Islamic Finance By Dr. Humaira Awais Shahid
Transcript of Islamic Finance By Dr. Humaira Awais Shahid
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2013
Dr.Humaira
AwaisShahid
MUAMALAATTHEALTERNATIVETOTHERIBA
SYSTEMEXISTS(BasedontheresearchworkoftheScholarShaykhUmarVadillo)
AnEvidenceofthattoeradicateRibaisPOSSIBLEandthealternativehasALWAYSexisted.
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1 Preamble
1.1 AllahsaysintheQuran:Allahhaspermittedtradeandforbiddenriba.Intrading
thereisthecuretoRiba.SeenasasystemtradeisMuamalaat.
1.2 WecontendthatanyattempttoeradicateRibamustfocusonwhatisthe
alternativetoRiba,thatistosay,understandingwhatishalalmustprecede
understandingwhatisharam.Thisisbecausewecannoteliminatewhatis
forbiddenwithoutprovidinganalternativefromwithinwhatispermitted.
1.3WecontendthatRibaisasystem,notjustmerelyacontract.ThisisbecauseRibahasdevelopedandevolvedoverthecenturiesintoacomplexsystemthataffects
allaspectsoftheeconomyandthereforeitiscrucialtounderstandRibainthe
contextofthoseinstrumentsandinstitutionsthatmakeRibapossiblesuchas
banks,credit/papermoney,centralbanks,financialmarketsandotherfinancial
institutionsandinstruments.
1.4 WecontendthatitisimpossibletoeradicateRibawithoutconsideringhow
credit/papermoneyandbankshastransformedRiba.Thisisbecausethe
introductionofcredit/papermoneyallowedbankstolendmoneyinexcessof
whattheypossessthroughtheprincipleoffractionalreservebanking.Theeffect
ofthisextracreationofcreditistotransferpartoftheburdenofRibatoathirdparty(otherthanthelenderandtheborrower)unawareofitsinvolvement.That
thirdpartyisthecommunityofpaper/creditmoneyuserswhoareunfairlytaxed
withthelossofvalueofthepapermoneytheypossess.Thatlossofvalueis
relatedtotheincreaseofcredit/papermoneyincirculationwhicheveryactof
lendingcreates.ThereforethistransformedRibahasnowthreeparties:
Thelenderwhichbenefitsfromlendingcreditmoneyinexcessofwhat
theyhave.
Theborrowerwhichbenefitsfromareductionontheburdenof
repaymentduetothelossofvalueofthemoneyhehastorepay.
Thecommunityofusersofpaper/creditmoneywhichsufferstheunfair
burdenoflosingpartofthevalueofthemoneytheypossess.
1.5 WecontendthatitisimpossibletoeradicateRibawithoutconsideringhowcentral
bankshavetransformedmoneyfrombeingafreelychosencommoditytoalegally
compulsivecredit/papermoneyorfiatmoney.
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1.6 Wecontendthatthemodelofwhatishalalexistsanditcanbeimplemented
withintheframeoftheIslamicLawandtheConstitutionofPakistan.Thismodelis
thesocio-economicmodelofallIslamicsocietiesfromthebeginningofIslamuntil
thefalloftheKhalifate.Thismodelissurprisinglymoreorlesscommontoallpre-
capitalistsocieties(includingsomenon-Islamicsocieties)anditwasperfected
duringthetimeoftheMessengerofAllah,salallahualaihiwasalam,inthecityofMadinaal-Munawara.ThismodelofMadinaisknowninthefiqhastheamalof
theahlal-Madina,andinitslegalformisknownasMuamalaat.
1.7 WecontendthatMuamalaatistherightalternativetothequestionofhowto
eraditateRiba.Theproofofthisisthatthepresentpetitionchallenges
Governmentsavingbanks,negotiableinstruments,cooperativesocieties,
insurancecompanies,StatebankofPakistan,moneylendersandbanking
companies.AlltheseinstitutionswillnotbeabletooperatewithoutRibaasthey
havethemselvesstated.ThereforethequestionoferadicatingRibaistransformed
intohowtocreateanalternativeallthoseinstitutionsthatlivewithRiba.IfRibais
seenasasystemthequestionisthereforehowtotransformthesystemofRiba
withthesystemofMuamalaat.
1.8 MuamalaatisthesystemofhumaninteractionsinIslam.Itencompassesall
economic,politicalandsocialinteractions.Ithasbeenpracticedfromthe
beginningofIslamuntilthefallofCaliphate.Itisasysteminasmuchthatnotonly
involvescontractualmattersbutalsoinstitutionsandinstrumentsthatsupport
andpromulgatewhatishalalsuchasGolddinar,silverdirham,Wadiahs(safe
keepinginstitutions),Suqs(openmarkets),Caravans(opentradinginstitutions),
Guilds(Openproductioninstitutions),Waqf(welfareinstitutions),BaiSalam
(agriculturaltradingsystem),Baitulmaaletc.
1.9 WecontendthattheintroductionofthegoldDinarandsilverDirham,knownas
Shariahcurrency,isfundamentaltothematterofintroducingMuamalaatand
thereforetheeradicationofRiba.
1.10 WecontendthatintroductionofgoldDinarandsilverDirhammustbedone
graduallyandprogressivelywithinareasonableframeoftimeinwhichsocietyas
awholecaninitiateaprocessoftransformationfromRibatoMuamalaat.
1.11 WecontendthatatthesametimetheShariahcurrencyisintroducedother
elementsofMuamalaatshouldbeintroducedsimultaneously.Themost
importantoftheseotherelementsistheintroductionoftheSuqsorPublicMarkets.MarketsorsuqsinMuamalaatarepublicinstitutionsandcannotbe
privatized,justlikethemosquescannotbeprivatized.Thepublicmarketisan
institutionthatbelongstohumanhistory.WefinditamongtheancientRomans,
theancientGreeks,inoldMesopotamia,etc.Thepublicmarketmustbe
accessibletoallandtherecannotbetaxesorfeesimposedtoitsusers;justlike
therearenotaxesorfeestothosewhowishtoprayinamosque.
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1.12 Wecontendthataftertheintroductionofpublicmarketsintoourcitiesthe
restorationofthecaravansandtheguildsmustfollow.Caravansandguilds,like
themarkets,arepublicinfrastructure.Theydonotbelongtoaneliteofpeople,
buttheyareawqafforthebenefitofanyonewhowishestobecomeamember.
ThecaravansystemisthemodelofexporttradinginIslamicsocieties,wherebyallthelogisticalandwarehousingmeansrequiredforthetrade
arecommonlyownedbythemembersofthecaravan,whichbyvirtue
ofthecaravanbeingapublicinstitutionmeanstheyarepublically
owned(awqaf,likethemarkets).
Theguildsystemisthemodelofproductionofallpre-capitalist
societiesandMuslimsocietiesinparticular,wherebythemeansof
productionarecommonlyownbythemembersoftheguild,whichby
virtueoftheguildbeingapublicinstitutionmeanstheyarepublically
owned(awqaf,likethemarkets).
1.13 WecontendthattheintroductionofbusinesscontractsinIslam:shirkatorsharika
andqiradormudharabawillbecomeenormouslyeasier(thanitisatpresent)to
implement.ThereasonofthiseasingisthatqiradisinthemodelofMuamalaat
thecontractofthecaravans:99%ofthoseqiradcontractshappenedwithinthe
contextofthecaravans.ItfollowsthatiftherewerenocaravansinMadinait
wouldhavebeenmoredifficulttoimplementqirad.Thesameisapplicabletothe
contractofshirkatinthecontextoftheguilds.
1.14 WecontendthattheideaofIslamizationofcapitalistinstitutionsandinstruments
isadeceptionwhichinsteadoferadicatingRibaithasmadeRibahalal.Islamic
banksaredeceptive,andthefurthermoretheislamizationofpapermoneyisdeceptive.FromIslamicbanksithasfollowedtheislamizationofinsurance
companies,centralbanks,statedebtbonds,futurecontracts,creditcards,Dow
Jones,etc.Thisisonlyfurtherevidenceoftheirdeception.Islamicbanksarethe
centralpieceofthisdeception.Theirdeceptionisdeceptiveonthreeaccounts:
ItdoesnotalterthesystemofRibaitonlymakessuperficialorcosmetic
changes:itmantainsthemodelofcentralbanks,banksandcredit
money.Tacitlyendorsesthemodelofcreditmoneyandthepresent
worldmonetarysystemdominatedbytheUSdollar.
Itignoresandimplicitlydeniestheexistenceofourownsocio-economicmodelorMuamalaat.ArdentlydeniestheexistenceofaShariah
currencybecausebankscannotoperatewithnon-creditcommodity
currency.
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Ithasalteredthenatureofbusinesscontractsinordertomakethemfit
intoalieninstitutionsandpractices,asitisthecasewithshirkat,qirad.
AndithasaddedalienpracticesforbiddeninIslamiclaw,suchastwo
salesinone,aspartoftheirbusinesspracticesallunderthedeception
ofusingArabicnames:murabaha.
1.15 WecontendthatIslamicbanksareharam.ThecontractofMurabahahasbecome
oneofthemajorinstrumentsofIslamicbankstodisguiseRibaunderafacadeof
Islamiccontracting.Murabahaisasalecontractandnotafinancialcontract.The
mark-upinMurabahaisonlyawayofstatingthepriceofthegoodssoldand
cannotbeconditionaltoaprioragreementasintheforbiddencaseoftwosales
inone.
YahyarelatedtomefromMalikthathehadheardthattheMessengerof
Allah,mayAllahblesshimandgranthimpeace,forbadetwosalesinone
sale.[Inat-Tirmidhiandan-Nasa'i]
YahyarelatedtomefromMalikthathehadheardthatamansaidto
another,"BuythiscamelformeimmediatelysothatIcanbuyhimfrom
youoncredit."'Abdullahibn'Umarwasaskedaboutthatandhe
disapprovedofitandforbadeit.
(Al-MuwattaofImamMalik,Chapter31,72-73)
1.16 Murabahahisaparticularkindofsale,wherethesellerexpresslymentionsthe
costhehasincurredonthecommoditiesforsaleandsellsittoanotherpersonby
addingsomeprofitormark-upthereonwhichisknowntothebuyer.Themark-up
inmurabahaisnothingbutan"honestdeclarationofcost"anditdoesnotimply
anyprioragreementwiththeseller.Murabahahisoneofthreetypesofbayu-al-
amanahwhicharetawliyah(saleatcost)andwadiah(saleatspecifiedloss).Noneofthemimplyanyprioragreement.Makingaprioragreementwiththebuyer
meanstotransformthecontractintotwosalesinone.
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1.17 WecontendthattheeradicationofRibainPakistanisthemostimportantpolitical
andeconomicworldeventofourtimes.Therepercussionoftheintroductionof
MuamalaatwillhaveanechointotheentireMuslimNationprovidingamodelfor
eradicatingRiba.InparticulartheintroductionofthegoldDinarandsilverDirham
willbethemostimportanteventforthedesiredunificationoftheMuslimNation
bythecreationofacommonbimetalliccurrencyanditwilltriggerthefinaldemisetheofUSdollardominium.
2 TheProblem:Riba
2.1 WhatisRiba?AClassicalDefinitionfromEarlysources.2.1.1 ThereasontodefineRibainthispetitionistoemphasizethatRibaisnotmerely
interestasitisoftenreferredtobutitismorethanthat.Thereforethedefinition
ofinterest-freeisnotidenticaltoRiba-free.
2.1.2 RibaliterallymeansexcessinArabic.QadiAbuBakribnal-Arabi,inhisAhkamul
Quran,definesitas:Anyexcessbetweenthevalueofthegoodsgivenandtheir
counter-value(thevalueofthegoodsreceived).Thisexcessreferstotwo
matters:
1]Anextrabenefitarisingfromunjustifiedincreaseintheweightormeasure,
and
2]Anextrabenefitarisingfromunjustifieddelay.
2.1.3 ThesetwoaspectshaveledourscholarstodefinetwotypesofRiba.IbnRushd
said:ThejuristsunanimouslyagreedaboutRibainbuyu(trade)thatitisoftwo
kinds:deferment(nasiah)andstipulateddisparity(tafadul).
