A Collective Fatwā against Islamic Banking

[Ghias]

A Collective Fatwā against Islamic Banking
Translated by Shoaib A. Ghias*
Translator’s Note – Over the last two decades, several “Islamic” banks have been
established in Pakistan, some (BankIslami and Meezan Bank) under the supervision of
Muftī Taqī ʿUthmānī, an Islamic jurist and former Supreme Court judge who is
considered Muftī-i Aʿẓam (the grand muftī) among the Deobandis in Pakistan.1 But in
2008, a group of Deobandi scholars issued a collective fatwā against existing Islamic
banks.
The intellectual force behind the fatwā comes from the jurists at Jāmiʿa ʿUlūm
Islāmiyya, Banūrī Town. But the fatwā’s leadership comes from Jāmiʿa Fārūqiyya’s
Mawlānā Salīmullah Khān (b. 1926) who is among the few living teachers of Muftī Taqī
ʿUthmānī (b. 1943). In the traditional system of religious knowledge and authority, where
a teacher commands great respect and deference, Mawlānā Salīmullah Khān’s role is
particularly important in the fatwā against his former student’s Islamic banking model.
Moreover, Mawlānā Salīmullah Khān is the president of Wafāq al-Madāris al-ʿArabiyya,
the Deobandi board of education. In the absence of formal hierarchical institutions among
* The translator is completing his J.D. and Ph.D. in the Jurisprudence and Social Policy
Program at the University of California, Berkeley, School of Law.
1 Sunni Muslim scholars in South Asia are divided into three groups: Deobandis,
Barelwis, and Ahl-i Ḥadīth. Deobandis and Barelwis follow the Ḥanafī madhhab,
whereas Ahl-i Ḥadīth emphasize using ḥadīth instead of any madhhab. Deobandis are by
far the most organized of the three groups. See Muhammad Qasim Zaman, The Ulama in
Contemporary Islam: Custodians of Change (Princeton: Princeton University Press,
2002), 11.
Electronic copy available at: ssrn.com/abstract=1777589
2
Deobandis, Mawlānā Salīmullah Khān’s position in the board of education is another
important aspect in the fatwā’s authority.2
The collective fatwā against Islamic banks was published as a short statement in
Pakistan’s newspapers on August 29, 2008.3 In response, Muftī Taqī ʿUthmānī issued a
fatwā holding that his former fatwās on Islamic banking stand in the absence of
arguments from the opposing side.4 Shortly afterward, Banūrī Town published an article
outlining the arguments for the fatwā against Islamic banking (translated here),5 and later
compiled a book to substantiate these arguments from Ḥanafī fiqh.6 Since then, Muftī
Taqī ʿUthmānī has authored a book in response to Banūrī Town’s fiqhī concerns.7 Some
of his supporters have also produced books to defend Muftī Taqī ʿUthmānī’s fiqhī
positions and scholarly rank.8 Whether Muftī Taqī ʿUthmānī’s defense has satisfied the
Deobandi critics of Islamic banking in Pakistan remains to be seen.
2 See Muftī Taqī ʿUthmānī’s letter to Mawlānā Salīmullah Khān in Thāqib al-Dīn, Islāmī
Baynkārī awr Muttafiqa Fatway kā Tajziya (Karachi: Memom Islamic Publishers, 2009),
52-63.
3 "[Fatwa on Islamic Banking]," Jang, August 29, 2008.
4 Muḥammad Taqī ʿUthmānī et al., "Islāmī Baynkārī kay Bāray Mayn Ayk Sawāl kā
Jawāb," al-Balāgh 43, no. 10 (2008): 56.
5 Jāmiʿa ʿUlūm Islāmiyya Banūrī Town, "Murawwaja Islāmī Baynkārī awr Jamhūr
ʿUlamā kay Mawqaf kā Khulāṣa," Bayyināt 71, no. 9 (2008).
6 ———, Murawwaja Islamī Baynkārī: Tajziyātī Muṭālaʿa, Sharʿī Jā’iza, Fiqhī Naqd wa
Ṭabṣara (Karachi: Maktaba-i Bayyināt, 2008).
7 Muḥammad Taqī ʿUthmānī, Ghayr Sūdī Baynkārī: Mutaʿallaqa Fiqhī Masa’il kī Taḥqīq
awr Ishkalāt kā Jā’iza (Karachi: Quranic Studies Publishers, 2009).
8 ʿAbdur Ra’ūf, Islāmī Baynkārī par Akābir ʿUlamā Mayn Ikhtilāf: Chand Usūlī Bātayn
awr Usūlī Ḥal (Multān: Idāra-i Tālīfāt-i Ashrafiyya, 2009); Islāmī Baynkārī awr ʿUlamā:
Ikhtilāfī Fatway par Ahl-i ʿilm wa Fikr kay Tabṣaron kā Majmūʿa. (Karachi: al-Afnān
Publisher, 2009); Thāqib al-Dīn, Islāmī Baynkārī awr Muttafiqa Fatway kā Tajziya.
3
The Banūrī Town scholars have termed the fatwā against Islamic banking
muttafiqa (collective opinion) and jamhūrī (majority opinion), whereas some Dārul
ʿUlūm supporters have called the fatwā ikhtilafī (dissenting opinion). But such claims are
difficult to assess in the absence of an objective method to measure the prestige and
number of scholars on each side.
