Islamic finance system lacks a comprehensive law

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Islamic finance system lacks a comprehensive law

Islamic finance system lacks a comprehensive law: Expert


JEDDAH: Islamic banks and finance institutions should have a comprehensive law to regulate their activities, make their products Shariah-compliant and win investor confidence, according to a professor at the Department of Economics in the International Islamic University, Malaysia (IIUM).

“At present there is no law defining what is Islamic banking and finance. We need a complete set of rules and regulations. In the absence of such a law, discrepancies will continue,” Muhammad Yousuf Saleem told Arab News.

A comprehensive law would bring about dramatic improvement in the quality of Islamic banking and finance services, he said. There are now thousands of Islamic banks and financial institutions across the world, dealing with more than $1 trillion in deposits and assets. “These institutions are in need of a substantial law defining Islamic banking products and banking activities,” said Saleem, who holds a doctorate degree in law from IIUM.

He added that many Muslim scholars are not happy with the present Islamic banking system due to the absence of a comprehensive law. The law would create public confidence in the system and encourage more Muslims and non-Muslims to deal with it. “Islamic banks should prove that they are totally different from conventional ones to attract faithful Muslims,” he pointed out.

Saleem said Islamic banks should invest in real economy such as industries and agriculture to boost the development of countries and create more job opportunities. “They should take care of not only the interests of shareholders, but also those of common people,” he said. He attributed the progress of the Islamic banking sector in Malaysia to strong central bank control.

The IIUM professor demands greater independence for Shariah boards that monitor the activities of Islamic banks and financial institutions. “At present, the board members are appointed and paid by the banks where they work. This is one of the weaknesses of the present system. The power of appointing and removing a board member should be vested in the central bank.”

Saleem does not favor the opening of Islamic finance windows at conventional banks. “We can only approve these windows as a transitional step, not as a permanent system, because we don’t know how they separate their transactions and use their funds. Traditional banks should open separate branches for Islamic banking to avoid mixing of funds,” he explained.

Professor Saleem is optimistic about the future of Islamic banking in the world. “There is a good future for Islamic banks, provided they improve services and focus on real economy, infrastructures and SMEs, and do not invest in credit cards and derivatives,” Saleem said. “Conventional banks encourage people to spend more. Islamic banks can put a break on this negative trend,” he added.

Best Regards


  1. Dr Gulam Mohammad Chinchwalker (Qadri) says:

    Respected Teachers.
    As Salaamo ilaikum va Rahmatulah va Barkatahu

    Banking and Islam

    (My Queries and deep sense of hamdardi for my muslim brother who are working in Bank who are complaining of ill treatment from some group of muslim brothers and for people who cant afford to start business or house due to financial problem since Islamic bank has not yet reached in India )

    The bank and banking is view as a business organization working on interest .
    Since interest is haram in Islam the entire set up of bank and banking and employee working in a bank is considered Haram by Islamic Scholars.

    Riba (taking interest) A muslim is not allowed to take or give money on interest.
    Riba is one of the seven major sin in Islam and unforgivable in nature.

    The Ayat in regard to Riba came after Hijri to Yathrib , before this Ayat many Shahabis including the prophet had taken money on interest from the Jew money lenders.

    The Institute of Money lending business are harmful for those who take money from
    this money lenders who lend money on very heavy interest rate and are very strict and unreasonable this money lenders give money on mortgage of land , gold and other
    valuable items . Where as law of Allah is based on mercy for his mankind Allah has made all the thing Haram to man which is harmful for him and all thing Hallal which is good for him in this world and hereafter .

    During Prophet time it was common observation that those who had took loan from
    these money lenders had to suffered miserably in hadiths it was said that the muslims should not become as cruel as this moneylender and should not give or take money on loan on interest Riba . Taking money on interest was very harmful for all muslim. It bought suffering to them and they would never rise up from poverty and debt .

    Is Modern Banking and Money lenders business of earlier time same or they are different ?

    Banking have one principle which is very common with Money lenders business is lending money on interest but the Institution of banking in modern time is vast and very much different than the money lenders of earlier time .

    Banking Institution in modern time is an financial organization supported by the government and has been legalized and under the control of RBI .

    Banking Institution has help the society at large in development in many field , unlike money lenders business who use to charge heavy interest rate and were detrimental to the society at large .

    Modern Banks accept deposit from their client and pay them interest while the money lenders does not accept deposit they work with their own capital .
    The word Bank mean to bank on or depend only or trusthworthy , while money lender cannot be trust upon.

