3 - 9 November 2011
Issue No. 1071
Published in Cairo by AL-AHRAM established in 1875
The Islamist groups and the economic system
The Islamist groups' understanding of economics and modern finance is fundamentally flawed from a religious point of view and may imperil Egypt's future, writes Ahmad Naguib Roushdy*
Now that the ruling Supreme Council of the Armed Forces (SCAF) has set the end of November for elections for the new People's Assembly, it is natural for many jurists, sociologists, economists, bankers and businessmen to ponder how the system of government, social life, banking and business might look if the Islamist groups, individually or collectively, win a majority of the seats in the new parliament.
Although most Egyptians refuse to accept this idea, they could be disappointed. It is always wise to remember the Arabic saying, wataaty al-riahu bema la tashtahi assafon, meaning that the winds bring undesirable things to navigating ships. The Islamist groups are mostly active in rural and urban areas where millions of illiterate people are under the impression that if they vote for secular parties, this could mean the end of Islam in Egypt. If this happens, we should expect enormous changes in every corner of Egypt that could spread to other Islamic countries.
In my previous four articles in Al-Ahram Weekly since the start of the Egyptian revolution, I have tackled some of the aspects of the constitutional and social systems that the Islamists intend to impose on people, including the loss of democracy and the revisiting of the old Muslim caliphate in a new and deformed shape. Here, I would like to touch on economics and banking transactions under Sharia rules and how the Islamist groups could apply them.
The core element in this regard is the interest paid on savings and loans and on deposits issued by banks to individuals and corporate investors. The Islamists consider interest as reba, meaning usury, which is forbidden by the Quran. The Egyptian civil law recognises interest on loans, and when a monetary obligation in any contract is not fulfilled in due time, four per cent in civil matters and five per cent in commercial matters, with a limit of seven per cent if so agreed by the parties, is levied (articles 226 and 227).
There are also contracts that the Sharia prohibits, such as al-gharar contracts. If interest payments and such contracts are outlawed, then the Egyptian economy will be turned upside down, and this will affect Egypt's relations with the wider world, especially with countries and organisations that trade or lend money to it, including the United States, the World Bank and the International Monetary Fund.
Undoubtedly, usury is morally repugnant and sinful in all three religions, and it is forbidden by most countries' laws, even in capitalist economies. Contracts that are based on exploitation by one party over the other, or that are against public morals, are illegal or liable to be annulled or revised to remove the illegal element in many countries. But what exactly is reba and what makes a contract illegal are still matters of controversy.
Reba in Arabic means excess, and Islamic jurists consider excess to be capital that is not qualified to be subject to a legal return. This is reba, and it is forbidden in several chapters of the Quran and in the sunna of the Prophet. In the opinion of the jurists of the four principal Sunni sects of Islam, reba also takes money out of commercial transactions that could otherwise help invigorate the economy, in return for easy profits from loans paid with reba. In the opinion of those jurists, reba discourages people from being benevolent and doing good to others.
The reason for forbidding reba reflects the Islamic direction to the faithful to do good and to abstain from exploiting others and to eliminate greed. Reba was common in the jahilia (the pre-Islamic era), and among Jewish tribes living in Al-Madina in the Hijaz where the Prophet took refuge after his immigration from Mecca. These tribes were deviating from the Prophet Moses's commandments.
Some Islamic jurists also despise reba to the extent that they claim it helped rich countries colonise poorer ones. However, the truth is that the development of the banking system and liberal democracy in the West tremendously helped in lifting up western economies. These countries do not consider interest as usury. Instead, they see it as a kind of profit that the lender or the bank is entitled to. They follow this practice in domestic and international transactions. This is not the reason, either, that poor countries were colonised by the West. The desire for strategic security and the availability of natural resources were the main reasons for colonisation.