While the fatwā deals with Islamic banking in Pakistan, its reasoning has
implications for Islamic finance prevalent among the Muslims in the West as well. Muftī
Taqī ʿUthmānī (chairman sharīʿa board, Guidance Financial), his son Muftī ʿImrān
Ashraf ʿUthmānī (member sharīʿa board, Guidance Financial), and fellow Deobandi
scholar Shaykh Yūsuf Ṭalāl DeLorenzo (member sharīʿa board, Dow Jones Islamic
Markets Index) have played an important role in developing Islamic finance in the West.
Interestingly, DeLorenzo was educated at Banūrī Town and was among the students of
Muḥaddith al-ʿAsr Mawlānā Muḥammad Yūsuf Banūrī (d. 1977) – the founder of Banūrī
Town. In fact, both Dārul ʿUlūm and Banūrī Town claim the legacy of the late Mawlānā
Banūrī in the present debate.
I have translated Banūrī Town’s article outlining the fatwā’s arguments against
Islamic banking as well as two responses to the fatwā. The critics of Islamic banking
have often argued that Islamic banking holds on to Islamic contractual forms at the
expense of ignoring Islamic economic substance.9 But this fatwā against Islamic banking
is premised on the inherent interdependence between form and substance in fiqh. The
fatwā’s basic argument is that Islamic banking does not have Islamic substance because it
9 See, e.g. Mahmoud A. El-Gamal, Islamic Finance: Law, Economics, and Practice
(Cambridge University Press, 2008).
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has deviated from Islamic forms. This fatwā may not be conclusive but the debate
demonstrates the liveliness and diversity of the Islamic intellectual tradition.
Rendering the fatwā’s Urdu rhetorical prose with Persian and Arabic legal terms
and phrases into English can be challenging. I have mostly retained the prose’s rhetorical
flavor to convey the colorful descriptions despite some awkward English sentence
structures. But occasionally I have also used simpler language to render the meaning
more clearly in English. I have included a glossary of translated and untranslated terms at
the end. Since there is often confusion about translating ribā or sūd into “interest,” I have
generally included the original term in parentheses. I have also inserted subject headings
and explanatory terms within brackets.
Translation10
The majority of jurists in the country declare existing banking associated with
Islam against sharīʿa. To collectively express this opinion, a conference of famous and
well-known jurists from the country’s all four provinces was conducted on 25 Sha‘bān al-
Mu‘aẓẓam 1429 corresponding to 28 August 2008 … in Jāmiʿa Fārūqiyya, Shah Faisal
Colony, Karachi, under the chairmanship of Shaykh al-Mashā’ikh (elder of learned
elders) Ustādh al-ʿUlamā wa al-Muftīyyīn (teacher of scholars and jurists) Ḥaḍarat
Shaykh al-Ḥadīth Mawlānā Salīmullah Khān, may his blessings endure. A brief summary
of the position on existing Islamic banking expressed by the participating jurists, after
evaluation in the light of Qur’an and sunna, fiqh and fatwā, and facts and circumstances,
is presented:
10 Translated from Banūrī Town, "Murawwaja Islāmī Baynkārī awr Jamhūr ʿUlamā kay
Mawqaf kā Khulāṣa."
5
Dār al-Iftā: Jāmiʿa ʿUlūm Islāmiyya, ʿAllama Banūri Town, Karachi 29 Shaʿbān 1429
We consider the banking system associated with Islam purely un-Islamic. In
some regards, we consider this system even more dangerous than the conventional
banking system. There are two reasons to call this system un-Islamic:
1. Existing Islamic banking does not follow the proposed Islamic way.
2. Even the proposed Islamic way of financing consists of several shortcomings
from a sharʿī perspective. Observe the details:
First Reason
In practice, the banking system is not using the fiqhī foundations and conditions
that the existing Islamic banking’s architects (mujawwizīn) provided to Muslim bankers
– even on the terms [of the foundations]. As a result, existing Islamic banking has
remained unsuccessful in establishing its distinct Islamic identity from conventional
banking, and is marching on such a shaky path that it can certainly not distinguish itself
from conventional banking. Consequentially, the end result is materially indistinct from
ribā-based transactions. Note three incontrovertible testimonials of this point:
First Testimonial [Islamic Bankers]
The scholarly architects of existing Islamic banking, and the people associated
with existing Islamic banking, accept the fact that the foundations of Islamic banking are
shirka and muḍāraba, whereas existing murābaḥa and ijāra are merely stratagems that
were conditionally declared permissible and feasible (qābil-i ʿamal) for a limited time and
interim period. Existing murābaḥa and ijāra are not the permanent foundations of Islamic
banking in general (bil ittifāq). In fact, on the basis of being interest-based stratagems
(sūdī ḥīla), making them permanent foundations is impermissible and against sharīʿa.
