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A Basic Guide to Contemporary Islamic Banking and Finance

Mahmoud Amin El Gamal Rice University June 2000

Why "Islamic Finance"?

I would like to preempt two opposing reactions that many readers may have once they recognize that "Islamic finance" is in many ways very similar to (and at times identical with) conventional finance. Some may feel that this similarity is an attempt to dilute the Islamic teachings to simplify our lives, while others may feel that the Islamic Legal distinctions etween Islamic and regular finance are artificial means of creating an industry where none is needed. I will e among the first to admit that the terms "Islamic anking" or "Islamic finance" can e !uite misleading given the many similarities etween Islamic and conventional financial contracts. "o e#plain my point of view a out this issue, let me use a good analogy$ the issue of "Islamic marriage". "here are no o stacles that prevent %uslims in &orth 'merica from having an Islamic marriage, a contract that adheres to the legal re!uirements of the state as well as the Islamic legal re!uirements. In certain respects, "a marriage is a marriage(", ut in other respects, to a ide y all the re!uirements of the Islamic marriage contract, the %uslim man and woman need to do some e#tra work. Local Islamic centers, as well as continent wide organizations like IS&', provide information and contract forms to help potential %uslim families a ide y oth sets of laws (e.g. providing local religious "marriage services", providing forms for an "Islamic will" to ensure a idance y Islamic inheritance laws, etc.). Similarly, the notion that "a marriage is a marriage" may e applied in the realm of finance, e.g. "a lease is a lease". In this domain also, the %uslim needs to ensure that the contract he signs with the lessor or lessee agrees with the conditions of the lease contract (`aqd al 'ijarah or `aqd al 'ijdr) in Islamic )urisprudence. "hose conditions are put in place to ensure that the contract would not contain elements of Riba or Gharar, which are for idden in Islam. In this sense, "Islamic anks" or "Islamic financial institutions" try to ensure that all their contracts adhere to Islamic legal re!uirements as well as state re!uirements. 's with marriage, the outer form of an Islamic lease may seem to a. casual o server to e identical to a regular lease. *ecognizing the differences re!uires alertness to some of the legal re!uirements that may seem su tle to the casual o server. I hope that this primer will wet the readers( appetites to educate themselves regarding those important Legal financial re!uirements of Islam.

' uses of the terms "Islamic anking and finance" in a num er of Islamic countries have precipitated a degree of skepticism among the %uslim population. "he view that the field consists of nothing more than mere nomenclature has ecome too deeply rooted in the minds of many sincere %uslims ecause of those a uses. "hat skepticism turned cynical when educated %uslims e#amined careless statements y early proponents of the field of Islamic anking in those countries. "hose statements suggested that the differences etween the Islamic model of finance and its conventional (western) counterpart should e o vious without any need for further education. Since the ehavior of early Islamic anks seemed to casual o servers to e very similar in function and form to conventional anks, the field was summarily dismissed as window dressing. "hose early tactics were particularly ill advised given the fact that 'llah (swt) did not deny the similarity etween Islamic and conventional (or western) finance. +hen the 'ra s argued that "trade is ut like riba" ,-$-./0, 'llah (swt) did not deny that apparent similarity, ut decisively informed that " ut 'llah has permitted trade and for idden riba( ,-$-./0. "he legal differences etween the two are clear, and have een detailed over the centuries y capa le %uslim )urists. 1owever, the fact remains that the sophisticated 'ra traders of %akkah did not at first see any discerni le difference etween the Islamic model and the one ased on ri a. ,&ote$ 'l (hnam 'l "a ari (233-, vo2.4, p.256), 'l 7urtu i (2338, vol.4 6, p.-45) report in the e#egesis of (-$-./2 that the 'ra s efore Islam knew
only one type of ri a$ 9nce a person(s de t was due for payment, the creditor gave him the choice "either you pay, or you increase the de t". "hey argued that there is no difference etween this type of increase and the increase in the price of a credit sale over the price of a cash sale is identical to what they were doing. 1owever, 'llah (swt) made the fundamental distinction, which was later e#plained y the :rophet

"herefore, the reader seeking to understand this difference should e#pect that understanding the difference is a non trivial process. %y hope as stated in the preface is to dispel some of the misconceptions a out this area, and encourage the reader to seek more re!uisite Islamic knowledge.
(pu h) and analyzed y Islamic scholars.0

Chapter 1 !rohi"itions o# Riba and Gharar

It is commonplace in Islamic discourse to stress the positive in)unctions to do good and for id evil efore discussing prohi itions and other negative in)unctions. 1owever, in the interest of saving the reader(s time, we go directly to the need for having an "Islamic finance". In this regard, financial tools, like all other tools of social and economic interaction, can e used for good or for evil. ;sing the tools of finance for good rather than evil is of course of primary concern in the "Islamic" vs. "un<Islamic" distinction. 1owever, those aspects of the distinction important as they are lie eyond the scope of this asic guide. 9ur primary concern, instead, is the %uslim individual, group, or usiness, with a legitimate and good financial o )ective (e.g. purchase a. home to house his family, purchase real estate to esta lish a Masjid or school, invest availa le funds in productive and permitted ways, etc.). 's we shall see,, many of the conventional financial tools currently availa le in &orth 'merica (and most of the rest of the world) are legally prohi ited in Islam. In this chapter, we shall review the two fundamental Islamic prohi itions which render financial contracts invalid (batil) and for idden (haram).

pp. and others (c. vo2. "here are numerous 1adiths which detail the prohi ition of Riba. a legal contract for purchasing an automo ile may e permissi le. I must reiterate that we are here concentrating on the Islamic legal aspects pertaining to the contract itself. and how can we avoid itC In the remainder of this section.30 thus$ -. an Islamically permissi le contract may still e unIslamic for other reasons. `ulama' fi bayan `lllat al riba fi al 'ajnas al 'arba'ah").nfortunately.4. 9ne of the most popular translations of the meaning of the 7ur(an. If ye do not. Later chapters will deal with the Islamic alternatives to *i a.&ote$ In this regard.3$ 1owever. 'l (Imam 'l "a ari (233-. and ye shall not be dealt with un$ustly. . In the interest of revity. negligent interpretations of the meaning of those verses has led many individuals to assume that the prohi ition only relates to situations where the creditor is likely to charge e#ploitatively high rates of interest. vol. @usuf ('li (2332). It simply means that it is one important consideration. (I n (' as.) then e#plain "without inflicting or receiving in)ustice" as "without increase or diminution".A. "herefore. laymen and religious scholars alike must a ide y the Law.nderstanding the 9 )ectives of the Law is important for students of Islamic Law. take notice of war from Allah and His essenger! but if ye turn back. ut the uyer may intend to use the car for evil rather than good.=efore proceedings to the specific prohi itions. "he e#egetes (i id. &eedless to say. "he interested reader my refer to 'l &awawi (continuation y 'l Su ki) (233/. solely on the asis of its e#ploitative nature. . Efar` fi madhahib al.A -. >or instance. %uslim narrated on the authority of (' u Said 'l FhudriyG "he %essenger of 'llah (p uh) said$ .3 "la tazlimuna wa la tuzlamun". I list only two here$ 2. the Bnglish reader who is not familiar with the end of verse -.0 . what we need to understand is$ what constitutes the for idden Riba. O ye who believe! Fear Allah. ye shall have your capital sums" #eal not un$ustly. where oth an increase or a decrease of the amount returned relative to the amount lent would e considered in)ustice. reads this translation as a proof that the (soleC) o )ective served y the prohi ition of Riba is the avoidance of in)ustice (in the sense of e#ploitation of the poor de tor y the rich creditor). the meaning of the ending of the verse as e#plained y (' u Da(far. "hus. The prohibition of Riba %ost pro a ly. Islamic scholars have long de unked the e#planation of the prohi ition of Riba. ?oncentrating on the legality of the sale contract does not imply that it is more important than the other considerations. and give up what remains of your demand for usury. then you should collect your principal. if ye are Indeed believers. 1owever. -.f.-$-.253 225)) is much closer to$ "if you turn ack. translates the meaning of verses .3. we shall cite 1adiths and )urists( analyses which e#plain the for idden Riba. the reader is familiar with the verses of prohi ition of *i a in the 7ur(an. without inflicting or receiving in)ustice".

