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General Framework for Discussion of Islamic Finance | Part 3

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By Dr Shaykh al Muhaddith Mohammad Akram Nadwi, Oxford

Part 1  |  Part 2  |  Part 3

The Qur’an describes itself and the Prophet as a mercy for mankind. It is one aspect of that mercy that the guidance of Qur’an and Sunnah has the power to inspire believers to do both these things – to live by the letter and by the spirit, both. The reason applied by the Muslim scholars to the guidance was practical reason, the kind that we use every day to distinguish and balance immediate and long-term priorities, to choose the course of action expected to result in the most good or the least harm. This kind of reason is quite different from the abstract reason of the Muslim philosophers and theologians who defined and elaborated concepts and rational arguments to promote or defend intellectual propositions with little or no practical relevance to the duty to follow the guidance of Qur’an and Sunnah. They were not dealing with the practical problems of Muslims, but with the intellectual or linguistic problems posed by the philosophers and theologians who came before them. Their primary point of reference, the primary stimulus or inspiration for their efforts, was not the Qur’an and Sunnah, but various personages, ideas, arguments and practices from pre-Islamic or non-Islamic cultural traditions.

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For the Muslim scholars of the first centuries who were striving to help Muslims implement the guidance, the sources were the Qur’anic text and the Sunnah as recorded in the corpus of Prophetic and Companion hadiths and the historical tradition. Neither Qur’an nor Sunnah contains doctrines of a philosophical or theological or sociological or political or legal or economic or any other kind. The material of which the guidance of Qur’an and Sunnah is composed contains very few, if any, formal propositions and arguments. The most typical form the material takes is stories: one or more incidents; report of a situation and its outcome; report of a short sequence of question and answer on a specific occasion. A woman has experienced such and such treatment from her husband; she reports the same to the Prophet; he says about it such and such. A man has sinned during the fasting month, he wants to do expiation; the Prophet says, do this, but he can’t; this other thing; but he can’t; still another thing, still he can’t; finally, the Prophet finds a way for him.  People are rushing out of Madinah to meet the caravans bringing merchandise into the city; they know the price the merchandise would fetch in the city market, but they want to buy it cheaper and re-sell back in Madinah; the Prophet forbids this.

From this material we do not get a formal discussion, still less a definition, of virtue or justice or benevolence or the role of women or the role of the head of state, or the role of the free market, etc. What we get are instances of just and virtuous behavior, instances of what a woman might do or say that the Prophet commented on, instances of what he did as head of state in different situations, instances of what he commended or criticized in the bearing and conduct of those he appointed to positions of authority, instances of economic behavior that he witnessed, kinds of buying and selling, kinds of contract, etc. And among the instances are many variations of judgment – from outright condemnation all the way to a silent acceptance that is not approval of a behavior or utterance, but which is also not a rejection. On the positive side similarly, there is wide variation from passionate endorsement of the way a Companion had spoken or acted to a conditional approbation with encouragement to do still better. Also, and most importantly, there are instances of a matter being judged strictly on one occasion and judged leniently on a different occasion, because the judgment would affect persons of different capacity or be carried out in different circumstances. Within the range of the Sunnah we have examples both of strict consistency and of gracious flexibility. As noted earlier, both these are needed if we are striving for the supreme good for all Muslims, individually and collectively, namely that they worship God well. With Muslims, as with human beings generally, capacities and opportunities (that is to say, the internal and external necessities that influence our choices and actions) differ considerably. These difference have to be taken into account if all are to be guided towards the same goal of worshipping God and doing so freely and gladly, with good grace.

Regular and sustained exposure to this great wealth of material – and it was normal for scholars to internalize the Qur’an and much of the hadith corpus by memorizing it – enables Muslims to know the guidance of Islam and put it into practice. This happens in the same natural, practical way that children, after regular and sustained exposure to the language used around them, learn that language as a whole and all its parts – its words, its varied inflections and intonations suited to different contexts, and its rules of grammar which tell them when a usage is quite unacceptable or merely unusual (that is, when it is quite impossible or merely difficult for others to understand). Of course the analogy is imperfect, but it helps us to grasp the fact that there were many thousands of Muslims in the early centuries of Islam who, having lived and studied for decades with the Companions and their Followers, were adept with the sources of the guidance, and they derived very sensible and practical rulings from it. Those rulings are not systematically consistent in the way that one expects from a body of philosophically rigorous and sequential arguments. However, they were strongly consistent with the letter and spirit of the guidance, and they were strongly oriented outwards in the direction of the problems and hardships that Muslims encountered in trying to live within the natural order according to the commandments and commendations of the Islamic order.

Over time, perhaps inevitably, patterns of consistencies in the rulings, and in how the rulings were reasoned, emerged in regional centers. These patterns formed the basis of the emerging schools in the Islamic legal tradition. Still later, inheriting the excellent work of the pioneers in that tradition, the later scholars, in spite of the instruction of those very same pioneers, referred less and less to the sources of the guidance, and more and more to the derived rulings. Instead of being focused on understanding the letter and spirit of the guidance, they focused more on understanding the letter and spirit of the derived rulings. Instead of being oriented outwards to the difficulties of Muslims in their everyday lives, they became oriented inwards towards the difficulties within their own work. They strove therefore to correct and remove inconsistencies among the derived rulings – perhaps forgetting that there may have been very good practical reasons for those inconsistencies – and they strove to unify particular rulings on the basis of general legal maxims. Accordingly, it is right to speak of this later work of institutionalization of Islamic legal rulings as the construction of schools or doctrines.