6
Nevertheless, our bankers are focused on ijāra and murābaḥa, instead of shirka and
muḍāraba. They are not ready to abandon these stratagems, even though these are
interest-based stratagems (sūdī ḥīla) used in the framework of conventional standards and
materially interest-based (sūdī) transactions. The reason is that using existing ijāra and
murābaḥa in the framework of conventional standards produces the shape and form, and
qualities and benefits of precisely conventional banking, which is acceptable to every
banker. In comparison, the elements of shirka and muḍāraba are almost absent (qalīl kal
maʿdūm). Shirka and muḍāraba do not appeal to banks because of the Islamic principle of
sharing profit and loss. Therefore, it can be rightly stated that existing Islamic banking
has deviated from its original foundations such that return to its original foundations
appears clearly impossible (maḥāl), because true foundations of Islamic banking are on
one side, whereas the direction of existing Islamic banking is on the other side.
Second Testimonial [Muftī Muḥammad Taqī ʿUthmānī]
For this reason, the lead supporter of Islamic banking whose fatwā and
personality are relied upon on this issue, Ḥaḍarat Mawlānā Muftī Muḥammad Taqī
ʿUthmānī, may his blessings endure, is deeply sad and disappointed with this banking
system. He has expressed this [sentiment] in various writings and lectures. As a result of
these disappointments, he is showing signs of slowly distancing himself from this system,
even frankly stating that, “the wheel of existing Islamic banking is now going
backwards.” (We have the cassette and CD of the statement of Mawlānā, may his shadow
extend, on file.)11
11 The authors are anticipating the charge of mischaracterizing ʿUthmānī’s position,
which explains why they are pointing towards evidence.
7
This can only mean that the fears and suspicions of the people who considered
existing Islamic banking un-Islamic from the beginning are completely right. Moreover,
the people who were expecting improvements and Islamic-compliance in these banks
with great hopes, even they are forced to consider the idea of improvements and Islamiccompliance
an unfulfilled dream. If the existing Islamic banks were using the standards
proposed for them, then neither these elders [i.e. ʿUthmānī] would have faced
disappointments, nor our bankers would have heard their suspicions.
Third Testimonial [Intellectuals]
[The third testimonial] is from those countless common people and intellectuals
who interacted with both conventional and existing Islamic banks, but who could not find
the least difference between the two despite search and effort. This category includes
from common account holders to the greatest economists and famous bankers, for whom
it can be said without hesitation (bilā khawf-i tardīd) that they know the finer aspects of
the banking system with such depth and detail that their knowledge in this field begins
where the knowledge of our modern Islamic bankers ends. These experts have learned the
banking system not just from books and lectures, but after spending an important part of
their lives in banks. Nevertheless, they could not feel any difference between
conventional and Islamic banks apart from a few Islamic technical terms, which is a
testament to the fact that the operation of existing Islamic banking is working on the
financing structure of conventional banks instead of the proposed Islamic foundations.
Therefore, conventional and Islamic banks differ only in a few terms. In operations and
goals, the two are the same.
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Second Reason
The second reason to consider existing Islamic banks against Islam is that even
the foundations provided for existing Islamic banking are not, in any manner, free from
gaps. The architects of existing Islamic banking have dangerously stumbled in sharʿī
terms in the implementation (taṭbīq), elaboration (tashrīḥ), realization (taʿbīr),
argumentation (istidlāl), and mode of argumentation (ṭarz-i istidlāl) of these foundations.
1. [Principles of Jurisprudence]
The fundamental mistake in the argumentation and the style of argumentation of
these people is that in order to Islamize banking instruments, they disfigured (qaṭʿ wa
barīd) several technical fiqhī terms; depended on weak (ḍaʿīf) and inaccurate (marjūḥ)
opinions; authorized the practice of using [rules from] another school (madhhab ghayr) in
a single transaction, without completing sharʿī conditions, which is talfīq muḥarram (the
impermissibility of combining different opinions) for all schools and thereby overall
invalid.12 Similarly, in order to prove the Islamic face of an instrument and to clad it in
Islamic garb, endless and far-flung interpretations (dūr az kār ta’wīl dar ta’wīl) have been
used, deliberately ignoring correct (ṣaḥīḥ), explicit (ṣarīḥ), and clear (wāḍiḥ) rules –
something the [canonical] scholars have considered an insult, obstruction, and joke to
sharīʿa, since this method falls in the category of invalid interpretation (ta’wīl fāsid).13
12 In contrast to many Arab scholars, this point reflects the enduring centrality of the
madhhab among the South Asian Ḥanafīs. For the conditions before engaging in talfīq
and iftā bi madhhab ghayr, see Muḥammad Yūsuf Banūrī, "Qadīm Fiqh-i Islāmī kī
Rawshanī Mayn Jadīd Masā’il kā Ḥal," Bayyināt 2, no. 3 (1963); ———, "Jadīd Fiqhī
Masā’il awr Chand Rahnumā Usūl," Bayyināt 2, no. 4 (1963).