&ote$ "he interested reader may consult (I n *ushd (233 i G vo2. Indeed.. (' u Kawud narrated on the authority of (I n %as(ud (m' pwh) that "he %essenger of 'llah (p uh) cursed the one who devours Riba. including the rulings regarding Riba. 'nother most damning I)adith was narrated y I n %a)ah and 'l 1akim on the authority of (I n %as(ud (m' pwh) that the :rophet (p uh) said$ . dates for dates. In the conventional financial sector. the one who witnesses it. in terms of which prices are specified (al thmaniyyah. 1owever. and the one who documents it. dates for dates. hand to hand. %uslim narrated on the authority of (' u Said 'l Fhudriy$ =ilal visited the %essenger of 'llah (p uh) with some high !uality dates. wheat for wheat. in its third meeting in 265. "he %essenger of 'llah (p uh) said$ "this is precisely the for idden RibaI "ao not do this. and use the proceeds to uy the other. "he first cited 1adith makes it clear that there are two conditions for e#changing money for money$ hand to hand. Instead. Since arter trading (e. "his is what is known as a currency e#change contract (`aqd al sarf). arley for arley. the one who pays it. . including contemporary monies." "he first 1adith enumerates si# goods which are eligi le for Riba. and salam. and salt for saltG like for like. as in the second 1ad it h) is rarely of concern today. for which apply all the legal rulings which apply to gold and silver. financial intermediation is effected through lending.). and the :rophet (p uh) in!uired a out their source. or -.1.2A4 2A6) for a summary of the ma)or Sunni school generalizations ased on this 1adith. "he latter form (Riba al nasi'ah) is the one upon which most of western finance has een uilt. 's we have seen. ruled as follows$ 'fter reading the studies presented to this ?ouncil regarding this topic. 'l =ukhari. and a few contemporary detractors. pp. the ?ouncil has determined regarding the legal status of paper currency that it is a form of independent money. +ith the e#ception of )uristic schools which denied the use of reasoning y legal analogy (qiyas) as a source of legislation (e.g. silver for silver. where money is traded at the current e#change rate. the monies (*oman and :ersian. any violation of the 1adith will result in one of two forms of for idden Riba$ 2. Similar traditions with slightly different language were narrated in %uslim. this is une!uivocal Riba. sell the first type of dates. and the tune value of money is reflected in interest payments. in e!ual amountsG and any increase is Riba. "he legal reason for this ruling is the use of such monies as monetary numeraires. ut in different !uantities. and in e!ual !uantity. Riba al fail." -. the Jahiris). most Islamic schools of )urisprudence accepted gold and silver in the first 1adit h to signify money in general. we shall mainly e concerned with Riba as it pertains to gold and silver.0 In this regard. respectively) used during the :rophet(s (p uh) time. Zakah.g."Hold for gold.4. and 'l "irmidhi. Riba al nasi'ah$ where money is e#changed for money with deferment. '. =ilal e#plained that he traded two volumes of lower !uality dates for one volume of higher !uality.: where money is e#changed for money hand to hand. the Islamic >i!h ?ouncil of the 9rganization of Islamic ?onference (9I?). the devourer of which was warned of a war from 'llah and 1is 'postle.

months). "he opposite rule.2-32. In sin0 to destroying the honor of a %uslim. where purchases are automatically financed over a fi#ed period (usually 2. "he two rules discussed a ove can e encompassed under the more general topic of trading in de ts. therefore.65. and earlier payments result in reduced charges.) among the types of *i a. vol..0 "hose opinions were recently used to develop so called "Islamic credit cards". pp.2. most of the financial needs that can e served with contracts containing Riba can e met without the need for Riba. where the price is an even larger de t with a longer deferment period. for instance. Kespite the almost unanimous acceptance of the )uristic acking of this rule y contemporary )uristic odies. A. this is Riba al jahiliyyah. %uslims do not need to deprive themselves of credit to avoid paying Riba. and the repossessed asset sells for less than anticipated). In conventional "asset acked securitization". >annie %ae. nor do they need to forego the time value of their wealth to avoid receiving Riba. In fact. Ke t re sale has een used e#tensively in the Islamic financial market in . is the potential of selling de ts to third parties.-8/. it is almost certain that this mortgage was securitized and sold to others (e. must e at face value (unless part of the de t is forgiven). ?harging an increase for further deferment of the payment of such de ts as a function of time (e.&ote$ 'n "account receiva le" is any amount owed to a usiness y a customer as a result of a credit sale. . to which we shall turn shortly. some of its various financial applications remain controversial. etc. it was argued in 'l 7aradawi (2333. "he "defer and increase" rule is in fact selling the current de t to the de tor. 's stated a ove. a late rental payment in a lease.4. (I n *ushd la eled such increases the rule of "defer and increase" amhilni 'azidka) and condemned it thus. resp. and it is strictly prohi ited. %ore interesting. "he reader is encouraged to contemplate the constant con)unction of 7ur(anic verses of the prohi ition of Riba with verses encouraging charita le sin0 to committing incest.0 corresponding to lease or installment payments (in leases and credit sales.0 $e"t re%sale 's we shall see in the following chapter. "prepay and reduce"( (da' wa ta'ajjal).). "he term is derived from zaka which means "to grow".&ote$ "he notion that there is no time value for wealth in Islam is false. and it was rela#ed in recent years y various )uristic odies. "he word Riba is derived from raba which also means "to grow". if the reader currently has a mortgage with any given company. the worst form of *i a condemned in the 7ur(an. even though payments continue to e made to the originator mortgage company. 243 263) that the growth potential ( nama) for wealth (mal) is one of the conditions of eligi ility for Jakah. as we shall see shortly. or a late installment payment in a credit sale) would constitute Riba al jahiliyyah. "he prohi ition of the latter rule has een controversial historically. and rather alien to Islam. leases and credit sales) result in de ts or lia ilities (duyun) on the party for whom the ac!uisition of an asset is financed. those accounts receiva le may e "sold" to the pu lic as a fi#ed income investment vehicle with minimal risk (the risk that the de tor will default.g. a mortgage company or ank sells its "accounts receiva le" from its mortgages or other financing instruments to third parties. the prohi ition of Riba is une!uivocal. on the other hand. Islamic financial contracts (e. "he notion that money is sterile (does not grow y itself) and has no time value is in fact part of the traditional doctrine of the ?atholic church. under the title. "he sale of a de t to the de tor."here are seventy three different types of Riba.G Sakhr (2338.&ote$ (See. . &otice that unlike the prohi ition of Gharar (risky or am iguous sales). was also listed y (I n *ushd (i id. the recent rulings y resp. the least of which is e!uivalent ./48). as we shall see in ?hapter -. fatawa L/5. "he )urists have een more lenient to varying degrees with the prohi ition of Gharar since no contract can ever e totally devoid of uncertainty.g. In principle. in which the amount of the de t is reduced due to prepayment. Islamic anks will have "accounts receiva le" . In particular. and the worst of which is e!uivalent . 1owever. "he reason I mention this issue will ecome apparent in ?hapter 4 elow.).

p. irds in the sky. "he practice remains controversial since the 1anafis and 1an alis (with the e#ception of (I n 'l 7ayyim) render such transactions prohi ited. the calf may e still orn. In contemporary financial transactions. the sale of the milk in the udder without measurement. In all such cases. where premia are paid regularly to the insurance company. due to the risky nature which makes the trade similar to gam ling. an un orn. Durists often argue against the financial insurance contract.-88)) is$ "that which has a pleasant appearance and a hated essence". the purchase of spoils of war prior to their distri ution. >or instance. In this case the o )ect of sale (the diver(s la or for say one hour) is well defined. and . and specific instances thereof. un ripened fruits on the tree. and the %alikis permit it only under very stringent conditions. (' u Kawud. to mention ut a few. "risk" means "danger of loss". calf in its mother(s wom . . In such circumstances. I shall restrict attention in ?hapter 4 to the most o viously uncontroversial alternatives which do not include such tricks. Gharar can e eliminated from contracts y carefully stating the o )ect of sale and the price to eliminate unnecessary am iguities. etc. 9ne commonly cited 1adith was narrated y %uslim. In many cases. Jar!a( defined it as follows$ N ack and secure N cut. he does not know what he is paying for. The Prohibition of Gharar "here are numerous 1adiths for idding Gharar sales.0 :rofessor %ustafa 'l Gharar is the sale of pro a le items whose e#istence or characteristics are not certain. +hile a variety of "tricks" (hiyal) under various guises have een suggested and used in various "Islamic countries". In other words. ('hmad. 'l Karami and (I n %a)ah on the authority of (' u 1urayra (m' pwh) (translation of the version in %uslim) that "he :rophet (p uh) prohi ited the pe le sale and the Gharar sale.%alaysia. the fish in the sea may never e caught. "his is precisely the meaning of the 'ra ic term Gharar. the purchase of charities prior to their receipt. and the fruits may never ripen. "he literal meaning of the term Gharar according to 7adi EIyad (c. 'l (aarafi (n.4. >rench$ ris!ue) is derived from the Latin roots re ' good translation of Gharar is "risk" or "uncertaintyM. 9n the other hand. the semen and unfertilized eggs of camels.. and the purchase of the catch of a diver.f. a runaway animal. %any classical e#amples of Gharar were provided e#plicitly in the 1adith.. ('hmad and (I n %a)ah narrated on the authority of (' u Said 'l Fhudriy (m' pwh)$ "he :rophet (p uh) has for idden the purchase of the un orn animal in its mother(s wom . 'l "irmidhi. "hey include the sale of fish in the sea. it is in the est interest of the trading parties to e very specific a out what is eing sold and for what price. "he last prohi ition in this 1adith pertains to a person paying a fi#ed price for whatever a diver may catch on his ne#t dive. 'll such cases involve the sale of an item which may or may not e#ist. paying a fi#ed price to hire the diver for a fi#ed period of time (where whatever he catches elongs to the uyer) is permitted.&ote$ "he term risk (Italian$ risco. following a Shafi(i ruling which permits such trading. thus reflecting the potential for a sailor to have his ship cut y hitting a rock. 'l &asa(i. vol.d. the two areas where Gharar most profoundly affects common practice are insurance and financial derivatives. In this case.