2.1.4 Thatistosay,therearetwotypesofRiba:
1]Ribaal-Fadl(excessofdisparity)2]Ribaal-Nasiah(excessofdeferment)
2.2 RibaAl-Fadl2.2.1 Ribaal-fadlreferstoquantities.Ribaan-nasiahreferstotimedelay.
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2.3.5 ImamMalik,mayAllahbemercifultohim,illustratesthispointinhisAl-
Muwatta:YahyarelatedtomefromMalikthathehadheardthatreceipts
(sukukun)weregiventopeopleinthetimeofMarwanibnal-Hakamforthe
produceofthemarketofal-Jar.Peopleboughtandsoldthereceiptsamong
themselvesbeforetheytookdeliveryofthegoods.ZaydibnThabit,oneofthe
CompanionsoftheMessengerofAllah,mayAllahblesshimandgranthimpeace,wenttoMarwanibnHakamandsaid,Marwan!Doyoumakeusury
Halal?Hesaid,IseekrefugewithAllah!Whatisthat?Hesaid,Thesereceipts
whichpeoplebuyandsellbeforetheytakedeliveryofthegoods.Marwan
thereforesentguardstofollowthemandtakethemfrompeopleshandsand
returnthemtotheirowners.
2.3.6 ZaydibnThabitspecificallycallsRibathosereceipts(dayn)whichpeoplebuy
andsellbeforetakingdeliveryofthegoods.Itisallowedtousethegoldand
silverorfoodtomakethepayment,butyoucannotUSEthepromiseof
payment.Initthereisanexcessthatisnotallowed.Ifyouhavedayn,youhave
totakepossessionoftheaynitrepresentsandthenyoucantransact.You
cannotusedthedaynasmoney.
2.3.7 Ingeneraltheruleisthatyoushouldnotsellsomethingwhichisthere,for
somethingwhichisnot.ThispracticeiscalledRamaanditisRiba.
2.3.8 ImamMalik:YahyarelatedtomefromMalikfromAbdullahibnDinarfrom
AbdullahibnUmarthatUmaribnal-Khattabsaid:Donotsellgoldforgold
exceptlikeforlike.Donotincreasepartofitoveranotherpart.Donotsellsilver
forsilverexceptforlike,anddonotincreasepartofitoveranotherpart.Donot
sellsomeofitwhichisthereforsomeofitwhichisnot.Ifsomeoneasksyouto
waitforpaymentuntilhehasbeentohishouse,donotleavehim.Ifearrama
foryou.Ramaisusury.
2.3.9 Ramaistodaythecommonpracticeinallourmarkets.Dayncurrency(paper
money,receipts)hasreplacedtheuseofayncurrency(GoldDinar,Silver
Dirham).ThispracticeiswhatUmaribnal-KhattabmeantwhenhesaidIfear
ramaforyou.Sellingwithdefermentisnotrestrictedtometals,italsoincludes
food.Maliksaid,TheMessengerofAllah,mayAllahblesshimandgranthim
peace,forbadesellingfoodbeforegettingdeliveryofit.
2.4 Therefore,whatisprohibitedinRibaan-nasiah,istheadditionofanartificialdelay
thatdoesnotbelongtothenatureofthetransaction.Whatdoesartificialandthenatureofthetransactionmean?Itmeansthateverytransactionhasitsown
naturalconditionsoftimingandprice.
2.5 DefermentandDisparityAccordingtoContracts2.5.1 ContractsinWhichGoodsAreoftheSameGenus.
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2.5.1.1 Ribaal-fadlreferstoquantities.Ribaan-nasiahreferstotimedelay.To
understandwhatisjustifiedandwhatisnotjustified,onehastounderstand
thedifferentnatureofeachtransaction,inparticularthosetransactionsthat
involvethesamegenus(thesamegoodsaregivenandreceived),suchasloans,
exchangeandrental:
2.5.1.2 Aloaninvolvesdefermentbutnotquantitydisparity.Onepersongivesan
amountofmoney,andafteraperiodoftime(deferment)thepersonreturns
themoneywithoutincrease.TheexcessintimeisjustifiedandisHalal,but
disparityisunjustifiedandisHaram.Thattypeofunjustifiedexcesswouldbe
Ribaal-fadl.
2.5.1.3 Anexchangeinvolvesnodefermentandnodisparity.Onepersongivesan
amountofmoneyandwithoutdefermenttheequivalentisgiven.Defermentis
unjustifiedinanexchange.Ifyouwanttodelaythepayment,youhavetomake
aloan,youcannotobtainaloandisguisedasadelayedexchange.Thattypeof
unjustifiedexcesswouldbeRibaan-nasiah.
2.5.1.4 ArentalinvolvesbothdefermentanddisparityanditisHalal.Whenyourenta
house,youtakepossessionofthehouseandyoureturnitafteratime
(deferment)andinadditionyoumustmakeanextrapayment,therent
(disparity).Thesetwoexcessesbothintimeandquantityarejustifiedandthey
areHalal.Youcanonlyrentmerchandisethatcanbehired.Youcanhireacar,a
houseorahorse.Butyoucannothiremoneyorfoodstuff(fungiblegoods).To
pretendtohiremoneyistocorruptthenatureofthetransactionandit
becomesRiba.WhattypeofRibaisrentingmoney?Ribaal-fadl,becausethe
rentingofmoneyisthesameasaddingadisparityinaloandefermentisHalal,
anddisparityisaccountedforinadifferentmanner.
2.5.2 ContractsinWhichtheGoodsAreofDifferentGenus.2.5.2.1 Howdoyoudeterminedisparityinasaleofgoodsofdifferentgenus?The
disparityisdeterminedbythedifferencebetweenthepriceofferedonspot
salesanddelayedsales.ThisiscalledintheFiqhthestipulationoftwopricesor
twosalesinone.Thespotpriceisconsideredtheprice;andtheexcessoccurs
whenthereisanincrease(inrelationtothespotprice)inthepriceofferedin
delayedterms.Thiscanhappeninthefollowingcases:offeringanincreased
priceifthegoodarepurchasedondelayedterms;orofferingadiscountifthe
buyerpaysonthespot;orsellingonlyondelayedtermsanddenyingthepossibilityofpurchasingonthespot(thushidingthatthereisanincreaseasit
happensinmanyofthe0%financeoffersthatweseetoday).Acomplete
discussionofthistopicfollowslater.Wewillsimplyoutlinetwocases:
1]WhenthesellersaysIsellatthispriceifyoupayincash,andatthis
otherone(higher)ifyoupayindelayedterms.
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2]Whenthesellermakesasalam(asalewithdelayedpayment,whichis
Halal)andatthetimewhenthemoneyisduehesaystothebuyer(who
mightnotbeabletopay):Youcandelayitfurtherifyoupayanexcess
(disparity);andalsowhenthesellersaystothebuyer:Ifyoupaybefore
theendoftheterms,Iwillofferyouadiscount(disparity).Thisisthe
typeofRibaknownasRibaal-jahiliyah.WhattypeofRibaisapplicablehere?Ribaal-fadlbecauseinsalesthesourceofunjustifiedexcessis
disparity.
2.5.2.2 IbnRushdwrote:Asforusuryinsales,theulamaareinagreementthatitisof
twotypes:deferredpayment(nasiah)anddisparity(tafadul)exceptwhathas
beentransmittedfromIbnAbbas,whoreportedthattheProphet,maythe
peaceandblessingofAllahbeuponhim,said:Thereisnousuryexceptin
deferredpayment.Themajorityofthefuqaha,however,haveconcludedthat
usurydoesexistinthesetwotypesbecausethishasbeenaffirmedinother
statementsfromhim,maythepeaceandblessingsofAllahbeuponhim.
2.5.2.3 Thefoursectionstowhichthelawofusurymaybereducedare(1)thingsin
whichneitherdisparitynordefermentispermitted;(2)thingsinwhichdisparity
ispermittedbutdefermentisnot;(3)thingsinwhichbotharepermitted;and
(4)whatconstitutesasinglegenus.
2.5.3 Thuseverytransactionhasitsconditionsrelatingtoitsnature.Youcannottake
theconditionsofonetypeoftransactionandtrytoapplythemtotheother,
withoutcorruptingthetransaction.Toaddunjustifiedconditions(alsoexcess)to
atransactionisRiba.
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2.6 TheProhibitiontouseDayntopayzakat2.6.1 ZakatinIslammustbepaidinayn,thatistangiblemerchandiseand
cannotbepaidindayn,thatis,adebt,aliabilityorapromisorynote.Thisimportantmatterhasbeenignoredformanyyearsappealingtodarurah
(exceptionality),sincetheDinarandDirhamwerenotavailable.Thefact
thattheDinarandDirhamareavailableagainbringthismatterforward
onceagain.
2.6.2 Property(mal)isowned(milk)aseitheraynordayn.Aynisaspecific
existingthing,consideredasuniqueobjectandnotmerelyasamemberof
acategory(thishorse,notathoroughbredmare).Daynisany
property,noanayn,thatadebtorowes,eithernoworinthefuture;orit
canrefertosuchpropertyonywhendueinthefuture.Propertyownedasdaynisusuallyfungible,suchasgoldorwheat.Sometimesnon-fungible
manufacturedgoodsdefinedbyspecificationaretreatedasdayn.
Althoughdayn,literallymeansdebt,infiqhitrefersnottothe
obligationperse,butrathertothepropertythesubjectofthe
obligation,whichisconsideredtobealreadyownedbythecreditor.
Clearly,sincesuchpropertyisnotyetidentifiedandmaynotevenexist(it
isnotanayn),referringtodaynaspresentpropertyisfictive.
2.6.3 Daynmeanswealth,thepaymentofwhichattachesasaliabilitytoalegal
person(dhimmah),astheresultofatransaction(aqd)oraloan,orasdamagesforpropertydestroyed(istihlak).Daynbyextensionmeansthe
classofgoodscalledmithli(fungible);thatis,goodswhoseprice(thaman)
insaleisdeterminedonthebasisofweight(wazn),orvolume(kayl),or
number(adad),andamongthevariousunitsofwhichthereisno
differenceofvalueduetohumanart.Thedefinitionofdayngiveninthe
Majallahinawaycombinesthesetwomeanings.Accordingtoit,astated
portionofaheapofwheatisdaynbeforeithasbeensetoff.Aynisthe
oppositeofdayninthelastsense,meaningthatisdefiniteandhasa
bodilyexistence.Thus,intheaboveexample,thesaidportionbecomes
aynbybeingsetoff.
2.6.4 ItfollowsatextoftheGreatScholarImamAbuBakral-Kasani(d.587H)
wrote:
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Ifthepropertyonwhichzakatfelldueisdayn,asdistinguished
fromayn,itszakatmaybesettledintermsofaynwealth.Thusa
personhavingaclaimoftwohundreddirhamsonwhichzakatis
due,maygive,insettlementofthesame,fivedirhamsincash,
becausedaynascomparedwithaynisdefective(naqis)andthe
ayniscomplete(kamil),andasettlementofthedefectiveinterms
ofthecompleteisvalid.Onthecontrary,thesettlementofthe
completeaynintermsofthedefectiveisnotvalid,andtherefore,
thezakatdebtisnotdischargedifapersonwantstopaythezakat
oftwohundreddirhamswhichhepossesses(i.e.ayn)intermsof
thefivedirhamswhichapoorpersonoweshim(i.e.dayn);namely,
byabsolvinghimfromthedebtintendingitforhisownzakatdebt
onthetwohundreddirhams.Finally,asregardsthesettlementof
thezakatofdaynwealthintermsofdaynwealth,ifthewealthon
whichzakatisdueofthekindofdaynwhichbecomesaynisnotvalid;otherwiseisvalid.Thusifapersonhasfivedirhamsowedto
himbyapersonandtwohundreddirhamsbyanotherperson,he
cannotsettlethezakatofthetwohundredbymakingapresentof
fivetothedebtorasalms,becausethetwohundreddirhamswill
becomeaynwhencollected,andthesettlementofthezakatofayn
wealthintermsofdaynisnotvalid.
Anexampleoftheoppositecasewouldbethatapersonwho
wantedtosettlethezakatoftwohundreddirhamsowedhimby
anotherbymakingapresentofthosedirhamstothedebtorandintendingitforhiszakatdebt.However,thisisallowedonlyincase
ofthedebtorisapoorperson,althoughthereisalsoaviewtothe
contrary.Itgoeswithoutsayingthatthezakatofaynwealthis
dischargedifpaidintermsofaynwealth;if,forinstance,onepays
thezakatoftwohundreddirhamshepossesesbypayingfiveoutof
thosetwohundred.