13 The Banūrī Town jurists make categorical remarks against ʿUthmānī’s jurisprudence
but address him with honorific terms such as haḍarat (great presence), mawlānā (our
lord), makhdūm al-ʿualmā (master of scholars), muftī-i aʿẓam (the grand jurist) and
prayers such as dāmat barakātuhu (may his blessings endure) and madda ẓilluhu (my his
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2. [Existing Murābaḥa and Ijāra are Stratagems]
The murābaḥa and ijāra used in banks are merely stratagems (hīla). They are not
agreed upon Islamic financing instruments. Making them a permanent system is
impermissible. The transaction completed through such stratagems is also considered
impermissible. Just as the stratagem of sale-repurchase (bayʿ ʿayna) is impermissible
before Imām Muḥammad,14 the stratagems of murābaḥa and ijāra, and making them
financial instruments is impermissible. On the one hand, the architects of Islamic banking
have ignored clear rules of this sort through endless interpretations (ta’wīl dar ta’wīl). On
the other hand, to justify the penalties imposed by Islamic banks, [they have used] the
Mālikī jurist Ibn Dinār’s inaccurate (marjūḥ) and rejected (matrūk) equivalent to nonexistent
(kal maʿdūm) opinion, when following this opinion was impermissible in sharīʿa
and in principle. But the architects of Islamic banking have deliberately disregarded these
jurisprudential (uṣūlī) subtleties, when these clear rules were not concealed to them.
3. [Existing Murābaḥa versus Fiqhī Murābaḥa]
There is no correspondence between fiqhī murābaḥa and the murābaḥa used in
Islamic banks. In fiqhī murābaḥa, the determination and assignment of price upfront and
the clear knowledge and existence of cost is necessary. Whereas in the murābaḥa used in
shadow extend). In response, ʿUthmānī writes with equally masterful style, “When, for
some reason, the minds of these young scholars become certain about an aged student
that after studying fiqh for half a century he is unaware of even the basic principles of
fiqh, and he will have to be taught those things about fiqh and uṣūl-i fiqh that even a
fourth or fifth level student knows, then it is not unforeseeable [for them] to get angry.
And it is their grace if, as a concession for the addressed’s age, they cover the anger with
the curtain of honorifics and respect, and only depend on using metaphors, saying things
between the lines, and employing satire.” [emphasis added] ʿUthmānī, Ghayr Sūdī
Baynkārī: Mutaʿallaqa Fiqhī Masa’il kī Taḥqīq awr Ishkalāt kā Jā’iza, 12-13.
14 Imām Muḥammad ibn al-Ḥasan al-Shaybānī (d. 805) was among the three leading
students of Imām Abū Ḥanīfa (d. 767).
10
banks, the bank does not pay the price first, or the cost does not even exist. Therefore,
banking murābaḥa does not even fall under any sale, let alone technical fiqhī murābaḥa.
In fact, naming this transaction murābaḥa is called deception in sharīʿa and considered
impermissible. But this deception is named murābaḥa in existing Islamic banking.
4. [Agency in Murābaḥa]
In the murābaḥa used in existing Islamic banks, the bank’s [master] contract on
paper, signed beforehand, is the real contract (aṣal). Afterwards, the various steps of
agency could not be agency in terms of sharīʿa. Rather, on account of the responsibility
of buying and selling revolving around one person, they are clearly invalid agency
(wakāla fāsida). Therefore, this method of agency is merely a manipulation of words in
terms of sharīʿa. In reality, the same person is becoming the seller and purchaser, which
is clearly against sharīʿa. This murābaḥa has no relation to the fiqhī murābaḥa. Thus the
banking murābaḥa is purely a stratagem for interest (sūdī ḥīla). And the earnings of these
banks is interest (ribā), not profit (ribh).
5. [Ijāra for Purchase Finance]
The basic purpose of the contracting parties in existing ijāra is not a lease (ijāra)
transaction, rather a sale (bayʿ) transaction. Based on jurisprudential principles, the rule
would apply to the basic purpose of sale, not the words of ijāra. So if this transaction is a
sale, then it is a sale conditioned on lease (bayʿ mashrūṭ bil ijāra) which is against sharīʿa.
6. [Benchmarking Rent to Market Interest Rate]
It is basically wrong to use the conventional interest rate as a standard to
determine the rent, because this is firstly similar (mushābiha) to interest (sūdī
muʿāmalāt), and secondly suspicious (ishtibāh) as well. Furthermore, the conventional
11
interest rate changes with time and inflation. An ijāra where the rent is not determined
upfront is impermissible. But our Islamic bankers are trying to give sharʿī grounds to
non-sharʿī methods, ignoring basic rules as usual.
7. [Forced Charity as Penalty]
Similarly, making and taking forcible charity in case of prepayment or late
payment from the customer in existing ijāra or any other contract is not charity, but
penalty in terms of sharīʿa, custom, logic, and law, which is undoubtedly impermissible
and purely interest (khāliṣ sūdī). In fact, [as for] the fiqhī text used by some scholars to
justify this penalty, the same text [actually] proves that the penalty is clearly interest
(ṣarīḥ sūd). This charity is paid for the bank’s purpose, with the bank’s conditions and
preferences, and under the bank’s compulsions. On this issue, the architects of existing
Islamic banking have deliberately or inadvertently made a big fallacy – to prove a nonshar
ʿī business need of the bank based on sharīʿa, they have used a remote logic, which
was not allowed. Whereas it is clear that when there is compulsion, there can be no
charity; and when there is charity, there can be no compulsion.
8. [Security Deposits]
Similarly, there is no allowance in sharīʿa law for security deposits in ijāra or
other contracts of existing banks. The technical concepts of shirka, muḍāraba, ijāra,
murābaḥa, etc., are from the genus of trust (amānāt) instead of guaranty (damānāt),
whereas security (rahn) can be taken upon guaranty and only under the rules of security.