where prohi ition is the nota le e#ception. ?lassical )urists called such contracts where oth the price and the goods were to e delivered at a future date al bay` al mudaf. e./0 thus$ . e. 's we are going to see. 263) for a full discussion). >orwards and futures involve Gharar since the o )ect of the sale may not e#ist at the time the trade is to e e#ecuted. office e!uipment. "he other set of relevant contracts which are rendered invalid ecause of Gharar are forwards. pp.&ote$ "he Bnglish reader may take the term "usury( to mean e#or itant interest. this contract is rendered invalid ecause of the for idden Gharar. @usuf ('li (2332) translated the meaning of . and considered them non concluded and thus invalid. and other derivative securities. "hat is ecause they say$ y is like usury(. does he have any options other than orrowing to finance such a purchase (which will no dou t include Riba).0 "hose who devour usury (riba) will not stand e#cept as stands one whom the Bvil 9ne y his touch hath driven to madness. car. options. vol. Is there a permissi le alternative to commercial insuranceC Chapter & !ermissi"le Financing Methods %ost types of trade ( uying and selling) are permitted in Islam. etc.24.462/ 46-5) for more details). way which will earn him a halal income without e#posing himself to too much riskC 4. ?an a %uslim (perhaps a retiree) invest his savings in a. and called it a suspended conditional sale (all bay` al. ut 'llah hath permitted trade and for idden usury. Riba (a term for which no contemporary Bnglish translation would e accurate) is strictly for idden regardless of how small or large the interest rate may e.g. 'l Juhayli (233. ?ontemporary options were also discussed y traditional )urists.g. conventional insurance also suffers from prohi ition due to Riba since insurance companies tend to invest significant portions of their funds in government onds which earn them Riba. In this case.f. the conditions of those contracts make it very clear that contemporary forwards and futures are not permitted under Islamic law. 1owever. or refraining from making the purchase (which will no dou t affect his !uality of life and future financial prospects)C -. the )urists argue that the insured may collect a large sum of money after paying only one monthly premium./. Since "insurance" or "security" itself cannot e considered an o )ect of sale (c. . futures. Islamic Law permits certain e#ceptions to this rule through the contracts of salam and (istisnaO. the insured may also make many monthly payments without ever collecting any money from the insurance company. "hey have also rendered such sales invalid due to Gharar (c. mu'allaq).-$-.f. If a %uslim does not possess enough cash to purchase a house.. 9n the other hand. Obeying the Law I hope that the reader will find that the !uestions which )ustify the development of an "Islamic financial" industry are well motivated$ 2.the insured receives compensation for any insured losses in the event of a loss. 9f course. as most contemporary dictionaries would indicate. 's seen in the previous chapter. "I sell you my house for so much if my father returns". "I sell you this car for so much at the eginning of the ne#t month". Al Gharar wa 'Atharuhu fi Al ` qud y Siddi! 'l ('min (pp..

"hus. or consensus of the early %uslim communities and )urists ((ijma`)."hus. Dordanian law on murabahaG dating ack to 9ttoman Law in 2354. It was narrated that (I n %as(ud (m' pwh) ruled that there was no harm in declared lump sum or percentage profit margins. e#plicitly states a ma#imal interest rate of 3Q in murabaha0 . "o further add credi ility to the industry. the uyer knows the price at which the seller o tained the o )ect to e financed.elow). with Riba sales eing a strictly for idden e#ception. ' valid trade is concluded in Islam if the seller and uyer e#change an offer and acceptance which specify the o )ect of sale and the price. )ust ecause a profit margin &otice that in this contract. &ot only is trading permitted. and I shall give you a profit ((urbihuka) margin of P25". utilizing oth their 'ra ic and Bnglish names. and I shall give you a profit ((urbihuka) margin of 25Q".&ote$ 9r "interest rate".6$-30 thus$ =ut let there e among you traffic and trade y mutual good will. if a time factor is present as we shall see in the ne#t section0 payment should not e of concern. 1owever. @usuf ('li (2332) translates the meaning of . 1owever. a 1adith on the authority of *afiE that$ "he :rophet (p uh) was asked$ "which are the est forms of income generationC" 1e (p uh) replied$ "' man(s la or. contemporary . any financing conducted through valid trading y mutual consent is permissi le. the Islamic ank or financial institution must own the item at the time the customer uys it from them with the specified profit margin. followed y multiplication y 255I In fact translation of the term Riba has led to many misconceptions. 'l =ayha!i and (I n %a)ah narrated on the authority of (' u Said 'lFhudriy that the %essenger of 'llah (p uh) said (translation of the language in (I n %a)ah)$ I shall meet 'llah efore I give anyone something owned y another without his consent. =ank interest is certainly the for idden Riba (please see the long discussion of this point in Section /.. the term (ijarah is often used instead of its Bnglish counterpart "lease((). In what follows.)urists and financial practitioners have limited Islamic anking and finance to a few "named" contracts. I shall review the most commonly used contracts in Islamic finance. the 'ra ic names for those contracts are often used instead of their Bnglish counterparts (e. it is encouraged.g. and they oth agree. "'llah has permitted trade" (hay`) is the general rule. one may approach an Islamic financial institution and say "purchase this item on my ehalf at this price. "he fact that the latter statement may e perceived to make e#plicit a percentage . Cost plus sales mura"aha! In this sale.&ote$ "he faulty use of the contemporary term "interest" as a in a valid sale is stated as a percentage does not mean that it is Riba. and every legitimate sale"". and whose validity is well esta lished through the :rophet(s (p uh) own actions (!unnah). Stating it as a percentage only re!uires simple division of the profit margin y the original price. "hose are contracts that have een studied e#tensively y )urists over the centuries. or "purchase this item on my ehalf at this price. . for a trade re!uires mutual consent. "herefore. and agrees to pay a premium over that initial price. since most %uslims (myself included) lack sufficient knowledge regarding the various conditions for a sale to e valid. 'l Suyuti mentioned in 'l DamiE 'l Saghir. since it is not Riba if the sale satisfies the conditions of murd aha.

g. 1owever. for all the relevant )uristic details of the permission of such sales. also in #ashiyat %l Gamal `ala !harh Al Manhaj (ShafiEi). I recommend the e#cellent short manuscript y 'l %isr4 (233. and the Islamic ank would simply e a middle man or roker agent (simsar). +hen a customer approaches an Islamic ank to finance a purchase through murabaha the payment of the price is usually deferred. "he rate of return is thus guaranteed (up to the risk of default on payments y the uyer) over a fi#ed period of time.) were not present. Sonic )urists !ualified this permissi ility with conditions to ensure that other reasons for prohi ition (e. . the murabaha component determines a profit margin (even as a percentage of the original price).&ote$ >or 'ra ic readers. I shall only list a few of the !uotations included in the a ove teat to illustrate that increasing the price due to deferment is indeed permissi le$ 'l Fasani in "ada'i` Al !ana'iE (1anafi masterpiece) said$ "the price may e increased ased on deferment((( #ashiyat. this is certainly not the case. ' seventh grader can calculate the implicit annual interest rate in such a contract. and &atawa (I n "aymiya (1an ali). "wenty some year old misconceptions in the literature on Islamic anking would argue that this makes the anks( profits a form of Riba.43 66) lists a num er of !uotes y traditional )urists of various schools.. In such cases. "his early confusion a out Islamic anking and finance continues to plague the immigrant %uslim community in &orth 'merica to this day. "hose anks dealt almost e#clusively in the early years in instruments such as the one considered here (and leases to which we shall turn shortly).0 In such cases. In fact. :erhaps the source of the confusion is precipitated y the con)unction of the deferment of the price payment and the profit rate. . 1owever. it is easy to look at the end result and assume that this is simply a )uristic "trick" to circumvent the prohi ition of Riba. a sale and a condition in one contract. Indeed. and the deferment ensures that this profit is collected over a period of time. and most commonly paid in installments. 'l %isri (233. pp.Cre"it sales "ay' "i thaman 'a(il! Rery rarely is murdbuha used y Islamic anks with the price paid immediately y the customer. Mujtahid wa $ihayat Al Muqtasid$ "1e has given tune a share in the price" In Al MazjmuE y 'l (Imam 'l &awawi and "a!iyuddin 'l Su ki (Shafi(i masterpiece)$ "deferment earns a portion of the price". illustrating the permissi ility of increasing the price ased on deferment. It was only a matter of time for sophisticated o servers to note that those anks( rhetoric contradicted their actions. it is curious to note that some of the proponents of this view in the 23. 1owever. etc. they have e#plicitly )ustified the increase y the deferment. two sales in one.5s were themselves the pioneers of the field of Islamic anking in the 'ra Islamic countries and elsewhere.. traditional Islamic )urists over the centuries have indeed permitted such a con)unction of increase with deferment. there would e no financing included. (I n E ' idin (compendium of 1anai )urisprudence)$ "a price is increased if it is deferred" (I n *ushd (%aliki) in "idayat Al.

