Shares, Unit Trusts and the Shariah – Part One

THE SPIRITUAL PERSPECTIVE

For gaining the confidence of the Muslim community, which is  imperative for selling their wares, these purely capitalist  financial institutions which are in entirety bereft of any ideals of  altruism cite Qur’aanic aayaat and Hadith narrations with naked  shamelessness. The endeavour is to deceive the Muslim public  into the massive deception that these ‘Islamic’ banks are Islamic  charitable institutions working for the welfare of the Muslim  community in the spirit of Qur’aanic and Hadith exhortations of  brotherhood and service to Muslims. But nothing can be further  from the truth.

Consider the following advertising stunt of the Albaraka Bank.  In its brochure advertising its haraam Unit Trusts product, the  bank states:

“As Muslims we are required to consume halaal  food, wear halaal clothes and live in halaal  dwelling. ………. However, ill-gained wealth that  feeds us produces ill-flesh and keeps us spiritually  naked.” 

An examination of their deals will show that the wealth acquired  from their investment plans is in fact ill-gotten haraam wealth  yielded by products which do not conform to the Shariah. They  speak of spirituality, of the need to grow halaal flesh, while they  are immersed in riba in the same way as the kuffaar capitalists.  Their big talk about spirituality is a gimmick to advertise  banking business with its haraam investment products. No one  can be further from the goals of spirituality than these men who  operate riba institutions in the name of the Qur’aan and Sunnah.

And how is it possible for them to have even the haziest idea of  spiritual treasures when the Qur’aan Majeed declares:

Those who devour riba do not stand except as  one who has been driven to insanity by the touch  of shaitaan.” 

They vociferously trumpet the slogan of Islamic Brotherhood  and Qur’aanic concept of Qardh-e-Hasan (Beautiful Loan  ‘given’ to Allah Ta’ala), but their misdeeds loudly testify to the  hardness of their hearts –hearts hardened harder than stone by  their indulgence in riba in the name of the Shariah and under the  cover of cheap ‘fatwas’ obtained from some Maulanas and  Muftis. Consider the following case to understand the insanity  caused by the touch of shaitaan: 

A DISPUTE

The dispute is between Albaraka Bank and Mr. M. Hansa of  Durban who wrote to us:

“An agreement was tabled telephonically with Mahomed Khan  (of Albaraka Bank) on the matter of how to settle my debt of  R550,000. I was approximately 30 days late in the evening when  the Sheriff came to attach my goods. I was owing a balance of  R90,000. In the interim I discovered that Albaraka Bank had  obtained a judgement against me un-Islamically and by deceitful  ways. Surprisingly, Shaukat Karrim (the Bank’s lawyer) who  had obtained the judgement unethically still represents the  Albaraka Bank inspite of having brought it to the attention of the  directors, C.E.O, as well as Maulana Joosab (of the Bank). 

They obtained the judgement by serving the summons at the  incorrect domicillium. I have a faxed copy and proof that the  change of domicillium in 1995 was sent to Albaraka Bank.  However, surprisingly, inspite of the summons having been served at the wrong address, the attachment was made at the  correct address. 

Shaukat Karrim quoted R15,000 to my attorney. I personally  spoke to him and he brought it down to R12,000 which is also  high……………(This is besides the costs of about R30,000 for  my attorney and advocate.) 

The trial to have judgement rescinded will take 2 days at  enormous costs. Had proper channels been followed, no  judgement would have been awarded to the Bank. The trial will  be at a later date to discuss the merits of the case. 

Shaukat Karrim has brought it to my attention that he has an  open cheque from Albaraka Bank and the cost is no problem and  he will run the bill high to prove his point. 

Evidence for rescission of judgement and evidence for the trial  are the same. It will be duplicated. The Bank and myself will  have twice costs for advocate and attorneys. This will benefit  only the advocate and the attorney, and not the bank or myself.  The litigation is run by the bank. I am the defendant.” 

In a letter to Albaraka Bank, Mr. M. Hansa writes:

AlBaraka Bank, Attention Maulana Joosab, Commercial Road,  Durban 

“We refer to our telephonic conversation with yourself and  confirm the following as per your request: 

One of my customers owed me a large sum of money. He had in  turn purchased a huge quantity of goods (in the region of 31  million rands), so they were not paying me promptly.

I was in continuous contact with Mr. Mahomed Khan then, and I  had told him that the amount owing by me will be split up in  three instalments. The 1st instalment of R150,000 and the second  instalment of R125,000 were paid. There remained a balance of  R90,625 which was supposed to have been paid at the end of  August 2002. Mr. Mahomed Khan did not come back to me,  hence I thought everything was in order. On 21st August 2002 I  received a writ at 9 pm and a sheriff came and attached all my  possessions, whereas on this day there was only R90,625 owing.  That was when I realized that I did not receive summons before  this.” 

Mr. Hansa adds:

“Kindly provide the Islamic Ruling as this  matter is already set down for 2 days – 11th and 12th October  2004. Estimates of my costs in the above matter is R45,000 and  assuming the Bank will be the same excluding the trial cost. It  will be a waste of time and money. 

I have requested a Shariah Ruling from Maulana Joosab of  Albaraka Bank. However until today I have received no  response. The documents are against us. Insurance is  compulsory. Is this Shariah compliant? 