So the security used in our Islamic banks is neither security, nor loan, nor even trust.
Rather, it is a non-sharʿī stratagem, pretext, and fabrication (talfīq) to benefit from
someone else’s money, which is impermissible and ḥarām.
12
9. [The Scope of Equity-based Financing]
Even after accepting shirka and muḍāraba as real foundations, existing Islamic
banks are not financing based on them. That is why the proportion of shirka and
muḍāraba in comparison with ijāra and murābaḥa, based on a survey and cautious
estimate, is at most 15 to 20 percent. Even if it is assumed 50 percent, applying the
principle that “when ḥalāl and ḥarām gather, ḥarām dominates ḥalāl,” and based on the
present facts where ḥalāl modes of financing are almost absent (qalīl kal maʿdūm) and the
element of non-sharʿī modes is greater, such a dominated mode of financing can only be
called non-sharʿī. That is why there is no principled reason for considering existing
Islamic banking’s mode of financing based on sharīʿa. But still it is called permissible
and its justification is emphasized.
10. [Unilateral Amendments in Contracts]
Contracts against sharīʿa are used in existing mushāraka and muḍāraba, e.g. the
application form to open an account in an Islamic bank includes the acceptance, without
clarifications (bilā tafṣīl), of the bank’s conditions and policies as well as banking laws
and notices. Furthermore, [the application form] includes the promise to abide by the
regulations and notices of the State Bank of Pakistan. But the Islamic bank’s notices and
policies keep changing, instead of staying the same. It is impermissible in sharīʿa to make
the customer bound by such indefinite (majhūl) and unknown (ghayr maʿlūm) notices.
And a contract with indefinite and unknown conditions and responsibilities is considered
invalid in sharīʿa, rather than correct and permissible.
11. [Dealing with the State Bank’s Regulations]
13
Similarly, binding a Muslim customer to the notices and policies of the State
Bank of Pakistan is completely impermissible because the un-Islamic nature of the State
Bank and its violation of sharʿī rules is as clear as the sun. Importance: Some people
argue that the State Bank of Pakistan has openly, legally, and in writing allowed the
Islamic banks to make their policies according to Islam. If we accept this notion,
disregarding the State Bank’s un-Islamic nature, then it would mean that our existing
Islamic banks, despite being practically and legally free to invest on their true [Islamic]
foundations, are deliberately not expanding the concept of investing on the true
foundations of Islamic banks, i.e. mushāraka and muḍāraba. If the excuse of the State
Bank as an obstacle existed, then to some extent there would have been space for
considering Islamic bankers under compulsion, just as some scholars under this
compulsion have remained silent so far.
12. [Service Fees in Muḍāraba Accounts]
In muḍāraba, the account holder is rabb al-māl (investor) and the bank is muḍārib
(working partner). The bank’s portion in the māl muḍārib (generated wealth) is the
agreed percentage of the obtained profit. Taking further money for personal and
institutional expenses, or taking various fees or any form of compensation or allowance
from the māl muḍārib is impermissible for the bank. But Islamic banks take a muḍāraba
fee and they are still called Islamic, which is synonymous to calling un-Islamic Islamic.
14
13. [Allocation of Profit]
The proposed method of allocating profits in shirka and muḍāraba does not
complete Islamic requirements. Rather, instead of the real rate of return, a fictional and
estimated rate of return is used on the basis of “daily return” or in the name of “weighed
return,” which is completely against the fundamental principles of shirka and muḍāraba.
14. [Diminishing Partnership]
From the standpoint of sharīʿa, shirka mutanāqiṣa (diminishing partnership) falls
under forbidden gains (mamnūʿ mukāsib) and impermissible sales (nā jā’iz buyūʿ). This
contract includes several problems such as transaction upon transaction (ṣafqa fī ṣafqa),
sale and condition (bayʿ wa sharṭ), and sale subject to repurchase (bayʿ al-thanayā) and is
therefore impermissible. But despite these textual principles (nuṣūṣ sharʿiyya), the
justification for shirka mutanāqiṣa has been given, and Islamic banks have made this a
foundational mode of financing. Instead of calling shirka mutanāqiṣa an established
(istiqrā’ī) Islamic mode of financing, calling it an un-Islamic mode was the responsibility
of scholars. But some people have deliberately ignored this responsibility.
It should remain clear that the trustworthiness (amānat wa diyānat), religiousness
(tadyīn), and God-consciousness (taqwā) of the experts of Islamic sharīʿa and fiqh is a
witness to the fact that the clear rules of Islamic fiqh are such that attempting to deny
them or [re]interpreting them in any way falls under invalid interpretation (ta’wīl fāsid).
Rather, [the practice] amounts to playing with, and making a joke of, sharʿī texts.
15. [Corporate Personality of Banks]
The oppressive, unjust, and exploitative notion of juristic person and its limited
liability is not simply present in existing Islamic banking, but holds the status of the
15
backbone.15 The juristic person and the concept of its limited liability is non-sharʿī and
prejudiced (nā rawā) to provide unlimited profits to the bank and its branches and
holdings, and to protect them from the heavy burdens of loss. In this concept, the best
outcome for the juristic person’s branches and holdings and the worst exploitation of the
debtors is embedded. When the profits are high, the inanimate “juristic person” is more
powerful than a real person, and when it is time to bear losses, the juristic person dawns
the shroud (kafan) of limited liability and descends into death’s well. In addition to being
against Islam, this concept insults the humanity as well, because making a real person a
servant of the fictional person becomes necessary. Nevertheless, countless intellectual
moves have been employed to prove this un-Islamic concept Islamic, and such arguments
are made on this position that are not acceptable in principle.
