years in rigorous imprisonment.
During his arrest, one of his colleagues of financial movement and citizen of Pakistan was released and deported back to Pakistan. He established Interest-Free Cooperative Bank (IFCB) in Karachi, the commercial hub of Pakistan in the year of 1965. The bank was located at Saddar Cooperative Market at City Center. This bank operated till 1974 and then was merged with conventional bank institutions due to the nationalization of Pakistan commercial sector. This was the second set back to the Islamic financial movement.
The banking professionals, economists, and scholars from the new generation who are receiving fruits from the harvest of their ancestors are yet to overcome shortfalls in the understating of the basic concepts that Islam supports for the magnificent economic system. So much so the leading banking professionals avoid discussing the topic that leads to a transparent monetary. A common Islamic banker fails to understand the differences between Interest, profit and Riba, Conventional Economic and Islamic Economics, Finance and lending, Banking and trading or the concept of Human Capital. It is a common understanding of the factors of production which are land, labor, and capital where rationally Man, Money, Commodity, and Services are the real factors of production that define the clockwise application of the transaction. They are still unaware of the formula of profitability and consider interest as the only application for profitability, using rate instead of ratio.
At the closing session of the workshop (1982), addressing Egyptian Army Officers and Sudan Parliamentary Group, Dr. Naggar criticized the attitude of Muslim bankers serving conventional banks of the time. He insisted on realizing the filth of Riba in banking. He propelled highlighting the horrible after-effects of lack of awareness about Riba and confirmed the doom of the system in case of absence of practical efforts. According to him, Islamic Banking would only be seen either in conferences, seminars or in the control of those who want Islamic Banking in their own way, no matter it is Riba or La Riba thus resulting in the huge loss as the self-fabricated and self-centered cannot develop awareness among masses. In 2017 his words are proved true, the Islamic financial movement that started in 1960 is still moving in marry-go-round in form of conferences, seminars, workshops, research papers and training sessions by those who still need to be polished with the basics of the system.
Unfortunately, even today with all the support and participation of conventional and Islamic experts, scholars and professionals active in the promotion of Islamic Finance are unable to bring the banking and finance to acknowledge the importance of human element in economics. They still do not know money's real role which only acts in volume against the value of commodity and services as the medium of exchange and they do not accept the fact that volume of money is actually the value of commodity and services. Still, the application is using fixed rate for fixed tenure on the principle, declaring it as the profit instead of interest.
The religious groups who were given a task to monitor the transactions executed under Sharia compliances are themselves unaware of the importance of "Ratio" in finding the profit on the application of principle amount used for specific purpose and period on behalf of the owner of funds.
The Central Banks of Islamic Countries are as usual declaring the interbank rates as "Interest Rate" instead of calling it as "Profit Ratio" and yet unable to find a mechanism that develops financing in the participation contrary to the lending. To the extent that in an international conference, a member of the leading Islamic bank was quoting Modaraba, Musharka, Morabaha and Ijarah as loan base transaction and Sukuk as Islamic Bond.
The Islamic Bankers verbally declare the banking as "Islamic" and in reality, their banks are working as the money shop where one can buy and sell the money. The observations about the working of the Islamic Banks show the outcomes as, practicing of lending money for the transaction which is harmful to the human life as well to the humanity.
Some of the major evidences of purity of Islamic banking and finance are:
All the illness that prevails in the Islamic financial and banking market needs an effective remedy to overcome the shortfalls and weaknesses contaminating the magnificent system which has the solution to all economic crises and was executed, tested and proved with the three basic sources which need not be ignored and taken as the guiding rules. The Holy Quran has shared all the methods which are further explained in form of Hadith in several ways and through a number of scholars and jurists about the practical application of the Sunnah of Prophet Muhammad Sall-La-Ho-Alayah-e-Wassalam.
Several types of research have been conducted and numerous books have been written by a large number of scholars, explaining the financial system, with the ignorance of the priorities that set the transaction right or wrong. It is a matter of great concern that intentions have to be judged for the correct action and these intentions can only be corrected if basics of the Islamic economic system has to be taken as the foundation, Islamic Finance as the application and organized Islamic Banking services to the business, commercial and economic transaction for the better humanity by the human being who is created as unique among all the creations. It must be kept clear that there are three types of Riba which are commonly explained in the code of conduct, the Holy Quran reflects towards the factor of production in Islamic Economic system. These types that are title as Riba Al Nassiah cover the Money, Riba Al Fadal which explains the role of commodity and Riba Al Garrar guides the men how to act while dealing a commercial transaction. The major three types of Riba lead to almost sixty sub-categories of Riba through which the economic problems can be smoothly resolved wherever uncertainty arises. This explains how to maintain economic stability. This advocate giving priority to economic activities for the transaction.
Prophet Muhammad Sall-La-Ho-Alayah-e-Wassalam was Ameen, He Sall-La-Ho-Alayah-e-Wassalam was given wisdom, His Sall-La-Ho-Alayah-e-Wassalam profession was a trader and He Sall-La-Ho-Alayah-e-Wassalam was honest in his dealing. The banking is a spiritual and honorable commercial practice in an organized way and in a decent participation between man and commodities and services keeping the money as the bridge, two ends of the transaction. It demands participation, risk sharing, high level of ethical and morality, wisdom in decision making and humbleness in serving. Thus Islamic banker serves as Ameen, Astute, Trader and Honest which were the qualities of Prophet Muhammad Sall-La-Ho-Alayah-e-Wassalam. By adopting such qualities in his or profession he can lead to the solution of economic crises, better understandings to the saving conduct, rational approach to investment through participation that ultimately develop a strong liquidity with effective investment, which encourage commercial, business and industrial growth, resulting employment growth which decrease the crime rate in the society.
Keeping in view, the banking and banker qualities explained above, the banking system cannot be blamed to be unwanted as banking is the only way that discourages the greedy accumulation of wealth and encourages saving conduct. The true Banking system is an organized cycle of activities reinforcing micro and macro development and prosperity. It brings individual growth through embracing socioeconomics. The faults in banking services are due to the bankers' greed and not the banking system, and this greed can only be eradicated by following the first principle of the Islamic economics as basic guidance, "Actions are judged by the intentions".
The writer is Program Consultant Islamic Banking and Applied Finance and associated with Islamic Banking and Economics since 1982. ([email protected])