Islamic Banking Products and Trickery
Points of Essence:
- The author claims present banking products were the results of jurisprudential trickery and crafty methods where jurisprudence and its objectives are replaced by a jurisprudence of appearances and methodology [to achieve ends]. This is evident in credit cards and the reverse murabaha.
- He however did not offer any solutions to end this.
By Lahem al Nasser
Riyadh, Asharq Al-Awsat- Today, many Islamic banking products are based on jurisprudential trickery and crafty methods. When the jurisprudence of trickery flourishes and when jurists master these methods; it stands as evidence of their failure to adhere to Shariah’s provisions and rulings.
In this scenario, jurisprudence and its objectives are replaced by a jurisprudence of appearances and methodology [to achieve ends]. This manifests in many products, most notably credit cards, which can entail much deviousness – from obligatory card fees to be paid by holders to credit cards that combine between loans and sales.
Such practices have been addressed by many researchers and I have previously written an article about this subject. However, the most heinous form of deception is the reverse murabaha* that some banks practice. Reverse murabaha is when a customer wants to invest capital surplus in a bank by buying a commodity from the international market for its actual price then resells it to the bank on a deferred payment basis in accordance with the set time. The bank then sells the commodity in the international market to obtain the capital it will use to finance its clients.
While many clients seek to benefit from fluctuations of the profit margin, mostly using the interest margin as an indicator, they want to make short-term investments like three months, for example. This, in turn, means that murabaha measures need to be repeated for every case when the maturity date is due. Since the bank is the acting agent on the clients behalf when buying a given commodity on credit from the international market, Shariah committees have prohibited banks from selling the commodities to themselves so as to prevent both parties from fabricating claims in the contract and to avoid the overlap of guarantees.
Given the fact that the process of investment is a renewable one and in the interest of facilitating procedures for clients and fulfilling a given bank’s interest in maintaining clients, banks and their affiliated Shariah committees have found a way to get themselves out of this predicament which they have brought upon themselves. This is achieved by stating that clients are capable of authorizing bank employees (in their personal not professional capacity) to sell the commodity to the bank on the client’s behalf.
It is a low ploy that has made the unjust mock the people of Shariah, what idiot would be deceived by such a trick! It is common knowledge that the bank acts as an underwriter for the client and the client submits to the bank’s request to authorize one of its employees whom he/she appoints as an agent based on the client’s trust in the bank, not in the aforesaid employee.
In fact, if the client has the slightest doubt about the bank’s trustworthiness, he/she would not accept this arrangement and the best indicator of that is that clients are not concerned about the agents. There is no doubt that relying on such agency is wrong and it involves a conflict of interests, which is something that is prohibited by the set law. So, do Shariah committees adopt a position that allows for an agent to represent both parties in the contract in the process of trying to facilitate matters instead of resorting to tricky methods?
Such trickery and other deceptive methods have shaken the image of Shariah among the Muslim communities and made it easier to fall for what God has prohibited. Today, Shariah scholars are mocked by their enemies.
What prompts Shariah committees to adopt such vague methods of deception is the outcome of their inflexibility in the face of what God has facilitated and the fact that they place their own constructed restraints on Shariah when there are none. Unfortunately, such practices are a result of fabrications and straying away from ijtihad (interpretation).
* MURABAHA: a financer, such as a bank, buys a commodity and sells it to the purchaser at a higher price.
* Lahem al Nasser is an Islamic banking adviser.