A STATE OF TRUSTEESHIP
HRH PRINCE MOHAMMED AL-FAISAL AL-SAUD
There are many misconceptions in the minds of both the West and the East about each other, and the underlying principles of life and work, and the work ethic in their respective societies. Historically, the misconceptions that were extant during the last two centuries are still with us.
The eighteenth and nineteenth centuries were centuries of confrontation between the two societies. Today, in the twentieth century, that confrontation is no longer there, but our thinking in both societies has not developed with the realities of the situation. However, today, we see that there are a lot of examples of cooperation between the two societies, hopefully for the good of mankind.
To explain Islamic banking and the difference between it and the banking system in the West, and whether these two systems can work together, is difficult, because on one side we have a developed system that has been aggressively adjusting and developing new methods for a few centuries, and on the other we have a system which has been dormant and neglected until recently.
In order to understand the system, the most important thing is to understand the basic, underlying philosophy that governs its actions.
Basically, the Islamic system of economics has very little variation between it and the economic system in the West. The difference is in the basic philosophy, not in the implementation and the instrumentalities. The payment of interest is the most glaring difference, and it concerns itself with one of the economic institutions in the system, which is banking. But an economic system consists not only of banks; it is a whole infrastructure of institutions that have developed over the years, based on concepts and theories.
The basic out look of Islam on wealth – and wealth, after all, is the end result of business – is that man, being created as a vicegerent of God in this world, is required to adhere to a certain system of rules. He has a duty to optimise his use of God’s gifts, that he has been given in this world as a trustee. So, this concept has an implication, for instance, on the definition of ownership. Th e Islamic businessman, and the Muslim individual, is not a free agent in ownership.
The concept of personal ownership does not exist in Islam. The corresponding concept in Islam means that you are a trustee, whether it be of money, natural resources, or other attributes.
This basic underlying concept is very important to understand when you are dealing with an Islamic environment in the business area. It has implications on what is built upon it, whether they be institutions or individual transactions in the field. So, this is very important and I am afraid that not only is it not known in the West, but even most Muslims have forgotten it.
But they are coming back to it now. It would be very difficult to explain the details of the little part that we are playing through Dar al-Maal or other organisations on the banking side. At the beginning, when we were starting our work, I was in London talking to some bankers and they were asking what Islamic banking was. After I had explained to them what it was, one of them came up and said, “But this is not banking!”. I said: “But it depends on your definition of banking.”
Unfortunately, I think, in the West, banking has been redefined by a very narrow concept. Essentially, banking in the West is mostly giving credit, and credit is tied to a certain price index that is the interest rate. But to any economist, and especially a Muslim economist, banking has a much wider definition. Our definition of banking in our system, which should also apply in the Western sense, is that it is a channel of monetary resources between the people who have the money and the people who use it.
So, taking that definition into account, one can see more clearly what we are talking about when we say ‘Islamic banking’. We have also to be careful – a lot of our co-religionists are congratulating themselves because Islamic banks are beginning to be established and they think that we have done it all. May I remind them that banking is just a small part of a whole, a whole that is an economic system with an underlying philosophy which has moral, legal and financial implications all over the world.
Also, somehow, somewhere, and here I fault mostly the Muslims themselves, Islam bas become an obscure historical curiosity, like the Pharaohs or the old Greeks and so forth, and the thinking in the world is that this is a curious field appropriate for specialists to research, but it has no application in the modern world. Well, what is the modern world?
We have to distinguish what we call ‘civilisation’ and what has wrongly become, in the minds of people and especially in the minds of Muslims, the definition of civilisation, which is technology. Civilisation is a set of values, a set of beliefs; technology is a service to civilisation, to make life easier for people and to help them in getting through this life.
We as Muslims have been in awe of the West because of its development of technology. However, when we take things back to basics, and look at civilisation, we are convinced that there is a contribution that Islam can make to the world. This is another point that has to be made if people are trying to work in an Islamic environment and understand it.
Islamic banking is essentially the collection of monetary resources, and their distribution for the activities that make up an economic system. The matter of interest – the Arabic word for it is riba, which can translate both into interest or usury, the two are the same – is a basic difference between the conventional and Islamic systems.
In the West, traditionally, usury has been defined as excessive charges of interest. In Islam, any charges, excessive or not, are considered usury. We have to find another way of doing business, and of playing the role that is essential for economic development, because banks as channellers of funds between the saver and the entrepreneur, are an essential part of doing business today.
Therefore, we have to find the mechanisms and the instrumentalities that can solve this problem in the Islamic world, where there is today a contradiction between belief and culture, and the requirements of modern business dealing.
In the late 1960s, some of us thought and could anticipate what is now called an ‘Islamic resurgence’, we realised that these problems would have to be faced, and started working towards developing new methodologies in order to meet the needs of our new society, to avoid the possibilities of ‘fundamentalism’ and extremism, because if you have a situation where there is a contradiction between life and belief, the result will be either disappointment or violent reaction. We tried to anticipate this by channelling our efforts towards productive endeavour.
One of these is the idea of the Islamic banking system. We went to the field immediately without any preparation, because we needed to create the impetus that would invite the research and development of systems. Until recently, a library would have no references to the Islamic economic system, or Islamic banking.
There is a lack of research in the field. Very few people can really answer the questions that are in the minds of people, and especially of businessmen who want to do business, who want to understand and want to get on with the job. So, we are in the process of developing and promoting R&D, in order to develop the body of infrastructure that is needed for Islamic banking, as part of a whole Islamic economic system.
We are developing our institutions. The past fifteen years have been, if we can talk in the sense of a product, in the laboratory stage. Our laboratory was the world. We are beginning to see some aspects of the final working models, which still need some development. So, when we talk about Islamic banking, it must be understood that it still is in the experimental stage.
As for its being possible to work with it – yes. After all, our example, our Prophet, was a trader. He was a successful trader. The concept that Islam frowns on business is a misconception, and purely based on Western experience. In the Bible, business is not looked upon as a very meritorious activity, and therefore the West has tended to apply that to the Qur’an, while in the Qur’an there is a legal framework of basic concepts for business.
And the difference between the Qur’an and the Bible is that the Bible is a value-system, and it deals with the spiritual, while the Qur’an is not only spiritual, it also has a juridical side to it. We believe that this is the Word of God, but that it does not differ from any other legal system in the sense that it tries to set parameters for the interactions of people with themselves and their environment for the good of all society. The only difference is that we claim a higher source, which is God.
We could go into the details of how we do our murabaha or mudaraba, but if the underlying principles are not understood then it will be difficult to understand the contract itself.
We need to develop a legal framework on which to operate. Most of the Third World has a very primitive legal system; they haven’t been as fortunate as the West in developing it. We as Muslims – and the Muslim world is a major part of the Third World – suffer the same problems as the Third World, where the legal infrastructure is not as developed as in the West.
But it must be understood that the underlying force in the Muslim world is the Islamic system, so it is essential to understand it. There has to be a real effort on both sides, whether it is the West or the Islamic world, to educate themselves on the practice and on the underlying principles on which these two societies operate.
Edited By Asma Siddiqi
Institute Of Islamic Banking And Insurance London
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