1e (p uh) for ade them from doing that. 'lso. "herefore. "he permissi ility of the first and the prohi ition of the second are oth !uite clear and une!uivocal. and 'l &asa. and meets almost all the financing needs which can e met through for idden Riba ased lending. who may not have access to the a ove referenced manuscript y 'l %isri (233. the uyer and seller agree to postpone for one more month. +hy one is permitted while the other is for idden can only e fully known y 'llah and whomsoever he gave such knowledge. "hey argued as follows$ ?onsider a credit sale. on condition that you work for me for eight years. however. he reports a specific argument given y the 'ra s during the time of :rophet %uhammad (p uh) to support their statement that "trade is like Riba" (-$-.(i on the authority of Sa(d (m' pwh)$ "he farmers during the time of the :rophet (p uh) used to pay rent for the land in water and seeds. "he latter is for idden Riba.0 "herefore. . "he legal difference etween the two is very clear$ one is a sale in which price is increased for deferment. and if you complete ten full years. as evidenced y the verses (translation of meaning y @usuf 'li (2332))$ And if they suckle your offspring. and ordered them to use gold and silver (money) to pay the rent./).). and increase the price to 22. ut rather a sale of the usufruct (the right to use the o )ect) for a specified period of time. Leasing #i(arah or #i(ar! Legally. and the other is an increase in the amount of a de t for deferment. "hey then argued$ is this not the same as an initial sale with the price of 22 deferred for two months(C "he answer in (-$-. for truly the best to employ is a strong and trustworthy man&."he contemporary confusion is hardly new. 's a practical matter./) was a decisive " ut 'llah has permitted trade and for idden Riba(. In many . may refer to %. that will be a grace from you&.smani (233A. and paid him his wages. "a!i . "he sale of usufruct is permissi le in Islam. while leasing an automo ile from a car manufacturer or dealership may in principle e permitted (if the contract satisfies the other conditions). 'fter a month. (' u Kawud. pp.256 253) for clear legal distinctions etween the increased price in credit sales and the for idden interest on loansSde ts. is strictly for idden.water0 for him. 2. "he most important financial difference etween Islamically permitted leasing and conventional financial leasing is that the leasing agency must own the leased o )ect for the duration of the lease. "a!i . "here are a num er of conditions for lease financing to e valid (the interested reader may refer to %.-A$-8 -. the lease contract is not a. with a price of 25 paya le in a month. %uslims should e careful. as well as some of the technical legal conditions for murabaha financing to e valid. "he first is permitted. pp.8/$80 %aid one of them! &O father.0 It is also esta lished y the following 1adith narrated y ( 'hmad. "he second.&ote$ "he non 'ra ic readers. we may use credit sales as a form of finance. 'l =ukhari and %uslim narrated on the authority of (I n (' as (m' pwh) that the :rophet (p uh) hired a man to cup . 2/. and what is for idden and avoid it.6) for a partial list). ('hmad. give them their recompense. . and we must categorically avoid interest earing loans. hire him on wages. sale of the o )ect. In (I n 'l E'ra i(s (Ahkam Al 'uran.smani (233A. we should know what is permitted and use it to our advantage. He said! 'I intend to wed one of my daughters to you. .

"he fact that most Islamic anking practice concentrated on credit sales and leases was thus often lamented as re la eling of the for idden interest. etc. value of lease payments. auto and home financing in &orth 'merica is ased on leasing or lease purchase. and indeed.g. ?areful Islamic.l. (pp./ 8)). the credit worthiness of the lessee. i id. ' common model for e!uipment. those forms were commonly grouped under the anner "profit. If the lease is structured in accordance with the various conditions detailed in ooks of )urisprudence. continue to echo such sentiments. etc. 1owever. "his promise is inding on the lessor only. su leasing re!uires the permission of the lessor. "here is no need to hide this fact. %uslim )urists have also provided an Islamic alternative to conventional lease purchase agreements (called in 'ra ic (ijarah wa 'iqtina(). In this contract. >or instanceG %. in the final analysis. financial institutions ensure that the contract a ides y all the restrictions set in the !hari`a (e. It is no secret (at least it should not e a. its depreciation value. an implicit (Einterest rate" can trivially e calculated from the price. "his opinion is not ased on any solid )uristic or religious evidence. Partnerships musharaka an" mudara"a! Rarious forms of partnership can e direct financing methods. 's we have already seen.cases. and may have the option at the end to uy the item from the lessor (and owner) at a pre specified residual value. term of the lease and the lease payment. the dealership will in fact use a ank or other financial intermediary to provide a loan for the present. to e contrasted with the a ove listed de t ased forms of financing.smani (233A.). pp. and charge the customer an interest on this loan.. "a!i . . and retains the title through the life of the contract. it will contain no *i a and will ensure that it cannot contain such for idden *i a in the future (e.f. It was assumed y some that the profit and loss sharing methods were somehow more ideal from an Islamic point of view.g. Since the profits cannot e determined unless the relevant commodities are completely soldG the profits paid to depositors cannot e added to the cost of production. inflation.-43 -65) states$ ""he ideal instrument of financing according to the Shariah is %usharakah where the profits and losses oth are shared y oth the parties according to e!uita le proportions". *ecently. and the lessee has the option of purchasing the item at the end of the lease. "he period of the lease and the rent payments may e made such that the final payment is only sym olic. there is no reason to think that credit sales are any "less Islamic" than a silent partnership (mudara a) or full partnership (musharaka).)urists as well as many Islamic economists. In the early days of Islamic anking and finance. "he Islamic financial institution uys the financed o )ect. while admitting the permissi ility of de t ased financing. with an additional promise y the lessor that he will agree to sell the leased o )ect at the end of the lease at a pre determined residual value. therefore. or returning it to the owner lessor (c. and loss sharing". unlike the interest ased system the . in terms of late payment fees.&ote$ Still. the intelligent %uslim customer (as %uslim customers should always e) must e encouraged to "shop around" and ensure that the Islamic financial institution is not implicitly charging an interest rate which is not in line with the conventional market. "his would constitute the for idden Riba. residual value. respected . of course. the difference will e in the form of the contract. the opportunity cost value of the money (as reflected y market interest rates). ut rather ased on the )urist(s economic reasoning (i id)$ "%usharakah provides etter opportunities for the depositors to share actual profits earned y the usiness which in normal cases may e much higher than the rate of interest. etc. secret) that the Islamic ank or financial institution will take into consideration the same factors when determining the rental payments and residual value that a regular ank would consider$ the value of the financed item. a lease is written as discussed a ove. if the Islamic anks and financial institutions are careful to a ide y the rules of ShariEa.) . late payment penalties must e handled very carefully to avoid the for idden Riba. "he customer makes a series of lease payments over a specified period of time.

Hiven this one<to one correspondence etween the two components of the payments. until the rent ecomes zero when the customer owns 255S5 of the asset. >or instance. and the sharing rules for profits and losses. . and those ased on inade!uate economic reasoning. see %. and the actual )oint ownership of the house etween the client and the Islamic financial institution. "here are a num er of rules in Shari(ah regarding the language of the various partnership contracts. as long as the partnership contract is written in full accordance with the rules of Shari Ea (for a partial list and general discussion. "herefore. there is no need to spend much time on those general contracts. 's far as compliance with the Islamic Shari Ea is concerned. one model of financing which has een used in &orth 'merica is ased on a form of musharaka. where ownership of the financed item remains with the lessor for the entire lease period. Barly on. the rights and o ligations of various parties. most prominent among them is the name musharaka mutana!isah (diminishing partnership). 42 3-)). and a small part is " uy out" (corresponding to the "principal payment" in a conventional mortgage). "a!i . 1owever. a large portion of the payment is "rent" (corresponding to "interest payment" in conventional mortgage). B#amining the periodic payments.0 %ost of the users of such partnership contracts will re!uire the services of legal e#perts in any case. and the latter component gets igger. 's for the correspondence of the "rental" portion of payments to what would e an interest payment on the principal alance in a conventional mortgage. "his contract is known y many names. "here are a variety of issues which such institutions need to resolve to operate in compliance with Shari Ea as well as government regulations. and the intelligent %uslim customer is again encouraged to ensure that oth sets of regulations are met. the form of the contract is what matters. this comparison to conventional market trends is very valua le. it is again trivial to calculate the e!uivalent interest rate which would make the conventional mortgage payments identical with the diminishing partnership payments. pp. the portion of the asset which is owned y the customer increases. 9ver time. the first component gets smaller. and therefore should also consult Islamic legal e#perts on the legitimacy of any specific contract.smani (233A.amount paid to depositors cannot e claimed ack through increase in the prices". where the financing agency and the customer share the ownership of real estate. there is a fundamental difference etween a mortgage company which holds a lien on a financed house. until he owns the entire asset and needs to pay no more rent. It is important for the sophisticated reader to distinguish etween the )urists( opinions which are ased on solid religious grounds. the customer will find that they look very much like a conventional mortgage schedule. In contrast to the leasing model. "he periodic payments of the customer in this model contain two parts$ (i) a rental payment for the part of the property owned y the Islamic financial institution. this should not e cause for concern. this should afford the intelligent %uslim customer an opportunity to ensure that he is not eing charged e#cessively relative to the conventional market. 't that time. the contract is terminated. ownership in a diminishing partnership is e#plicitly shared etween the customer and the Islamic financial institution (legallyG what is esta lished is an Islamic sharikat al milk). 's time progresses. 'gain. and (ii) a uy out of part of that ownership. "o keep the Islamic financial industry from reeping e#cessive profits at the e#pense of devout %uslims with few alternative sources of financing.

he (p uh) permitted this trade. 's such. two. "his pre payment of the price allowed the farmers to uy seeds. and the well defined o )ect of the sale is delivered after a specified time. In the latter contract. possi ly earning some profits. the price is paid in installments as the work progresses in manufacturing or uilding an otherwise non e#istent o )ect. etc. In general. mutual funds. . "hus. and found its inha itants entering salam contracts (with the price paid in advance) in fruits for one. automo iles. %ost )urists reasoned y analogy (!iyas) and preference ((istihsan) from the permissi ility of salam to the permissi ility of (istisna(. "hose considering the use of such contracts are advised to consult an Islamic Legal e#pert along with their other lawyers to ensure that they a ide y Shad Era as well as government. etc.$sla%ic forwar"s salam an" #istisna&! "hose forms of financing are very rarely used. 1owever. and hence will e mentioned only in passing. regulations. where the price is paid in full. %as)ids. and a known term of deferment". known volume or weight.. to facilitate certain types of usiness. ' %uslim can invest directly in any legitimate usiness. the sale of non e#istent o )ects is for idden due to Hharar. it is useful to focus oil relatively passive investment vehicles such as e!uities. in order to e a le to produce the fruits.. 1owever. "he price pre paid in installments in this case will often e lower than the cost of purchasing the finished product (if it were to e#ist). there are many conditions which must e met for salam or (istisna( contracts to e valid. let him specify a. there are many direct investment vehicles. "he si# ma)or ooks of 1adith narrate on the authority of (I n (' as (m' p'h)$ "he %essenger of 'llah (p uh) came to %adinah.. e#ceptions were given through those two contracts. which may e translated as "commission to manufacture". spend for their own sustenance. and can therefore e a useful tool for uilding schools. and three years. homes. +e now turn to the other side of the coin$ what permissi le investment vehicles are availa le for %uslimsC 9f course. etc. Chapter ) !ermissi"le In*estment +ehicles "he previous chapter dealt with permissi le vehicles that would allow %uslims to ac!uire capital to finance purchases of e!uipment. "hose two contracts are permitted as e#ceptions to the general rules of sale. 1e (p uh) said$ "whoever enters into a salam contract. as well as "fi#ed income" alternatives to for idden interest ased instruments such as onds and money market funds. etc.

