Home' Trinidad and Tobago Guardian : July 27th 2014 Contents SBG18 COMMENTARY
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JULY 27 • 2014
On July 29, the Muslim com-
munity in T&T and, by
extension, the world will be
celebrating the end of the
holy month of Ramadan and
observing the Eid-ul Fitr, a
very auspicious Islamic religious day. We wish
our Muslim brothers and sisters, Eid Mubarak.
However, while these religious tenets are
being observed, it is important to point out
that Muslims have also contributed towards
the development of a unique line of business;
that is islamic finance and banking. Islamic
finance operates in accordance with the prin-
ciples of Islamic law (or Sharia).
Islam has a set of goals and values encom-
passing all aspects of human life, including
social, economic and political issues. Most
scholars describe Islam as a religion that organ-
ises one s life completely. The body of Islamic
law is called the Sharia, literally meaning the
clear path to be followed or observed.
The basic principle of Islamic finance is
underlined by the prohibition of investment
in interest-based ventures and businesses that
provide goods and services considered contrary
to its principles like tobacco, alcohol, gambling,
vulgar entertainment and conventional finance.
Such activities are considered haram (forbid-
den). It must also be noted that Islamic Finan-
cial or Banking services/facilities are not just
available just to muslins, but to non-Muslims
The appeal for Islamic finance has become
infectious to an extent where the largest Muslim
populations in the world, most notably India
has developed a profound interest for Sharia
compliant products to cater for its community
and business sector.
In view of capitalising on the opportunities
that Islamic finance has to offer, the Indian
government and business corporates have
taken the initiative to closely examine which
Sharia compliant companies and sectors are
able to further contribute to the development
of Sharia market capitalisation in India.
This is solely due to the fact that India
believes that by complying with the economic
laws of Sharia, this nation can become an
attractive destination for Islamic investments.
The Islamic finance sector in the United King-
dom has also seen enormous growth both
domestically and internationally. London is
one of the top five financial centres in the
world for Islamic finance.
What is an Islamic bank?
There is no standard way of defining what
an Islamic bank is, but broadly speaking an
"Islamic bank is an institution that mobilises
financial resources and invests them in an
attempt to achieve predetermined islamically;
acceptable social and financial objectives. Both
mobilisation and investment of funds should
be conducted in accordance with the principles
of Islamic Sharia.
It is of standard practice that Islamic banks
and banking institutions that offer Islamic
banking products and services are required to
establish a Sharia supervisory board to advise
them and to ensure that the operations and
activities of the bank comply with Shari a
An essential ingredient is a regulatory frame-
work that can accommodate Islamic finance
principles and a regulator that is prepared to
work with Islamic institutions to overcome
While there are several principles that govern
the sphere of Islamic finance, we shall delve
in the four main ones.
• Prohibition of interest or usury
The principles of Islamic finance are estab-
lished in the Qur an, which Muslims believe
are the exact Words of God as revealed to the
Prophet Mohammed (upon whom be peace).
These Islamic principles of finance can be
narrowed down to four individual concepts.
The first and most important concept is
that both the charging and the receiving of
interest are strictly forbidden. This is commonly
known as Riba or Usury. Money, on its own,
may not generate profits. When Riba infects
an entire economy, it jeopardises the well-
being of everyone living in that society. When
investors are more concerned with rates of
interest and guaranteed returns than they are
with the uses to which money is put, the
results can only be negative.
However, profits, symbolise successful entre-
preneurship and creation of wealth whereas
interest, is a cost that is accrued irrespective
of the outcome of business operations and
may not create wealth if there are business
losses. But the concept of profit-and-loss
sharing has proven to be an indicator of finan-
cial progressive transactions; since it distin-
guishes good performance from negative busi-
ness practices. This concept therefore
encourages better resource management.
• Ethical standards
The second guiding principle concerns the
ethical standards. When Muslims invest their
money in something, it is their religious duty
to ensure that what they invest in is good and
It is for this reason that Islamic investing
includes serious consideration of the business
to be invested in, its policies, the products it
produces, the services it provides, and the
impact that these have on society and the
environment. In other words, Muslims must
take a close look at the business they are about
to become involved in.
In all facets of the financial system, Islam
has certain rules, certain regulations as to how
Muslims should go about participating in these
activities. For example, in share trading or the
securities market, Islam looks at the activities
of the companies, to establish whether or not
the companies are involved in activities which
are in line with Shari a, eg not indulging in
activities relating to the sale of alcohol.
• Moral and social values
The third guiding principle concerns moral
and social values. The Qur an calls on all its
adherents to care for and support the poor
Islamic financial institutions are expected
to provide special services to those in need.
This is not confined to mere charitable dona-
tions but has also been institutionalised in the
industry in the form of profit-free loans or
Al Quard Al Hasan.
An Islamic bank s business includes certain
social projects, as well as charitable donations.
Islamic banks provide profit-free loans. For
example, if an individual needs to go to hospital
or wants to go to university, we give what is
called Quard Al Hasan. This Quard Hasan is
normally given for a short period of one year
and the Islamic bank does not charge anything
Liability and business risk
The final principle concerns the overarching
concept of fairness, the idea that all parties
concerned should both share in the risk and
profit of any endeavour. To be entitled to a
return, a provider of finance must either accept
business risk or provide some service such as
supplying an asset; otherwise the financier is,
from a Sharia point of view, not only an eco-
nomic parasite but also a sinner.
This principle is derived from a saying of
the Prophet Mohammed (upon whom be
peace) "Profit comes with liability". What this
means is that one becomes entitled to profit
only when one bears the liability, or risk of
loss. By linking profit with the possibility of
loss, Islamic law distinguishes lawful profit
from all other forms of gain.
Our nation of T&T is 52 years old, and there
have been many discussions about economic
diversification and robust entrepreneurship.
There have also been calls for the reform of
our banking systems with the purpose making
access to credit much easier for businesses
and the players within the productive sectors.
In light of this, the time has come for the
establishment of a full-fledged Islamic Bank
Eid Mubarak to the Muslim community!
Jai Leladharsingh is an independent
researcher, and a member of the Board of
Directors of the Chaguaramas Development
Authority. He can be contacted via jaishi-
Principles of Islamic finance
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