By Tarek El Diwany
Five hundred years ago, a person who attempted to lend money for a commercial gain in the City of London risked arrest for the crime of usury. On those same streets today the cream of our educational establishments vie for a share of the usurer’s pie, and in plush city boardrooms those who were once despised make decisions that affect the entire world of commerce and politics. Yet the wealth earned through usury is an illusion. The Prophet Muhammad is reported to have said that “even when usury is much, it always leads to utter poverty” (narrated by Ibn Mas‘ūd, in Ibn Majah). The implication is that for every penny earned through usury, a far greater cost is inflicted somewhere else in the economic system.
For example, the fastest deforesting countries in the world are also among its most indebted, as natural resources are sacrificed to pay off foreign creditors. In Africa, many countries regularly pay more in debt service than they spend on healthcare, causing millions of extra child fatalities across the continent every year. Even in the rich nations, usury is taking a heavy toll. In the United Kingdom, indebtedness has become so great that the threat of bankruptcy and insolvency now seriously affects the happiness of at least one family in five. On average, houses are smaller than they used to be and mortgages are bigger. Hence, where just a generation ago one working parent could support a family, it is now frequently the case that two must work in order to do so.
Unfortunately, many of the world’s most influential thinkers simply cannot see the growing poverty around us. The director of a right-wing think tank once told me that the success of the West is sufficient proof that the capitalist system is superior to any other. He argued that if capitalism was properly adopted in Africa and Asia, they too would enjoy our standards of living. I told him that our luxury is their poverty, that the West would be much poorer were it not for the billion dollars that it extracts every day in debt service from the developing countries, and the cartels through which it exploits their resources. Such a system cannot be adopted by the rest of the world, for if all are parasites who will be the host?
On the other hand, economic reformers have much to learn from the model that inspired the world of Islam during its heyday. The hospitals and universities of Baghdad under the Abbasids were not financed through interest-based loans, neither were the armies of the early Ottomans or the architecture of the Mamluks. Across a dozen centuries, contracts of profit-sharing and interest-free credit amply fulfilled the commercial needs of a multitude of Muslim communities. These were societies that treasured the soundness of their gold and silver currencies, and directed the bulk of their efforts to the production of beneficial forms of wealth. Supplementing all of this were flows of zakat, endowments and other charitable donations that supported science and the arts, and provided a safety net for those who were less well-off.
Today, Islam is the last organised religion to maintain its usury prohibition and we should therefore see ourselves as keepers of a flame. If we are to fulfil this role, some serious reconsideration is necessary in the world of Islamic banking and finance. Here, for some thirty years, the methodology has been to copy the institutional framework and product range of the interest-based world. As a result, the Islamic alternative in matters of banking and finance is yet to truly shine forth. If we remained true to our principles we would instead promote the return of a monetary system in which banks do not have the privilege to create money from nothing and in which debt-based finance is the exception rather than the norm. With the removal of debt-finance, giant corporations would be less able to dominate the business affairs of the nation, and owner-managed business would return in place of the employer-employee model.
As an example of what is already possible, in my professional work I have helped to develop a partnership-based financing scheme for home purchase in the United Kingdom in which the home-buyer is not in debt and the financier shares the risk of any fall in house prices. In this contract there is no possibility of repossession or negative equity. Would not the households of the Western world sleep better in a contractual relationship like this? Would they not think more of Islam for delivering that solution?
We have become so accustomed to a world of shortage and suffering that it is sometimes hard to imagine a world of peace and sufficiency. But Allah has provided enough for everyone’s need and it is only a lack of vision and will on our part that prevents it from being so. If a trillion dollars can be spent on the wars in Iraq and Afghanistan, then we can surely find the forty four billion dollars that the United Nations says is needed to end world hunger. Meanwhile, the United States federal budget for 2009 is approximately matched by the combined total of the bank bailout, interest payments on government debt and the defence budget. These are the signs of a system built upon injustice and unless it is reformed it will certainly collapse. In the coming years, Muslims can prepare for that day by rediscovering the economic system that once made them successful. If they prevail, insha’Allah, the result will be nothing less than a new Renaissance.
Tarek El Diwany is the senior member at Zest Advisory LLP in London where he provides advisory services in Islamic finance and investment to a variety of private and public sector clients. He is the author of The Problem With Interest, founder of www.islamic-finance.com, and presenter of the film documentary “Why are We All in Debt?”.
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