Islamic Values

Justice

Central to the Qu’ranic teaching is the promotion of justice, which leads to peace and harmony.

Kamali says that the purpose of the Prophet’s mission was not only mercy to mankind, but to all of God’s creatures.

He says that in order to attain these objectives, which constitute the component parts of mercy, we must educate the individual, establish justice, and realize benefit (maslahah) for the people.

Equity

Social Equality

Compassion

Human Kindness

Are not Found in the Islamic Finance project today. Today, Islamic Finance is primarily based on debt-finance.

However, when the Islamic Finance Project was launched, it had intended to create an Islamic moral economy.

The reality of competing in a neo-classical framework choked the ideals of Islam in Islamic finance. We must be self-serving, selfish, wealth-maximizing individuals to survive in the capitalist jungle that we were born into.

The Dunya

What is an Islamic Moral Economy?

Preserve the well-being of Humanity and Prevent Harm

Based on the Shari’ah and Maqasid (Objectives) of the Shari’ah: SAFEGUARD

• Faith (din)• Lives (nafs)• Intellect (aql)• Posterity (nasl) • Wealth (mal)

Prohibition-Based

Some socially agreed restrictions are necessary on individuals to ensure that they do not trespass the rights of others and jeopardize their well-being.

Islamic Finance Project based in the Tawhid (One-God) Framework (Which recognizes the teachings of Moses (p.b.u.h.), Jesus (p.b.u.h.), and Muhammad s.a.w.), the Torah, Bible, and Qu’ran and Sunnah.

Risalah: (God’s prophets as the source of Divine Guidance) (Moses p.b.u.h, Jesus p.b.u.h., Muhammad (p.b.u.h.).

The mission of all of the Prophets including Moses (p.b.u.h.), Jesus (p.b.u.h), and Muhammad (s.a.w.) was to perform tazkiyah (purification plus growth) of an individual in her relationship with God, with other people, and with the environment, society, and the state. This purification process would lead to the purification of the capitalist system into a moral economy.

Purification of Capitalist System into a Clean Economy, which serves the will of God rather than the will of Man.

Divine resource allocation rather than serving markets.

Accountability to Allah (Through remaining accountable to Allah, we act through a moral filter cleansing our psyche of the desire to do inflict harm).

Preparation for the Hereafter (Doing Good Deeds).

Vice-regency on earth to carry out the will of Allah (Fulfill your assigned task).

Social Equilibrium

Amanah (Trusteeship) (You are only a guest on earth).

Peace on Earth

Spread of Wealth Across Society including the Orphan, the Wayfarer, and the Needy.

Serve Allah and join not any partners with Him: and do good – to parents, kinsfolk, orphans, those in need, neighbors who are near neighbors who are strangers, the Companion by your side, the wayfarer (ye meet), and what your right hand possess. (4:36)

Following the Rules on Counter-Values.

Both counter-values must be certain and may either occur both at the time of transaction or one now and one later, however, not both in the future.

Waqf (Charitable Trust)

Zakat (Charity)

Gold Dinar and Silver Dirham (Money as Medium of Exchange and Measure of Value)

In Islam, it is permissible to trade money for commodity, commodity for commodity, however, not money for money as this produces interest (riba). In order to purify the economic system of this Money to Money occurrence (interest), the basis of transaction should be commodity such as gold.

No Riba (Interest)

In the case of riba, the variance in certitude between the two counter-values, the interest on the one hand and the opportunity cost on the other hand, constitutes the essence of the injustice of imposing interest on loans.

The increase over the principal, the common form of which is bank interest, is certain and its amount is known whereas the yield resulting from investing the loan by the creditor is not sure to materialize and if it does, its amount is not ascertainable in advance.

Limited Gharar (Uncertainty)

In a contract, which contains gharar, such as a contract based on speculative activities, the contract may include a counter-value, which is not only of uncertain value, but may not be realized at all.

Asset-Backed Finance:

Transactions are asset-backed creating a real economy rather than one based on false money or credit.

Financing in Islam is based on illiquid assets, which creates real assets and inventories.

Interest-based financing does not necessarily create real assets, therefore, the supply of money through the loans advanced by the financial institutions does not normally match with the real goods and services produced in the society, because the supply is increased, and sometimes multiplied without creating real assets in the same quantity. This gap between the supply of money and production of real assets creates or fuels inflation. Since financing in an Islamic system is backed by assets, it is always matched with corresponding goods and services.

Equity rather than Debt Finance

Asyraf Wajdi Dusuki states that (2010): ‘In contrast to debt-financing, equity-financing utilizes a profit-loss sharing mechanism based on the contribution of capital in the project or investment.’ Dusuki says that (2010): In equity- based financing, both the borrower and lender share profits and losses as compared to the case of debt- financing, where one party is made to take all the risk.’ Dusuki explains that (2010): It also promotes expansion of the economy including the development of small- to -medium sized businesses in addition to large enterprises and promotes stability in the economy and society at large.’

Equity- financing fulfills the essence of Shari’ah requirements in Islamic banking and finance as it fulfills the counter- value (iwadh). For a contract to be valid, there should be Iwadh or counter-value present. Three elements of iwadh that should exist are risk (ghorm), work and effort (ikhtiar) and liability (daman). In the majority of debt- financing contracts, one or more of these elements of Iwadh are missing. If there is no risk, effort and liability, then such a contract cannot be considered to contain any element of justice.'

Musharakah (Bank acts as participatory co- Investor in Joint-Venture) Musharakah is a word of Arabic origin, which literally means sharing. In the context of business and trade it means a joint- enterprise in which all the partners share the profit or loss of the joint-venture.

Mudharabah (Rabb ul Mall invests, Mudarib Manages) (restricted, unrestricted forms).

Profit-and-Loss Sharing

Share Equally in the Risk and Reward

Bank as Finance House rather than Loan House

Centralized Shari’ah Board

Regulation

Dispute Resolution

The Islamic Banking and Finance Industry, which exists today is a sham. There is nothing moral about it. It does not encompass any of the ideals of the Islamic moral economy and has become just another branch of the conventional banking system, imitating its products and services and dishing out interest in disguised forms. It is debt-based and produces similar outcomes as interest-based financing. Shari’ah is not the base and the Tawhid (One-God) Framework is not being utilized. The modes of finance are not musharakah and mudharabah and thus a participatory superstructure in society does not result. The debt finance base of Islamic finance and banking creates the same debt-trap superstructure encapsulating the neo-classical individual in his own misery, which exists in the conventional economy. The bank remains a loan house rather than finance house to the detriment of the well-being of humanity.