Introduction
Amjid Ali, senior manager, HSBC Amanah Global, believes that shariah finance is broadening its appeal and reach—both among Muslims and non-Muslims—as a result of the banking and financial crisis. Recognized as one of the most influential Muslims in the UK by the Muslim Power 100 Awards, Ali has 22 years of branch banking experience with Midland Bank and HSBC in the UK. In September 2003 he joined HSBC Amanah UK as senior business development manager, with responsibility for raising the profile of Amanah Home Finance in the UK. He took over as UK head in January 2005, with responsibility for strategy, distribution, and sales, and was appointed senior manager, HSBC Amanah Global, in August 2008. In this role Ali is working as part of the HSBC Amanah central team headquartered in Dubai.
What are the underlying principles of shariah law from a financial perspective? In other words, what defines the kind of model to which a financial institution that seeks to offer shariah-compliant services to its Muslim customers will have to adhere?
Shariah is the body of Islamic faith and has two main sources. The first is the Qur’an, the sacred book that records the word of God as revealed to the prophet Muhammad, Peace Be Upon Him (PBUH). To quote directly from the Qur’an: “God has permitted trade and forbidden interest,” Qur’an, Chapter 2, Verse 275. The fundamental underlying principle is that interest is prohibited.
The second source is the Hadith, the body of documents that records the sunnah (the practice, or “life example”) of the Prophet Muhammad (PBUH).
From these two sources there are five main prohibitions that must be observed in the creation of a shariah-compliant financial services model. They overlap somewhat and are mutually supportive.
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Riba: the prohibition of interest.
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Gharar (translated as “uncertainty” or opacity): there must be a full and fair disclosure (e.g., certainty as to the price of a contract before it is concluded.)
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Maysair: the prohibition of speculation or gambling (“obtaining something easily or becoming rich without effort”.)
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Profit: the Islamic financier should only generate benefit from the project in which they invest and must take some risk, since risk equates to effort and potential loss.
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Unethical investment: Islam prohibits investing or dealing in certain products such as alcohol, armaments, and pork, and in activities such as gambling, entertainment, and hotels. (Exactly how this last prohibition is interpreted varies widely depending on where in the Muslim world one is.)
Is this list sufficient to define shariah-compliant financial services?
No, there are other factors to keep in mind when constructing product offerings. Very importantly, one has to keep in mind the Islamic view of money. In Islam money is not a commodity; it has no intrinsic use and it can only be exchanged for the same par value. Also, Islam allows the use of securities to support a transaction, which guards against the wilful wrongdoing or carelessness of partners.
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