It all started with my Saudi co-worker telling me how his wife reminds him of a GMC Suburban.
Odd, I thought to myself, I never considered it a compliment to describe one's wife as an oversized SUV, but hey, different folks, different strokes.
He continued by explaining the odyssey of his marriage, which began as it does for many youth - in need of money. But since the Shariah compliant banks don't offer straight up cash loans, he had to take a popular, alternative route.
He went to a dealership and financed the Suburban (valued at around 100,000 riyals) over a 5 year payment period. He explained how outside the dealership there are individuals with 'bags of money' waiting to buy your newly purchased vehicle (of course at a discounted rate).
The dealer sold the car, the middle man made his pretty profit, and best of all, my friend got the cash he needed to help him get married. Perfect!
Not really, I thought. Although each transaction is permissible in Islam, the entire transaction wreaks of a straight-up money for money loan (read: Riba) with the commodity (in this case the Suburban) thrown in as a mere formality.
But wait, it gets even better.
There are some banks here in Saudi that are using steel as the commodity in order to give out loans. It's the same as the example of the Suburban, except that man standing outside the parking lot with the money is taken out of the equation. The bank conveniently replaces him, ending up as both the seller and the buyer, all in order to allow you to get a halal cash loan.
Here's how their magic works: You walk into the bank needing say 50,000 riyals. The bank sells you 50,000 worth of steel for 60,000 over 5 years. Then they buy it back from you for 50,000. You walk out of the bank with 50,000 in hand and a debt of 60,000 to be paid over 5 years.
In fact, my friend told me that the steel actually does exist, in some warehouse outside Riyadh, in order to comply with the Shariah board's requirement. Someone he knows actually wanted to go out to see the steel in order to verify the 'validity' of the transaction and sure enough, the warehouse was there, full of steel. Some worker over there actually laughed how no one has ever come to visit the premises since its creation several years ago.
But I digress.
Now I'll be the first to admit that there are few topics as daunting, complex, and mysterious as Islamic finance - astrophysics and female psychology are two that immediately come to mind. But even I can understand that one of the fundamental principles of Islamic finance is that money can't be made from money. The Islamic economic system is a commodity-based system - transactions are based on buying and selling goods, not buying and selling money.
How in the world can these people convince themselves that they're partaking in a halal transaction?
In the end, I shake my head and think how fitting that a society that has made a sham of Islamic morality, has done the same to Islamic economics.
So is it just me or does anyone else see the eerie similarities between the actions described above and the actions of Bani Israel when they left their fishing nets out on the Sabbath, and returned the next day in order to collect the fish?
Both adhered to the letter of the law, while flaunting the spirit of the law.
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UPDATE: I did some more research and found that Saudi scholars have not sanctioned the second type of transaction, where the bank sells the commodity and then buys it back. However, they have approved of the first example (where the SUV is sold to a guy outside the bank).
Nonetheless, many banks in KSA perform both types of transaction, banking (pun intended) on the customer's ignorance of the fatwa details.
That being said, I still find it extremely questionable that I can walk into a bank, finance some steel (or rice or whatever) that everyone knows I will never use, and then walk out and sell it for straight up cash. Although it complies with all the Shariah requirements, it reminds me of the saying: If it walks like a duck and talks like a duck...
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11 comments:
One of the AlMaghrib shuyukh went over a very similar situation and said it was forbidden. Two perfectly permissible non-riba acts can combine to form a situation of riba. He used a pen for an example, but over here it seems to be an SUV. Same difference.
Hmm. I agree. From what I had heard, Shariah banking is a big scam. You see a house worth 500k, you go to them, they buy it for your and sell it to you for 600k. Makes no sense.
What is practical solutions to interest then?
ONe of my more liberal MCC teachers said, that, "In the time of the Prophet, the people used to offer them money and ask for usury on it and not the principal, leaving the person in eternal debt. That is strictly riba"
I had to differ because in that case, the modern case of Interest is okay in his views.
Btw, do Muslims in the west never buy a house? My friend asked me that, I had no response. And what about college?
-The Muslim Kid
AA Naeem,
What's the take of Saudi scholars about it?
If there is no contractual obligation of the bank to buy back the commodity and the person actually takes ownership of the commodity before selling it to anyone then shouldn't this be okay?
AA-
@MK, My rant was specific to the tricks taking place in my post. When it comes to housing, there are many Islamic alternatives, where the bank and the buyer share in the ownership in a lease-to-own deal...I haven't done the research as I'm not in the market to buy right now.
@Azad, I got some more updated info on the Saudi scholars and their opinion on the matter. I'll post it as soon as I get their fatwa translated.
From what I understand, your point is valid, but the deal cannot be consummated with the bank playing the role of the buyer. Its that loop (bank sells to you - you sell back to bank), that makes this deal very shady.
If on the other hand, you decided to take that steel and proceed to the open market and sell it, that would be akin to the SUV example of my friend.
Both are shady, IMO, but the latter one (with the steel) is even more shadier than the SUV one.
While there are some transactions that come off a bit fishy, even your worst example still involved a real commodity. With the implosion of Western banking going on right now, partly due to nothing being tied to an honestly valued commodity or asset, it will be very interesting to see whether Islamic banks come out ahead. If they outlast or outperform Western banks during this period, that ought to quiet down those who say Islamic banking is a distinction without a difference.
I don't see how taking steel and selling it on the open market is shady? This is how people profit. Making profit is not haram.
AA- Sophister,
By itself, what you describe sounds innocent enough and is permissible. But when the commodity is used for the purpose of getting cash for cash (as in my second example) and the steel is housed in some far-off warehouse never to be used, it becomes a farce.
But let's talk about the first example, where the commodity is bought from the bank and then sold in the open market. I have a problem with an economical system that profits from people's financial woes.
It comes down to this: a person is going into 5 year debt in order to get some cash. The bank is getting its profit (with the 5 year finance deal). The guy outside the bank (representing the open market) is getting his profit (by buying the commodity at a lower price). And you get cash that is worth a fraction of the debt you incurred.
How is that justice? Haven't the two parties taken advantage of your situation?
I would even understand if such a situation was the exception, occurring on a rare occasion. But this has become the norm. Is that acceptable?
To me it just seems to be playing games with the rules. I have a question - "Islamic" banking as we know it today seems to have started 100 years ago. What did Muslims do before then? What did the Khalifahs, the Ummayads, the Ottomans do?
Haleem brings up an interesting point...
I looked it up a bit, I found this on wiki..
"A number of innovative concepts and techniques were introduced in early Islamic banking, including bills of exchange, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of capital (al-mal), capital accumulation (nama al-mal),[3] cheques, promissory notes,[4] trusts (see Waqf), startup companies,[5], transactional accounts, loaning, ledgers and assignments.[6] Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced.[7][8] Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards"
From-
http://en.wikipedia.org/wiki/Islamic_banking#History_of_Islamic_banking
-The Muslim Kid
Brother Naeem
I have a frank question to ask
If Islamic Banking is absurd, what do you label Interest-based banking ?
Ridiculous?
Let us put aside these absurd and ridiculous creatures, what is your alternative to the needs of millions of Muslims? Do you prefer them to ride camels and donkeys?
or walk?
AA- Anon,
I think you misunderstood my post. I wasn't saying that buying a car through an Islamic bank is wrong. Please re-read the post.
I was criticizing the underhanded tactic of buying the car through Islamic means and then turning around and selling it for cash. The buyer never had any intention to use the car whatsoever - it was merely a means of getting the cash.
That in my opinion is being disingenuous and making a mockery of Islamic law.
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