Saturday, July 09, 2011

Islamic Banking - A Facade?

Something interesting happened yesterday. 

The State Bank of Pakistan (SBP) has announced that Islamic banking institutions can collect utility bills after due date with ‘displeasure’ (karahiyyat), which is the opinion of Shariah scholars. (Link)

Islamic Banks were not accepting utility bills for payments 'after due date' because it entailed recovering of 'after due date charges' from the consumer - which the Islamic bankers term as 'riba' or excess. I will not go in the discussion what riba means, the literal interpretation, the Quranic verses or the Islamic legal jurisprudence in this regards. I think everyone agrees that riba means exploitation which is totally unacceptable in Islam.

Islamic banking sometimes seems to border ridiculous and sometimes downright racist. In this particular case, it has got nothing to do with riba. After due date charges are an administrative cost on the entity providing the service. By not providing fee for the services availed, you as a user are violating the basic right of the service provider. Its similar to the case when you hire a labourer for a work and then dont pay him on time. If he demands compensation for it you say its riba! Where was your sense of duty when you were supposed to pay the labourer?

I believe that Islam provides no 'Islamic' banking, economics or finance instead it favours general principles of equality, circulation of money (not hoarding), charity, helping out the needy and abhors exploitation. That being said, I do not have any issues with Islamic banking per se. I totally believe in their right to exploit an untapped, and quite frankly, a huge market of people who believe that their belief system does not allow 'interest' based economy. I am all for solutions that provide alternatives to consumers in which the usual exploitation of bankers can be reduced/ minimized.

The problem with Islamic banking, as I see it, is their exclusivist approach towards banking. They somehow seem to have got the banking licence direct from Prophet. They should be thinking in terms of providing solutions to the consumers of current banking practices. They instead talk of completely different solution - which is not feasible really. Murabaha, Musharaka are modified versions of Sale Agreement and Partnership respectively, they were not 'created' by Islam. Similarly, in the above case, equating 'after due date charges' to riba is merely creating problems for yourself and consumers. Then you have to do it, since YOU HAVE TO DO IT, so they did it but with 'displeasure'. Come on now. Who do you think you are kidding.

Everything and anything associated with contemporary banking is not riba and thus does not require disapproval and contempt.

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