CC. Jamiatul Ulama KZN – Attention Maulana Kathrada 

In another letter to Albaraka Bank, Mr. Hansa wrote:

“We refer to our telephonic conversation of today and confirm  that numerous occasions we requested you to give an Islamic  ruling. Until today, we have not received any response. You  should not be perturbed if I speak to other Ulema because you  are procrastinating and I have no alternative. 

Since the debt has been paid, the way forward is for each party  to pay its costs. I await your earliest response.” 

No Shariah ruling can be expected to be forthcoming from the  Maulana who is inextricably interwoven with the fabric of the  riba Bank. The Shariah ruling in this matter caused by the hardheartedness  and intransigence of the Bank is:

It is haraam for the Bank to oppose the endeavour by Mr.  Hansa to obtain a rescission of the judgement. The Bank, in  opposing the endeavour is guilty of the following haraam  and cruel acts:

i) Ruining the reputation of a Muslim. It is incumbent to protect  the honour and good name of another Muslim.

ii) Instead of protecting the good name of Mr. Hansa, the Bank  is actively striving to ruin his integrity by opposing the  endeavour to have the judgement rescinded.

iii) The Bank has in a haraam manner involved Mr. Hansa in  incurring a substantial loss of money running into tens of  thousands of rands in the form of haraam legal fees. In so doing,  the Bank is guilty of usurping or being an instrument in the  usurpation of the wealth of a Muslim brother.

iv) The Bank having initiated this callous action, is responsible  for its own costs as well as for the costs which it had forced onto  Mr. Hansa.

It is noteworthy that inspite of the debt having been settled, this  so-called “Islamic’ Bank persists in its haraam and callous  attempt to blacken the name of a Muslim brother and to involve  him in paying tens of thousands of rands to satiate the haraam  demands and desires of lawyers.

QARDH HASAN

This case is a window from which the Bank’s understanding  ‘Islamic’ brotherhood and its concept of Qardh Hasan could be  clearly viewed.  Advertising its riba products, Albarka Bank states in its  definition of Islamic Terminology:

“Qardul hasa (A benevolent or good loan): An interest  free loan given either for welfare purposes or for  bridging short term funding requirements. The borrower  is required to pay only the amount borrowed.” 

Bringing the Qur’aanic concept of Qardh Hasan in the  advertising material of the Bank is laughable and deceptive. The  Bank attempts to depict a picture of altruism for itself by citing  the Beautiful Loan Allah Ta’ala exhorts Muslims to give.  A bank which subjects Muslims to the grinding yoke of haraam  lawyers fees should not venture to comment on Qardh Hasan. It  is a miserable attempt in advertising to drag the Qur’aan Majeed  and insult it by deceptively using it to promote capitalist  products sold to Muslims with capitalist attitudes. There is no  difference in the ideology of the kuffaar capitalists and the  Muslim entrepreneurs who operate riba banks under the guise of  ‘Islamic’ financing.

QARDH HASAN AND THE  QUR’AAN

Expounding the Shar’i concept of Qardh Hasan, Allah Ta’ala  states in the Qur’aan Majeed:

“Fear Allah as much as you can; hear and obey,  and (in His Path), for it is best for your souls.  Whoever has been saved from the greed of his  nafs, verily, they are the successful ones. If you  give Allah Qardh Hasan (Beautiful Loan), He  Will increase (the wealth) for you and forgive you  (your sins). And Allah is The One Who values  (your righteousness), The One Who is Most  Tolerant.”  (Surah Taghaabun, Aayats 16 and 17) 

In Surah Baqarah, aayat 280, the Qur’aan states:

And, if he (the debtor) is in (financial) difficulty  then (grant him) an extension until ease (i.e. until  he is able to pay). And, if you (waive the debt) as  Sadqah, it is best for you.”

It is in total conflict with the rule and spirit of the Qur’aan to  impose on a hard-pressed debtor the cruel yoke of interest and  the exorbitant fees of lawyers. One can understand the  oppression and injustice involved in this evil legal system which  allows a lawyer to extract R50,000 from a hard-pressed client  merely for a couple of hours in court.

Is it possible for persons who involve debtors in such oppression  to have a proper understanding of the meaning of Qardh Hasan.  This Qur’aanic concept has only three stages:

(1) Granting the debtor an extension of time to pay. This  extension should be until his financial position  improves.

(2) Waiving the entire debt. This is the best option in  terms of the Qur’aan.

(3) Waiving part of the debt if one is not able by either the  financial or spiritual means (i.e. lacking in Taqwa and Tawakkul) to write off the whole debt for aiding the  brother and for gaining the Pleasure of Allah Ta’ala.

There is no fourth option in the concept of Qardh Hasan.  The idea of oppressing the debtor by imposing a lawyer over  him is repugnant to the Qur’aanic exhortation of Qardh  Hasan.

The manner in which Albaraka has inflicted injury and  oppression on the hard-pressed debtor by assailing his  integrity with the court judgement and by imposing the  kuffaar legal system on him to extract tens of thousands of  rands from him is an adequate commentary of the  callousness and deception of the Muslim capitalist who are  immersed in the riba banking structure which they have  inherited from their kuffaar counterparts in the game.