Kasani,pp.42-3.QuotedinIslamicTheoriesofFinancebyNicolas
Aghnides,NewYork:ColumbiaUniversity,1916;pp334-335.
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2.7 TheUsageofDaynasMeansofPayment2.7.1 Sincedaynisinitselfadeferment,theuseofdaynisrestrictedtoprivate
transactionsanditisprohibitedasageneralmeansofpayment(money).While
daynperseisHalal,itisnotHalaltouseitasmoney.Daynisaprivatecontract
betweentwoindividualsandmustremainprivateandbetweenthem.ThetransferofdaynfromonepersontoanothercanbedoneIslamically,butonlyby
theeliminationofthefirstdaynandthecreationofanewone.Thedayncannot
circulateindependentlyfromwhatitrepresents.Theownermusttake
possessionofthegoodsandliquidatethedayn.Dayncannotbeusedinan
exchangeanditcannotbeusedasameansofpayment.
3 TheSolution:Muamalaat3.1 TheGeneralIdeaofMuamalaat3.1.1 MuamalaatNegatestheMissionCivilicatrice3.1.1.1 Muslimssocietieshadasocialandeconomicmodelbeforecolonialismand
beforemoderncapitalismorfinancialcapitalismarrived.Thatmodelexisted
andwassuccessfulandwasknownasMuamalaathavingitsrootsinIslamic
Law.Todenythisisacceptingthecolonialistprincipleofmissioncivilicatrice,
thatistheideaofcivilizingmissiontothebackwardnatives.Thisisinline
withtheevolutionistprincipleofmodernizationtheoristswhodeclaredthat
traditionalcustomshadtobedestroyedandtraditionalsocietieshadtoadapt
ortodisappear.TheEuropeancolonialpowersfeltitwastheirdutytobring
Westerncivilizationtowhattheyperceivedasbackwardspeoples.
3.1.1.2 Muamalaatwasdestroyedbythecolonialpowers.Wefindourselvesinthe
awckwardpositionofhavingtoproveitsvalidityagainstalegalframethatstill
todaypersistsandderivesfromthecivilizingmissionoftheBritish.Ourviewis
torejectthatwebelongtothecategoryofbackwardspeople.Ourviewisthat
weneedtorestoreourownsocialandeconomicmodel.Thatmodelis
Muamalaat.
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3.1.1.3 Itisimportanttounderstandhowourpresentlegalandeconomicsystem
originated.BritisheducationinIndiacreatedanideologicalhegemonythrough
theestablishmentofaneducatedIndianeliteimplicitlyreceptivetoBritish
orderbyperforminglocaladministrativefunctions.AneducationinEnglishwas
intendedtodepositWesternvaluesintothesouloftheeducated,andat
thesametimedetachfromWestern-educatedindividualsdiscoursesoftraditionalscholarship,therebyalienatingthemfromtheirtraditionalwayof
life.AsenseofBritishnesswentalonghandinhandwiththeempireand
nativeadministrationthatwasinthemaking.Thisevokedacivilisingbelief
thatEnglandshouldassistinadvancingbackwardpeoplestowardsgreater
refinement,justastheearlyRomanswerebelievedtohavebroughtcivilityto
England.ThemissionoriginatedwiththeconquestofIreland,andthedesireto
becomethenewRomansofEurope,whichjustifiedtheIrishconquestand
thesubjugationofforeignpeoplesfromAmericatoIndia.
3.1.1.4 AsthelocaleducatedeliteassimilatedfurtherintotheWesternvaluesof
liberty,democracyandnationalism,theynotonlysoughttooccupytheirlower
administrativepostsbuttheytriedtoacquirethosehigherpositionsonce
exclusivelyreservedforEuropeans.Althoughtheywantedtoacquirepower
theydidnotrenouncetothevaluesandthesystemunderwhichtheysought
thatpower.
3.1.1.5 Theconceptofprivatepropertyovercommonlandwasintroducedbythe
Britishin1793,whichdifferedsignificantlyfrompre-colonialdays,duringwhich
landwasheldcommunallyandapercentageoftheproduceremittedtothe
state.Theintroductionofprivatepropertyoverlargequantitiesoflandwas
fundamentaltosecureandmaintainbytheWesternlawsystem,despitealteringthetraditionalmodesoflandtenure,whichweretheheartof
traditionalIndiansociety.Accompanyingthesepolicyshiftswerethe
socioeconomicchangesthatresultedinthemodificationsintheclassstructure.
Thesepoliciestransformedformerrevenue-collectingofficialsandprominent
individualswhocollaboratedwiththecolonialregimeintolandowninggentry.
ThepropertylawsaffectedprofoundlyIndiaspowerdistribution,aswhoever
controlledthelandcouldnowcontrolthosewhohadnoland.Consequently,
theBritishcouldnowrelyonthenewlandedclasstoperformdomestic
administrativedutiessuchasthecollectionofrevenue.Thenewownership
wasnotchangedandtheeliminationofcommonlandwasneverrestoredafter
independence.
3.1.1.6 BankingwasintroducedinIndiain1770withthecreationoftheBankof
Hindustan.In1786theGeneralBankofIndiawascreated.In1806theBankof
Calcutta,immediatelyafterknowasBankofBengalwhichlaterbecamethe
StateBankofIndia.TherewerenobanksinHindustanbeforethe18thcentury,
yetthismodelwhichisrepugnanttotheinjunctionsofIslam,remainedwithus
upuntiltoday.
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3.1.2 MuamalaatisnotIslamicEconomics3.1.2.1 TheIslamisationofCapitalismdoesnotresultinMuamalaat.
3.1.2.2 OverthelastfiftyyearsagroupofMuslimsunderthebannerofreformhas
beenengagedinwhattheycalltheislamisationofknowledge,theheartof
whichhasbeentheislamisationofEconomics.Underthebanner,the
islamisationofknowledge,somescholars,takingknowledgeforWestern
humansciences,undertooktheludicroustaskofIslamiseallhumansciences:
sociology,psychology,politics,anthropologyandmostimportanteconomics.
3.1.2.3 IslamicEconomicsproducedIslamicbanks,IslamicStockExchange,Islamic
insurance,Islamicmortgages,andIslamiccreditcards.Thesystemremainsthe
same.
3.1.2.4 Theirmethodologywassimple.First,arejectionofthemadhhabsystem,seen
asmedievalscholarship.Second,thetransformationoftheShariahfromits
existentialjurisprudencebaseintoanormativesetofabstractmoralprinciples
andvalues,thatcouldbeaccessedatrandom.Forexample,theprinciplesof
equalityandjustice,seenasIslamicvalues,ifassignedtoanyinstitutionor
financialprocedurecanservetoIslamisethem.
3.1.2.5 IslamisingthebanksinordertoeliminateRibaisasabsurdasIslamisingthe
brothelsinordertoeliminateprostitution.
3.1.2.6 Islamisationhasreachedapointofevidentabsurdity,anihilisticconclusion,
thatistosay,theirIslamicvalueshavebeendilutedintoahollow
pragmatism.Theironicresultofislamisationisafullassimilationtocapitalism,
akindofreversesecularism.HowcanIslamisingresultisthesame
institutions,toolsandproceduresascapitalismbutwithdifferentwords?This
farcemustend,becausenotonlyisanon-sensicalexercisebutitpreventsthe
realIslamicmodelfromeverreturning.
3.1.2.7 Wedonotwanttoislamisecapitalism,wewanttocreateanalternativetoit:
TheEndofEconomics
3.1.2.8 Economicsisnotneutral,itisanideologybasedonpresumptionsquite
oppositetoAllahsinjuctionAllahhaspermittedtradeandhasforbidden
usury.Economicsrevealsadifferentone,Economicshasforbiddentradeand
haspermittedusury.
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3.1.2.9 TheaimandmethodologyofEconomicsarenotacceptable.Wedonotneedto
makethemacceptableeither,becausewehaveasuperiorwayofthinking
emanatingfromtheSunnaoftheMessenger(MayAllahblesshimandgrant
himpeace).Weneedtoovercomethispseudo-scienceandcreateourown
understandingoutsidetheirparameters.ThisisnotIslamisingEconomics,but
endingEconomics.
3.1.3 MuamalaatasaModel:TheModelofMadina3.1.3.1 TheShariahisbasedontheKitabwaSunna.TheSunnaisthecomplete
recordofwhatRasulullah,salallahualaihiwasalamsaidanddid.Thishasbeen
transmittedtousbythewrittentextsoftheHadithandtheactionsofthefirst
threecommunities,thisisknownastheamaloftheahlal-Madina.
3.1.3.2 WhatmatterstousisthattheMadinawasacityofpeoplethatistosayitwas
alivingmodel.Inalivingmodelwehaveallthecomplexityofsocialrelations
andinstitutionsinoperation.Ifweexaminetheeconomicmodelwefindalltheelementsrequiredtounderstandhowtheserelationsmustbearticulated.
WhenwelookatMadinawearelookingattheperfectcity.Webelievethat
humanhistoryhadneverreachedthatperfectionbeforeandwillneverreachit
againafter.Madinaisthezenithofhumanhistory.
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3.1.4 MutualConsentinMuamalaat3.1.4.1 MutualConsentisthefoundationoftrading.Againstofthemoderntendency
ofmonopolization
3.1.5 SharingInfrastructureinMuamalaat3.1.5.1 WaqfisfoundationaltounderstandMuamalaat.Itissaidthatupto60%ofall
realestateinOttomanIstanbulwerewaqf.Thewaqfispresentinmosques,
markets,caravansandguilds.Thewaqfisnotprivatenotpublicproperty,itis
thepropertyofAllah.Onlytheusufructoftheassetsinwaqfisgiventotheuse
ofitsgivenbeneficiaries.
3.1.5.2 Propertyistheftwhenwerefertomosques,becausemosquesareawqaf.Only
Allahhaspropertyoverthemosques.Butsoiswiththephysicalmarkets,with
thelogisticalinfrastructureofcaravansandthemajormeansofproductionof
theguildsinMuslimsocieties.Theywereallawqaf.
3.1.5.3 Sharingistheoutcomeoftheextensiveestablishmentofawqaf.
3.2 TheElementsofMuamalaat3.2.1 Shariahcurrency3.2.1.1 ThegoldDinarandsilverDirhamarementionedinQuranandtheyareknown
astheShariahcurrency.TheweightoftheDinarwasthemithqalwhichisequal
to4.25grofgoldandtheweightoftheDirhamwas7/10ofthemithqal.ThisisknownasthestandardofUmaribnalKhattab,radhiallahuanhu.Togetherwith
theDinarandDirham,peopleinMadinausedfulus,typicallymadeofcopper.
Fulusisnotmoneybutonlyhasalimiteduseasmallchange,anditsvalueis
dependenttothevalueofthedirhamsuchas:100fulusequals1dirham.
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3.2.1.2 InMadinamoneywasacommodityanditwasfreelychosenwithoutany
governmentimposition,underthegeneralrulingthatoverseesalltrading
relations,whichiswhatAllahtaalasaysintheQuran:tradewithmutual
consent.Thenwesaytoourselvesmoneymustbealsochosenwithmutual
consent.Weknowthatgoldandsilverhavethemostcommonmediaof
exchangeforover5,000yearsofhumanhistoryatthetimeinwhichtheideaofimposingacurrencytothepeoplewasalientosociety.Webelievethatif
freedomisrestoredpeoplewillchosegoldandsilver.Thisisnotbackwards,but
thisisthewayofthebestsocietyinhistory.
3.2.1.3 TointroducetheDinarandtheDirhamamongtheMuslimswilltransformthe
worldmonetarysystem.Sincegoldandsilverarethesameitdoesnotmatter
whereweareintheworld,theDinarandDirhamhavethepotentialtounify
theMuslimnationunderabimetallicmonetarysystem.
3.2.1.4 OnechickenatthetimeofRasulullah,salallahualaihiwasalam,costone
dirham.WecanbuyonechickentodayinPakistanforapproximatelyonedirhamorevenless.Whatitmeansitthatthereisnolossofvalueingoldor
silveroverlongperiodoftimes.Unlikepapermoneycommoditiescannotbe
artificiallyinflated.