etc. it earns a portion of the total profits of the firm.. as the potential owner sees fit.g. a fi#ed proportion of which is claimed y the held share. lue chip. etc. while others re!uire each investor to search his own conscience for answers. ShariEah oards are employed y "Islamic fund management" firms as well as "Islamic inde#" generating companies. high growth.). most listed companies fall in one of two categories$ either they tend to face occasional li!uidity shortages. %uslims are ultimately responsi le for their own decisions.g. the first part of the profit share is given directly to the shareholder. make it very difficult to find companies which neither pay nor receive interest.S. oards of such fund managing companies. +hile the opinions of prominent )urists on "Shari Eah oards" add a significant measure of respecta ility and credi ility to the enterprise. Since common stocks of Islamically appropriate companies may thus e ought and soldG it is also possi le to create mutual funds in such stocks. and elsewhere favoring de t financing (e. together with legal structures in the . however. due to ta# deductions on interest payments). +e ask . and therefore. 9ther common means of investing in claims on companies( capital are not allowed$ onds are e#plicitly a claim on a portion of the company(s interest earing de t. in which case they tend to put their e#cess li!uidity in interest earing instruments (e. "his guide is intended to give general information on trends in Islamic anking and finance. ?ommon stock may thus e ought and sold. +hile the common stock is held. ' mutual fund would group the funds of a num er of investors. +ithin the Islamically permitted pool of companies approved for trading y the ShariEah. a variety of funds may e created (technology. if the company(s usiness is legitimate. and preferred stock are a hy rid stockS ond. they are human. in which case they orrow (with interest of course). 1owever. or they are cash rich. part of which may e distri uted to the shareholders in the form of dividends. 1ere(s a particular dilemma$ the strict rules of ShariEa will dictate that the individuals (and hence the company in which they are shareholders) should neither orrow nor lend with interest. regional. I refrain from giving any specific information on fund management firms. the pool of permitted stocks will e too small for any reasona le diversification to e possi le. If the strict ShariEa rules were applied. in addition to screening the various stocks and choosing the portfolio weights according to their est )udgment. %ost "Islamic funds" of this sort have had a consistent record of outperforming "the market" in most categories. Some of those rules are clear cut. uying and selling them as they see fit. government onds. If the reader finds some of those rules unconvincing. 9ne point which should e understood y the reader of this primer. some "Islamic mutual funds" also calculate and pay the appropriate Jakah on shares on ehalf of their investors. is that a num er of compromises were made y )urists to make it possi le for "Islamic stock indices"( and "Islamic mutual funds"( to e#ist. "his. and its conduct is in compliance with the rules of ShariEa. "he mutual fund managers collect a fee for their efforts in studying the market conditions as well as the prospects of each given company. "his difficulty motivated the )urists( compromises discussed elow. "he )urists serving on those oards determine a set of rules for selecting the eligi le pool of companies whose stocks may e held y %uslims. In some Islamic countries. %uslims are allowed to own such common shares (stock). and "manage" those funds y investing in a portfolio of permitted stocks. "hus.$nvesting in e'uities ?ommon shares in a listed company are as the name suggests "shares" in the assets of the company.). "hus. he or she should attempt to learn more y contacting the various firms and information sources. while the second part is given ack implicitly y the increase in the company(s capital. &o matter how prominent the issuers of a fatwa may e. and the other part may e reinvested in the company.

' typical screen given y the Kow Dones Islamic Inde# (KDII) ShriEa oard can e found on the we at$ http$SSwww. ut we cannot a solve ourselves of our most asic religious responsi ilities y following their opinions if we are convinced otherwise. weapon production. B#clude companies with a de t to total asset ratio of 44Q or more.-5A -25)). "he first compromise is ased rather loosely on a famous 1adith where ' u =ark (m' pwh) asked the :rophet (p uh) how much of his wealth to give in charity.'llah to reward them for their est efforts. -. is significantly more du ious. the >"SB Hlo al Islamic Inde# Series. "rading in de ts at. it is very unlikely that fi#ed cutoff ratios will e appropriate for all circumstances and all pools of e!uitiesC "he reader will simply have to make his or her own mind.g.comSe o#S"II.html.smani (233A. *eceiving interest or other impure income. In this regard. "he rules recently adopted y the KDII oard are virtually identical with those adopted in earlier years y other fund management company Shari(a oards in Islamic countries. "he third compromise is ased on the view that if the ma)ority of the company(s assets are illi!uidG then the total assets may inherit the status of that ma)ority (c.dow)ones. and hope that the reader will recognize that I am only providing information on recent developments in this area to help him or her ecome etter educated. "he first set of filters is straight forward$ e#clude all companies whose primary usiness involves for idden products (e. I cannot afford to ear any responsi ility for others( decisions. pp. "he second compromise assumes that /Q is a negligi le amount. "a!i . http$SSwww. B#clude companies with accounts receiva le to total assets ratio of 6/Q or more. B#clude companies with Uimpure plus non operating interest incomeM to revenue ratio of /Q or more. ?arrying interest earing de t. to acco. and potentially rigid. e. price other than their face values. I can point out that the cutoff rules on financial ratios used in this area seem e#tremely ar itrary. alcohol. 1owever. even if they are indeed )ustified. %. p.g. pork. ased on "financial ratios".25) used y KDII$ 2. a.f. 4. and the :rophet (p uh) said$ "one third. financial services. ut rather as a comforting rule of thum . A25). -. I have not een a le to find any source which would mention the origin of that rule. "he second set of filters. "hose rules relate to the a ove mentioned compromises on three prohi itions due to the inherent *i a and other impurities$ 2. and one third is plenty". "he ShariEa oards of most Islamic fund managers and e!uity indices have reached very similar compromises.comScorpSinde#Tproducts. . and "entertainment((). "hose rules are virtually identical to those used y other indices. 4. "he following is the list of rulesScompromises (i id. "his is clearly an out of conte#t use of the 1adith. and )urists do not claim that it is used as a legal proof.htm (pp. I do not have the pre re!uisite religious knowledge to de ate whether or not compromises on issues related to *i a can e )ustified in this manner.ftse.

. with a higher percentage of physical assets eing com ined with some mura aha accounts receiva les in a single portfolio. 1owever. one often thinks of " uying insurance".g. and therefore cannot provide a source of income for the "investors". thus providing a reasona le inflation hedge and helping the investor keep the real value of his or her wealth. any given uilding may re!uire su stantial repair costs due to unforeseen damages. Such de tsSlia ilities may only e sold at par value. government onds.g. "herefore. onds. and the value of the uilding as well as the rent income may decline significantly. 9 viously. "herefore. any specific piece of real estate may still carry risks which the more sophisticated investor can diversify without affecting the average income stream. "his rent will naturally go up with inflation. the asset is no longer owned y the Islamic financial institution. +hile some )urists restricted the lessor(s a ility to sell the leased asset or parts thereof during the lease period. the particular area in which you uy an apartment uilding may ecome less fashiona le. the Islamic financial institution can treat its portfolio of leased assets as a company or fund. a component of their investment needs to e earmarked for so called "fi#ed income" vehicles. the vast ma)ority of conventional fi#ed income investments (e. 'lso. and what they can "securitize" and sell is therefore the cash flow generated y the lia ility on the uyer. and the insurance company promises to compensate the insured for damages or part thereof . Bach individual(s share of the total rent income will e e!ual to his share in the total value of the portfolio. as will the value of the real estate. money market accounts. the fi#ed income from a lease fund will move up with inflation. ut with much lower risk (the chances that all the uildings will e adversely affected at the same time is very small). in a murd aha. shares of which may e sold to investors. Like the for idden conventional fi#ed income investments (e.nfortunately.) include for idden *i a. . and the risks orne are minimal (default in the conventional contract vs. it may e etter for the investor to team up with a group of similar<minded investors and )ointly own a collection of uildings in different areas. default and repairs or losses of assets in the lease fund). ?ompromises along the lines discussed a ove are constantly cropping up. an apartment uilding. etc.()i*e" inco%e( fun"s %any retirees and others need to invest in income generating vehicles with minimal risk. investing in common stocks carries significantly more risk than most such people can tolerate. money market funds.).0 Chapter . ?Ks. 1ow then can retirees and those nearing retirement e a le to get a lower risk source of income from their investmentsC ?onsider a simple e#ample first$ the individual seeking the lower risk investment vehicle may use his money to uy some real estate (e.&ote$ It is ecoming popular nowadays to propose also having "utura aha funds" along similar lines. while generating an income on which to live. !ermissi"le Insurance Alternati*es +hen thinking a out reducing certain types of risk (one can never "eliminate" a risk in the sense of full "insurance"). etc. >or instance. 't the very least. 9f course. *ecall that an Islamic financial institution engaged in a num er of lease contracts continues to own the assets throughout the life of the leases. "his is the concept ehind an "(i)arah fund". "he typical financial insurance contract used in &orth 'merica and elsewhere would entail signing a policy with an insurance company where y the insured makes periodic premium payments.g. or a warehouse) that generate income in the form of rent. etc. "his simple diversification can allow hire to have the same average rent income he could get on his own. "he investors then earn a fi#ed income according to their shares in the fund. most others permitted such a sale as long as the lease continues.