The case of Mr. Hansa is not the only one. Over the years  many Muslims have complained and suffered the inequities  and zulm of the ‘Islamic’ banks which deceptively portray  themselves as the upholders of Islamic economics.

UNIT TRUSTS

What are unit trusts?  The explanation of unit trusts which Albaraka Bank gives in  its brochure is plain gibberish for the Muslim laymen whom  this bank is wooing and trying to convince of the alleged  Islamic permissibility of these haraam shares which are not  Shirkat (Partnership) shares in terms of the Shariah. It  appears that the one who wrote the explanation in the Unit  Trust brochure, himself is ignorant of what exactly unit trusts  are. He tries to sound like an expert with his explanation of  gibberish. The layman reader is left in perplexity and knows not head or tail of the meaning of unit trusts despite the brief  and stupid description in the brochure.

The Bank should understand that it is marketing its products  to ordinary Muslims who are not versed in the terminology  of the capitalists. To speak of NAV and Equity Fund without  giving the investors a hazy idea of what exactly these riba  ‘shares’ are is to pull wool over the eyes of the unwary. If the  author of the brochure lacks exposure in the capitalist  economic system, he should seek the assistance of some non-  Muslim expert of the system to explain the products in a  manner which is comprehensible to laymen. One ignorant of  the product should not attempt to present a clever image of  himself by presenting a ludicrous explanation which leaves  the layman reader in a greater quandary.

The haraam unit trust product is inextricably interwoven with  the dealings of the Stock Exchange, hence the Albaraka  brochure first attempts to pass off the Stock Exchange  system as Islamically ‘kosher’.  In this attempt, the brochure alleges:

“The joint stock  companies accumulate capital by selling shares of the  company on the stock markets. When a person purchases  shares of a company, the purchaser is the shareholder of the  underlined assets of the company.” 

Then defining the ‘share certificate’, the brochure states:

“The share certificate: When the client purchased in a  company the client did not purchase the share certificate but  he purchased a portion of the assets of the company. The  share certificate is a document that represents and confirms  the proportionate share of the shareholder. The buying and  selling of the share certificate in the secondary market is actually replacing the seller’s post as the shareholder to the  purchaser of the share certificate.” 

The above explanation of shares in public companies and the  share certificate has been sucked out from Albaraka Bank’s  thumb in an abortive bid to have its unit trusts and other  dealings on the stock exchange proclaimed halaal –lawful in  the Shariah. Albaraka’s representative who has presented this  figment of his imagination should state the basis and the  evidence for his definition of the share certificate and his  averment that the owner of the share certificate owns a  proportionate share of the actual tangible assets of the  company. There is no basis whatsoever for this claim of  Albaraka.

The ‘joint stock company’ is a creation of the riba-capaitalist  west. It is not a Shar’i institution nor did Albarakah Bank  introduce this capitalist system of trading. It has merely  adopted it in entirety—every aspect of it, including its riba  base. Hence it should not seek to explain this capitalist  system with its imaginary meanings in the endeavour to get it  passed as halaal by the Shariah.

THE COMPANY

In the capitalist system adopted by the votaries of ‘Islamic’  banking, a company is a legal entity apart from its  ‘shareholders’. It should be understood at this juncture that a  shareholder in a joint stock company differs substantially  from the shareholder in an Islamic Shirkat (Partnership)  enterprise. Insha’Allah, the difference will be explained later  in this article.

The Muslim capitalists have manipulated the term  ‘shareholder’ to confuse and mislead laymen who are unacquainted with the technical meanings of the terms and  their material effects. Since the ‘shareholders’ in these public  companies do not own the assets of the company, they are  not shareholders in the context of the Shariah. Mere  similarity of names does not produce similarity in the effects  of the different concepts.

For example, literally speaking, the  leasing system of the kuffaar banks is an ijaarah transaction.  While leasing is known in the Shariah as Ijaarah, it does not  follow that the ijaarah of the kuffaar banks is a valid Shar’i  Ijaarah contract merely on the basis of a similarity of names.  Similarly, the shareholder, viz., the person who purchases  share certificates in a public company, is not a Shareek  (partner/shareholder) in terms of the Shariah because such a  ‘shareholder’ does not own a share of the tangible assets of  the company as Albarakah Bank baselessly asserts nor is this  type of ‘shareholder’ responsible for the debts of the  fictitious legal ‘person’ called the company.

THE COMPANY SHAREHOLDER  AND THE SHAR’I SHAREHOLDER

The following table of differences will give a better  understanding of the meaning of ‘shareholder’ in the capitalist  system and the Shariah.