16. [Interest-based Elements in Banks]
The architects and associates of existing Islamic banking themselves admit that
the transactions of existing Islamic banks are not purely without-interest (ghayr sūdī),
halāl, and permissible. Rather, some transactions are permissible and some are
impermissible. Such [mixed] transactions are at least suspicious (mushtaba). Instead of
general (bil ittifāq) permissibility and lawfulness, according to principles of sharīʿa, the
rule of impermissibility and unlawfulness is applied on such transactions. For instance, if
some transactions of existing Islamic banks are assumed permissible, even then there is
no basis for presenting an absolute justification (muṭlaq jawāz). On such transactions,
15 On ʿUthmānī’s fiqhī perspective on corporate personality, see Muhammad Taqi
Usmani, "The Principle of Limited Liability," in Meezanbank's Guide to Islamic Banking,
ed. Muhammad Imran Ashraf Usmani and Zeenat Zubairi (Karachi: Darul Ishaat, 2002);
Muḥammad Taqī ʿUthmānī, Islām awr Jadīd Maʿīshat wa Tijārat (Karachi: Quranic
Studies Publishers, 2009), 95-102.
16
observe a fatwā of Makhdūm al-ʿUlamā Ḥaḍarat Mawlānā Muftī Muḥammad Taqī
ʿUthmānī, may his blessings endure, that he gave on the rule for [bank] “counters without
interest” (ghayr sūdī counters)16 as an example:
This analysis demonstrates that for now the business of these “counters without
interest” is mixed with permissible and impermissible transactions, and some of it
is suspicious. Therefore, until these shortcomings are addressed, the profit derived
from them cannot be considered completely halāl, and it is incorrect for Muslims
to participate in such business. (Fiqhī Maqālāt, vol. 2, 264, Memon Publishers)17
This fatwā shows that there is no room in sharīʿa to permit and regularize such
transactions, even if they include limited elements of permissibility. And it is
impermissible for Muslims to participate in such transactions. But the transactions of
existing Islamic banks are still considered and emphasized as permissible.
The point is that even the theoretical frameworks of existing Islamic banking
devised by the architects of Islamic banking are against sharīʿa. Instead of Islamic
banking, the color of conventional banking is obvious in them. And these frameworks
have several sharʿī shortcomings. Even worse, the practical workings of such banks does
not even accord with these theoretical frameworks. Therefore, even calling these existing
Islamic banks “Islamic banks” is not permissible, because at most they can be called
“stratagem banks” based on stratagems of ijāra and murābaḥa. But stratagem is one thing,
and Islam’s essence is another.
16 The “counters without interest” were introduced by conventional banks in 1980s
consisting of separate counters in branches to deal with profit and loss sharing accounts.
17 In response to the characterization of his position, ʿUthmānī has distinguished these
ghayr sūdī counters from existing Islamic banking. See ʿUthmānī, Ghayr Sūdī Baynkārī:
Mutaʿallaqa Fiqhī Masa’il kī Taḥqīq awr Ishkalāt kā Jā’iza, 36-40.
17
[Fatwā]
Therefore, on the basis of these reasons, the fatwā of the country’s majority of
scholars and jurists is as follows:
In the past few years, the framework of banking practiced in some Islamic sharʿī
technical terms was evaluated in the framework of Qur’ān and sunna; and along
with the focus on the documents, forms, and principles of these banks, the works
of great jurists were consulted. Finally, for a conclusive decision on this matter, a
conference of respected scholars from the four provinces was conducted in
Karachi on 28 August 2008, corresponding to 25 Shaʿbān al-Muʿaẓẓam 1429 on
Thursday, under the chairmanship of Shaykh al-Ḥadīth Ḥadarat Mawlānā
Salīmullah Khān – may his blessing endure. The leading jurists present in the
conference collectively issued the fatwā that the banking (murawwaja
baynkārī) associated with Islam is categorically (qaṭʿī) non-sharʿī and un-Islamic.
Therefore, the contracts with these banks considered Islamic or sharʿī are
impermissible and harām; and the [sharʿī] rule about them is the same as the ribābased
banks.
From this detailed explanation, it has become clear that existing Islamic banking is in fact
un-Islamic banking. But people are transacting with it thinking that it is Islamic banking.
Therefore, the scholars of Muslim community consider existing Islamic banking more
dangerous for Muslims in comparison with conventional banking. The reason is that
engaging in an impermissible and against-sharīʿa transaction while considering it
impermissible is a lesser wrong (kam darjay ka jurm) whereas considering it permissible
is a greater wrong. Conventional bankers engage in interest-based (sūdī) transactions
18
while considering them interest-based transactions. Whereas existing Islamic bankers
engage in the same interest-based and against-sharīʿa transactions while considering them
sharʿī, which is more dangerous than the former in relation to faith and afterlife (ākhira).