it is known that this corrupting factor would e overruled if it is opposed y a greater enefit (al maslahah al ra)ihah). or if the Hharar is trivial (ha!ir). . 'l=a)i 'l ('ndalusi (n. under ay(u al Hharar) states$ 1is (p uh) prohi ition of ay(u at Hharar renders such a. whether it is su stantial and invalidates the contract. "he ma)ority of Islamic .. 6) makes the same point as follows$ In this regard. "hus. since variations on this term have recently een "trademarked" in Burope and the . "hus. pp. the differences among scholars are ased on this general principle. %oreover. Prohibition of financial insurance Let us a stract from the prohi ition ased on *li a for a second.. 'l Karir (233.. is thus$ if necessity dictates committing Hharar which cannot e avoided without incurring an e#cessive cost.legal0 scholars differ in determining which contracts are defective due to differences in opinion regarding the e#tent of Hharar inherent in each$ sic. and 'llah knows est.. 1owever.&ote$ Durists often use the 'ra ic term "takaful(. "hus. I shall refrain from using it lest the reader assume that I am endorsing any particular institution to the e#clusion of others. and devouring others( wealth wrongfully. "his prohi ition. minor (yasir) Hharar does not render a sales contract defective. It must e ma)or. "he meaning of ay(u al Hharar. "he first thing to notice is that " uying insurance" is not the only method of risk reduction. "his is the type of sale which is unanimously for idden. the corrupting factor in Hharar is the fact that it leads to (kawnuhu matiyyat) dispute. 9n the other hand. vol. 1owever.0 which is ased precisely on the same logic of diversification used in that chapter. otherwise it is rendered invalid . or minor and retains the contract(s validity. vol.. (I n "aymiya (233A. since many insurance contracts also include an investment component (e. the sale is rendered valid. for this contract. 's a matter of fact. . "a!iyyudin 'l Su ki e#plicitly summarizes the opinions of earlier )urists thus ('l &awawi (continuation y 'l Su ki) (233/./. and 'llah knows est. the . the endorsed Islamic alternative to conventional insurance is the notion of cooperative or mutual insurance. vol. refers to sales in which Hharar was the ma)or component (ghala a Ealayhi) until the sale is )ustifia ly descri ed as ay(zc al Hharar.)urists have concluded that this contract is invalid ased on the prohi ition of Hharar. and consider only the argument for prohi iting financial insurance ased on the prohi ition of Hharar. hashiyah. certain types of term and life insurance). 3))$ "he scholars said that the criterion for invalidity of the contract ased on Hharar.S. which means cooperative mutual insurance. where some of them render a particular form of Hharar minor (yasir) and inconse!uential. or its validity despite the e#istence of Hharar. unlike the prohi ition of *i a. hatred. sale defective. is relative.. while others render the same form conse!uential.g.66 /2) lists four necessary conditions for Hharar to invalidate a contract$ 2. +e have already seen in the previous chapter how simple diversification schemes can reduce risks. the insurance companies( investments in interest earing onds render such contracts invalid ased on the prohi ition of *i a.according to a well specified formula.. since no contract can e entirely free of Hharar.d.

"he logic inherent in the a ove !uote (that stock insurance companies seek to make profits at the e#pense of policy holders. 'l Juhayli (233. ut e#cludes gifts and charita le contri utions. &otice that 'l Juhayli (233. "hat there is no need met y the contract containing Hharar which cannot e met otherwise. the funds in the pool are invested in an Islamic manner.-. since the amount to e collected from the insurance company may vary etween zero and a very large sure.S. while mutuals . "he commercial insurance contract is a sale contract. it is argued. &otice that "securitySinsurance" itself is not a valid o )ect of sale under Islamic )urisprudence../. ut only to reduce the losses which affect some of them.0 "he Hharar.. "he Hharar affects the o )ect of sale. In fact. which is a commutative financial contract. and therefore it is integral to the contract. the price and o )ect of sale. the origin of the term risk.d. . have argued that commercial insurance satisfies all four conditions. the mem ers of the insuring organization are not seeking to make profits. depending on chance. 4. In the meantime. this logic is e#actly applica le to the distinction etween mutual and stock insurance companies as they e#ist in the . )urists argue$ 2. "he Hharar is argued to e !uite su stantial. -. vol. pp.. e. %oreover. where what is eing ought is not well defined. Such profits are made at the e#pense of the insured. language of the contract.) argued that "he difference etween commercial and cooperative insurance is that the insurer in the former is not an institution separated from the insured. suggests that the origins of the analysis of risk and insurance lie in this area. Cooperative insurance In cooperative insurance.-. . "he potentially affected contract must e a commutative financial contract (this includes sales. p. 4...). +henever one of the mem ers makes a legitimate claim (relative to the specific form of cooperative insurance to which they su scri ed). vol. In contrast. re secure. %any contemporary )urists.4 onwards).462/ 4642). the insurance in e#change for fi#ed installments is implemented y an insurer which is a profit seeking corporation. who issued a fatwa for idding marine insurance. "he proponents of this view say that the insured may pay one small premium and collect a large sum if he can make a legitimate claim. 6. results from the fact that the premium (price) is paid.&ote$ 's we have seen. "he Hharar must affect the principal components of the contract (e. 6. etc.g. they draw money out of the pool. including "sharing" arrangements). i id.4.g. In commercial insurance. a group of su scri ers contri ute to a pool of funds. and he may pay many premia without ever collecting any sum of money. "his opinion dates ack at least to (I n E' idin (n.. and without e#posing the policy holders to any e#tra significant risk.nclaimed profits are then distri uted among the policy holders. "he cooperative insurance alternative can meet the needs that are met y commercial insurance.

9n the other hand. It is possi le for careless individuals to approach the stock market as a gam ling casino. trading in the shares of companies. >ollowing a " uy low and sell high" strategy is at the heart of all profita le trading. or a eer rewery). including the caravan trades in which the :rophet (p uh) participated.0 . there is no reason to elieve that trading in the company(s shares is not permissi le. +hile no Islamic cooperative insurance companies are currently operating in &orth 'merica.g.&ote$ "he economically oriented reader may consult %ayers and Smith (23AA).nfortunately. money changes hands ased on chance. . and ?anada to esta lish such organizations. and for idden gam ling on the other. "here are a num er of issues involved in determining which companies( shares are "permissi le" for %uslims. Bvery trade involves speculation$ the purchased goods may go up or down in price. and the references therein. :lease refer to ?hapter 4 for more details.ntil such a time. %uslims may still reduce risks through direct diversification. Chapter . without any underlying productive activity taking place. if a usiness(s primary activity is deemed unproductive (e. Smith and Stutter (233/). Speculation in productive trade and investment creates value for societyG and therefore cannot e e!uated to gam ling. most )urists agree that the use of availa le insurance vehicles ecomes temporarily permissi le if needed or re!uired y law.. If a profita le . most of the "cooperative insurance"( companies esta lished in Islamic countries are in fact similar in ownership structure to stock insurance companies. In principle. 's long as the company(s usiness and financial position are accepta le. a casino. ut it is also possi le for such individuals to use any other market in the same manner.Ans. / 1o. a mutual insurance company which invests its funds in Islamically accepta le ways would satisfy all the conditions put forth y the . and a corresponding claim to its profits. a"out "day trading'"? 2houldn't Islamic in*estment "e "long term" rather than "speculati*e"? '$ I repeat the a ove distinction etween productive speculation which is at the very heart of all permitted (and encouraged) trading on the one hand. then %uslims will not e permitted to own shares in that company since owning such shares constitutes an implicit participation in the usiness(s activity. common shares in a company provide the holder a claim to some portion of that company(s assets. some efforts are underway oth in the .provide etter insurance) in fact agrees with our most sophisticated economic understanding of the structure and operations of such companies.ers to Commonly Asked /uestions Tra"ing in stoc+s / Is trading in stocks permissi"le0 or is it #or"idden "speculation" or gam"ling? '$ "here is a difference etween speculation and gam ling. In pure gam ling. . activities. with potential profits derived from productive economic. allows capital flows to allocate investments as productively as possi le. 's e#plained in ?hapter 4.)urists as a valid alternative to commercial insurance. 9f course. and in the a sence of permissi le insurance alternatives. however.S.