Company Shareholder Shirkat Shareholder
(1) Not responsible for the debts of
the company
Responsible for the debts of the
company.
(2) Personal assets cannot be
claimed or attached to pay the debts
of the insolvent company.
Personal assets can be appropriated
to pay the debts of the Shirkat
enterprise (Islamic Partnership).
(3) The company is not liable for the
debts of its shareholders. The
creditors of the shareholders cannot
claim the assets of the company in
lieu of the debt of shareholders in the
event of them not paying their debts.
The assets of the Shirkat enterprise
can be claimed by creditors of the
shareholders (partners).
(4) The shareholders purchase rights
(Huqooq) in the company.
The shareholders do not purchase
Huqooq. They purchase an actual
share of the tangible assets of the
partnership business, which entitles
them to a predetermined share of the
profits.
(5) The shareholder cannot
terminate his so-called partnership
and demand his proportionate share
of the tangible assets of the
company.
The Shar’i shareholder can dissolve
his partnership agreement and claim
his proportionate share of the assets
of the company.
(6) The shareholder cannot sell any
‘proportionate’ share of the tangible
assets of the company.
The Shirkat partner can sell his
share of the tangible assets of the
partnership enterprise and transfer
same to the buyer who is not obliged
to become a partner in the business.
(7) The buyer of the share certificate
from an existing shareholder
becomes an automatic owner of all
the rights of the shareholder from
whom he purchased the share
certificate (i.e. the paper certificate).
The buyer of the tangible assets sold
by a shareholder, does not
automatically become a shareholder
in the Shirkat business. If the
existing partners refuse to accept
him, he has no right to demand that
he be instituted as a partner on the
basis of him having purchased the
share of assets of the previous
partner. On the basis of his purchase
he cannot claim the right to receive
profits from the Shirkat business if
the existing partners refuse to accept
him.
(8) On the death of the shareholder,
the agreement does not fall away.
His rights are transferred to the
persons who have acquired the share
certificates. His heirs or whoever
purchases the certificates gain the
rights to which the certificates entitle
the holder/owner thereof.
On the death of the Shar’i partner,
the partnership agreement is
automatically dissolved. His heirs do
not become partners in the Shirkat
enterprise. Unlike the transference of
dividends to the new owners of the
company’s certificates, the heirs of
the partner do not acquire a share in
the Shirkat business to entitle them
to claim profits.
(9) The heirs of the deceased
shareholder cannot claim any share
of the assets of the company.
The heirs of the Shirkat partnership
can claim the proportionate share of
the deceased of the actual assets of
the partnership business.
(10) The shareholders do not
participate in the losses of the
company. They are not liable for any
proportionate share of the company’s
losses.
The Shirkat partners are liable for the
losses of the Shirkat business in
proportion to their respective shares.

It should now be clear that the company and the Shar’i Shirkat  are two entirely different concepts.

DEFINITION OF SHARES

What is the meaning of a share in the company? Albaraka Bank  or any other so-called ‘Islamic’ banks are not qualified to answer  this question. The creators of the joint stock company and their  experts are qualified to inform us of the proper meaning of  ‘shares’. The experts define a share as follows:

“The term ‘share’ as such denotes that the holder  thereof has a claim on part of the share capital of the  company, and does not refer to a right of ownership in  part of the net assets of the company. A share in a  company is not a corporeal object but represents a  complex of rights and duties.” (Mercantile Law)   

The Muslim banking entrepreneurs are at pains to make us  believe that the shareholder owns a portion of the tangible assets  of the company. Regardless of their meandering and complex  interpretations to extract fatwas of permissibility from liberal  Muftis and from even juhhaal ‘muftis’ lacking in entirety in the  credentials of Ifta, the reality stated above with great clarity  cannot be concealed.

The true definition of ‘share’ stated by the experts of the  capitalist system who are the founders of the joint stock  company, is a concept with real and factual effects as has been  explained in the table of differences on page 13.

It should not be difficult for even the Muslim layman who lacks  understanding of the workings of the riba system in which the  ‘Islamic’ banks indulge with relish, to understand that  ‘ownership’ has real effects. Among its effects are:

? The right to use the owned property/assets freely at any  time.

? The right to dispose of the owned property at will,  whether by sale, gift, waqf, etc.

? The right of the heirs to inherit the property owned by the  deceased.

? The right of the owner to remove his assets from a  partnership.

None of these effects are concomitant with the so-called  proportionate share of the assets of the company baselessly  alleged to be owned by the shareholders. There is no such  concept of ownership in the Shariah which denies the owner the  right to use and employ his mielk (property) as he deems fit.

THE FALLACY OF THE  ARGUMENTS OF THE  LEGALIZERS OF RIBA

Those who claim that the capitalist joint stock company is a  valid Shar’i Shirkat enterprise present two arguments:

(1) “The concept of the independent legal existence of the  company is a fiction of law”.

(2) Upon dissolution of the company the surplus assets, if  any, after payment of liabilities will be distributed pro  rata to the shareholders.

For these reasons the company will be considered in the Shariah  to be the property of the shareholders. Thus, the assets of the  company belong to the shareholders in the same way as the  assets of a Shar’i Shirkat belong to its partners.

From the explanation we have presented in the aforegoing pages,  the fallacy of this conclusion should be manifest. But what is  shocking is the deliberate blindness which the Muftis have  adopted in their formulation of this fallacious conclusion. As  explained above, ownership has real effects. None of the real  effects of ownership extend to the owners of share certificates.  How then is it possible for Muftis of the Deen to conclude that a  man is the owner of a fictitious asset over which he has  absolutely no power, no control and no right whatsoever?