The undeniable fact is that the prosperity of the western countries, which enables them to control the international economy, is due to the formation of corporations with large amounts of capital able to employ thousands of professional and skilled workers in their own countries and through outsourcing to foreign countries where cheap labour is plentiful. They have also established solid banking systems that can extend loans to corporations and individuals to help investment in the economy. Each of the western countries long ago established governmental agencies, such as central banks and consumer protection agencies, to ensure that the corporations and banks performed according to the rules and offered good services to the public. With large amounts of capital, corporations achieved large profits even in risky projects, notwithstanding their being prohibited from paying interest by clergy who misinterpreted religious rules.
It was not until after the European Renaissance, itself influenced by Islamic civilisation, that the West discovered the key to prosperity. It is also not true that the West does not recognise reba. Although many western countries permit high interest rates on some transactions, such as credit cards, these countries impose a maximum percentage of interest and consider anything higher as usury ( reba ). After the European Renaissance, the Islamic world went into a deep sleep, submitting itself to the teaching of conservative preachers that prohibited such transactions. This is one of the reasons why the Islamic countries' economies have crawled behind those of the western and Asian-Pacific countries, and why they are still doing so today.
However, there has also been a big difference in opinion among the Islamic jurists about reba. The difference lies not in the prohibition itself, which all agree with, but in which kind of reba is forbidden, especially since there is no explicit guidance in the Quran or sunna. The verses of the Quran that clearly forbid reba were the last to be revealed to the Prophet, who passed away before he could explain how to apply the rules. Because of that, some of the early Islamic jurists felt that they might need to apply the prohibition on reba on transactions that the rule had not been intended to cover, in order to ensure that they were not making a mistake.
The idea that reba is forbidden in the Sharia has been a matter of controversy and debate in Egypt between Muslim clergy and bankers, especially in the late 1970s when several Islamist groups started challenging the government of the late president Anwar El-Sadat after his conclusion of the peace treaty with Israel. The debate intensified when the government, in an attempt to calm the Islamist groups and respond to their demand to abolish secular laws, especially the civil law that permits interest to be levied on transactions, set up committees of jurists to codify Sharia rules. The idea of codifying the Sharia was a good one, as it would have helped to establish unified rules that were available for everyone to read and the courts to apply, instead of depending on the thousands of opinions issued by the leaders of the four Sunni sects and their students, many of which were issued in places and times very different from our own.
Sadat rushed things through, however, which had harmful consequences. While the modern civil code, introduced in October 1949, took 20 years to be drafted, and contains the rules to be followed in transactions and in other legal matters, some of its provisions borrowed from the Sharia, the codification of the Sharia in the 1970s was brought to a halt after the assassination of Sadat by members of the Al-Gamaa Al-Islamiya in 1981.
In fact, the debate on interest and the banking system in Egypt was mislabelled as a debate, since it was only really the result of bickering from Islamist groups wanting to impose their opinions and accuse their opponents of being apostates. The groups refused to listen to the opinions of economists and banking experts. As expected, the debate merely ended in an agreement between the parties to disagree with each other.
The problem today is that the Salafis and other Islamist extremists have now cornered themselves into a strict interpretation of the Quran and the sunna that departs from the path followed by the Prophet, the first four caliphs and the al-salafu assaleh (pious ancestors). Some of these groups, such as the Salafis, refuse to recognise other sources of the Sharia approved by the four major Sunni sects, such as al-ijtihad, al-qiyas and the interest of the community, and, thus, they are not "real" Salafis at all, as I showed in my article in the Weekly in September.
The Sharia, which is supposed to be the path towards correct living, has never been applied to all aspects of life in modern times, which are completely different in terms of scope and technology to people's needs in previous epochs when the Sharia was the law of the land in Islamic countries. What the Islamists have not understood is that Islam does not want Muslims to wrap themselves up in a cocoon and be isolated from the outside world. This is what the Quran warns against when it says, wakhalaqnakum shooba waqabaela letaarafoo (We have created you nations and tribes to get to know each other). This requires Muslims to interact and to establish political, trading and educational relations with other peoples of the world and other religions. Ironically, the West did this as far as Muslims are concerned, borrowing from the Islamic civilisation that extended to China, India and Spain (Al-Andalus).