    Why bank is so important ?
    The prime reason why most of the people all over the world keep money in bank is because their money are in safe custody and are protected against robbery or other calamities.
    Many people have to save money for future they find in more convenient to save in bank . Keeping money in bank is like keeping our money and valuable in the hand of people with whom it is safe and on whom they can depend upon .Saving money in bank for protection is the main reason why people keep money in bank while the Money lenders does not takes deposit nor they guarantee or are trustworthy so they can not be bank upon .
    The objective of bank are to alleviate the level of poverty to promote growth , bank are not profit making organization what ever excess fund or money it receive at the end of the year it is use for the give relief to the poor section of the society . World bank help poor countries to stand on their own feet.


    A. If a person want to keep money in conventional bank for safekeeping and not to earn interest on it , is it still haram if he keeps the money in the bank and does not take interest on it ?

    Bank is a legalized body and govern by the government of that country . Banking is also an international body and respected by Government of all the countries .Most of the business through out the world are conducted through banking and every one has trust in the bank . Those who are in business of import and export find it more convenient to do their business with bank .

    Businessman all over the world find it convenient to make payment to their party through cheque, the bank accept cheque an transfer the amount of the depositor into the amount of whom the cheque is issued.. We can also obtain money through traveling cheque or through ATM , one can do shopping without paying cash through credit or debit card .
    Banking help a person to book his tickets on line saving time , trouble and money . A old and sick person can also take help of telephone banking .

    On other hand the amount of Interest involved in banking is very small compared to the interest charged by the money lenders plus money lenders does not provide all the facilities which a modern bank provides. If we can just consider that the low interest rate is not an interest but a service charge in compare to the great services rendered .

    Banks give money to three class of people on loan , it give loan to the government , to business organization and to individual for personal need like housing , marriage , medical , education etc . It is found that many who had taken loan are able to get benefit from this loan .

    Can Islamic Scholars take a liberant view and look with deeper insight may be it possible that the word interest would be viewed as services charges by the bank , since the interest charges are not more than 9 to 10 percent annually at the most .

    There is very narrow line and difference between usury and business . Usury is not permitted in Islam where as business is permitted for example if a person want to invest his money in business with other business man he can invest his money without actually being the part of his business yet obtain profit which is hallal , while the same person if he give money to a another business is on interest than it is haram .

    Islamic Scholars have no issue over the functioning on bank and the principle of bank except toward Riba as such banks and banking is acceptable that is why Muslim financial institution are called Islamic Bank with similar function but difference in basic principle.

    Islamic Bank : Now let us come to Islamic bank is there is any different between conventional bank and Islamic bank there is no difference in the objective and function of the bank.
    The major difference is the Conventional bank is it is Lending oriented while
    Islamic bank is Trade oriented .

    Islamic bank are profit /loss sharing method ( Mushraka ) secondly Profit mark up sale or rental method ( Ijara , Murabaha , B-Maujjol). In Islamic bank the customer is a partner to the bank and give right to the bank to do business on their behalf on their amount of deposit the business is subject to loss and profit which the depositor has to bear the bank take care to do business in such a way to insecure security and profit to the depositor.

    The Mutual fund banking by conventional bank are now more closer to the principle of Islam the money of the depositor is invested in mutual fund subject to market risk , some invest into most reliable and ethical companies and the profit or loss is shared. In mutual fund there is no interest involved it is free from riba . Most of the Scholars accept buying and selling shares , equity share with ethical business organization is hallal.

    Since in India Islamic Bank facilities are not available and Muslims has to keep their account in conventional banks for save custody , or to carry out their business . It is found that many muslim are having account in conventional banks at the same time keeping with the law of sharia many muslims do not take interest from the bank.

    Muslim Bank Employees .

    Question to Ulemas
    Now what is the status of muslim bank employees , bank employee is a commercial graduate whose job is to keep proper account and book keeping he keep the accounts of muslim as well as non muslim client . If a muslim client can have bank account than why a muslim cannot work in the bank when he himself does not take interest on his own saving in bank and he is honestly doing his duty so can a muslim work in Bank ?

    Ill-treatment rendered to muslim bank employees by other muslim brothers

    It is found that many muslim do not treat employees of bank as muslim but openly avoid them and ill treat them is it fair ? No one had ever told the bank employees in the beginning that they should not join the bank it is un Islamic , now since they have already given up half of their life they are told to quit their job or face social boycott .

    In India where employment is so rare where muslim are denied job everywhere , where would this people go only if they could find some better alternative or other supportive job they would .

    Very few people or business organization are doing fair business in fact many business organization have taken loan or loan on interest if dishonesty is every where why just target bank employee because you know there is interest and in other business you do not know .

    Question to Ulemas
    Should we boycott and illtreat muslim who are working in bank ?

    We all know that hallal and haram is the citerior put on human being for test and trail of Allah the act of eating forbidden fruit by Eva and Adam was symbolic of not obeying Allah in fact there was nothing wrong in the fruit it self . Allah has forbidden many thing to muslim as haram but in case of emergency or for survival this haram or certain category of haram becomes hallal.

