This blog post aims to provide a summary of Islamic finance, its principles, and its practical applications, based on a discussion between Shaykh Dr. Yasir Qadhi and Dr. Main AlQudah.
One of the fundamental principles of Islamic finance is the prohibition of 'riba' or interest. Riba is defined as a premium that must be paid by the borrower to the lender along with the principal amount, either as a condition for the loan or for the extension of its maturity. This could be in the form of an Annual Percentage Rate (APR), a lump sum, or a flat fee.
Riba is problematic from a Sharia perspective due to the inherent injustice it can cause. In a riba-based transaction, the lender takes no risk, shifting all the risk onto the borrower. This can lead to exploitation, particularly in situations where the borrower's investment fails, yet they are still obligated to repay the loan with interest.
In contrast, Islamic finance promotes a risk-sharing model. In this model, both parties share in the profits and losses, promoting fairness and ethical responsibility.
In the American context, riba can manifest in various forms, often disguised under different names. For example, opening a saving account in a conventional bank is essentially an interest-bearing loan. The bank guarantees the principal amount and its return, which is essentially riba, even though it is not explicitly introduced as such.
Another example is overdraft charges. When you overdraw from your account, you essentially borrow money from the bank. If you are required to pay back more than you borrowed due to an overdraft charge, this extra payment is essentially riba.
On the other hand, cashback from credit cards is not considered riba. When you use a credit card, you are borrowing money from the credit card company. If you receive cashback, you are essentially paying back less than you borrowed, which is the opposite of riba.
The issue of mortgages is a complex one in the context of Islamic finance. When you mortgage a house, you are involved in three different transactions simultaneously: a sale agreement, a loan agreement, and a mortgage agreement. While the sale and mortgage agreements are permissible in Islam, the loan agreement is not because it involves paying back more than you borrowed, which is riba.
There are Islamic mortgage companies that attempt to offer Sharia-compliant alternatives. However, these companies often operate within the existing financial system, which is inherently interest-based. Therefore, it can be challenging to find a genuinely Islamic mortgage option.
Islamic finance is not just about avoiding riba. It is about promoting a financial system that is just, fair, and ethically responsible. It is about ensuring that financial transactions do not exploit one party at the expense of the other. It is about promoting a risk-sharing model, where both parties share in the profits and losses.
However, it is essential to note that not all financial products labeled as "Islamic" are genuinely Islamic. Some so-called "Islamic" financial products are merely conventional financial products rebranded with Islamic terminology. Therefore, it is crucial for Muslims to understand the principles of Islamic finance and to scrutinize financial products to ensure they are truly Sharia-compliant.
While the global financial system is dominated by interest-based transactions, there is hope for the development of a robust Islamic financial system. The Muslim community has the resources andthe potential to build a financial system that aligns with Islamic principles. However, this requires a collective effort, including education, innovation, and collaboration.
Education is crucial in promoting understanding and awareness of Islamic finance. Many Muslims are not aware of the principles of Islamic finance and the implications of riba. Therefore, it is essential to educate the Muslim community about these issues, empowering them to make informed financial decisions that align with their religious beliefs.
Innovation is also crucial in the development of a robust Islamic financial system. While there are challenges in offering Sharia-compliant financial products within the existing financial system, these challenges can be overcome with innovative solutions. For example, blockchain technology could potentially be used to create a decentralized financial system that aligns with Islamic principles.
Collaboration is another key factor in the development of an Islamic financial system. This involves collaboration between scholars, financial experts, and the Muslim community. Scholars provide the religious guidance, financial experts provide the technical expertise, and the Muslim community provides the demand for Sharia-compliant financial products.
Islamic finance is not just about avoiding riba. It is about promoting a financial system that is just, fair, and ethically responsible. While there are challenges in offering Sharia-compliant financial products within the existing financial system, these challenges can be overcome with education, innovation, and collaboration.
As Muslims, it is our responsibility to strive for a financial system that aligns with our religious beliefs. This requires a collective effort, and it starts with understanding the principles of Islamic finance and the implications of riba. By doing so, we can make informed financial decisions that not only benefit us individually but also contribute to the development of a robust Islamic financial system.
In the end, it's not just about the financial transactions we engage in, but the values we uphold and the kind of society we want to build. A society that is just, fair, and ethically responsible. A society that aligns with the principles of Islam.
For the complete video check:
Islamic Finance Q&A | Shaykh Dr. Yasir Qadhi and Dr. Main AlQudah Q&A | Epic Masjid - YouTube