It has been essential for Muslim countries to consider whether international economic developments and commercial customs conform with Sharia rules and try to review contracts, rights and obligations that the West allows. What happened was that Islamic jurists filled volumes on things that are permitted or prohibited under the Sharia and applied the rules strictly. Because the Sharia is the path to a good life, its main concern is to direct people to what is good and warn them from what is bad on the basis of the universal rule that all acts are permitted unless they are prohibited or are harmful. The rules are based on justice for all, as long as people act honestly and voluntarily in any transactions, contracts, rents, mortgages or lending.
In an article in the Al-Ahram daily in June 1982, I mentioned that it would not have been easy for earlier Muslims to catch up with international economic developments because of the influence of religion on their daily lives and their hesitation in doing anything that may be prohibited. An example of this is bank interest and contracts that include risk, especially those called oqoud al-gharar, ( oqoud means contracts and al-gharar means risk or danger). These are contracts that contain risks or that deal with something that is accidentally or uncertainly realised.
Classic examples given by the Islamic jurists include the sale of fish still under the sea, or the sale of birds in the air. The jurists tell us that these kinds of sales are prohibited under the sunna. A perfect example in modern times is selling crops in the field before harvesting them and even before planting seeds. In such cases, prices are fixed in terms of a lump sum, or the value of the crop may be estimated before harvest. This is an international practice in supply contracts and is followed especially in government procurement.
Although Islamic jurists have had different opinions on the details, they agree on the prohibition of gharar contracts if certain conditions apply, at least according to some rules in the sunna. There is nothing in the Quran that could indicate the prohibition of these contracts. The reason for the prohibition is that the profit is "accidentally realised" in the future, though some jurists do permit such futures contracts if there is no risk, as when a farmer sells his crop by the unit, such as in bushels of wheat, and not for a lump sum. Years of development and modern technology have enabled agricultural experts to estimate the size of crops before harvest in a way that matches the actual size, and this can make the deal legal, religiously speaking.
Futures contracts are permitted under the civil law in Egypt in cases where the buyer estimates his future needs and enters into contracts in order to buy for his own use or future resale when the price increases, such that he can avoid a loss if he waits to buy until after the harvest when the price may be higher or when the goods may not be available. This is the true application of the universal principle first championed by Ibn Khaldun, the famous Islamic historian and jurist, in his Al-Muqadema, in which he advised people to buy cheap and sell dear. Ibn Khaldun even called for free trade 400 years before Adam Smith.
The levying of bank interest is problematic, and it has always been a target of attack, not only for Islamist extremists, but also by moderate Islamic jurists, especially because of its proximity to the excess of money during the jahilia, which caused its prohibition in the Quran, and because of a lack of knowledge about banking transactions.
In the past, many Muslims could not imagine themselves dealing in transactions that include interest. One reason was their traditional fear of taking risks in the belief that the Sharia prohibits risks and dealing in transactions that contain reba. This made Muslims prefer to deal in transactions that guarantee them a legal profit, such as investing in real estate and getting a steady income by renting it, or putting it up for sale, which helped delay the creation of modern economic systems in Islamic countries, especially in the Middle East, and the establishment of corporations including investment and development banks that are able to make large investments.
Egypt was an exception to this rule because of its strategic situation and resources. It was the first country in the Middle East to establish a legal system in 1875 and 1881 comparable to the western one, and a banking system was set up in 1885 when the National Bank of Egypt (NBE), the first banking corporation in the Middle East, was established as a commercial bank and was authorised to issue bank notes, including the Egyptian pound, and carry out other functions of a central bank. In 1960, the NBE was divided into a commercial bank and the Central Bank of Egypt. Many other corporations were established later on that contributed to Egypt's economic growth.