the vast ma)ority of those who engage in this activity are amateurs attracted y irresponsi le advertisement that over emphasizes a few large profits made y some lucky" in recent years permitting "ank interest4 Can . as he was one of the shura group to nominate the Fhalifah. went to the market with an a#e. and the proper screening of securities is o served. "here is no reason to elieve that the term of the trading activities influences whether or not it is considered gam ling. 1is a ilities to amass wealth were legendary. disagree with those e#pressed opinions. today and in the past. it wastes the trader(s time in non productive activities relative to his or her main professional career. where the investor intends to li!uidate all positions at the end of each day.hat can . and wastes his or her wealth. and the nature of the traded goods. as the "solitary opinion of Shaykh "antawi of Bgypt". +hile a few professional traders may e sufficiently skilled to make modest profits on average in day trading. Kr. It is also worthwhile noting that the timing of this and later fatwas coincided with a political acklash against a series of financial scandals for Bgyptian savings and loans operations that had characterized themselves as "Islamic". an e# %inister of ('w!af in Bgypt. was characterized y the >ederal Shariat ?ourt of :akistan in Dudgment on Interest (*i a). Intellectual honesty dictates that we should present oth the minority and the ma)ority opinions. "he fact of the matter is that for most day traders. If day trading is approached in this manner. . ank interest was not the for idden *i a. "he past mufti of Bgypt. with very few making large profits out of sheer luck of making the right trades at the right time.opportunity presents itself sooner than anticipated. +hile "day trading" per se may not e easily condemned as haram. "he politics ehind those fatwas do not concern us in this guide. that of Kr. 'ssuming that intentions are good.e collect interest on our "ank deposits? I# not0 . it is definitely gam ling. a. good merchant or investor would e criticized for foregoing such profits. and returned at the end of the day with a small fortune. "herefore. "antawi. and he was one of the ten companions of the :rophet (p uh) to receive glad tidings of admission into paradise. "he most famous of the minority fatwas. E' d 'l %un(im 'l &imr. is particularly close to gam ling as compared to other investment strategies. Lahore Lawyers( =ook ?lu . the vast ma)ority of )urists. "radition has it that E' dul *ahman i n E'wf (m' pwh) reached %adinah without any wealth (having left it all in %akkah). wrote an article in 'l ('hrdm (Dune 2. waste of time and talent certainly may e condemned thus. he argued. +e care primarily a out the religious merits of the minority opinion against the opinions of the ma)ority of )urists around the world. 233-.e do? '$ "here have indeed een some such "fatwas". in which he argued that the reason for the prohi ition of *i a (which he argued to e the harm caused to the de tor) does not apply to deposits with anks. +hether or not speculation amounts to gam ling depends on the intentions of the trader. including at 'I 'zhar. Riewed as gam ling. $nterest on ban+ "eposits / 3here ha*e "een some "#at. 1owever. most individuals will have etter odds at a Las Regas casino. one must comment from the financial point of view that most day trading is for lack of a etter term stupid wasting of talent and wealth. we must now turn to the issue of whether "day trading". they lose money on average. "hat eing said. especially y Bgyptian muftis. ut that did not reduce his religious status. 23A3). 'pproached in this manner.

etc. Dad 'l 1a!! E'li Dad 'l 1a!!. 1owever. any increase. is not permitted. who served oth as mufti and as Shaykhu 'l ('zhar ruled in his hook 'l >atawa 'l (Islamiyyah$ Kepositing monies to collect a fi#ed rate of interest is for idden in Islam. then the transaction is permissi le (halal). %any similar rulings and fatwas for idding anking interest have een issued y different >i!h ?ouncils around the world. 'l Salus (233A. &asr >arid +asil. it has long een esta lished that deposits (e. earlier %uftis of Bgypt have ruled of the prohi ition. "he current Bgyptian mufti..g. Such money must e spent on infrastructure pro)ects such as schools.. daily paper 'l Ittihdd. . 'ugust --. 'll such dealings are among the for idden *i a. "hose fatwas have een pu lished.. what would the %uslim do with itC"". there is no such thing as an Islamic or non Islamic ank. >or instance. if the !uestion is asked$ "assume that the interest has already een accumulated. with a ank) ecome loans as soon as they are used y the recipient of the deposit. especially if they are non %uslim and foreign anks that may use such funds against Islam and %uslims directly or indirectly. and in a series of five fatwas in the same newspapers in %ay 2332. %uhammad ('l i 'l Saliis. he permitted all anking interest. it is for idden (haram). reiterated this opinion in the .0 %oreover.)$ 'll income collected through *i a interest is for idden property (V D. 9therwise. demand (or checking) deposits. then the contract is considered a loan contract". "he issue is an investment from money. and the %uslim may not use it for any personal enefit. "here is no difference in this regard etween so called consumption and production loans. In loan contracts.and current Shaykhu 'l ('zhar. %uhammad Sayyid "antawi.l)). and orrowing with interest from government institutions or anks is for idden *i a.1. 233. as we have seen. and if the depositor allows the recipient to use the deposited items. Kr. whether it is effected through tune deposits. or any interest earing loan contract. Dordanian civil law (item AA3) stated$ "if the deposited item was an amount of money or something which perishes y usage..B. "his is eing said with the full understanding that continuing dealings with *i a ased anks.Duly 23A3G &ovem er 23A3) permitting certain forms of interest.'. and ignoring or denying their e#istence is not the solution. with or without interest. +e only point out that those new rulings contradict many earlier and contemporaneous ones. 'n answer was provided y "he Islamic >i!h ?ouncil in %akkah (23 -5 *a)a 2658 '. "herefore.g. *i a is for idden (haram) in small as well as large !uantities. to enefit %uslims. issued a fatwa ('l ('hram. So let us stop this controversy a out ank interest". hospitals. . 2.B. %oreover.. It is not permitted for the %uslim to leave the interest monies with the ank.). is for idden *i a. the ('zhar(s own *esearch ?ouncil ruled as follows in 238/$ Interest on all types of loans is for idden *i a.. vol.$ "I will give you a final and decisive ruling (fatwa)..)urists (including those of 'l ('zhar in Bgypt) rule that ank deposits are loans. Such spending is not considered charity. in which he lists many prohi iting fatwas and de unks the foundations of those recent permitting fatwas (e.&ote$ "he 'ra ic reader is referred to the ooks of Kr. the vast ma)ority of .S23A/ ?. ut it is a form of purification from the haram component. In this regard. "hus Sh. So long as anks invest the money in permissi le venues (halal). "hus. Sh. since that would enefit the anks. and that the interest incurred on them is for idden *i a.

"his confusion gives rise to !uestions regarding how to deal with inflation. monetary numeraires and foodstuffs for the %alikis. this would constitute "*i a al nasa" "hus. 'l 7arafi. 2333) distinguished etween two . 'l >uru!. -.2). Loans may e conducted with ri awi goods (those measured y weight or volume for the 1anafis. 4. Lending in Islam is a charita le contract. and I n %as(ud and I n (' as are narrated to have said "two loans are etter than one charita le payment".f. can it "e #air #or him to return to me the same 516 . 1owever. this is permitted in loans ut for idden in sales. then the lender has given a larger charity.6) 2. eginning of vol. in which case the entire lent sum is considered charity. >or non ri awi goods.-4. "his is for idden in sales ut permitted in loans. "interest free" or otherwise. Len"ing / I# I lend someone 516 #or 16 years0 ho.6. In a recent ruling.424). and I n 7udamah in 'l %ughni (vol. If that time value is higher due to inflation. he %ust do so (i id). the loan contract is a form of charity since the lender is giving away the usufruct of the lent money or goods for the period of the loan. and lend them out again. it is narrated that (' u 'l Karda( (m' pwh) said$ "I prefer to lend two Kinars. and 1an alis). &otice that if the de tor cannot pay (as per the verses of *i a in Surat 'l =a!arah . get them ack. >or a loan of fungi les. In fact the de tor may never e a le to pay ack. this third rule is also rela#ed for loans. 'l 7arafi proceeds to e#plain that those rules are rela#ed in loans since the loan is primarily a. charita le contract. and to faulty suggestions for how to uild an Islamic anking system on "interest free loans"". If the de tor is capa le of paying. p. Since a ri awi good is e#changed for an e!ual amount of that ri awi good in a loan. Shafi(is.-0)."his same opinion was given earlier y the >atwa ?ommittee of 'l('zhar in the 2385s with regards to deposits with foreign anks which were necessary to facilitate international trade. 'nother fundamental difference etween lending and financing methods is that the lender has the right to re!uest repayment of the loan at any point in tune. the e!uivalent sale would include the for idden sale of what one does not have. is unsuita le as a asis for any form of financeI "herefore. "his charita le contri ution includes the "time value" of that money or good. to giving them away in charity". a loan may result in e#changing a known good for an unknown compensation later to e accepted. in a Seminar on inde#ation held in =ahrain (Septem er -. which differs from sales contracts in three fundamental ways (c. 'ccording to 'l Shirazi in 'l %uhadhdha (vol. the creditor must give him e#tensions until he is a le. the >i!h 'cademy of the 9rganization of the Islamic ?onference.hen that amount o# money "uys a lot less than it did 16 years earlier? '$ "here is a continued fundamental misunderstanding among many %uslims a out the legal status of loans in Islamic Durisprudence. "hereforeG any form of loan.