3.2.1.5 TheReturnoftheShariahcurrency,theDinarandDirham,posesanew
understandingofwealthandprosperitythatdiffersfromconventional
Economics:anewparadigm.Thisparadigmcanonlybeunderstoodinthe
contextofMuamalaat.OnlythroughMuamalaatcanwerealisethefull
potentialofthereturnoftheShariahcurrency.Thefullimplementationof
MuamalaatproposesacompletelyreplacementcapitalismastheRibasystem.
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3.2.1.6 ShariahCurrencyversusLegalTender
3.2.1.6.1 TheGoldDinarandSilverDirhamknownasShariahcurrencyorShariahcoins
intheFiqharenotlegaltender.TheShariahcurrencyhasnorelationto
presentfiatcurrenciesonmanyaccountsandshouldnotbelegallyorpracticallybecomparedortreatedasthesame.TheGoldDinarandSilver
Dirhamrelatestoreligiousmatters,mostimportantofwhichisthematterof
paymentofZakat,ratherthanconstitutionalmatters.Itsintroductioncanonly
occurredonvoluntarybasissincefreedomisacommandfromAllahinall
commercialtransactionsincludingtheacceptanceofmoney.Itsusagehas
beenthroughouthistoryopentoMuslimandnon-Muslimsalike.
3.2.1.6.2 TheGoldDinarandSilverDirhamarenotlegaltender.Legaltenderorforced
tenderisanofferedpaymentthat,bylaw,cannotberefusedinsettlementof
adebt,andhavethedebtremaininforce.Personalcheques,creditcards,
debitcardsandsimilarnon-cashmethodsofpaymentarenotlegaltenderonlythenotesandcoinsoftheCentralBanksareLegalTender.
3.2.1.6.3 TheDinarandtheDirhamareknowninthefiqhastheShariahcurrencyor
Shariahcoins.ThetermShariahcoinsisspecifictotheDinarandDirham
andisnotapplicabletoanyothercoinmadeingold,silveroranyother
material.Anyothercoinisknownasnon-sharii(ibnKhaldun).
ImamAbuZaydIbnKhaldun(d.1406)
TheRevelationundertooktomentionthemandattachedmany
judgmentstothem,forexamplezakat,marriage,andhudud.Therefore
withintheRevelationtheyhavetohavearealityandspecificmeasurefor
assessment(ofzakat,etc.)uponwhichitsjudgmentsmaybebasedrather
thanonthenon-sharii(othercoins).
Knowthatthereisaconsensus(ijma)sincethebeginningofIslamand
theageoftheCompanionsandtheFollowersthatthedirhamofthe
shariahisthatofwhichtenweighsevenmithqals(weightofthedinar)of
goldTheweightofamithqalisseventy-twograinsofbarley,sothatthe
dirhamwhichissevententhsofitisfiftyandtwofifthsgrains.Allthese
measurementsarefirmlyestablishedbyconsensus.
Al-Muqaddimah
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3.2.1.6.4 Properlyspeakingthetermalternativecurrencyisnotapplicabletothe
ShariahcoinsorcurrencybecausethetermShariahcoinsisspecifictothe
DinarandDirhamandthereforeisnotalternativetoanyothercoinsor
currency(nonsharii).Itstandsonitsownwithoutalternative.Theuseofthe
expressionalternativecurrencycanonlybeusedifproperexplanationis
giveninregardstothefundamentaldifferencesthatexistinrelationtothelegaltendercurrenciessuchastheMalaysianRinggit.TheMalaysianRinggitis
anentirelydifferentlegalconceptandhasdifferentfunctions.TheMalaysian
Ringgitisnotbasedonacommodity(inArabicayn,meaningtangible
merchandise)liketheDinarandDirham,theMalaysianRinggitapromissory
note(inArabicdayn,meaningdebtorliability)withnointrinsicvalue(its
valueasayn/tangiblemerchandiseisthevalueofthepaperclosetozero)but
withafiatvaluewhichestablishedbythecompulsionlawoftheFederal
GovernmentthroughtheLawofLegalTenderanditcanchangefromtimeto
time.Ontheotherhand,thevalueoftheDinarandDirhamdependsentirely
onthemarketvalueofthecommodity(goldandsilver)onwhichitismanufactured,justlikeakiloofricedependsonthevalueofrice.This
differenceinimportantinreligiousterms,forexample,zakatwhichisalegal
obligationoftheShariahhastobepaidinaynbutcannotbepaidindayn.
Muslimsshould,ifhavingthechoice(ifnochoiceisgivenornoaynis
availablethendarurah,thatisexceptionality,istemporarilyapplicable),pay
withaynratherthandayn.
ImamAbuBakral-Kasani(d.1191)
Ifthepropertyonwhichzakatfelldueisdayn,asdistinguishedfrom
ayn,itszakatmaybesettledintermsofaynwealth.Thusaperson
havingaclaimoftwohundreddirhamsonwhichzakatisdue,maygive,
insettlementofthesame,fivedirhamsincash,becausedaynas
comparedwithaynisdefective(naqis)andtheayniscomplete(kamil),
andasettlementofthedefectiveintermsofthecompleteisvalid.Onthe
contrary,thesettlementofthecompleteaynintermsofthedefective
(dayn)isnotvalid,andtherefore,thezakatdebtisnotdischargedifa
personwantstopaythezakatoftwohundreddirhamswhichhe
possesses(i.e.ayn)intermsofthefivedirhamswhichapoorpersonowes
him(i.e.dayn);namely,byabsolvinghimfromthedebtintendingitforhis
ownzakatdebtonthetwohundreddirhams.
Badai`al-Sanai
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3.2.1.6.5 Inlinguisticsense,theDinarandDirhamarenotfacevalues,butnamesthat
indicatespecificweights.TheDinarisaspecificweightof4.25gramsanditis
alsoknownasmithqalinArabic.TheDirhamisaspecificweightof2.975
gramsor7/10ofthemithqal.Inawaytheyarelegallythesameassaying
1kgofrice.Thereforetheyarespecificweightsofcommodity(goldand
silver)whicharementionedinQuranandinmanyaspectsoftheShariahregardingzakatandlegaljudgments;andthustheycannotbealteredintheir
weight.
3.2.1.6.6 Inhistory,theShariahcoinshasneverbeenlegaltender.Inthepracticeofthe
earlyMuslimcommunitytheShariahcoinswerenotonlycurrencyusedas
meansofpayment.Barley,datesorsaltwerealsousedasmeansofpayment
andthereforenoexclusiverightwasgiventotheShariahcoins.Thereason
forthisfreedomtochoosethemediumofexchangeisthatmoneyis
consideredapartoftradingitisregulatedunderthesameQuranicinjunction
thatregulatestrade:tijaratunaantaradimminkum,themeaningofwhich
istradeaccordingtomutualconsent.Mutualconsentexcludestheideaof
compulsionormonopolyinregardstotrading.Thisisanotherreasonwhythe
DinarandDirhamarenotlegaltenderandhaveneverbeenlegaltender.
Freedomtochoosethemediumofexchangeisafundamentalrightgranted
byAllahtoMuslimsandnon-Muslimsalike.TheuseoftheShariahcurrencyis
thereforeinclusiveofnon-Muslims.
ShaykhJalaluddinal-Mahalli&ShaykhJalaluddinal-Suyuti
AllahsaysintheQuran(4,29):
{ # }Tafsir:
Oyouwhobelieve,consumenotyourgoodsbetweenyouwrongly,
unlawfullyaccordingtotheLaw,throughusuryorusurpation,exceptitbe
trading(tijratan,alsoreadtijratun),sothatthegoodsbefromtrade
effected,throughmutualagreement,throughmutualgood-will:such
[goods]youmayconsume.Andkillnotyourselves,bycommittingwhat
leadstowardsdestructiononaccountofsomeaffiliation,beitinthis
worldortheHereafter.SurelyGodiseverMercifultoyou,whenHe
forbidsyousuchthings.
Tafsiral-Jalalayn
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3.2.1.7 Thetermcurrencyiscommonlyunderstoodaslegaltenderorasfiatmoney
thatcarriesafacevalue.SincetheShariahcoinsarenotlegaltenderanddo
nothaveafacevaluetheShariahcoinsshouldbebetterunderstoodasa
commodityratherthanascurrencyinthecommonuseoftheterm.
Regardingcurrentcommonpractices,theuseoftheShariahcoinsbelongsto
thecategoryofbarter,thatis,themutualexchangeofproductsandservices.Itisarguablethatinthepast,beforetheintroductionoflegaltenderlaws,
transactionsmadewithgoldandsilverwereconsidernormaltransactionsand
thetermbarterwasapplicabletoallothertransactions.Thereforetheuseof
thetermShariahcurrencyshouldbeunderstoodwiththelimitations
explainedaboveandinconsiderationtothehistoricalpracticeoftheMuslims
asitisrelevantintheIslamicJurisprudence.
3.2.1.8 Untilveryrecentlyinhistorypapercurrenciesweredefinedaspromissory
notesintermsofgoldandsilver.Inthatsensetheyrepresentedanamanah
(trustingwealthtosomeonewhowillkeepitforyouuntilyoudemandit)that
isanobligationtopayondemandacertainamountofgoldandsilver.We
knowfromhistorythatthisobligationwasoftennotfulfilledandeventuallythe
governmentsoftheworlddecidedgraduallytoeliminatetheobligationtopay
inspeciealtogether.TheclosestcaseofthedefaultistheUSdollarandits
unilateraldecisiontobreaktheirBrettonWoodsAgreement.Thisconceptof
brokenamanahisknownintheQuranandcarrieslegalimplicationsastothe
prohibitiontoacceptamanahfromnon-MuslimsunlesstheyliveunderMuslim
rulesothattheycanbeobligedtopaytheircontractualobligations.Thislegal
injunction,whichintheoryimpliestheprohibitiontoacceptBritishpounds,US
dollars,etc.(oranyothercurrencybackedbythem),hasbeenabrogatedlong
agosincethecolonialdaysbynewlawsthatconsiderthatthislegalinjunctionisnolongerapplicable.Undertheinspirationofthecoloniallegalsystems,the
constitutionalLawofallMuslimcountriesincludingPakistangrantstherightto
acceptforeignpromissorynotesfromnon-Muslimcountries(suchasUSD)to
theirownCentralBankasareservevaluefortheirownfiatcurrency.Because
ofthismanyMuslims(andnon-Muslims)stillmistakenlybeliefthattheirown
fiatcurrencyisbackedbygoldandsilverwheninfactnolegaltenderinthe
worldisfullybackedbyspecieanymore.Thegolddinarandsilverdirhamare
commoditiesandthereforetheyarenotanamanah:theyareatangible
commodity(ayn),thatis,whenyoupaywiththem,youhandoveracertain
amountofgoldandsilverandthereforetheydonotrequiretobebackedby
anyotherassetorauthorityotherthanitself.Thisisanotherreasonwhythe
Shariahcurrencycannotbecomparedorconsideredanalternativetopaper
currencies.
QadiAbuBakrIbnalArabi(d.1148)
AllahsaysintheQuran(3:75):
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AndamongstthePeopleoftheBooktherearethosewho,ifyouwereto
entrustthemwithatreasure(qintar),hewouldreturnittoyou.And
amongstthemishewho,ifyouweretoentrusthimwithadinarwould
notreturnittoyou,unlessyoukeptstandingoverhim.
Tafsir:
thebenefitthatcanbetakenfromthisistheprohibitionofentrusting(amanah)thePeopleoftheBookwithgoods.Thequestionconcerning
entrustingpropertyislegislatedbythetextofQuran.