A conventional Muslim banker, considering himself sharʿī wrongdoer and sinner, can
reach the doors of repentance for the forgiveness of his impermissible and interest-based
transactions. He can be given an opportunity (tawfīq) for repentance. Whereas, an
existing Islamic banker would neither be drawn toward repentance nor get an opportunity
for repentance because he does not even feel its need. God bestows repentance and
forgiveness upon the one who turns toward God as a needy (muḥtāj).
Therefore, it necessary and incumbent upon Muslims to make a complete effort to
stay away from banking associated with Islam just as other ḥarām and against-sharīʿa
matters, and engage in repentance and retraction from their past transactions.
Undoubtedly, God forgives the one who returns to Him.
Wallahu taʿālā aʿlam bi al-ṣawāb wa ilayhi al-marjaʿ wa al-maāb
Wa ṣalla allahu wa sallam ʿalā sayyidinā Muḥammad wa ʿalā ālihi wa ṣaḥbihi
wa atbāʿihi ajmaʿīn
[Signatories to the Collective Fatwā]18
Ḥaḍarat Shaykh al-Ḥadīth Mawlānā Salīmullah Khān
Jāmiʿa Fārūqiyya, Karachi
Muftī Ḥamīdullah Jān
Jāmiʿa Ashrafiyya, Lahore, Punjab
Mawlānā Saīd Aḥmad Jalālpūrī
Majlis-i Taḥaffuz-i Khatm-i Nabuwwat, Karachi
Muftī Muḥammad Inʿām al-Ḥaq
Jāmiʿa ʿUlūm Islāmiyya, Banūrī Town, Karachi
18 Banūrī Town, Murawwaja Islamī Baynkārī: Tajziyātī Muṭālaʿa, Sharʿī Jā’iza, Fiqhī
Naqd wa Ṭabṣara 346.
19
Muftī Muḥammad ʿAbdul Majīd Dīnpūrī
Jāmiʿa ʿUlūm Islāmiyya, Banūrī Town, Karachi
Muftī Ghulām Qādir
Dār al-ʿUlūm, Ḥaqqāniyya, Akora Khatak
Muftī Muḥammad Madanī
Maʿhad al-Khalīl al-Islāmī, Bahādur Ābād, Karachi
Mawlānā Doctor Manẓūr Aḥmad Mayngal
Jāmiʿa Fārūqiyya, Karachi
Muftī Rafīq Aḥmad Bālākūti
Jāmiʿa ʿUlūm Islāmiyya, Banūrī Town, Karachi
Muftī Shuʿayb ʿĀlim
Jāmiʿa ʿUlūm Islāmiyya, Banūrī Town, Karachi
Muftī ʿAbdul Qayyūm Dīnpūrī
Dār al-Iftā, Majlis-i Taḥaffuz-i Khatm-i Nabuwwat, Karachi
Muftī Aḥmad Khān
Jāmiʿa ʿUmar Kot, Sindh
Muftī Qaḍī Salīmullah
Dār al-Hudā, Tayrī Khayrpūr, Sindh
Muftī Ihtishām al-Ḥaq Āsiya Ābādī
Jāmiʿa Rashīdiyya, Āsiya Ābād, Turbat Makrān, Balochistan
Muftī Imdādullah
Jāmiʿa Dhoronaro, Sindh
Muftī Rozī Khān
Dār al-Iftā Rabbāniyya, Quetta, Balochistan
Muftī ʿĀṣim ʿAbdullah
Jāmiʿa Ḥammādiyya, Karachi
Muftī Samīullah
Jāmiʿa Fārūqiyya, Karachi
Mawlānā Kalīmullah
Jāmiʿa Dhoronaro, Sindh
20
Muftī Amānullah
Jāmiʿa Khulafā-i Rāshidīn, Karachi
Muftī ʿAbdul Ghaffār
Jāmiʿa Ashrafiyya, Sakkhar, Sindh
Muftī Ḥāmid Ḥasan
Dār al-ʿUlūm Kabīrwālā, Punjab
Muftī ʿAbdullah
Jāmiʿa Khayrul Madāris, Multān, Punjab
Muftī Ḥabībullah Shaykh
Jāmiʿa Islāmiyya, Clifton, Karachi
Muftī Aḥmad Khān
Jāmiʿa Fārūqiyya, Karachi
Muftī Nazīr Aḥmad Shāh
Jāmiʿa Fārūq-i ʿAẓam, Faisalabad, Punjab
Muftī Saʿīdullah
Jāmiʿa ʿArabiyya Taʿlīm al-Islām, Quetta, Balochistan
Muftī Aḥmad Mumtāz
Jāmiʿa Khulafā-i Rāshidīn, Karachi
Muftī Gul Ḥasan Bolānī
Jāmiʿa Raḥīmiyya, Sarkī Road, Quetta
Muftī Zar Walī Khān
Jāmiʿa ʿArabiyya Aḥsan al-ʿUlūm, Gulshan-i Iqbāl
Muftī Saʿduddin
Jāmiʿa Ḥalīmiyya, Darwahpīzo, Sarḥad
Muftī ʿAbdussalām Chatgāmī
Jāmiʿa Muʿīnul Islām, Hāthazārī, Bangladesh
[Unsigned Endorsements] 19
Ḥaḍarat Mawlānā Sarfarāz Khān Ṣafdar, Muftī ʿĪsā, Mawlānā ʿAbdul Ghanī
19 Muftī Doctor ʿAbdul Wāḥid was mistakenly included among the endorsers. See ʿAbdul
Wāḥid, Ghayr Sūdī Baynkārī: Mawlānā Taqī ʿUthmānī Madda Ẓilluhu kī Khidmat Mayn
Hadya-i Jawāb (Karachi: Majlis-i Nasharyāt-i Islām, 2009), 4.