The claim that the company is a legal fiction of law is a halftruth  and misleading. While the company is a fictitious ‘person’,  it is not a fictitious legal entity in kuffaar law. It is a real legal  entity apart from its ‘shareholders’, hence the shareholders to do  assume the liabilities of this legal ‘person’. In law the company  has real effects. Any shareholder who appropriates any portion of the tangible assets of the company is guilty of fraud and can  be jailed for ‘theft’ and fraud notwithstanding his Shar’i right of  ownership of a portion of the assets of the company, i.e. if the  company has to be accepted as a valid Shar’i partnership.

In terms of the Shariah it is correct to say that the company is a  fiction of kuffaar law and has no existence although it does have  existence in the capitalist system. The Shariah does not  recognize an abstract concept as being a real person having  rights and duties and capable of owning property.

The second argument, viz., on dissolution of the company the  shareholders obtain a pro rata share of the assets, by itself does  not make the company shareholders owners of the assets of the  company for the reasons already explained earlier on. There are  no ownership consequences arising from the purchase of share  certificates. This effectively negates the fallacy of shareholders  being the owners of the company’s assets.

Only in the event of the liquidation of the company will the  shareholders be entitled to a pro rata share of the assets, never at  any other time. During the subsistence of the company, the  shareholders cannot claim a pro rata share of the assets (the cash  and all other tangible assets) of the company. This conclusively  proves that they are not existing shareholders of the company’s  assets. They will at some future date become the owners of the  company’s assets in the unlikely event of the liquidation of the  company. The day they acquire physical possession of the assets  will it be said that they have now become the owners of such  assets. But future ownership is not existing ownership. Future  ownership has no practical consequences for existing assets.

Besides this argument of the votaries of this baatil concept being  incorrect, we can say without hesitation that they are guilty of concocting blatant falsehood to mislead Muslims into indulging  in riba. They cannot be so dim in the brains to understand the  clear difference between company shareholders and partners in a  Shar’i Shirkat venture.

THE SHAR’I MEANING OF SHARE

According to the Shariah a share in a partnership signifies a  share in the tangible assets of the partnership enterprise. A man  purchases a share of the assets of the partnership business and he  acquires his share of the profits by virtue of having ploughed his  assets into the venture.

When the partner has to pay Zakaat on his share of the business,  he does not calculate his Zakaat liability on the basis of a  fictitious value of his 50% share of the business. Value of his  share is a fictitious entity on which the Shariah does not levy  Zakaat. Furthermore, the Shariah does not levy Zakaat on all  assets of the company. Zakaat is paid on only Zakaat-taxable  assets (cash, stock-in-trade and recoverable debts). Zakaat is not  paid on the equipment, property and other non-Zakaatable assets  of the business.

If the shareholder is able to sell his 50% share in the business for  say, R100,000, it will be said that the value of his share is this  amount. But he does not have to pay Zakaat on the value of  R100,000 which he does not own since he has not sold his share  as yet. The offer he receives may be R100,000 while the actual  tangible assets of his share may be only R20,000 of which  R10,000 be comprised of non-Zakaatable assets. He thus is liable  to pay Zakaat on only R10,000 whereas the legalizers of the  company claim that he has to pay Zakaat on the market-value of  the paper certificates, not on the value of the actual Zakaat taxable assets in the company, which anyway the shareholders  are blissfully ignorant of.

RIBA

It is abundantly clear that the dividend the ‘shareholder’ of  the company receives whether the shares may be unit trusts  or any other type of shares is plain riba and nothing else. 

The purchaser of the unit trust/share certificate pays a sum of  money to claim money (a dividend) in future. The ‘dividend’  that will be paid is more than or less than the amount paid for the  right to claim a dividend. It is never the same amount. Riba is  the consequence, and this is based on two grounds:

(1) Money is being exchanged for money, and the  quantities exchanged are unequal, hence riba applies.

(2) Trade in money is called Bayus Sarf, the validity of  which is dependent on simultaneous exchange of the  monies in the same session of the trade. This NEVER  takes place in the company system, hence the riba  claim is further confirmed.

The whole system of the joint stock company is untenable in the  Shariah. It is a haraam system. Its yields are haraam. The  dividends shareholders obtain are haraam riba. All forms of  investment on the Stock Exchange regardless of what type of  Shar’i terminology is manipulated, are haraam. Muslims should  not be deceived by the ostensibly holy arguments presented by  the riba entrepreneurs of ‘Islamic’ banking. The entire ‘Islamic’  banking structure is modelled along the lines of the kuffaar  banking system in which the foundational stone is riba.

MUSAHAMAH AND  MUTAJARAH?

In its brochure advertising its unit trusts, Albaraka Bank says:

“There are two Arabic terminologies that interprets  equity trading: (1) Musahama: Acquisition of equities  for the purpose of generating dividends (These earnings  are paid as income distributions). (2) Mutajarah:  Trading in equities by way of buying and selling.  (These earnings are paid as capital gains  distributions).” 

Suddenly Albaraka veers sharply from using Shariah  terminology to ‘Arabic terminology’. What bearing has Arabic  terminology with the legal processes of the Shariah? In which  way does contemporary or ancient Arabic terminology signify  legality and permissibility in the Shariah? From which  authoritative kutub of the Fuqaha of Islam did Albaraka Bank  exhume these two Arabic terms?