Ahkamal-Quran
3.2.1.9 LegalTenderisoftenamisunderstoodconcept.Coinsandbanknotesdonot
needtobelegaltenderinordertobeusedasmoneytobuyandperform
othertransactionsforwhichmoneyisintended.Legaltendermustbeaccepted
tosettleamoneydebt.Forexample,USfederallawdoesnotrestrictprivate
businesses,personsororganisationsinwhatmethodsofpaymenttheychoose
toacceptorrefuse.Businessesarethereforefreetoinsistonpaymentbycredit
card,forexample,ortorefuselargerdenominationbanknotes.InCanadafor
example,onlyCanadiandollarbanknotesissuedbytheBankofCanadaare
legaltender;however,commercialtransactionsmaylegallybesettledinany
manneragreedbythepartiesinvolved.Asignificantamountofbusinessin
CanadaistransactedinUnitedStatesdollars,despiteUnitedStatescurrency
notbeinglegaltender.Legaltendercanberefusedunlessoruntilapersonisin
debt,thereforevendingmachinesandtransportstaffdonothavetoacceptthe
largestdenominationofbanknoteforasinglebusfareorbarofchocolate,and
evenshopkeeperscanrejectlargebanknotes.However,restaurantsthatdonotcollectmoneyuntilafteramealisserved(adebthasbeencreated)wouldhave
toacceptanylegaltender.Therightofatradertorefusetodobusinesswith
anypersonmeansapurchasercannotdemandtomakeapurchase,andso
declaringalegaltenderotherthanfordebtswouldberedundant.
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3.2.1.10ThemintingoftheDinarandDirhamisaknownpracticeoftheMuslimsfrom
theearlydaysofIslam.Thefirstdatedcoinsthatcanbeassignedtothe
MuslimsarecopiesofsilverdirhamsoftheSasanianYezdigirdIII,struckduring
theKhalifateofUthman,radiallahuanhu.Thesecoinsdifferfromtheoriginal
onesinthatanArabicinscriptionisfoundintheobversemargins,normally
readinginthenameofAllah.SincethenthewritinginArabicofthenameofAllahandpartsofQuranonthecoinsbecameacustominallmintingmadeby
Muslims.Intheyear75(695)theKhalifAbdalmalikorderedAl-Haddjadjtomint
thefirstdirhams,officiallyestablishingthestandardofUmaribnal-Khattab,
radiallahuanhu:7/10ofthemithqal.Thenextyearheorderedthedirhamsto
bemintedinalltheregionsoftheDaral-Islam.Heorderedthecoinstobe
stampedwiththesentence:AllahuAhad,AllahuSamad.Themintingofthe
coinsisconsideredanobligationoftheSultanthatneedstobefollowed.
ImamAbuAbdallahAl-Qurtubi(d.1273)
AllahsaysintheQuran(4:59):Oyouwhobelieve!ObeyAllahandobeytheMessengerandthosein
commandamongyou..
Tafsir:
TheayatisanordertoobeytheSultaninrespecttosevenobligations:
themintingofthedinarandthedirham,fixingweightsandmeasure,
legaljudgments,Hajj,Jumuah,thetwoEidsandJihad.
Al-Jamili-Ahkamal-Quran
3.2.2 Markets3.2.2.1 MarketsinMadinawerepublicinstitutions(awqaf).TheIslamiccitieswere,
aboveall,amarket-city.TheimportanceoftheSuqintheformationand
developmentoftheMuslimcitycannotbeunderestimated.Muslimcitieswere
foundedonthecombinationofaGreatMarketandaGreatMosque.This
combinationwastheheartofeverycity.Ottomandeveloperscalledthis
combinationtheImaret.TheImaretisthedistinctivefeatureofeveryIslamic
city.
3.2.2.2 SoonafterhisarrivalinMadinaal-Munawwarah,theProphetofIslam,
sallallahualaihiwasallam,createdtwoinstitutions,amosqueandamarket.
Hemadeclearbyhisstatementsandexplicitinjunctionsthatthemarketplacewastobeaspacefreelyaccessibletoeverybody,withnodivisions(suchas
shops)andwherenotaxes,leviesorrentscouldbecharged.
3.2.2.3 TheMarketislikeaMosque:
TheMessengerofAllah,sallallahualaihiwasallam,said:Marketsshould
followthesamesunnahasthemosques:whoevergetshisplacefirsthasaright
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toituntilhegetsupandgoesbacktohishouseorfinisheshisselling.(suqal-
musliminka-musallal-muslimin,mansabaqailashayinfa-huwalahu
yawmahuhattayadaahu.).
(Al-Hindi,Kanzal-Ummal,V,488,no.2688)
3.2.2.4 itisasadaqa,withnoprivateownership
Ibrahimibnal-MundhiralHizamirelatesfromAbdallahibnJafar,that
MuhammadibnAbdallahibnHasansaid,TheMessengerofAllah,sallallahu
alaihiwasallam,gavetheMuslimstheirmarketsasacharitablegift
(tasaddaqaalal-musliminabi-aswaqihim).
(IbnShabba,K.Tarikhal-Madinahal-Munawwarah,304)
3.2.2.5 withnorentcharged
IbnZabalarelatesthatKhalidibnIlyasal-Adawisaid,TheletterofUmaribn
Abdal-AzizwasreadouttousinMadinah,sayingthatthemarketwasa
sadaqaandthatnorent(kira)shouldbechargedonanyoneforit.
(As-Samhudi,Wafaal-Wafa,749)
3.2.2.6 withnotaxesleviedonit
Ibrahimibnal-MundhirrelatesfromIshaqibnJafaribnMuhammad,from
AbdallahibnJafaribnal-Miswar,fromShurayhibnAbdallahibnAbiNamir,
thatAtaibnYasarsaid,WhentheMessengerofAllah,sallallahualaihiwa
sallam,wantedtosetupamarketinMadinah,hewenttothemarketofBani
QaynuqaandthencametothemarketofMadinah,stampedhisfootonthe
groundandsaid,Thisisyourmarket.Donotletitbelessened(layudayyaq),
anddonotletanytax(kharaj)beleviedonit.
(IbnShabba,K.Tarikhal-Madinahal-Munawwarah,304)
3.2.2.7 wherenoreservationsorclaimscanbemade
IbnZabalarelatesfromHatimibnIsmailthatHabibsaidthatUmaribnal-
Khattab[once]passedbytheGateofMamarinthemarketand[sawthat]ajar
hadbeenplacedbythegateandheorderedthatitbetakenaway.Umar
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forbadehimtoputanystonesontheplaceorlayclaimtoit[inanyway](an
yuhajjiralayhaawyahuzaha).
(As-Samhudi,Wafaal-Wafa,749)
3.2.2.8 andwherenoshopscanbeconstructed.
IbnShabbarelatesfromSalihibnKaysanthatTheMessengerofAllah,
sallallahualaihiwasallam,said:Thisisyourmarket.Donotbuildanything
withstone(latatahajjaru)[onit],anddonotletanytax(kharaj)beleviedon
it
(As-Samhudi,Wafaal-Wafa,747-8)
Abur-RijalrelatesfromIsrail,fromZiyadibnFayyad,fromoneoftheshaykhs
ofMadinahthatUmaribnalKhattab,radiyallahuanhu,sawashop(dukkan)
whichsomeonehadnewlyputupinthemarketandhedestroyedit.
(IbnShabba,K.Tarikhal-Madinahal-Munawwarah,750)
3.2.2.9 OpenMarketsversusSupermarketsOpennessandcompetitioncanonlybegrantednotonlyifthelegalconditions
permitthemtoexist,butalsoiftheinfrastructuralandpracticalconditions
supportthemtoo.
Forexample,wecannotspeakoffullandfaircompetitioninBritainwhen80%
ofallretailingiscontrolledby4supermarkets.Thesesupermarketshavedriven
outtensofthousandsofsmallshopsandsmallmanufacturersthroughout
Britain.ThesamephenomenonistakenplaceacrossEurope.Allsectorsof
industryareconsolidatinginfewerandfewerhands.Thenumberofplayersis
diminishingandtheSMEsaresuffering.Thekeyconcernbehindthenational
protectionistmeasuresthatresistfurtherintegrationintheEUsinglemarketis
theeffectthatitwillhaveintheirsmallbusiness.Carrefourisnowthesecond
largestretailerintheworld,justbehindWalmart.
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3.2.2.10SuqsintheMuslimCity3.2.2.11Suqswereanintegralpartofeverycity.Thenumberofsuqsvaried
considerablyfromonecitytoanother.Cairohad145,Aleppo77,Baghdad,
DamascusandAlgiersonlyaround50.Withinthecentralzonethemarkets
werelocated,broadly,indecreasingorderofimportance:themarketsforgoldsmithsandmoneychangers(sagha),forspices(attarin),andforthecloths
(suqal-qumash)normallyoccupiedtheareaclosesttothecenter.Thedivision
ofactivitiesinTunisaroundtheZaytuna,isspeciallysignificantinthisregard.
3.2.2.12Thebasicelementofthesecentralquarterswastheshop(dukkan).Inthelarge
coveredmarkets,thespaceofthedukkanwasdividedintotwoparts:
thesellingareawhichbelongedtothesuqandwasfree.Itwasthe
visiblefrontalpartofthedukkanthatconnectedtothepassagesofthe
suq;
thestorageareawhichbelongedtotheservicesofthesuqwhichhadto
payarent.Itwaslocatedinthebackoronthetopofthesellingarea.
3.2.2.13AnExample:TheGrandBazaarofIstanbul
TheconstructionofthefutureGrandBazaar'scorestartedduringthewinterof
1455/56,shortlyaftertheOttomanconquestofConstantinople.The
constructionoftheinitialBedestenendedinthewinterof1460/61,andthe
buildingwasendowedtothewaqfoftheAyaSofyaMosque.Overthe
centuriesthemarketwasmadebiggerandnewsectionswereadded.
Accordingtoa1890survey,intheBazaarwereactive4,399shops,2Bedesten,
2195rooms,1Hamam,onemosque,10Medrese,19fountains(amongthem
twoadrvanandoneSebil),oneMausoleumand24Han.
Thefullextensionofthemarketcomplexis30.7hectares,protectedby18
gates,thereare3,000shopsalong61streets,the2Bedesten,13Hanor
caravanserais(plusseveralmoreoutside).
Bazaar'smerchantswereorganizedinguilds.Inordertoestablishanewone,it
wasonlynecessarytohaveenoughtradersofthesamegood.
TheethicsoftradeintheMarketuntiltheTanzimatage(halfofthe19th
century)wasquitedifferentfromthemodernone:indifferencetoprofit,
absenceofenvyinthesuccessesofothertradersandasingleandcorrectprice
werepeculiartraitsoftheOttomanbazaarduringitsgoldenage.Thereason
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forsuchbehaviorliespartlyintheethicsofIslam,andpartlyintheguildsystem
whichprovidedastrongsocialsecuritynettothemerchants.Afterward,the
westernizationoftheOttomansocietyandtheeliminationofthewaqfandthe
guildscausedtheintroductionofthenewpracticesthatweseetoday.
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3.2.3 CaravansandGuilds3.2.3.1 Caravans3.2.3.2 Fromanhistoricalperspectivetherearetwootherinstitutionsorganically
linkedtotheopenmarketplace:thecaravansandtheguilds.Theselasttwo
sharethesamephilosophyofopennesswiththemarketplace.Thecaravans
wereopendistributionnetworks(everyonecouldparticipateinexporttrading
sharinglogisticinfrastructure)andtheguildswereopenproductionsystems
(therewasnoemployer/employeerelationship,butmaster/apprentice;the
apprenticewasbeingincubatedtobecomeindependentwithintheguild).
3.2.3.3 Itisimportanttounderstandtheroleofthecaravansinthemarketplacesfrom
apurelyinfrastructurallevel.Initimpossibletoexplaintheinternational
commercialnetworkcreatedbythecaravanswhichstretchedfromChinato
thedepthofAfricawithoutconsideringthecommercialinfrastructurewith
whichtheMuslimscitieswereendowed:caravanseraisandsuqs.Withoutaplacetoarriveatthecaravanscouldnotexist.Thecaravantraderswere
installedinfunduqsorkhans(caravanserais)reservedforthem.
3.2.3.4 Caravanswereopendistributionnetworks.Thecaravanswereasopenasthe
marketplace.Smallproducerscouldparticipateinexportingactivitiesthatthey
couldnotaffordororganizeontheirown.Thecaravanwasanessential
infrastructureofopentrading,andcouldonlyexisttogetherwiththe
infrastructureofthephysicalmarketplace.Iftherewasnotmarketplacetogo,
thecaravanswouldceasetoexist.Ifthemarketceasestobeopen,thenthe
distributionceasestobeopen.Andconsequentlyproductionceasestobe
open.Themonopolizationofthemarketinfrastructurebringsaboutmonopolizationtrendsinthedistributionandtheproduction.Thatiswhythe
infrastructurehastosupporttheideaoftheopenmarket.Theeffectof
monopolizingtheinfrastructureisperfectlyillustratedwiththepresent
practicesofcompanieslikeCarrefour.NocaravancanarrivetoCarrefour,
becausethemarketisownedbyCarrefour.Tradingceasestoexist.Insteadof
tradingthereisonlymonopolisticdistribution.