    There are many Muslim all over the world who have insurance for their car and have medical insurance if they do not have them they are subjected to punishment from the law of that country it is helpless condition and they are living in Non muslim countries .

    We all are waking up to the modern needs of muslim we are going to have Islamic bank and Islamic Insurance till then when this facilities have not reach every where in every country should we not have some solution . Prophet Mohammad (S.A.W.) has said there is coming time people would face complicated and complex problem find solution to them .

  2. Dr Gulam Mohammad Chinchwalker (Qadri) says:

    Respected Islamic Scholar and Wel wisher of muslim in both the world

    Institute of Insurance is new to Islam , but the principle of Insurance in any way does not violate the Islamic principle , It is designed to give protection to a person for his property valuable or life against unforeseen sudden calamity , disaster ,accident or event . Thus Insurance give protection on two things life and property.

    It is common understanding that human being are subjected to many risk both man made and natural calamity , sudden loss of life and property can be a great set back . Is risk and gamble or gambling same ?

    There are three ways through which one can come out of the calamity that hit him .

    A) If a person is alive he can still struggle once again from build up to its original status

    B) Another way is that he can get help physically and financially from other people or he or she may get aid or compensation from the government .

    C) Through Insurance if he had insured his good or property and had paid regular premium the Institute like Insurance would have paid him the looses of the amount which he had insured thus save him from the impact of calamity , in case of loosing life of the bread winner his family would have depend on others or he have to accept charity which is not honourable thing to do as such Life insurance comes to their aid.

    The Functioning of Institute of Insurance although good in principle is totally not legitimate according to Sharia because it involves Riba ,Gambling and Gharar .

    Insurance institute in order to give maximum relief to the victim of disaster , accident and death invest the money paid of the client in two ways either it give their money on interest Riba which is not acceptable to Islam or they invest the money in equity share which is legitimate and not haram in Islam this type of Insurance are called unit link insurance which are subject to profit and loss as per the market and some companies offer combination of both which is again not acceptable to Islam , so if muslim choice right kind of policy in which interest is not involved than it become acceptable regarding risk factor and gambling the subject is still debatable and expert like Ulemas and Islamic Financial Scholar can still probe more into it.

    Late Qazi Mujahidul Islam Qasmi declared a historic resolution on the permission of Insurance on the occasion of Islamic Scholars Annual Meet.
    In the 4th annual meet held at Hyderabad on 9th to 12th Aug 1991 it was agreed in principle to the resolution of accepting life insurance policy but it was declared only in the next annual session hold on 20th November 1992 at Jamia Rassgad in Azangarh UP.
    Earlier in the year 1965 Majis –e-Tahqeeqat shariah , Lucknow had approved the Fatwa in permitting insurance. During recent riots in Mumbai and Gujarat the Islamic Scholar and Ulema Council also started thinking on this subject seriously .

    In the 5th annual session at Azamgarh in 1992 studied the two earlier Fatwas in depth . Seventeen senior scholars were assigned to study all the available details pertaining to insurance policy and give their recommendation in favor or against what so ever the conclusion reach.

    In India we have large population of muslim most of them are living below poverty line ,
    when ever a muslim makes progress financially there is scheme of the miscreant to destroy the financial power of muslim , this was done by the organized groups thorough riots in Biwandi , Gujarat (Surat , Ahmedabad, and muslim businessman ) . Muslim have no protection against life and property the police does not come to help property once loss mean much time to be on the feet again . The doors of taking loan from the bank and getting benefit from Insurance is close because in India we do not have Islamic Financial Institute or Islamic bank.

    Bajaj and Tata Finance Institute have understood the need of muslim , not only muslim there are other religion like Jainism also who does not want interest or invest in companies like entertainment , hotel, wine etc as such it is need of time to find solution to the financial problem of muslim .

    In Bank and in Insurance company there are mixture of good and bad there are thing which are halal there are thing which are haram now cant we select what is halal and refuse what is haram , cannot we pressurized to Government to have illigimate policies and scheme in bank and Insurance company . Most of the private Insurance companies are willingly to accept the principle of muslim and ethical investment what is require is effort .

    The result of seventeen Islamic scholars are it made insurance permissible on ground of
    “Azzarooorat Taba’al khatoorat, Rafa Zarar , Dafa al Harj, and Tahaffuze Jaan wo Mall but after 1991 now in 2010 and 2010 most of the private Insurance company are willing to accept the version of the ulemas in framing policies which are Hallal .

    To read the name of those scholars which are more than 55 in numbers please turn to

    Dr. Gulam Mohd Chinchwalker (Qadri)

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