Form Versus the Substance Debate in Islamic Finance


Salman Ahmed Shaikh

In currently practiced Islamic banking, the debt based modes of finance are used predominantly and these products are priced with same interest based benchmarks, which the conventional banks use. It seems that practiced Islamic banking is far removed from the ideals of Islamic economic principles.

One may in fact go on to say that it is in fact doing harm to the objective of promoting Islamic economics by mimicking conventional banking products and using the same paradigm to make these products somehow conform to Islamic legal framework.

There is limited originality in product structures and most importantly, they do not hit the roots of the evils of interest based system and capitalism. If interest was prohibited due to exploitation as explained by Quran, then, how Islamic banking having two percentage points higher spreads than conventional banking and using primarily the debt based modes of finance, justifies avoiding exploitation and providing anything substantially different from conventional banking system. Rather, the practiced Islamic banking has presented a happy marriage of current system with Islamic set of rules as an apology. Below, we strive to see how Allah in Quran sees form versus the substance debate.

Jews were given an order to slaughter the Cow. Instead of doing it, they started asking questions about the ‘form’ of the Cow to be slaughtered. Instead of encouraging their questions, Allah criticized their ‘form-centric’ approach.

In Chapter Hajj (Verse 37) while describing the essence of ‘Qurbani’, Allah said:

“It is neither their meat nor their blood that reaches Allah, but it is piety from you that reaches Him… ”

Islamic bankers and scholars must remember the behavior of ‘Ihl-e-Sabbath’ and Allah’s verdict on that behavior. People of Aylah were prohibited from fishing on Saturdays. The fish used to come only on Saturdays since Allah was testing their obedience. But, they made a trick to catch the fish on the Sabbath. They fixed their fishing nets and ropes on Friday so that fish get into the nets on Friday and they could catch them on Sunday. They were considered disobedient by Allah on this behavior and they were doomed.

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About Salman Ahmed Shaikh

PhD Economics. Author, Researcher, Teacher and Consultant. He can be contacted at: salman@siswa.ukm.edu.my
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