In which authoritative kitaab of the Fuqaha do these terms with  their definitions appear? The Shariah recognizes only valid  Shirkat, Mudhaarabah and Muraabahah agreements. The profits  yielded by these enterprises belong to the partners of the  respective ventures. They are absolutely free to spend and divert  their profits in whatever way they desire. Albaraka Bank has  made a miserable attempt to vindicate its equities and unit trusts  by this nonsensical categorization of Arabic terminology.

SOUTH AFRICAN JOINT STOCK  COMPANIES

In its brochure, Albaraka Bank states:

“The joint stock companies do not trade with the Islamic  banks but receive interest or interest bearing loans from  the Riba banks. This therefore brings about the  difference of opinions whether trading in such companies  are (is) permissible or not. There are two major  opinions: The first opinion espouses permissibility of  participation and trading in stocks of these companies  provided that the profits earned should be purged from  unlawful gains.  Second opinion: This view strongly argues that  participation and trading in these companies either by  buying or selling, is impermissible.” 

After presenting the two conflicting views of “the contemporary  scholars”, Albaraka Bank assumes the role of an arbitrating  ‘Mufti’ and issues its ‘fatwa’ in favour of permissibility in  dealing and trading with Riba companies. Thus, this Riba Bank  concealing under an outer-guise of an Islamic hue says: “The  opinion of those who argue for permissibility is closer to the  truth in this respect, …” 

But Albarakah Bank is not a competent Islamic authority to issue  a ‘fatwa’ of preference between two opposing views. It presents  in its brochure only the views of the advocates of permissibility  of riba while ignoring in entirety the arguments of those who  argue in favour of hurmat (prohibition) of riba and ribaassociated  trading.

Outlining the arguments of the advocates of permissibility,  Albarakah Bank states:

“The advocates of permissibility have cited a number of  authorities. These authorities are as follows:  (1) The legal maxim that says: What is independently  impermissible is permissible when done in accompany (or  accompaniment) with permissible acts.” 

This ‘legal maxim’ is not “an authority”. It is a principle, not an  authority. An evolved principle cannot be presented in refutation  or abrogation of a Mansoos Alayh Ruling of the Qur’aan or  Sunnah. The prohibition of Riba is based on the highest category  of Nass (Qur’aan and Ahaadith-e-Mutawaatarah). The severity  of the prohibition of all forms of Riba and participation therein is  so grave that Hadhrat Umar (radhiyallahu anhu) was constrained  to say: “We abstained from nine tenths of halaal trade  transactions for fear of indulging in riba.” 

Riba never becomes permissible on the basis of the ‘legal  maxim’ cited by Albaraka Bank. Riba is independently haraam.  It is likewise haraam even in any deal in which it features “in  accompaniment of permissible acts”. Depositing money in a riba  bank due to compelling circumstances is permissible. This  permissible act is accompanied by riba which the bank awards  the depositor. This ‘accompaniment’ does not extricate riba from  the confines of prohibition. It remains haraam irrespective of any  permissible act or deed or transaction accompanying it.

Arguing this fallacy further, Albaraka states:

“The same principle is applied to intellectual property:  intellectual property cannot be sold independently but can be  sold subsequent to the relative tangible asset being traded.” 

This claim is erroneous. The Shariah does not recognize the  concept of ‘intellectual property’. It recognizes Huqooq (Rights).  But such huqooq are not property or ‘intellectual property’ as  averred by Albaraka Bank. Rights in the Shariah are pure rights  (Huqooq-e-Mujarradah). It is false to say that “ ‘intellectual property’ can be sold subsequent to the tangible asset being  traded.” This leads to the misleading conclusion that after a  tangible object has been sold, another sale may be transacted for  the purchase of the rights attached to the tangible object which  has already been sold.

The Huqooq come attached to the tangible  asset. The rights are inseparable from the sold tangible asset. The  Huqooq do not form a separate subject for a sale transaction. The  Shariah does not recognize the western concept of ‘intellectual  property’ just as it does not accept the validity of the capitalist  concept of a legal entity being a legal ‘person’ with rights and  obligations.

Rights cannot be detached from a tangible asset and sold as a  separate ‘property’ or commodity. Thus, the argument of the  validity of a sale ‘intellectual property’ is fallacious and has been  presented to deceive unwary people.

Albaraka Bank presents the following example for the  application of the ‘legal maxim’:

“Another example is the selling of a pregnant slave or  an animal, the unborn cannot be sold independently but  can be sold with the parent.” 

The phraseology is highly misleading and presents a false  picture of the Shar’i reality of the transaction. The phraseology  of Albaraka Bank creates the idea that two separate sales can be  transacted regarding the pregnant animal: first is the sale of the  animal, then that of the unborn. The unborn automatically goes  with the pregnant animal and is an inseparable constituent of the  animal in the same way as the animal’s stomach, legs, ears, etc.  Albaraka’s argument is similar to saying: An animal’s skin (or  any other part) can be sold subsequent to selling the animal. But  this is fallacious. The implication of a subsequent sale of the unborn or the animal’s skin is erroneous and misleading since no  such sale takes place.

The unborn accompanying its mother into the ownership of the  buyer does not become his property by virtue of the ‘legal  maxim’. Selling it as a separate entity is unlawful and not valid.  It became lawful for the buyer of its mother not on the basis of  the ‘legal maxim’, but on the basis of the sale transaction in the  same way as the animal’s legs, skin and all its parts became the  property of the buyer.

