Is abolition of the Islamic ban on investments-for-earning-interest necessary for the progress of the global Islamic community?
Moderate Muslims are concerned that “Islamic finance” -- and submitting disputes that arise from it to “parallel Shariah” tribunals -- could increase the influence of radical clerics. Worse, it would also support a greater sense of segregation between the broader, non-Muslim European population and the Muslim minority. Muslims who wish to invest money in enterprises that are not involved with forbidden products such as pork or alcohol may ascertain for themselves the activities of businesses, without recourse to “Islamic banking.” In addition, Muslims who deposit funds with banks that pay interest on accounts may also choose to donate the money so earned to educational and other institutions. Traditional Islam does not clearly ban all interest income, but rather, investment for the sole purpose of earning interest.
Timur Kuran, professor of economics and law and King Faisal professor of Islamic thought and culture at the University of Southern California, has written an authoritative study of financial issues in Islam, titled Islam and Mammon. Prof. Kuran has outlined the various issues involved in the Muslim discussion of interest, financial practices, and so-called “Islamic banking.” He argues that Islamist ideology “like other fundamentalisms carries the potential of harming the global economy.” He points out that “the promotion of Islamic banking is a standard element of every Islamist economic agenda.” While he observes that “Islamists, including Islamic economists, have always been divided on the merits of the market,” he warns that “Islamist leaders who desire to restrict international trade or regulate the composition of private investment will have little difficulty justifying their actions in religious terms.”
“Islamic banking” has been noticeably accepted in Britain, and has existed in the product range of American banks and investment houses for some years. Prof. Kuran has traced the origin of the present-day doctrine of “Islamic banking” to the extremist interpretation of Islam promoted in India and Pakistan by the jihadist movement founded there and then imported into the UK. He describes this ideology as separatist and purificationist: according to Mawdudi, as paraphrased by Prof. Kuran, “A minority of Muslims were ‘true Muslims,’ as they were ‘completely immersed in Islam.’ Religion fully controlled ‘their heads and hearts, their bellies and private parts.’ But the majority barely practiced Islam The latter group of ‘partial Muslims’ had never accomplished anything of value, according to Mawdudi.”
This is the context from which the ideology of “Islamic banking,” which we do not consider to be essentially Islamic or appropriate for Muslims, emerged.
Prof. Kuran’s book also embodies an important lesson for Westerners in their examination of radical Islam, and that we believe provides a much sounder basis for economic justice and efficient development among Muslims: “The history of various Muslim peoples feature extended periods of steady economic growth, scientific creativity, and artistic [efflorescence]. One need only think about the high periods of the Abbasid Caliphate, Muslim Spain, Safavid Iran, the Ottoman Empire, and Mughal India To invoke the glories of these cosmopolitan states would have undermined the argument that Muslims do best when they withdraw into their own communal shells.”
The intersection of Islam, investment-for-earning-interest, and other financial issues is an important contemporary topic. While usury and speculation - that is, income based on the loan of money or commodities with repayment accompanied by an increase in value after a delay in time - are specifically banned in Islam, interpretation and debate over this prohibition is extremely complex and even confusing. Whether payment of mortgage interest should be acceptable for Muslims to gain better housing and more secure residence was discussed by the fundamentalist European Council for Fatwas and Research (ECFR), headed by Yusuf Al-Qaradawi, beginning in 1997. The deliberations of ECFR on this and other matters are analysed at length in the new Center for Islamic Pluralism study, A Guide to Shariah Law and Islamist Ideology in Western Europe, accessible at www.islamicpluralism.org/CIPReports/CIPEuroShariahStudy2009.pdf and www.islamicpluralism.eu/PDFs/CIPEuroShariahStudy2009.pdf.
In our Euro-Shariah study’s section on Britain, we noted the development of so-called “Shariah-compliant financial products,” as offered by UK banks and investment firms, as well as similar American institutions.
We judge that radical Shariah in both Muslim and non-Muslim societies represents the creation of just such “communal shells” and erects a system of barriers to the progress and prosperity of Muslims. Further, in the non-Muslim West such obstacles between communities represent a threat of increased social discord and radical influence.
 Kuran, Timur, Islam and Mammon: The Economic Predicaments of Islamism, Princeton U.P., 2004.