21
Response – Dār al-ʿUlūm, Deoband, India20
I live in Pakistan. Here Islamic banking has progressed rapidly under the guidance
of Muftī Muḥammad Taqī ʿUthmānī – may his blessings endure. Many scholars in
Pakistan agree with it while many others strongly disagree with it. I want to find out,
what is the position of the scholars of Dār al-ʿUlūm, Deoband on the Islamic banking
model of Muftī Muḥammad Taqī ʿUthmānī? Are they in agreement with Muftī Ṣāḥib’s
Islamic banking method? Dānish Aḥmad, Pakistan
Fatwā:
The principles and policies and practical framework, etcetera, of the Islamic
banking model established and issued by Ḥaḍarat Mawlānā Muftī Muḥammad Taqī
ʿUthmānī, may his great shadow extend, are not before us. Therefore, it is difficult to
write a conclusive opinion. Nevertheless, Ḥaḍarat Muftī Ṣāḥib concerned, may his
shadow extend, has a deep knowledge of fiqh and fatwās, the ability to run banking on
the Islamic way, and the capacity to protect the system from interest (sūd) and other nonshar
ʿī matters. So under such circumstances the questioned model is presumed to be
correct (rājiḥ). If the local (Pakistani) scholars and jurists have disagreement over any
details, then there is nothing problematic with the scholars taking reformative steps
(iṣlāhī qadam) in private without publicity in general public.
The answer is correct (al-jawāb ṣahīḥ) [28 Muharram 1430 / 25 January 2009]
Ḥabībur Raḥmān, Zaynul Islām, Waqār ʿAli
Muftiyān-i Dār al-Iftā, Dār al-ʿUlūm, Deoband [India]
20 Translated from Islāmī Baynkārī awr ʿUlamā: Ikhtilāfī Fatway par Ahl-i ʿilm wa Fikr
kay Tabṣaron kā Majmūʿa. 13-14.
22
Response – Pakistan21
Recently when the fatwā of some scholars on Islamic banking was published, it
was given the title of “collective fatwā” (muttafiqa fatwā). Then the book published in its
support, “Murawwaja Islāmī Baynkārī,” declared [the fatwā] the majority’s position over
and over again and claimed that the support for the struggle for Islamic banking comes
from just one person (Shaykh al-Islām Muftī Muḥammad Taqī ʿUthmānī) and his
students whose [financial] interests are associated with Islamic banking.
The country’s other serious scholars were not in agreement with this fatwā, and its
manners and claims. So they took notice of these circumstances, and the country’s
famous jurist and spiritual leader (shaykh-i ṭarīqa) Ḥaḍarat Mawlānā Muftī Mukhtār al-
Dīn (successor to [the late] Ḥaḍarat Shaykh al-Ḥadīth Mawlānā Muḥammad Zakariyya
Sahāranpūrī – God’s mercy be upon him) wrote a statement and sent it to the jurists and
scholars of Sindh and Punjab provinces…: [140 scholars singed the statement]
Recently a fatwā was published against banking without interest (bilā sūd
baynkārī) and it was claimed that it represents the majority of scholars. In reality,
this is not the case. Rather, a great number of respected scholars and authentic
jurists does not agree with this fatwā for strong reasons. Therefore, these scholars
find it necessary to clarify that the fatwā issued against banking without interest is
neither agreed upon (muttafiqa) nor the position of the majority. Years of research
and effort of our elders and authentic personalities of the Islamic world exist
behind Islamic banking. We find the efforts of the great scholars, engaged in
improving this system even today, commendable.
21 Ibid., 228-47.
23
Glossary
Untranslated Terms
sharīʿa, adj. sharʿī the system of Islamic ethics, law, and normativity
fiqh, adj. fiqhī the genre of sharīʿa literature or authoritative legal manuals
fatwā juristic opinion or responsa
ḥalāl allowed
ḥarām forbidden
ijāra lease
murābaḥa cost-plus sale
muḍāraba silent partnership
mushāraka, shirka partnership
ribā forbidden forms of interest
sūd, adj. sūdī forbidden forms of interest (Urdu/Persian)
Common Terms
jurist muftī or ahl-i fatwā or arbāb-i fiqh wa fatwā
scholar ʿālim, pl. ʿulamā or ahl-i ʿilm
stratagem ḥīla, pl. ḥiyāl (Arabic) or ḥīlay (Urdu)
architects mujawwizīn
existing [Islamic banks] murawwaja
invalid fāsid
impermissible nā jā’iz
permissible jā’iz
un-Islamic ghayr islāmī
non-sharʿī ghayr sharʿī
against-sharīʿa khilāf-i sharʿ
transaction muʿāmala, pl. muʿāmalāt (Arabic) or muʿāmalay (Urdu)
24
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