Let as assume that the unborn was removed and separated from  its mother or the horns are separated. It will now be permissible  to sell these items independently without the need for the sale to  be ‘subsequent’ to the sale of the animal from which these parts  were procured. But, Riba remains haraam whether it exists  independently or in accompaniment with any permissible act.  Albaraka Bank further states:

“The advocates that argue for the permissibility stated  that dealings with interest-based transactions separately  are vehemently condemned by the Shariah. But if these  transactions were mixed with lawful means and those  lawful means significantly outweighed the unlawful  means, then lawfulness will prevail and vice versa.” 

This argument is also fallacious. Again the phraseology  employed here conveys the idea that while separate interest  transactions are ‘vehemently condemned by the Shariah’, riba is  not vehemently condemned if it is mixed with some lawful  transactions. No sane Muslim, leave alone an Aalim of the Deen,  can ever accept such drivel which hover on the brink of kufr.

Furthermore, every lawful thing is not necessarily acceptable on  account of its lawfulness. Many lawful things are ‘vehemently condemned by the Shariah’ notwithstanding their lawfulness.  For example, divorce while being lawful is vehemently  condemned and described as the ‘most-hated’ of the lawful  things. No one can question the ‘lawfulness’ of three  simultaneous Talaaqs, but such Talaaq is vehemently  condemned by the Shariah.

Albaraka Bank has endeavoured to create the idea that riba  becomes lawful if mixed with halaal transactions. But this is  extremely erroneous and blatantly false. In the first instance, riba  NEVER becomes halaal (lawful) if it is mixed with lawful  transactions. Secondly, when haraam money has become mixed  with halaal money, and the latter is the greater quantity, then too,  the obligation is Waajib to expunge the haraam contamination  by contributing to the proper avenue of charity the haraam  amount.

The Shar’i concept of the lawfulness of the whole compound of  the admixture is not a principle or maxim for legalizing what  Islam has made haraam. The homologous admixture, i.e. the  mixed up money, is a separate entity for which the Shariah  issues its ruling of lawfulness if the halaal is more than the  haraam. It is entirely a separate issue which has no relationship  with the legalization of haraam practices. For example: Money  acquired from gambling was mixed up with halaal money which  is more than the haraam money. The Shariah rules that this  mixture of money is halaal. The Shariah does not condone such  admixing of monies. It is sinful to mix haraam money with  halaal money.

The Shariah merely issues its ruling in the event  of some luckless soul having committed the grave sin of mixing  haraam money with halaal money.  The Shariah does not say that gambling becomes halaal as a  consequence of the admixture. The haraam amount still has to be separated from the admixture and given away in charity without  a niyyat of thawaab.

But these Muslim banks seek to mislead and hoodwink people  into believing that riba becomes lawful if the riba transaction is  mixed up with some halaal transactions. Truly, this is the logic  of shaitaan.

Mixing the lawful and the unlawful does not produce lawfulness  of the unlawful. Mixing baatil and haraam transactions with  halaal transactions does not render the haraam riba dealings  lawful. The principle which Albaraka Bank is confusing here is  known as Istihlaak which means the elimination of haraam  wealth (not haraam transactions producing haraam wealth). If  haraam money for example has been admixed with halaal money  in such a way that the haraam cannot be distinguished from the  halaal, then if the halaal component of this whole is more than  50%, the Shariah rules that the whole is lawful, but  contaminated. However, inspite of this ruling it still remains  incumbent to eliminate the amount of haraam wealth which had  been mixed with the haraam money.

The result of this principle is simply that the haraam amount, not  the precise haraam coins, must be eliminated and channelled into  avenues allowed by the Shariah. Since the admixture has  rendered differentiation impossible, the Shariah orders that the  amount of haraam money should be removed from the whole  whether the amount consists of the initial haraam or halaal coins.

But, if the two can be distinguished and physically separated, the  principle of Istihlaak will not apply, and it will be incumbent to  physically separate the haraam component.

Bank overdraft is haraam since it carries the evil of riba.  Nevertheless, the money acquired by paying riba remains halaal.  The acquisition of a bank loan is one transaction. Utilizing the  loaned money in a lawful trade is permissible. But the riba  remains haraam. The lawful trade transaction does not render  lawful the transaction of acquiring an interest bearing loan  irrespective of how insignificant the loan transaction may be in  comparison to the lawful trade transactions.

It should thus be clear that the admixture of halaal and haraam  transactions does not render halaal the haraam transactions. The  admixture renders the whole physical tangible pile of assets  lawful because of the inability to differentiate the haraam  component of the whole from the halaal component. But this  rendition of halaal does not absolve the mixer from the  obligation of eliminating from his ownership the amount of the  haraam component which has become indistinguishable due to  the admixture.

In an attempt to give Shar’i sanction to haraam wealth, Albaraka  Bank says in its brochure:

“The first opinion espouses permissibility of  participation and trading in the stocks of these  companies provided that the profits earned should be  purged from unlawful gains. In other words, the  unlawful gains should be channelled in public interests  and charity services according to certain rules and  conditions.” 