3.2.3.5 Caravanseraiscontainedwarehousesandroomsforthetraders.Larger
caravanseraishadasmanyas100warehousesand200rooms.Thenumberof
caravanseraisinacityprovidesagoodindicationofitsroleasacommercial
center:Algiershad34,44inBaghdad,35inMosul,57inDamascus,around100inAleppoand360inCairoeloquenttestimonytotheeconomicimportanceof
themetropolisanditsparamountpositioninArabtrading.
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CaravanseraiofAcre,Palestine
CaravanseraiofNicosia,Cyprus
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3.2.3.6 Guilds3.2.3.7 Althoughcraftmanufactureisfoundinfamily-runworkshopsthroughoutthe
countryside,itisinthecitiesthatthespecializedproductionwaslocated,ina
highlyvariedsetoffieldsthatcateredfortheimmediateneedsnotjustofthe
citypopulationbutofthatoftheruraldistricts,too.Asamatterofexampleoftheimportanceoftheguilds,itisestimatedthat,intheeighteenthcentury,
craftsmenrepresentedhalfoftheactivepopulationofCairo.Theguildswere
connectedtothesuqs.AnexampleofthisistobefoundinCairoandalsoin
AleppoandDamascus:theSuqal-Nahhasin(thecoppersmithsbazaar)which
wereexpandedtobecometruecentersoftradingactivityopenedtoallthe
cititzens.
3.2.3.8 Theguildsnotonlyhadalocalcharacterbutinsomecasestheyacquiredthe
characteroflargespecialisedindustriesdedicatedtoglobalexport,suchasthe
productionofredcaps,duringtheseventeenthcenturyinTunis.Theguild
providedself-employmentto300mastersand15,000craftsmen.ThesecapswereexportedtoeveryregionintheOttomanEmpire.Anotherexampleisthe
textileindustryinCairowhichself-employedaround500mastersand12,000
craftsmen.AtthebeginningofthenineteenthcenturyinAleppo,itisestimated
thattheguildoftextilecraftmenconsistedofabout12,000loomsthat
providedforexportasfarasEurope.SoapproducedbyPalestinianguildswas
soldinthesoapcaravanserai(khanal-sabun)inCairo.
3.2.3.9 Theguildsrepresentthequintessenceofempowermentinaction.Therewere
notemployeesintheguilds.Individualenterprisingwasincubatedwithinthe
guild.Individualmemberscouldsharesomeessentialinfrastructuretodevelop
andacquireskillstothemaximum.Itofferedalevelledplayingfieldfor
manufacturersandserviceproviders.Thethemeissovastthatwewilldevelop
anotherpapertocoverthisissue.Atthemomentissufficientthatwenotice
thatwithoutthemarketplacetheguildsarenotpossible.Withoutthemarket
placetheguildsdegenerate,becomerigidandlosetheirbalanceefficiency.
3.2.3.10Theguildsstimulateandencourageindependententrepreneurship.AnIslamic
society,fromapurelyhistoricalperspective,isnotasocietyofemployees.In
pre-capitalistsocieties,Muslimshavelivedandworkedinguilds.Belongingtoa
guildwasthenorminMuslimsocieties.Businessesrelationsthrivedinsidethe
guild(withouttheneedofbanks)enhancedbytheexistenceofasharedproductiveinfrastructureandwelfaresystemsthattooktheWestcenturiesto
develop(andyethasneverfoundtheefficiencyoftheguilds).Theindividual
requirementstoestablishnewenterpriseswithintheguildwereallfavorable
andeasytofulfill.
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3.2.3.11Therelationshipemployer/employeewasreplacedbymaster/apprentice.
Therewasnotworkingclassinthedaysoftheguilds.Guildswerehistorically
eliminatedbylegalabolitionandbytheremovingoftheirrightsinfavorofa
newsetofStategivenprivilegesandmonopolies;andalsotheaccumulationof
capital(creditmoney)inprivatehandsproducedbybanking.Todayfree
competitionandfreeaccesstothemarketdonotexistforall.Thusitisnotseenasaproblem.Islamictradingguaranteesequalrightsforall.Islamic
tradingwilldecisivelycontributethere-establishmentoftheguilds,challenging
thesystemofthemoderncorporationbasedononeownerand14,000
employees.Itwillencouragenewmodelsofopenproductionprocesses
(guilds),whereproductionisopentothousandsoffreesmallowners
associated.ThisisalsopartofthewiderframeworkoftheIslamictrading
Initiative.
3.2.3.12Concerningthismatter,itisimportanttopointoutthatspeciallysincethe
beginningofthe1990s,quiteafewcorporationshaveunderstoodpartiallythe
benefitsofdividingtheirproductionprocessesintosmallerunits.Insteadof
onepyramidalstructurewithonesourceofdecision,theysawthebenefitof
manyautonomousunitsworkingincollaborationwhilecompetingamongeach
other.Thus,ToyotanowclaimsthatthereisnotoneToyotabuttwothousand
Toyotas.AseaBrownBoveri,theSwedish-Swissengineeringgiant,has
subdivideditselfinto1,300independentcompaniesand5,000autonomous
profitcentres.Theirprosperoussuccessisforcingotherstoadapttothesame
principle.Thepoliciesofdecentralisation,thoughtheyseemastepintheright
direction,arelimitedbecausetheyhaveallbeendesignedbycorporatestaff.
Corporatestaffcouldnotsuggesttheultimatestepwhichwouldbeto
eliminatethecorporationalltogether,orinotherwordstogivetotalindependencetotheautonomousworkshops.Thatcouldonlyhappenifthe
smallworkshopcouldhaveanidenticalaccesstothecustomerasToyotaitself.
Tomakethatstepweneedopendistributionnetworksandfreemarket-places
forall.TheseareallintegralpartsofIslamictrading.
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3.2.4 QiradandShirkat3.2.4.1 TheapplicationofIslamiccontractswillchangewithinMuamalaat.The
contractofQiradorMudharabahisacontractthattookplacehistoricallyinthe
contextofthecaravans.Thecaravanwasfinancedbyqiradandqiradwasthe
contractoftradingfinanceofthecaravan.EquallyShirkattookplacewithinthecontextofadifferenttypeofproductionmodel.Mostcontractsofshirkatwere
betweenmembersofthesameprofession.Thisnaturalassociationoftraders
ledtotheestablishmentoftheguilds.Shirkatandguildscorrespondtoeach
otherinthesamewaythatqiradcorrespondstocaravans.
3.2.4.2 Understandingthecontractsisnotdivorcedfromunderstandingothersocial
aspectsofthecommunity,thusMuamalaat.InIslamicLawalltheattentionis
onhowtheexchangeofgoodstakesplace,becauseitisunderstoodthatifthe
exchangeofgoodsiscorrect,thewholeedificeoftradingwillbecorrect,butif
theexchangeofgoodsisincorrectitdoesnotmatterhowmuchwetryto
remedythesituation,thewholeedificeoftradingwillremainincorrect.InIslamicLawtheactofexchangeofgoodsrepresentstheminimalunitof
trading.Thusalltheregulationsareguidedtokeepjusticeineverycommercial
andbusinessexchange.Theseregulationsaffecttheinstitutionsthatsupport
tradingandthoseinstitutionsalsoaffectthecontracts.Inordertohighlight
howMuamalaatbringsnewlightintothesecontractswewillexaminesome
basicprinciplesofqiradandshirkat.
3.2.4.3 Howtomakeacontractandthelimitationsofthedifferentkindsofcontractsis
thereforeveryimportantinIslamicLaw.Thecontractisonlynecessarywhen
delayedtermsarestipulatedbetweentheparties,suchasasalewithdelayed
payment,orarental.Alsoallthebusinesstransactions,suchaspartnerships
becausetheyinvolvedelayedtermshavetobewrittenaccordingtoIslamic
Law.Thebusinesscontractsorthosecontractswherethestipulationofa
businessorprofitisinvolvedaretwoaccordingtoclassicreferences(al-
MuwattaofImamMalik):ShirkatandQirad.Alltherestarecommercial
contracts.Non-commercialcontractsareforexamplethegraciousloan(ariya)
orthecontractofdeposit(amana).
3.2.4.4 Allbusinesscontractsneedtobewritteninaformofacontractspecifyingthe
negotiableconditions.TheShirkatisanIslamicpartnership,andtheQirad,also
calledMudharaba,isanIslamicbusinessloan.TheShirkatandtheQiradhavecertainpredeterminedconditionsthatcannotbealtered;otherconditions
needtobenegotiatedbytheparties.
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3.2.4.5 Theimportanceofthecorrectnessofthebusinessandcommercialcontractsis
suchthattheuseofparticulartypesofcontractswillaffecthowsociety
develops.Asocietywhereunjustcontractsareallowedi.e.Ribawill
produceakindofsocietydifferentfromtheoneinwhichtheyarenotallowed.
ThisisthereasonwhycontractuallawissoimportantinthebodyofIslamic
Fiqh.AlmosttwothirdsofallIslamicFiqhconcernstradeandbusiness.
3.2.4.6 IslamicLaw,derivedfromtheQuranandtheSunnaofRasulullah,sallallahu
alayhiwasallam,definestheparametersinwhichcontractsofcommercial
transactionsandbusinessshouldtakeplace.
3.2.4.7 Commercialtransactionsarebasedontheexchangeoftheownershipofgoods.
Iftheexchangeinvolvesdelayedpayment,thenacontractmustbewritten.But
itisnotnecessaryifthetransactiontakesplacehandtohand.
3.2.4.8 AcommercialorbusinesstransactioniscorrectaccordingtoIslamicLawifit
hasequity:thevalueofthegoodsgivenmustbeequaltothecountervalueofthegoodsreceived.Ifthesevaluesarenotequal,theexchangebecomes
usurious.
3.2.4.9 Abusinessconsistsoftwoormorecommercialtransactionsconnectedforthe
purposeofobtainingaprofit.Whentwoormorepersonsassociatethemselves
toexecuteabusinessthenacontractisrequiredbetweenthepartiesinvolved.
3.2.4.10AprimaryformofdefiningtheequityofabusinessaccordingtoIslamicLawis
thatallthetransactionsthatitinvolvesareequitable.Inaddition,whena
businesscontractiswritten,therearecertainconditionsthatmustbetaken
intoaccount.Wearegoingtoexaminethemostimportantoftheseconditions.
3.2.4.11Thegoodsthatmakeuptheinitialinvestmenteitherbelongtooneperson(no
contractisnecessary)ortheybelongtomorethanoneperson(acontractmust
bewritten).Itmayalsobethatthegoodsbelongtoonepersonbutthatthey
comefromabusinessloanthenacontractmustalsobewritten.
3.2.4.12Thereforetherearetwopossiblebasicformsofbusinesscontract:
a]theinvestors(everyone)transfertheownershipoftheinvestmentto
themselves,allofthemasagroup;or
b]theinvestor/s(everyone)transfertheownershipoftheinvestmenttoanother
party.ThefirsttypeofbusinesscontractiscalledinArabicShirkatwewillalsocallit
apartnershipandthesecondtypeofbusinesscontractiscalledinArabic
Qiradwewillalsocallitabusinessloan.
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3.2.4.13Shirkat(Partnership)
3.2.4.14Partnershipisinitsgeneralmeaninganyassociationofpersonswhosharethe
ownershipofsomegoods.Thereforepartnershiprequirescoownershipof
somegoods.Andifthesegoodsareinvestedinabusinessthenwehavethe
necessityofabusinesscontract.
3.2.4.15Co-ownershipiscalledinArabicShirkatMilk.Abusinesspartnershipiscalled
inArabicShirkatAkid.