Although the greatest scholars always looked outside the arguments and traditions of their own school to learn from those of other schools and criticize their own, most scholars did not do this, being content instead with loyal commentaries intended to preserve and consolidate the work of their school. So, eventually, it became possible to speak of a Hanafi or a Shafi‘i or a Maliki or a Hanbali position on this or that matter. This was the foreground of the scholars’ attention and activity; behind it, in the background, was the consciousness that, despite the differences, all these positions were all, also, Muslim. Mercifully, now and again, there arose within the community, clear-sighted and clear-hearted individuals who knew, and who said publicly, that it should be the other way round. An example is Shaykh al-Islam Ibn Taymiyyah, who refused to be identified as a Hanbali, and insisted on his identity as a Muslim.

From the foregoing discussion, I hope you will understand two things that will help us to reach a balanced judgment about contemporary Islamic finance. The first is that in the past, in the response of Muslim scholars to the disputes and difficulties Muslims faced in their daily lives, we can distinguish two general approaches, respectively early and late in our tradition.

In the earlier periods, the scholars looked to the guidance of the Qur’an and Sunnah, and struck a good balance between adhering to the letter of specific, explicit commands in that guidance and enabling the general outcomes connected to those commands, which the guidance urges Muslims to establish in their lives, individually and collectively. In a particular situational context, they might allow a practice that was on the edge of doing the prohibited so long as, overall, it contributed to strengthening the Islamic order. As often as not, this was an exercise of patience, accepting or allowing with some modification pre-existing established practices so as to give new Muslims or Muslims in a weak position time to adapt to the Islamic order. The commitment to the guidance of Qur’an and Sunnah is very strong in the earlier period, and the authority of these sources has absolute primacy. People are memorizing Qur’an and hadith, they are not memorizing primers of Hanafi or Shafi‘i rulings.

In the later period, the scholars looked habitually to the authority of the rulings inherited in their school or region, and looked to the authority of the original sources only in a formal, intellectually dull way. They developed a rationale for the rulings, to give them consistency and clarity and therefore intellectual authority. The result of this is distinctive definitions of terms (like riba, for example) and elaborated doctrines (for example, about the role of women, the authority of rulers to fix or not fix prices, and so on). In practice, these doctrines and definitions, while they professionalize the work of the scholars, and improve consistency in the application of rulings, also narrow the field of concern. In the later period, people are looking for conformity with the derived rulings or consistency with the rationale behind the rulings. The result is a failure of attention to the general outcomes connected to the commands, so that Islamic societies do not become more just and fair or more peaceful and prosperous as a whole, but specifically Islamic rulings are nonetheless being applied. This makes the Islamic identity of the rulings and perhaps of the society in which they are implemented mostly symbolic.

Many of the instruments and transaction contracts that are billed under Islamic finance are only just Islamic and only in the latter, symbolic sense: they build or propose legal solutions on the pattern of terminology and contracts in the late classical fiqh (contracts which, by the way, may have been intended for specific contexts only), without any regard for whether the general outcome to which these contracts contribute is even tolerable, let alone desirable, according to the guidance of Qur’an and Sunnah. But we must also anticipate in our discussion that the guidance of Islam makes allowance for the burdens of necessity that severely limit freedom of choice and action, and so it gives people time to adapt and amend, while they strive, and ask God’s help, to lighten the burdens in their lives and consciences.

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1 Comment

1 Comment

  1. Robert Hannah

    September 27, 2014 at 4:28 PM

    I along with Ameer K. (posts to sections 1 and 2) was quite disappointed with Dr. Nadwi’s discussion in his sections 1, 2, and 3 – hoping to find some analytic links to modern finance. There is little of substance in these essays. He ignores the controversial issue of the definition of riba – is it interest or usury? Those who claim a consensus as he does that riba is interest ignore the Al Azhar University fatwah in favour of bank deposit interest and Yusuf Ali’s commentary on the subject in his Koranic translation.

    The distinction he draws between guidance (primary sources) and doctrine (scholarly teachings) is useful. However if history is any guide, doctrines – being the fallible interpretations of men and women in their societical context – can and should evolve as society develops. He does not make this point – perhaps he does not agree with it.

    Near the end of his section 1 he tells us that “99.9% of the time we really don’t know better (than Islamic scholars)” – a statement that should raise a red flag to those of us interested in serious dialogue and critcal analysis.

    In his section 2 he displays a simplistic ignorance of modern banking unworthy of someone with an advanced degree – calling it a “pernicious monopoly”. In the US at least, with over 5000 banks and a multitude of trust and loans, credit unions, savings and mutual funds and so on all with electronic platforms, it is hardly a monopoly! He refers to “money creation” through the reserve multiplier – well, many developed countries no longer have a reserve requirement; banking regulation is done by capital adequacy. While banks do rent money, they also have a cost of funds. Banks earn money through their loan-deposit spread and fee income – their return on equity is often good but no more so than that of other corporations.

    Interestingly, Dr. Nadwi concludes in section 3 by suggesting very subtly a certain unhappiness with the way Islamic scholarship has evolved – less emphasis on primary sources and more on defending and rationalising the existing rulings in the scholar’s school of thought. But perhaps I am reading more into his words than are there.

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