Kemanding compensation for such an increase in charity would e unwise and insolent in Islam. the fine legal distinctions etween . summary of appropriate contracts that are intended for such purposes. and therefore if inflation causes the lender to lose more than he anticipated (with or without the 9I? >i!h 'cademy(s compensation scheme). :lease review ?hapter . since only 'llah can and will determine the appropriate reward. one does not lend to make money. 1owever. If the purpose of e#tending the loan was making profits or engaging in a usiness pro)ect. and one does not orrow to finance usiness. e#ercised and continue to e#ercise their est Dudgment in light of the e#tant ody of Islamic Law. especially since this rule could not possi ly e ade!uate independently of the term of the loanI %ost interesting. the second part of this slogan is not ased on a religious prohi ition. and attempt to avoid them in the same manner. many rational non %uslims share the %uslims( recognition of the evils of into#icants and drugs. possi ility of losses without a corresponding potential for gains.0 .for a. if the latter inde#ation was desired. "he ar itrariness of this rule is !uite apparent.een . . and the lender may not demand any compensation. 9f course. 9f course.hat you call an Islamic contract and . is the fact that the 'cademy categorically ruled out as strictly for idden the commonly suggested solution of inde#ation of a lent amount of money to cost of living. the price of gold or some other commodity. If ar itration was not possi le. "o draw an analogy. "he fact that there is a great deal of similarity etween the two systems should therefore come as no surprise. since the lender is not entitled to any part of the profits of the investor. the 'cademy devised rules of compensation depending on whether the loss due to inflation was ma)or (over 44Q) or minor (less than 44Q). he would only e e#posed to the negative Loans are a charita le contract. then the charita le part of the loan is larger. and they utilize their est human effort to attain them. Legal "e#t (%ass) . however.hat is done "y "anks and mortgage companies4 '$ Islamic law puts many restrictions on contracts to attain ma#imal )ustice in financial transaction. all those goals are shared y secular governments as well. the 'cademy recommended resorting to ar itration. interest rates.cases$ whether or not the inflation was anticipated. In the case where the inflation was not anticipated. Islamic )urists. "he main difference is the general rule$ "no ruling ased on legal reasoning is allowed where a ruling e#ists in a. the 7ur(an or 1adithl"0 "herefore. If the inflation was anticipated. that opinion y the 'cademy does not rule out the possi ility of lending gold instead of dollars. minimize the potential for legal disputes. legal point of view is the central role of *evelation in Islamic Law. "he fundamental difference from a. then the parties should not have selected the loan contract as the vehicle for such transactions.hat is the "ifference/ It seems to me that all you're doing is re la"eling interest as "rent" or "pro#it"0 "ut dollar #or dollar0 I don't see any di##erence "et. "his is not a good or sustaina le way to finance usiness.&ote$ 9f course. "he est way to summarize the status of lending and *i a in Islam is this$ In Islam. and uild a healthy and sta le financial and economic system. then the reduced purchasing power of the lent money was indeed paid charity. like legal e#perts of other system. H&: growth rates.

&ote$ ' case in point is the wrong )ustification of the prohi ition of ri a purely on the grounds of preventing e#ploitation.0 9n the other hand. . 9f course. their values are determined instead in monetary terms (with the Kirham. the value of the clothes should e fifty. 2 for a reference. )ustice is attained y making the ratio of the price of the horse to other horses the same as the ratio of the price of the clothes (for which it is traded.pdf . Such )ustification would not change the applica ility of the law. >or e#ample. there is a "rental" payment in place of the "interest" payment in a conventional mortgage. wrote e#tensive discussions to )ustify legal in)unctions that are directly deriva le from a &ass. the great Islamic legal scholars of the past rarely.pp. see my paper "'n Bconomic B#plication of the 1owever. vol. "his distinction is not simply ver al window dressing. the ratio etween the value of one item to its kind should e e!ual to the ratio of the value of the other item to its kind. and the.utilities0. they are relatively homogenous. and thus have similar enefits . )ustice in transactions is achieved y approaching e!uality. the interest payments in a conventional mortgage may )ust happen to e e#actly e!ual to the rent component in an Islamic contract. "he going market rent for similar properties in similar areas can e used as a enchmark to gauge the appropriate financing charges. which (I n *ushd lists as the fundamental reason for prohi iting *i a. salt) mentioned in the first referenced 1adith..4. availa le on the we at http$SSwww. as we have seen previously. the reader can immediately see one ma)or difference etween the finance payments in an Islamic contract and those in a *i a ased contract. guarantees a certain degree of marking to market in an Islamic financial contract.2A4 2A6). In this regard. >or things which are not measured y weight and volume.If each piece of clothing(s value is five. Kinar). )ustice in this case is achieved y e!uating volume or weight since the enefits . if the value of the horse is fifty. )ustice can e determined y means of proportionality.eduSVelgamalSri a. (I n *ushd reasoned as follows$ "It is thus apparent from the law that what is intended y the prohi ition of *i a is what it contains of e#cessive in)ustice (ghu n fahish). "'s for . tr. if a person sells a horse in e#change for clothes. "he Islamic contract forces the two parties to link the finance charges to a specific tangi le asset." "his !uote cannot e treated fully in this short guide.0 "he "e!uality" of compensations. wheat. then the horse should e e#changed for 25 pieces of clothing. "hus.&ote$ >or a fuller economic analysis.Islamic . if ever. silver. +hen discussing the different generalizations of the prohi ition of *i a in the si# commodities (gold. 9 viously. . arley. Since the attainment of such e!uality in items of different kinds is difficult.. we have very few glimpses of the legal understanding of those scholars when they discussed how to generalize the implications of a Legal &ass. .)urisprudence and man made laws will normally e ased on the e#istence of a ?anonical Legal "e#t (&ass). if a home..2 to other clothes.utilities0 are very similar. :rohi ition of *i a in ?lassical Islamic Durisprudence". and thus forces comparison (if not e!ualization) . I mean. dates.ruf. purchase is financed through an Islamic lease purchase or diminishing partnership. and may e harmful if later proven wrong.fungi le0 goods measured y volume or weight. Bven if the conventional mortgage contract had agreed with all the other Islamic (i)arah or sharika re!uirements enumerated y the )urists (it does notI) this would not mean that using the latter is mere window dressing. See footnote 2 of ?h. >or instance. Since it is not necessary for a person owning one type of those goods to e#change it for the e#act same type.rice. 9ne very illuminating instance is provided y (I n *ushd (233.

verified and completed y %uhammad &a)i 'l %uti i.with the time value of money invested in that asset. Kamascus$ Kar 'l >ikr. =eirut$ %u(assasat '2 *isdlah. Kamascus$ Kar 'l 7alam. (I n *ushd.. 'l &awawi (continuation y 'I Su ki).d.d. 'I (I!tisad '2 (Islami wa 'l 7adaya 'l >i!hiyyah 'l%u(asirah. writing a contract that intentionally a ides y Islamic Legal in)unctions is very different from writing one which does so y mere coincidence or ased on human reasoning. 'l 7arafi. 'l 7aradawi. %oreover. =eirut$ Kar 'l Futu 'l EIlmiyyah. 'l Juhayli. =idayat 'l %u)tahid wa &ihayat 'l %u!tasid.d.ri. >ourth revised edition. 'l Kawhah$ Kar 'l "ha!afah. verified y E' d 'l %a)id "u(mat 1ala i. +. >rom a religious point of view. 2338. =eirut$ Kar 'l Futu 'l EIlmiyyah. Bi"liography 'l =a)i 'l ('ndalusi. '. 'l gharar in contracts and its effects on contemporary transactions. 233. 233. 233-. >i!h al Jakah. =ayE 'l "a!sVt$ "ahlil :i!hi wa I!tisadi. 'I %isri. S. 'l Salus. 233. n. . 'l Karir. 28. 'l >uru!. . 233A. 'l (Imam 'l "a a. 1'shiyat radd al muhtar. @.0 It also enforces all the other legal conditions associated with the lease purchase or declining partnership contract. '. "he fundamental difference etween the two cases cannot e overemphasized. IK= Bminent Scholars( Lecture SeriesG &o. 2333. from a legal and practical point of view. 'l >atawa 'l Fu ra. =eirut$ ('lam 'l Futu . Kar (Iliya( 'I "urath 'l E'ra s. 'l >i!h 'l (Islami wa ('dillatuh. ?airo$ 1arf (reprod. 'l lamiE fl ('hkam 'l 7ur(an ("afsir al 7urtu i).&ote$ "hose educated in contemporary economics and finance will recognize the importance of this rule in effecting desira le economic efficiency and fairness. %. 'I %a)muuE Sharp al %uhadhdha . the first contract is guaranteed to continue to a ide y Islamic Law. n. 'l 7urtu i. Such change can impose a significant cost on the %uslim who has to seek refinancing to a andon *i a and live in accordance with the ShariEa. 233. Bgypt$ %at a(at 'l =a i 'l 1ala i. *. '. 233A. 233/.. Deddah$ IK=.)$ Kar 'l Futu 'l EIlmiyyah.. n. (I n "aymiya. (I n ' idin. '. while the latter may change with circumstances. in Bncyclopedia of Islamic Durisprudence (?K*9%). I*"I. Dami E 'I =ayan li "a(wil 'I 7ur(an ("afsir 'I "T a ari). Kar 'l Futu 'l(Islamiyyah.. 'l %unta!a STharh al %uwatta(. =eirut$ Kar 'I %a(rifat. X http$SSwww. "he reader can find those sites linked to the ones listed here.comSief . It is provided to give the reader a starting point for searching the we for more information on the su )ect. 1eliopolis. @usuf ('li. 9wnership structure across lines of propertycasualty insurance. %K$ 'mana ?orporation. 'n introduction to Islamic finance.. X http$ X http$SSwww. and ?. "his list e#cludes many e#cellent sites developed y providers of Islamic financial services. Smith. and Kallah 'l =arakah. information on those sites. Smith. =rentwood.irti.muslim<investor.%. X http$SSislamic<finance. =.islami7. (on ?K*9%)..muslimsonline. *eview of Bconomic Studies A(-)$/6/ .A. "a!i .smani. 23AA. . ' theory of mutual formation and moral hazard with evidence from the history of the insurance industry. K. Sakhr. "he %eaning of the 1oly 7ur(an.islamic< anking. Dournal of Law and Bconomics 42$4/2 . 'I fatawa al (I! X http$ X http$SSwww. and %. "his list is not e#haustive. I do not vouch for the accuracy of all the.o%e infor%ation on the $nternet "his is a partial list of some of the general information we sites that focus on issues in Islamic =anking and >inance. 2338. -nd X http$SSwww. 233A. 233/. or y using a we search engine.harvard.hifip. ?airo$ Sakhr Software ?o.. '. Farachi$ Idaratul %a(ariW %ayers.