Essays In Islamic Finance I: Essays In Islamic Finance, #1

By Nizar Abdulrahman Alshubaily

Is it permissible to use an interest rate benchmark in Islamic Finance transactions?

How many Islamic contracts are mentioned in The Qur'an?

What is the best way to learn the differences between similar contracts?

Why is it wrong to claim that Islamic Finance is just form over substance?

What are the most important issues in product development in Islamic Finance?

The book answers many questions that have been the favorites of critics and observers alike in the Islamic Finance Industry.

All these issues and more are discussed in this first of a series on Islamic Finance.

• Language: English
• Publisher: Nizar Abdulrahman Alshubaily
• Release date: Jun 23, 2021
• ISBN: 9798201418106

Book preview

In

Memory

Of

My

Parents

Also By The Author

Riba Revisited Series:

Riba In Mubadalah

Riba In Jewelry

Riba Complexity

Riba In Contracts

The Book Of Quotes

The Names Of Riba

The Hadith Of Riba

Myths Of Riba

The Verses Of Riba

Essays In Islamic Finance Series:

Essays In Islamic Finance II

Essays In Islamic Finance III

Essays In Islamic Finance

Volume I

Copyright © Nizar Abdulrahman Alshubaily, 2021

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded, or otherwise, without prior written permission of the copyright holder, except for reference and citation, with proper acknowledgment.

Cover Page: Photo of Manuscript of Sahih Al-Bukhari courtesy of Alukah.net

EBOOK ISBN: 9798201418106

Essays In Islamic Finance

Nizar Abdulrahman Alshubaily

A Collection Of Contemplations

On The Islamic Banking Industry

Volume I

2021 

Introduction

I have worked in the Islamic Banking industry for more than thirty years. I started when the industry was much smaller and practically unknown. I have held senior positions in many of the Islamic Financial institutions in the region. I have managed assets, developed products, and dealt with scholars, regulators, and clients.

Since my retirement, I have been writing about the subject of Islamic Banking, its reality, and the underlying principles. I hoped that those interested in the subject would learn something.

I noticed that the majority of observers of the industry are not Arabic speakers. Given that the overwhelming majority of information on the subject is in Arabic, this group was heavily disadvantaged in learning the real fundamentals of the principles of transactions, which is why I have written this book in English.

I have also noticed that there are so many myths and misunderstandings of the subject, which is one of the reasons why many are cynical or skeptical.

The idea for the book came about when I found I had enough articles that I have written in social media, that I felt gathering them might make for an interesting learning tool.

I hope this book goes a long way in alleviating so many misunderstood issues.

As I write this introduction, according to the latest figures, total Islamic Finance assets have reached $ 2.88 Trillion (State of the Global Islamic Economy Report 2020/21).

When I was born in 1961, there were no Islamic Financial Institutions. Today there are around 1,526, with 46 countries with some aspect of Islamic Finance Regulations, 972 Islamic Finance Education Providers, and 463 Islamic Finance Events annually (ICD-Refinitiv Islamic Finance Development Report 2020).

Even when I started my career in 1985, the numbers were extremely modest. But by end of 2019, my own homeland, Saudi Arabia recorded that 66% of total banking assets were Islamic. Shari’ah-compliant banking had become the dominant form.

These are numbers I did not imagine seeing in my lifetime and are proof of the success of the industry.

This is not a manual on Islamic Banking. There are numerous manuals and introductory books on the subject far better for the beginner student.

This book requires a certain amount of knowledge of the industry and Fiqh Al-Mu’amalat.

Whilst the book is not difficult by any measure, it still does require a good amount of experience and understanding of issues, without which, the concepts may seem irrelevant. It assumes that the reader has it least a reasonable amount of experience in the subject matter; otherwise some issues might seem vague.

The book however, has been written in very easy language. It should feel as if I am speaking to you, the reader, face to face. I have done my best to remove any hint of academic pretensions in order to facilitate the ease of reading, and the learning experience. Many books sometimes forget that the reader learns best by seeing an example from daily life, against which he can compare a particular Shari’ah issue. This too is often missing in many books on Islamic Finance.

There is no chronology in the book, so the reader can choose whichever chapter to read.

Part I covers a variety of foundational issues that are important to understand. Some are a basic recounting of the facts, while others require more thought. It is unfortunate that some of these issues are not taught in Islamic Finance schools.

The lack of understanding of these very crucial points have led to cynicism, especially in the area of replicating the functionality of conventional financial products. Far too many individuals have a superficial knowledge of what makes a product Shari’ah-compliant, and thus it is easy to dismiss some Islamic Financial products as not truly representing Shari’ah.

This part also covers the connection between The Qur’an and Contractual Terminology and meaning, as well as some contentious aspects of Islamic Finance such as benchmarking to interest rates and the difference between form and function in transactions. I also include in it an easy method of learning the differences between contracts that I learned a long time ago and found it to be very helpful.

The main objective of the first part is to dispel some myths, teach some foundational issues, and help the curious to know where to find more information.

Part II is the easiest part, as it has no notes, and it is essentially my own views on different aspects of the industry. These are usually articles I have written whenever I read criticism of Islamic Banking and attempted to respond.

I do not always succeed in convincing critics of the errors of their ways; however, every now and then, I see a glimmer of hope when someone actually gets the concept. It is far too easy to make criticism instead of critique, and it takes much knowledge to truly analyze an issue sufficiently to arrive at a proper conclusion.

Nizar Abdulrahman Alshubaily

March 2021

Part I - Foundations

Chapter One: The Qur’an and Islamic Finance

Chapter Two: Form and Function

Chapter Three: The Benchmark

Chapter Four: The Pairs

Chapter One

The Qur’an and Islamic Finance

The cornerstone of the Islamic finance industry is, and will always be, the adherence to, and compliance with, the rules and principles of Shari’ah, under the broader collective reasoning by prominent Shari’ah scholars and jurists, and based on evidences found in the Qur’an and the Sunnah, in an attempt to deduce Shari’ah rulings that fit current-day reality and practices.

Dr. Hamed Hassan Merah

AAOIFI Secretary General *

Unfortunately, many Islamic Finance observers do not know the connection between The Qur’an and Islamic Contracts. They tend to see any explanation as an attempt at a new interpretation of The Qur’an and see uncomfortable and are quick to judge.

In fact they are intimately tied, and in history, this connection is well documented by many scholars in their books of Tafsir, and is used extensively in many Fiqh books, both old and modern.

The connection between specific verses and contracts is well known and is available in many sources. In fact, you can hardly miss it; one is confronted by it just by perusing a few Fiqh books, classical and modern.

Once, in a post I asked which two contracts are referred to in Verse 72 of Surat Yusuf. Whilst some Islamic Finance experts knew immediately that the contracts were Ju’alah and Kafalah, one commentator posted an angry comment saying I do not have permission to do Interpretation. I had to show him the Tafsir of Ibn