Shirkat,initsprimitivesense,signifiestheconjunctionoftwoormore
estates,insuchamannerthatoneofthemisnotdistinguishablefromthe
other.InthelanguageoftheLaw,itsignifiestheunionoftwoormore
personsinoneconcern.Thetermshirkat,however,isextendedtothe
contracts,althoughthereisnoactualconjunctionofstates,becausea
contractisthecauseofsuchconjunction.(TheHedaya,translationby
Hamilton,pp217-31)QuotationsfromTheHedayabyBurhanuddinAbuBakrAl-Marginani,writtenintheeighthcentury,translatedbyCharles
HamiltonunderthepatronageofWarrenHastings,GovernorofBengal
andpublishedin1870inLondon.
3.2.4.16Shirkatislawful.InthetimeoftheProphet,sallallahualayhiwasallam,men
wereaccustomedtopracticingpartnership.InhisMuwatta,Maliksaid:
Thewayofdoingthingsamongusisthatthereisnoharminpartnership
(ash-shirka),transferringresponsibilitytoadeputy(at-tawliyah)and
revocation(al-iqalah)whendealingwithfoodandotherthings,whether
ornotpossessionwastaken,whenthetransactioniswithcash,andthereisnoprofit,lossordefermentofitsprice.Ifprofit,lossordefermentorthe
priceformoneofthetwoentersanyofthesetransactions,itbecomesa
salewhichismadeHalal,andmadeHarambywhatmakesaleHaram,
anditisnotpartnership,transferenceofresponsibilitytoadeputy,or
revocation.
3.2.4.17Shirkatisoftwokindsdependingonhowitoriginates:
ShirkatMilk,orpartnershipbytherightofproperty,and
ShirkatAkid,orpartnershipbyabusinesscontract.
TheonethatweareinterestedinexploringisthebusinesscontractofShirkat,
whichiscommonlycalledShirkatAkidorbusinesspartnershipThemostsignificantconditionsare:
ThePrincipleofTakafu(Proportionality)
Theshareofapartnershipwhereallthepartnersworkandputincapital
dependsonthedifferentamountsofcapitalinvested.Iftherearedifferencesin
capitalamongthepartnersbuttheyallworkthesameamount,thenthelesser
investorcanbecompensatedforhisextrawork.
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IhaveheardfromMalikthatpartnershipisnotpermissibleunlessthere
existsabalance(takafu)inthecapitals.
(Sahnun,Mudawwana,12:41.)
TheNecessitytoParticipateintheWork
Apartnershipassumestheparticipationofallitsmembersintheactualwork.Anassociationinwhichalltheworkisassignedtoonepartner,whiletheother
providessomenecessarycapitalorequipment,butnowork,isnotavalid
partnership.Thenon-workingpartyisnotentitledtoanyshareoftheincome
andcanclaimonlythereturnofhisinvestmentand,ifithappenedtobeina
formotherthancash,someequitablerentalfeeforitsuse.
Surpluscapitalcannotbeusedasinvestmentinapartnershipwithoutphysically
participatingintheworkofthebusiness.Soyoucannothaveacapitalist
investingintheproductionmadebyotherpeople.Theonlyformulaforasilent
investorisabusinessloanorQirad.Inapartnershipallthepartnershavetowork,theyareallequallyownersandthereforeequallyresponsible.
Isaid:WhatisyouropinionofanarrangementinwhichIplaceaperson
inastallandsaytohim:Iwillacceptthegoodsandyouwilldothework
ontheconditionthatwhateverGodgrantsuswillbesharedbetweenus
equally?Hesaid:AccordingtoMalik,thisisnotpermissible.(Sahnun,
Mudawwana,12:41).
Isaid:Whatisyouropinionofapartnershipbetweenthreepeoplein
whichoneprovidesthemillstone,theotherthehouse,andtheotherthe
work-animal,ontheconditionthattheowneroftheanimaldoesallthe
work?Hesaid:Theentireproceedsoftheworkaretogototheowner
oftheanimalwhoexecutesthework,andheisobligatedtopaytherental
feeforthemillstonesandhouse.Isaid:Isthisalsothecaseevenifhe
doesnotearnanything?HesaidYes,evenifhedoesnotearn
anything.(Sahnun,Mudawwana,12:45).
IbnQasimrejectsthevalidityofapartnershipbasedincashonlywhichstipulates
thatalltheworkbedonebyonlyoneofthepartners.Heexplainshisrejectionas
follows:
ThebasisforthisisthataccordingtoMalik,apartnershipisnotpermissibleunlesstheycombineinitsworkproportionallytotheir
respectivesharesinthejointcapital.(Sahnun,Mudawwana,12:60).
Theresultsaremanifold:Thefirstoneisquiteobviouswhichisthatthere
cannotbecapitalistinvestorsusingonlytheircapitaltobenefitfromthe
manufacturingworkofotherpeoplewithoutoccupyingthemselvesinthework.
Thesecondoneisthefactthatalltheownersinacoownershipcanexercisetheir
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ownershipwithidenticalstatusindependentofthesharethattheymayhavein
thebusiness.BothprinciplesshowthefallacyoftheStockExchange.
TheestablishmentofaStockExchangeisaresultofthepreviouscreationofa
falseconceptofownership.Thisfalseconceptofownershipisbasedonwhat
theycallmajorityownership.Onthisbasisyoucanbetheownerofacompany
bycontractdespitenothavinganyexecutivedecisionoveryourproperty.Ownershipisdeclaredinapieceofpaper,butthesamepieceofpaper
guaranteesthatyoucannotdecidethereforeyoucannotowntheproperty.
Thisisthefalsehoodofthiskindofcontract.Thecontractofshareholdingwith
majorityownershipisaccordingtoIslamicLawnotacceptableandisconsidered
tobeaformofcheating.
3.2.4.18TheEssenceofOwnership3.2.4.19Ownershipisnotjustadocumentthatsaysyouaretheownerofsomething.
Ownershipmeansyouareentitledtoandalsocapableofdecidinghowtodisposeofyourproperty.Otherwiseyouarenottheowner.Decisionovera
propertyistheessenceofownership.
3.2.4.20Ownershipexistseverytimesomethingisusedorconsumed,although
ownershipislegallyregulatedonlywhenscarcityappears.Therewereno
regulationsforfishinginthesea,butasthefleetsincreasedandthefish
becamescarce,theregulationofownershipbecamenecessary.
3.2.4.21Everybodydisposesfreelyofairtobreath,buttheuseoftheflightpathsof
planesbecameregulated.Beforeregulationtherewasalsoownership,because
whenaplaneusedaflightpathnobodyelsecoulduseit.Thatwaseffectivelyownership.
3.2.4.22Therefore,explicitlyregulatedornot,ownershiphasanexistentialreality
connectedtotheuseofsomething.Ownershipconsistsofthecapacitytouse
something.Toholdthecapacitytodecideiseffectivelyownership.Modern
commerciallegislationallowsforatypeofownershipdisconnectedfromthe
capacitytodecide.Thisleadstotheideaofanownershipexclusivelydefinedby
thetitlebutwithoutdecision-makingpowers.ThisisnotpossibleinIslamsince
thetitleanddecision-makingpowersareboundtogether.
3.2.4.23Whenownershipisexercisedindividually,thereisnodifficultyinunderstandinghowthedecisionismade.Butwhathappenswhenthereis
collectiveownership?Iftheyareallownerstheymustallown.
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3.2.4.24Therefore,inIslamiclaw,theco-ownerssubmittothesetwoprinciples.
1.Alltheco-ownershavethesamestatusofdecision,regardlessoftheir
participationintheproperty.
2.Theresultsofthebusinessaresharedamongtheco-ownersinproportionto
theirparticipationinthebusinessasestablishedinthecontract.
3.2.4.25Ifthefirstconditionisnotfulfilled,thentheco-ownersarenolongerowners,
andsomeoneisusurpingthesharedownership.Islamiclawdemandsthat
everytimethereisacommercialagreementbetweentwoormoreparties,a
contractmustbewritten.Thiscontractiswhatconstitutestheprivatedecision
ofthebusiness.Thebusinesscontractclearlydefinesinadvancethenatureof
thebusiness:whoaretheinvestors,whoistheagent(ifthereisone),the
quantityoftheinvestment,theobjectiveofthebusiness,itsduration,andthe
sharingofitsresults.Therefore,whenyousignthecontract,youknowwhat
youareparticipatingin.Whenyouinvest,youknowwhatyouareinvestingin.Now,whatyouhaveinmoderninvestmentisanagreementwhichisnot
consideredacontractwithinIslamiclaw.
3.2.4.26Rather,theinvestorlendsthemoneytoanunknownowner,toanunknown
business,withnofixedduration,whoseprofitsordividendsaredecidedbythat
unknownowner.Thisisalldoneunderthefalsehoodofmajorityownership.
3.2.4.27TheDeceivingConceptofMajorityOwnership3.2.4.28Thisdeceivingconceptwasbroughtaboutforthepurposeofthecreationofa
mechanismofcontrolandmanipulationwhichendedupbeingthe
establishmentoftheStockExchange.Itisbasedontheprinciplethatwhoever
hasasimplemajorityofthesharesofacompanyownsthecompany.This
systemallowsthecontrolofgreatportionsofthemarketbyveryfewpeople.
Forexample:MrStonewhoowns51%ofcompanyAhascontrolofthe
company.IfheusesthecapitalofcompanyAtobuy51%ofcompanyB,hewill
havetotalcontrolofcompanyBalthoughheownsonlyapproximately1/4ofits
capital.IfhethenusesthecapitalofcompanyBtobuy51%ofcompanyC,he
willhavetotalcontrolofC,althoughheownsonly1/8ofthecapital.
MrStonecanthenbuyacompanyD,E,F...inthesameway.
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3.2.4.29Thefalseconceptofmajorityownershiphasenabledtheusurpingofthelegal
ownershipofmillionsofminorityco-owners.Throughthisprocedure,MrStone
haspoweroveranenormousamountofcapitalthatisnothis.Hecandecide
whattheresults,nowcalleddividends,are.Butdividendsarenotthesameas
theresultsofthebusiness.Thecompanymustbeliquidatedinordertoknow
theresultsofthebusiness.Thesystemofmajorityownershipmakesthesecompaniesexistwithoutresults,withoutliquidation.Becausethemajority
ownercandecidehowmuchisgoingtobere-investedandhowmuchwillbe
paidoutasdividends,youaretiedtothecompanyagainstyourwill.
3.2.4.30InIslamicLaw,youcannotforceanyinvestortore-investwithouthisapproval.
Theresults,therefore,mustbecompletelyshared,bytheliquidationofa
companyaftertheperiodstipulatedinthecontractasthedurationofthe
company.Iftheyallagreetocontinuetheycancontinue,ifnot,thecompanyis
liquidatedtostartagainwithanewcontract.Thusownershipisalways
protected.Themajorityownershipsystemonlyprotectsthecompany
ownershipofthemajorityowners,butdoesnotprotecttheownershipofthe
restoftheco-owners.
3.2.4.31Qirad(businessloan)
3.2.4.32Qiradisusuallyreferredtowiththreedifferentwords:
Mudharaba(originatedinIraq);thisiswhatthepeopleofIraqcalledQirad;
accordingtoal-Sarakhsi,thiswordisderivedfromtheexpressional-darbfi
al-ardwhichmeansmakingajourney.Thistermisusedbecausetheagent-
managerhastherighttoclaimtheprofitbyvirtueofhiseffortandwork.
Indeedheisregardedastheinvestorsassociateinmattersrelatingtotheprofitandcapitalusedonthejourneyandforarrangementsorancillary
expenses.Theinvestorisentitledtoreceiveashareoftheprofitonaccount
ofinvestingwithhiscapital.
QiradorMuqaradah(originatedinMadinah);thisiswhatitwascalledin
Madinah.ThewordcomesfromtheArabicqard,whichmeansthe
surrenderofrightsovercapitalbytheownertotheuserofthecapital[a
loan].AgentisinArabical-amilandtheinvestorinArabicissahibul-malor
rabbul-mal-
Commenda(originatedinMedievalEurope),fromthecontractofaccomendacioofthejuscommune.Theinvestorwascalledcommendator
andtheagentwascalledtractator.ThiscontractwasintroducedintoEurope,
especiallySouthernEuropethroughtheItalianseaportsofthelatetenthand
earlyeleventhcenturiesofthechristiancalendar.
