The Shari'ah Prohibition of Interest
| Author | Edana Richardson |
| Position | LLB (Ling Franc) (Dub) (2006), LLM (Commercial Law) (Cantab) (2007), M Litt Candidate |
| Pages | 78-101 |
THE
SHARI'AH
PROHIBITION
OF
INTEREST
EDANA
RICHARDSON'
The
Rise to
Prominence
of
Islamic
Finance
Islam
is
not
a
religion
in
the
limited
sense,
interested
only
in
our
immortal
salvation
in
the
hereafter. Rather, Islam
is
a
religion
which
organises
an
individual's
life in
its entirety.
1
The
all-encompassing
nature
of
Islam's
application
extends
inevitably
to the
realm
of
banking and
finance.
The
emergence
of
Islamic
banking, particularly
in
the last decade
has
been
driven
by
an
upsurge
in
Islamic
revivalist
views
and
the
increasing
number
of
Muslims
who
want
to live
their
lives
in
accordance with
Islamic
teachings.
As
James Hume, the executive vice-president
of
the
Dubai
International
Financial
Centre noted
an
increasingly educated populace
with
growing
self-assuredness
and
awareness
of
their
Islamic roots
is
becoming
alert
to the
shortcomings
of
conventional
finance and
more vocal
in
demands
for
2
alternatives.
These Islamic principles
require Muslims
to
conduct
their
daily
financial
transactions
with
a
moral and
social awareness
of
the
implications
of
their
actions.
3
A
Muslim
investor's
approach
to
banking
and finance
is
not
merely economic, motivated
by
monetary
considerations,
but
is
also
strongly
influenced
by
ethical precepts
which require
Muslims
to
constantly consult
key
principles espoused
by
the
sources
of
Islamic
law.
Possibly
the
most frequently
referred
to
feature
of
Islamic
banking
is
the
prohibition
of
interest
or
riba.
While traditionally
a
feature
of
the
major
monotheistic
religions,
the
prohibition
of
interest
has gradually
been
reduced
to
irrelevance
in
most countries.
Islam therefore,
stands
alone
in its
steadfast adherence
to
the
proscription.
In
light
of
the ever
increasing
LLB
(Ling
Franc)
(Dub)
(2006), LLM
(Commercial
Law)
(Cantab)
(2007),
M
Litt Candidate.
'Husam
Hourani,
"The three
principles
of
Islamic finance
explained"
(2004)
Int'l
Fin
L
Rev
46,
at
46.
2
James
Hume,
"Islamic
Finance:
Provenance
and
Prospects"
(2004)
Int '1
Fin
L
Rev
48,
at
48.
3
J
Michael
Taylor,
"Islamic
Commercial Banking
-
Moving
into
the
Mainstream?"
(2005)
18
Transnat
'7L
417,
at
418.
©
2008
Edana
Richardson
and
Dublin
University Law Society
Shari
'ah
Prohibition
of
Interest
international
focus
on
Islamic law
however, this religious
idiosyncrasy
of
the
Islamic
banking movement cannot
be
dismissed
as
unimportant.
The
Islamic finance industry
has
experienced
considerable
growth
since
the
1970s.
It
has,
however,
only
really taken
shape
within
the
past
decade,
with values
laid
down
by
the
Islamic
religion
centuries ago
finally
crystallising
into
a
more
coherent
set
of
financial
principles. The
growing
interest
of
wealthy
Muslims
in
a
method
of
banking
which
complies
with
their
religious
belief
has
encouraged financial
institutions,
both within
the
Middle
East
and in
the
West
to
develop religiously
harmonious
products.
There
are
now
nearly
300
Islamic financial
establishments operating
in
some
forty
countries, with total assets
topping
$262
billion
(E181
billion)
and
deposits
in
excess
of
$202
billion
(E140
billion).
4
It
is
somewhat
unsurprising
that
such
global
interest
is
being
focused
on
Islamic
banking
and
finance,
considering that
the
1.5
billion
Muslims
around
the
world
hold
assets
within
the
banking
system
estimated
at
over
$1.5
trillion
(El
5
trillion),
a
figure
growing
at
a
rate
of
15%
a
year.
Over
a
number
of
years,
London
has
emerged
as
a
Western centre
for
6
Islamic
finance.
Developments
in
Ireland
have
been
slower
with
religiously
harmonious
products emerging
only
very
recently.
Nevertheless,
interest
is
growing.
The Bank
of
Ireland, working with
Lloyds
TSB
and
ABC
International
Bank
PLC
now
offers
Shari'ah-
compliant
home
financing
7
and
the
Crescent
Global
Equity Fund
is
an
Islam-compliant
equity
fund
which
is
listed
on
the
Irish Stock
Exchange
and
is
regulated by
the Irish
Financial
Services
Regulatory
Authority
and
the
Dublin
Funds
Industry
Association.
8
The
low
corporate
tax in
Ireland
as
well
as
the
country's
strategic
position
between
the
Middle
East
and
the
Americas
are
likely to
be
important
factors
in
encouraging financial
institutions
dealing
with
religiously compliant
products
to
establish
a
base
4
Anything
But
Conventional?
Banker Middle East,
Jan 2004
www.bankerme.combme/2004/jan/islamic-banking.asp.
Other
evidence
of
the
increasing
importance
of
Islamic
markets
is
the creation
of
the Islamic market indexes
by
Dow Jones.
For
more
information,
see
www.djindexes.com/jsp/islamicMarket.jsp?sideMenu=true. See
also,
Kimberly
J
Tacy, "Islamic
Finance:
A
Growing Industry
in
the
United
States" (2006)
10
NC
Banking
Inst
353,
at 353.
5
Assid
Shameen,
Islamic
Banks:
A
Novelty
No
Longer,
Business Week Online,
8
August
2005
www.businessweek.com/magazine/content/0532b3946141
mz035.htm?chan=search.
6
Islamica
Business
Magazine.
7
Alburaq,
Shari'ah-compliant
Home
Financing,
Bank
of
Ireland, 2007
www.alburaq.co.uk/pdf/Alburaq-Payment
Tariff.pdf.
8
Funds
Data Online,
Oasis
Crescent
Global
Equity
Fund
(Ireland)
www.profile.co.za/OUDT/data/0147/1363/Fund.HTML.
2008]
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