By Shaikh Ziyaad Mahomed (ziyaadm@ifisa.co.

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Shaikh Ziyaad is a well-known South African Islamic Scholar specializing in Islamic Finance. He is a consultant and trainer to banks in Africa, Europe and the Middle East.

Islamic finance ? Whats all the hype about ? Islamic finance & banking has become the buzz of the decade, not only in the Islamic sphere, but also in the conventional, interest-based banking system. The success story of Islamic banking has introduced a new sector to the global financial industry and has with the aid of Shariah Scholars and other experts in the field, developed into one of the most dynamic and fastest growing sectors in the world. The underlying principles of the Islamic economics are relevant and applicable in any era: medieval or modern. Islamic economics follows universal moral precepts that can be applied to all aspects of financial life. But doesnt it seem that Islamic Banking has only been around for the last thirty to forty years ? ! In fact, if one were to review the historical background, conventional(interest-based) banking in its modern form has only been in existence for the last three hundred years. Islamic economics has of course been around since the advent of Islam, almost 1,500 years ago. The Islamic Commercial Law that governs trade is extracted from the sources of law in Islam, viz : The Quran, the Sunnah or example of the Prophet Muhammad(Peace be upon him), Consensus amongst the Scholars and through Analogy and Logical Reasoning. The latter sources keep Islamic Commercial Law dynamic, adaptable and sophisticated whilst the former sources set the parameters. Muslim traders in the 11th century AD began trading throughout the ever-expanding Islamic empire. Traders of caravans laden with silk and embroidery from the far corners of Persia and Samarkand trekked across the Middle East and North Africa to sell their wares in the new Islamic region of Andalusia(modern-day Spain). These sales naturally generated a substantial value of gold that was used as a medium of exchange. On the other hand, traders from the Cordoba and the rest of Muslim Spain intended to trade in unexplored territories of North Africa and the East. How did they resolve the issue of having to carry vast loads of gold and risk attack by bandits along the way ? Simple really : They invented the Sakk or the cheque that was a certificate of deposit that could be used to claim from gold deposits in Samarkand or Cordoba. In the last five years, the Sakk (plural Sukuk) has become the most popular Islamic investment instrument in modern banking history. It has been used to expand the Dubai International Airport and large governmental projects in a Shariah acceptable manner. An underlying principle of Islamic economics is the issue of interest or riba. The concept of riba is often misunderstood and the prohibited form is argued to be in reference to an excessive demand on a loan, for example : a loan of NGN10,000 attracts

a 20% interest in the first six months. However, the concept of riba has a wide reach. Any excess or addition as a condition of a loan is considered riba, no matter how large or small. The devastation that riba has had on individuals, communities and nations, is wellknown. The most powerful tool for the success of capitalism has been interest in various forms. President Obasanjo of Nigeria speaking in the year 2000, commented on his countrys debt to international creditors, saying : All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors' interest rates. If you ask me what is the worst thing in the world, I will say it is COMPOUND INTEREST. (Vanguard, (2000)) What sort of interest is prohibited in Islam? What then are the alternatives to interest for Muslim consumers? All this and more will be covered in the following weeks. Dont miss this article in the next issue . . .

Contributed by Shaikh Ziyaad Muhammad of IFISA, Islamic Finance Institute of Southern Africa (www.ifisa.co.za