In the past, some Islamic jurists tried to reduce the exaggeration of their colleagues in adding to the list of prohibitions by permitting acts that benefit the Muslim community and prohibiting them if they are harmful to the community. These jurists were applying the al-maslaha al-mursala to serve the interests of the community, and a source in the Sharia was recognised by the early jurists in the absence of a rule in other sources. However, the Salafis and some others do not recognise other sources for the Sharia beyond the Quran and the sunna. As it appears that one country's interest could be different from that of another country and from time to time, jurists of the major Islamic sects followed the path of the early jurists in allowing the government, in the absence of a provision in the Quran, the sunna, or other sources of the Sharia, to permit an act if it benefits the interests of the community.
The problem has been that Islamist extremists refuse to consult banking experts and economists regarding banking transactions, thus deviating from the Prophet's teachings and the practice of the early jurists. They know very well that judges consult experts before ruling on a case if there are details that they are not familiar with. Banks and banking systems are now economic entities worldwide, and they contribute to economic growth. They are needed to serve people, and they compete with each other as long as they act honestly and legally and do not exploit customers.
Moreover, they do not keep their money in safes or under floors. They invest their capital, composed of shares held by the public and deposits, in order to finance commercial and infrastructure projects that serve the public's interest and yield profits. The banks are thus doing a public service, and they deserve to be paid for that. This comes in the form of interest. When a bank needs more money, it invites the public to open savings accounts or it issues certificates of deposits to the public to buy a certain amount of money for a certain period of time. The bank pays interest on the savings accounts and on the certificates at their expiration date or every six months. Here, the bank is the debtor, but it is still much richer than the depositor, and one cannot consider the bank to be the weaker party or the depositor to have exploited it. The interest here is fixed in advance, required so that each party is aware of his or her rights and obligations.
I call on Islamist extremists to take the time to read Muamalat al-Bounook wa-Ahkameha al-Shariya (roughly, Banking Transactions and Islamic Rules) by the late Mohamed Sayed Tantawi, former grand imam of Al-Azhar, which was published in 1991 when he was the Mufti of Egypt (an Islamic jurist who presides over a department in charge of rendering opinions on Islamic matters).
In this work, Tantawi settles the argument regarding reba and on banking transactions and other types of contracts. He decided not to issue an opinion before consulting economists and the heads of banks. I can attest to this because my own late brother, Mohamed Abdel-Moneim Roushdy, chairman of the National Bank of Egypt at the time, informed me that when the Bank was about to issue certificates of deposits he met with the Mufti and they exchanged views on the banking system and Sharia rules on interest and reba.
Tantawi explains how banks became economic entities essential to economic development, as long as they compete honestly and are just about serving the community. He writes that the interest of the community, al-maslaha al-mursala, necessitates banking transactions as long as they serve the community's interests, but he cautions against setting up general rules in this regard since each transaction should be examined individually.
He also says that the sources of the Sharia are not just the Quran and the sunna, but are also other sources agreed upon by jurists, including al-ijtihad, al-qiyas, and al-maslaha al-mursala. Tantawi concludes that because international economic development makes transactions different from loans during the jahilia, it is necessary to consider bank loans, certificates of deposits and other banking transactions where the profit is fixed in advance legal and not contradicting the Sharia, since the fixing has no role in permitting or prohibiting these kinds of transactions as long as they are concluded with the consent of the parties involved and are clear of exploitation or fraud.
Tantawi says this rule is applicable on transactions permitted in Islam, such as sales, rents and mortgages. It should be noted that the author also takes into consideration the traditions and foundations of Egyptian society, which might be different from those of others and need to be examined by experts in the field.
Finally, I also call on the government and the Higher Committee of the Ulema (Islamic jurists) to include this book in the reading of economics and commerce departments at the nation's secular universities and at Al-Azhar, in order that students may understand the issues with open minds. In the same way that Egyptians have revolted against political tyranny in order to recover their rights of freedom of expression, they should revolt against religious tyranny that affects all aspects of their lives.
* The author is an international lawyer.