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Are Islamic banks Islamic enough?


Written 9 September 2009. Posted here 1 June 2010.

In one form or another, this question often crops up at conferences on Islamic finance. In my view, the answer depends upon the personal religious views of each Muslim, and I have therefore not sought to address it in any of my published writings on Islamic finance. However, the receipt by the Muslim Council of Britain of an open letter required me to address it when composing the response.

On 25 August 2009, Br (Brother) Abdassamad Clarke sent an open letter to the Muslim Council of Britain which was also posted on his blog "Bookwright" which is linked at the end of this page. He was making two key points:

  1. The MCB had joined with Christian and Jewish bodies in a campaign against usorious interest charges by banks. Br Clarke's view was that this implied accepting that some level of interest was permissible, and therefore the MCB should not have taken part in this campaign.
  2. Towards the end of his letter, Br Clarke criticised the way that Islamic finance operates today, using the phrase "for no one that I have met is really convinced by the so-called ‘fatwas’ that permit matters such as mortgages, banking and the mis-named ‘Islamic banking’."

I was asked to reply on behalf of the MCB, and the draft reply was circulated to the MCB's Business & Economics Committee, Office Bearers and Committee Chairmen before it was sent, to ensure that it took into account all relevant views. It was posted as a response on the same blog, and is copied below:

Text of response to Br Clarke

Salaam Br Abdassamad Clarke

Thank you for your open letter to the MCB posted above on this website on 25 August 2009. As the matters covered fall within the remit of the MCB’s Business & Economics Committee which I chair, I have been asked to reply. Please accept my apologies for the delay due to my other commitments.

My reading of your letter is that you are making two main points.

(A) The MCB should not have cooperated with the other bodies, including Jews and Christians, who are calling for a statutory interest rate cap in the UK.

I understand your position to be that interest is prohibited in all circumstances, and that the MCB should distance itself from the call for an interest rate cap. It should instead call for the replacement of the present economic system by a system which prohibits the charging of interest.

As you may be aware, the MCB has worked hard for many years to promote Islamic finance in Britain so that it is available to those Muslims, and non-Muslims, who do not wish to take part in conventional finance. This work has led to a situation today where the UK is the leading Western country in Islamic finance with five Islamic banks, one takaful company and many other Islamic financial institutions. The MCB’s work continues, and nobody can predict how far Islamic finance may one day be developed in Britain.

However, we live in a country that is 96% non-Muslim. For the MCB to ignore the campaign for an interest rate cap and to instead sit on the sidelines calling for the abolition of the British banking system would be pointless. We would be giving up the reduction in harm that an interest rate cap may achieve, for no corresponding benefit to anybody.

You are free to adopt that position if you wish. The MCB prefers to see what good can be achieved now, following the principle that if one is faced with two evils, one chooses the lesser one; here by arguing for lower interest rates to be charged to some of the most disadvantaged citizens in our society.

At the same time, we continue to promote the development of Islamic finance in the UK. Furthermore, if a statutory interest rate cap can be enacted, there is then scope to argue for its further reduction.

(B) You refer to “so-called fatwas” and “the mis-named Islamic banks”

From your use of this phraseology, I conclude that you disagree with the views of those Muslims whose religious opinions underlie the operation of Islamic banks as they do business today in the UK and in Muslim majority countries. I am not clear whether your disagreement is with the operation of all Islamic banks everywhere, or whether there are some Islamic banks with whose mode of operation you actually agree. I assume that you disagree with all of them, but please correct me if I am wrong.

The religious views on finance held by Muslims fall into three categories.

1) Usage of conventional finance

Contrary to the assertions in your letter, many Muslims do not have a fundamental objection to conventional finance, although they may object to some conventional financial practices on a case-by-case basis. For example in many countries such as Malaysia and Bahrain where Islamic banking is long established, about 70% of all banking is still conventional. While some of this will be banking by non-Muslims, especially in Malaysia, much of it will be banking by Muslims who do not share your view that all interest is prohibited in all circumstances.

You are free to hold the views set out in your letter. However there are many sincere Muslims who are managers or customers of conventional banks in both Muslim majority countries and in the UK who do not agree with you.

2) Usage of Islamic banking as practised today

Some Muslims do regard conventional banking as impermissible but consider Islamic banking as practised today to be acceptable from an Islamic perspective.

Since Islamic banks were first established over 40 years ago, the sector has grown strongly. Apart from Iran and the Sudan where banking must be Islamic by law, all of this growth has been achieved by Muslims exercising free choice as customers.

3) Rejection of current Islamic banking practices

Some Muslims consider that both conventional banking and Islamic banking as practised today are impermissible. From your comments, I assume that your views fall into this category, but please correct me if I am wrong.

As stated above, the MCB is keen to promote the development of Islamic finance in Britain. If you have proposals for how an Islamic bank should operate to comply with your personal views, which are backed by a group of entrepreneurs who wish to operate a UK Islamic bank along those lines, the MCB would be pleased to hear from you. We would be very happy to share our expertise to discuss what tax and regulatory changes, if any, might be needed to allow such an Islamic bank to operate in the UK.

However, we have limited resources and cannot engage in this exercise until there is a group of people with the necessary capital and banking expertise to set up an Islamic bank operating along lines that you would find acceptable.

Finally, the voice of Muslims in Britain will be stronger if we act with greater unity. Accordingly, as I understand your organisation is not currently affiliated to the MCB, I would encourage you to apply for affiliation.

Yours sincerely
Mohammed Amin
Chair of the MCB Business & Economics Committee

The full text of the open letter from Br Abdassamad Clarke can be read along with comments from other people by following the link.


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