EVEN as we don’t  have any formal option of Islamic banking practices here in place, there are individuals and some organisations who despite being part of the conventional system of banking for their day to day financial transactions ‘do their best’ to observe Islamic banking practices. The most common practice they observe is that such individuals don’t accept ‘interest’ on their deposits in the banks and simultaneously don’t opt for bank loans whenever in need of money.
 I know about an Islamic Trust which has huge deposits in various banks amounting crores of rupees, but the Trust doesn’t accept interest on the deposits which amounts to lakhs of rupees. The Trust has a precedence of conducting annual functions in which it gives mass donations (cash as well as kind) to the poor and needy people of their community. To meet the financial requirements of this annual function, the Trust seeks financial support in the shape of donations from its bankers. The banks gladly donate the money, as crores of rupees are with them free of cost throughout the year.
 One of the readers, a lecturer by profession, is one such individual who ‘doesn’t believe in interest’. Through an email, he has sought some clarification vis-à-vis Islamic banking laws.
 “The fact of the matter is that last year I was appointed as lecturer in the education department. The government has introduced new pension scheme w.e.f 01-01-2010. Under this scheme an employee has to contribute 10% share from his basic salary and DA and same amount will be shared by the government. This amount will be credited in my account controlled by the central record keeping agency. The same agency will invest 85% of that amount in the fixed income instruments and 15% in the equity and other equity related instruments. I am not taking any interest based money (usury) as it is strictly forbidden in Islam.”
 This is what he has stated in his email. “What are these two instruments and whether any of them fall in usury or not?” he has asked.
 The amount invested in fixed income instruments, commonly known as fixed deposits, will definitely earn interest and Islam categorically prohibits interest. However, Islamic experts are on record to have stated: “It is not permissible to deliberately earn interest. However, if one receives interest due to using some facilities of the bank, he should calculate the amount and dispose of it by giving it to the poor and needy. While giving their expert opinion on dealing with the interest one has already owned, these experts say that if one has an interest-bearing account or has received a cheque bearing interest portion also, one should give the amount of interest to any poor person. ‘Do not spend a single penny on yourself,’ say these experts. This interest amount is forbidden for the depositor but not for the poor and the needy. There are instances where scores of mosques have a special account to dispose of this money for the poorest of the poor. Although some scholars recommend leaving the interest money in the bank, but there are others who advocate using the interest money for the welfare of poor and needy. Their logic is based on the thought that ‘the interest money is not the depositors’ money. But at the same time it is not banks’ either’.
 So based on these thoughts, the lecturer can donate the amount of interest which will be passed on to him for parking his amount in fixed deposits, to any Muslim charity which is engaged for the welfare of poor and needy Muslims.
 As far as the second part of his question is concerned, the earnings on account of the 15 per cent amount of his savings through ‘investment in equities is not forbidden’. In their logic Islamic experts say that this investment is treated as in vestment in mixed economy as there are many equity-oriented Shariah-compliant funds also in the market which invest only in Indian companies that are listed and Shariah-compliant, which means adherence to fundamental Islamic principles like justice, transparency, common interest, sharing of profit and loss and public need. So, on this basis the investment in mixed economy through equities is not forbidden.
 Meanwhile, one of my acquaintances has asked about the acceptability of credit cards under the Islamic banking system. He has been told by an acquaintance that using credit card is forbidden in Islam, as it contains element of interest.
 ‘Even as I own a credit card and have been extensively using this card for the last few months, I haven’t paid any interest so far, except some services charges and annual fee, says my acquaintance and has asked – ‘Is the usage of credit cards forbidden under Islamic financial architecture’?
 Today, credit cards are the pillar of consumerism. Of course, they are also based on a system of interest-buy now, pay later, and the later you pay, the higher the interest.
 In the first instance, own a credit card when you are sure that it is a must for you to have it. Then it depends on the credit cardholder, whether to attract the interest on its usage or avoid it. If you want to make it shariah compliant (not to pay interest during the process of its usage) then pay the bill in full as soon as you receive it. If you wait for the due date, it is likely that you will forget once in a while and end up paying interest on it. So you must avoid delaying payment of the bill. After the due date, you have to pay the interest as per the rate fixed by the bank. As far as other charges like annual fee etc are concerned, they are not forbidden.
 Notably, the Islamic financial system satisfies at least two conditions based on moral values. One of these is that the financier should also share in the risk so as not to shift the entire burden of losses to the entrepreneur, and the other is that an equitable share of financial resources mobilised by financial institutions should become available to the poor to help eliminate poverty, expand employment and self-employment opportunities and, thus, help reduce inequalities of income and wealth.
 This system is capable of overcoming the severity and frequency of financial crises by getting rid of the major weaknesses of the conventional system. It introduces greater discipline into the financial system by requiring the financier to share in the risk. It links credit expansion to the growth of the real economy by allowing credit primarily for the purchase of real goods and services which the seller owns and possesses, and the buyer wishes to take delivery.  The immediate adoption of some of the elements of the Islamic system is indispensable for ensuring the health and stability of the global financial system. Meanwhile, in the process of introducing a system of interest less banking, we cannot remain unmindful of the fact that societies are in the process of constant change and are never static.

(The views are of the author & not the institution he works for. Feedback:
sajjadbazaz@greaterkashmir.com)

Lastupdate on : Sun, 16 Jan 2011 21:30:00 Makkah time
Lastupdate on : Sun, 16 Jan 2011 18:30:00 GMT
Lastupdate on : Mon, 17 Jan 2011 00:00:00 IST