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3.2.4.33IbnRushdsaid:
ThereisaconsensusofopinionamongtheMuslimswithregardtothe
legalityofQirad.Itwasinvogueinthepre-IslamicperiodandIslam
adoptedit.Thereisaconsensusofopinionthatitconsistsingivingsome
capitalbyonepersontoanotherforbusiness.Theuserofcapitalreceivesanagreedproportionoftheprofit,i.e.anyproportiontheymayagree,
one-third,one-forth,orevenone-half.
(IbnRushd,BidayatMujtahidwaNihayatul-Muqtasid,Cairo,1329,p.205)
3.2.4.34TheProphet,sallallahualayhiwasallam,workedasanagentforKhadijah
beforehemarriedher.
3.2.4.35AlltheMuslimjuristsagreeonitslegitimacyasaformofbusinesstransaction
andtheyformedthisopiniononthebasisofitswidepracticebythe
CompanionsoftheProphet,sallallahualayhiwasallam,duringhislifetimeand
after.TheProphet,sallallahualayhiwasallam,knewitandapprovedofit.
3.2.4.36ThemainconditionsofQiradare:
1.TheagentofQiradwhoisaskedtobuycreditormakeanexchangeandthen
usethefunds,hastherighttochargeforthatworkwithasalary,withoutlosing
hisrightsofapartoftheprofitoftheloan.
2.Theagentcannotbeobligedtodoamanufacturingwork,suchassewingor
embroidering.Qiradisnotformanufacturing,itisonlyfortrading.
3.Everymutuallyconsentedloan,evenintheformofQirad,inwhichfundsaredestinedtopayforamerchandisethatthelenderknowshavebeenalready
bought,isnotaQirad.Itisaordinarygraciousloan.
4.Theagentisfreetobuyandsellwhateverhewants,andintheplaceandin
thetimethathewants.
5.Qiradisnotfortime.Itisnotpermittedfortheagenttostipulatethatheuse
theQiradforacertainnumberofyearsandthatitnotbetakenbackfromhim
duringthattime.
6.GuaranteesinQiradarevoid.ThestipulationofguaranteeinQiradisnullandvoid.Theinvestorisnotpermittedtostipulateconditionsabouthis
principalotherthantheconditionsonwhichQiradisbased.
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4 ImplementationofMuamalaat4.1 GradualTransition4.1.1 ThetransitionfromRibatoMuamalaatmustbegradual.Thegradualdiminishing
oftheRibaactivitiesmustbereplacedbyanequivalentdevelopmentofMuamalaat.Theobjectivemustbetomaintainorderinsocietyandtopreserve
wealth.
4.1.2 Afirstapproachinunderstandingthetaskofthistransitionistounderstandthe
evolutionoftherealeconomyinrelationtothefinancialeconomyinthelastfew
decades.FinancialTimesdefinesrealeconomyas:Thepartoftheeconomythat
isconcernedwithactuallyproducinggoodsandservices,asopposedtothepart
oftheeconomythatisconcernedwithbuyingandsellingonthefinancial
markets.
4.2 RealEconomyvsSpeculativeEconomy4.2.1 Therealeconomyrepresentstheeconomyofrealpeoplewithrealmoneyand
realproductsandservices.Thiseconomyhasbeenindecline.Insteadof
promotingtherealeconomygovernmentsaroundtheworldhaveattemptedto
replacetherealeconomyofvalueproducedwithafinancialmodelbasedon
creditgrowthandspeculation.Theyhavefailed,andtheirconstructsare
implodingbeforeoureyes.Aslow-growthrealeconomyhasbeenreplacedwith
acredit-basedspeculativefinancialeconomydependentonlowinterestrates
andsystemicfraudtosurvive.Itisnowimplodingonaglobalscale.
4.2.2 Thechiefcontradictionofourpresentgrowthmodelisashortageofprofitableinvestmentoutletswithinproductionaproblemendemictothemature,
monopolisticeconomy.Investment-seekingsurplusthatisunabletofind
sufficientprofitableinvestmentoutletstranslatesintolossesinthe(real)
economyasawholeandhenceaslowdownofgrowth.Corporationsand
capitalistsseektoholdontoandincreasetheirmoneycapitalinthese
circumstancesbyshiftingthesurplusattheirdisposalintospeculationinasset
prices.TheresultisadramaticexpansionofFIRE(finance,insurance,andreal
estate)andtheentirefinancialsuperstructureofthecapitalisteconomy.The
plethoraofmoneycapitalenteringfinancecreatesaddedopportunitiesfor
speculativegrowth,whichbanksandotherfinancialinstitutionsaccommodatethroughnewfinancialinnovations(todaytakingtheformofsuchexotic
instrumentsascollateralizeddebtobligations,creditdefaultswaps,structured
investmentvehicles,etc.).Variouswealtheffects(wherebyincreasesinasset
pricestranslateintoincreasedconsumptionandinvestment)partially
compensateforstagnationandtemporarilystimulatetherealeconomy,without,
however,materiallyalteringtheunderlyingconditions.
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4.2.3 Insofarasthefinancialsystemisgrowingnotbyservicingproduction,but
throughaprocessofmoneysimplybegettingmoremoney(whichisinessence
riba),withouttheinterveningproductionofcommodities,thistakestheformof
afinancialbubble,oranunsustainableexplosionofcredit/debt.Thismeansthat
thespeculativeprocessdependsforitsverycontinuationonthepilingupof
greaterandgreateramountsofdebt,andinordertodothis,itneedstohaveconstantcashinfusionsfromtherealeconomytoprovideadditionalcapitalthat
canbeleveragedup.InthenineteenthcenturyinFrance,CrditMobilier,the
prototypeoftodaysgiantbankswasleveragingatarateof10:1(debttocapital
ratio).Inthemostrecentfinancialbubble,majorbanksoftenleverageatarate
of30:1;Japanesebankshavebeenleveragingforthelastfourdecadesatarate
of50:1.Financialprofitsinthesecircumstancesexpandrapidly.Non-financial
corporationstoocometorelymoreondebtleveragingandcreatetheirown
financialsubsidiariestotakeadvantageofthebubble.Butinsofarasthe
underlyingsystemremainsstagnant,thebubbleeventuallyburststypically
afteraspeculativemaniainwhichtherapidriseinquantityofdebtleadstoamarkeddeclineinitsquality.Theresultisareturntotheunderlyingcrisis
conditionsandrealworldrepercussions.
4.2.4 Rightnowwearebeingtoldthatthesystemhasonceagainfounditsfooting
thatfinanceandevenproductionarerecovering.Butsincethestagnation-
financializationtrapremainsoperative,wehavenodoubtthatwhatweare
seeingrightnowismerelyabriefpauseifthatinthedevelopingstructural
crisisofglobalmonopoly-financecapital.Theproblemsofthesystemareonly
gettingbigger.
4.2.5TheForexSpeculationMadness
4.2.6 In1975,about80percentofforeignexchangetransactions(whereonenational
currencyisexchangedforanother)weretoconductbusinessinthereal
economy.Theremaining20percentoftransactionsin1975werespeculative,
whichmeansthatthesolepurposewasanexpectedprofitfrombuyingand
sellingcurrenciesthemselves,basedontheirchangingvalues.Today,thereal
economyinforeignexchangetransactionsisdownto1percentand99percentis
nowspeculative.Therealeconomyhasbecomejustasmallpercentageoftotal
financialcurrencyactivity.
4.2.7
Itisestimatedthatcloseon$5trillionincurrenciesbeingtradedeachday.Thisisequivalenttotheentireannualgrossdomesticproduct(GDP)volumeofthe
UnitedStatesbeingturnedoverviacurrencytradingeverytwodays.Thereare
threecumulativecausesforthisexplosiveincreaseincurrencyspeculation.
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4.2.7.1 Systematicredefinition.ThefirstimportantactwasformerPresidentRichard
Nixon'sunleashingofthedollarstandardin1973."Floating"thedollarallowed
currencyvaluestobedeterminedbytradersincurrencyexchangemarkets.
Currenciesfromcountrieswithstrongeconomiesandsoundmonetaryand
fiscalpoliciesweregivenmorevaluethancurrenciesfromweakcountries.
4.2.7.2 Legalderegulation.Inthe1980'sbothRonaldReaganandMargaretThatcher
introducedderegulationstrategies.TheBakerPlan,implementedbytheWorld
BankandtheInternationalMonetaryFund(IMF),appliedthosechangestoa
dozenkeyThirdWorldcountries.Thiscreatedalotmoreleewayformovement
ofcapitalinternationally,andforcorporationsthatpreviouslywouldnothave
participatedinspeculation.
4.2.7.3 Technology.Thestructural,deep-lyingphenomenonbehindthewholesystem
isthetechnologicalshift:theelectronificationofmoneyandthe
computerizationofmarketsystems.
4.2.8 Economictextbookssaythatcorporationsandindividualscompeteformarkets
andresources.Thisisnottrue.Corporationsandindividualscompeteformoney,
byusingmarketsandresources.
4.2.9 Theopeningofthestetswhichledto"floatingexchanges,"alsocreatedanew
assetclass.Traditionalassetclassesarerealestate,bonds,stocks,and
commodities.Todaywealsohavecurrencies.Thismeansthatmoney,the
mediumofexchange,hasitselfbecomeanassettobeplayedintoinvestment
portfolios.Thisshifthasdifferentimplicationsforbusinesses,dependingon
whetheryou'reaninvestorora"real"business.
4.2.10 Fromaninvestorsviewpoint,thisnewassetclass--currencies--hassome
significantadvantagesovertheoldones.
*Extraordinarilylowtransactioncosts.Placingafewbilliondollarsinforeign
exchangecostsverylittle,asmuchastenortwentytimescheaperthanastock
transaction.
*Twenty-fourhourmarketenvironment;onecanactuallyplayaroundthe
clock.
*Theforeigncurrencymarketisthelargestanddeepestmarketaroundbya
longshot.Ifyouhaveafewbilliondollarstoplace,bringingthemtothestock
marketisgoingtomovethestock'svalueandtip-offothertradersastowhat
youaredoing.thisistrueinmostbondmarkets(exceptfortheUSandsome
Europeanmarketsbecauseoftheirlargesize).Inforeignexchange,evenfiveor
tenbillionwon'tmakeablip.
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4.2.11 Soifyouhaveasubstantialamountofmoneytomovearound,thisistheplace
todoit.Youcangetinandoutwithoutaffectingthemarket.Becauseofthese
threeadvantages,theactoflendingmoneytopeople(tobuyhouses,cars,
expandbusinesses,orwhatever)isnolongerthebestwaytomakemoney.The
foreigncurrencymarketistheplacetodoit.
4.2.12 Banksarenolongerthebigplayersintermsofsupplyingcredit.Inthelast
twentyfiveyears,banksasasourceoffinancinginAmerica,havedroppedfrom
75percentofthetotalsupplyofcredittolessthan10percent.Forthemajor
internationalbanks,likeChaseManhattan,Citicorp,BankofAmerica,Barclaysor
Sumimoto,currencytradingtypicallyaccountsforatleast20percentoftotal
earnings.Inagoodyear,itwillbemorethan50percent.
4.2.13 Inconsideringtheviewpointofso-calledrealbusiness(thosethatmakecars,
mine,produceelectronicsetc.),the"foreignexchangerisk"hasbyfarbecome
thelargestriskininternationalbusinesstoday,oftenlargerthanpoliticalor
marketrisk.Forexample,ifaGermanchemicalcompanyinvestsinaplantinIndia,itmakestheinvestmentindeutschmarks.Thechemicalproductssold
locallyfromtheplantarepaidinrupees,India'scurrency.Ifthevalueofthe
rupeethendropsintermsofthedeutschmark,thereturnontheoriginal
investmentwilldropaswell.Inshort,thebiggestriskofsuchinvestmentisnot
whetherIndianswillbuythechemicals(marketrisk),butthechangesinthe
valuesofthecurrenciesinvolved(foreignexchangerisk).
4.2.14 Corporationshavefollowedtwomajorstrategiestodealwiththisrisk:
4.2.15 Thefirststrategyisthereorganizationofthecorporateconglomerate.
Productionandmarketingsectorsaredecentralizingbecausetheriskdoesn'tliethere,andbecauseadaptationtolocalcircumstancescanbestbehandledona
locallevel.Thisalsoleadstothedispersalofproductionfacilitiestoother
countries.Butwhilemarketingandproductionaredecentralizing,the
corporation'sfinanci