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| Britain Gives the Green Light to Islamic Banking Wed 25 Aug 2004 |
`I thought we should wait to buy a house until the introduction of affordable and radically different, Islamic-friendly mortgages.'
Asma Siddiqi
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Saleem Siddiqi and his wife, Asma have been trying to buy a house for more than a decade. Being practising Muslims, they were not comfortable with the traditional mortgage route used by most in the United Kingdom, which is not in accordance with Qur'anic principals. Saleem, a manager at a multi-national firm, hoped to circumvent the problem by making an all-cash purchase. After years of saving, he, his wife, and their two daughters finally had enough for their dream property: a £170,000 three-bedroom house in Barkingside, Essex. But then Siddiqi's stock holdings plummeted, leaving him £100,000 short.
"I thought, by God, we should let go of it,' he said.
It is not an easy choice to live in rented accommodation in London where house rents are extremely high, but Asma was determined not to compromise on matters of faith:
`I thought we should wait to buy a house until the introduction of affordable and radically different, Islamic-friendly mortgages.'
Although purchasing a property through a standard interest-based mortgage is contrary to Islamic teaching, the practise is nonetheless common because of circumstantial considerations. This is a dilemma that the British Muslims have been facing for years. The high prices of property in Britain make it difficult for buyers to own a property by paying the price upfront. Opting for a mortgage, hence, is a common practice.
However, the system of mortgage lending depends upon Riba, which is clearly forbidden according to the teachings of the Qur'an.
Riba (Usury) is of two major kinds:
1. Riba An-Nasia - Interest on lent money
2. Riba Al-Fadl - Taking a superior thing of the same kind of goods by giving more of the same kind of goods of inferior quality, eg.,dates of superior quality for dates of inferior quality in great amounts.
Under the Shariah (Islamic law) principals, any return on money employed should be linked with the profit of an enterprise.
For years, British Muslims have been caught between the conflict of this religious injunction and dealing with the stark reality of putting an affordable roof over their heads.
Islamic scholars promote Islamic banking to solve this dilemma. An Islamic bank, following instructions given in the Qur'an, cannot charge interest on its loans at pre-determined rates. Unlike ordinary commercial banks whose operations are based on interest, Islamic banks operate an interest-free system, and are guided by the common principle that depositors, instead of receiving a fixed return in the form of interest, share the risk of investment and either partake of the resulting profits or bear part of the losses.
In simpler terms, the difference between the conventional and Islamic modes of financing is that instead of the bank giving someone £100,000 to go and buy a house, for example, the bank will instead buy the house and then sell or lease it to that person with a profit margin.
An Islamic bank, however, will not just solve the issues of interest for Muslims but will also deal with other matters, for example the issue of Gharar (uncertainty).
Islamic scholars believe the Islamic banking system is far more ethical than conventional interest-based banking on several counts. It leads to more prudent lending by encouraging financiers to invest directly in an entrepreneur's ventures. A further reason is that by avoiding the need for enticing interest based loans people are encouraged to keep everybody spending within their limits. Our consumerist society depends heavily on a financial system that continually encourages a 'buy today, pay tomorrow' philosophy.
On an international level, we have poor economies in debt to rich ones and the more they borrow the more indebted they become. This cycle is perpetuated because of borrowing and lending with interest.
The modern era of Islamic banking began in the 1960's with the foundation of the pioneering 'social bank' in Egypt. Since then, over 150 Islamic banks and financial institutions have been set up in more than 50 countries. Pakistan, Iran and Sudan have actually taken steps to mould their whole banking industry according to the Islamic principals, with an aim to eliminate the need for the forbidden interest entirely.
Now Islamic finance is making inroads in the United Kingdom as the first Islamic bank has received a green signal from banking regulators. The emergence of British Muslims as a powerful economic force in the home finance market has made financers invest in this arena. With Britain now home to some 1.6 million Muslims – including more than 5,000 millionaires – mainstream banks and building societies such as HSBC, Barclays and the Yorkshire Building Society are realising the potential size of the market and it is likely that a range of Islamically acceptable financial services will soon become available to the Siddiqi's and many others like them.
Fe'reeha M. Idrees
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