This claim is erroneous and misleading. This is not the opinion  of the Shariah. It is a baseless opinion which lacks Shar’i  substance. It has been derived by an incongruent application of  principles and a misunderstanding of such principles. The  impression conveyed by this averment is that it is permissible to indulge in riba and all haraam trading provided that the haraam  gains are diverted into charitable avenues. The inescapable  conclusion is that commission of haraam is lawful if the end is  noble. The Shariah rejects this baatil notion. A noble end does  not justify haraam.

While ‘purging’ the admixture of haraam and halaal monies  from the haraam-halaal admixture by giving the haraam amount  to charity, participation in the haraam or riba transaction remains  haraam and the perpetrator is deserving of severe Divine  Punishment. He has to repent for having participated in unlawful  riba transactions. Purging the money from its haraam component  is not Taubah. Taubah is subsequent to the act of purgation  which by itself does not absolve the perpetrator of the heinous  sin of indulgence in haraam transactions.

Albaraka Bank has attempted to peddle the notion that it is  perfectly permissible to engage in haraam trade and riba dealings  as long as the intention is to channel the ill-gotten haraam gain  into charitable avenues. This is a travesty of the truth. The  Shariah does not permit this. The act of purgation is merely a  device for absolution after the sin was committed and the  Muslim desires to purify himself and his wealth from the haraam  pollution. Purgation of wealth is not a licence for participation in  riba dealings.

Mismanipulation of legal maxims and Shar’i principles has  become a salient feature of the capitalist Muslims who utilize the  Deen for satisfying their inordinate monetary and worldly  cravings.

Another argument presented by Albaraka Bank for permissibility  to participate in riba trading is:

“The advocates that argue for permissibility  substantiated the aforementioned legal maxim by quoting  the learned Scholar Ibn Taymiyya (R.A.), who argued  that necessity permits things that are impermissible as in  the case of permissibility of barter sale or exchange  between the ripe dates for unripe dates, as  impermissibility will lead to putting people in a very  difficult situation due to their dire needs.” 

A better attempt should have been made than citing Ibn  Taimiyyah with an example of ripe and unripe fruit for  legalizing participation in Riba trading. The principle:  Dhurooraat (dire necessities) make lawful prohibitions, is as old  as Islam. The Qur’aan Majeed states the basis for this principle.  It is not a principle which Ibn Taimiyyah developed in the 7th  century of the Islamic era. In relation to the Aimmah-e-  Mujtahideen of the very first century, who had formulated this  principle on the basis of the Qur’aan, Ibn Taimiyyah is a  veritable non-entity.

This principle cannot be presented as a Shar’i basis for legalizing  the participation of Muslim banks in riba trading with kuffaar  companies. Investing in kuffaar riba companies is not compelled  by Dhuroorah (Dire Need). Non-participation in these  companies does not lead to any “very difficult situation” beyond  normal endurance. The vast majority of Muslims, perhaps  99.9%, does not participate in the investment schemes of the  Muslim capitalist bankers, and they do not suffer in consequence  thereof.

The Fiqhi principle mentioned above may not be  mismanipulated to legalize the grave sin and evil of riba which is  prohibited by Qat’i Nusoos (Absolute Proofs of the Qur’aan and  the highest category of Ahaadith). There is absolutely no scope for the invocation of this principle for the purpose of satisfying  the pecuniary motives of the capitalist entrepreneurs. No Muslim  had suffered when these so-called ‘Islamic’ banks had not yet  mushroomed, and no one will suffer should they disappear into  oblivion. It is ridiculous to employ the principle of legalizing  prohibitions for the acquisition of luxuries and provision of  comforts. The argument is thus fallacious and does not facilitate  Albaraka’s attempt to legalize haraam riba.

A further fallacy tendered by Albaraka for participation in riba  companies is:

“The advocates that argue for permissibility substantiate  the aforementioned legal maxim by stating that the  majority of scholars of Fiqh and Islamic jurisprudence  approved that it is permissible to trade in funds and that  the unlawful part is negligible by any form of usage  which the Shariah has sanctioned.” 

This argument is devoid of substance and does not substantiate  the claim of permissibility of participation and trading with  kuffaar companies which engage in riba transactions. In this  argument, Albaraka Bank seeks to substantiate the ‘legal maxim’  it has cited in its abortive bid to legalize its participation and  trading in stocks of the kuffaar riba companies. It is indeed  superfluous to endeavour to produce substantiation for a legal  maxim which has not been challenged by anyone. No one refutes  the validity of the legal maxims which the illustrious Fuqaha of  the Khairul Quroon era had evolved on the basis of the Qur’aan  and Ahaadith.

Substantiation is not required for the “aforementioned legal  maxim”. Substantiation (Shar’i proof) is required for bolstering  the haraam participation of these banks.

The contention of the permissibility of trading in funds was  never challenged. Bayus Sarf is unanimously permissible in the  Shariah. No one is disputing this fact. What is refuted and  branded as haraam, is the participation of the so-called Islamic  banks in the trading activities with kuffaar riba companies. Thus  the citation of this Fiqhi principle is nothing but an attempt to  load the list of ‘proofs’ to awe those who lack in the knowledge  of the Shariah. Or perhaps the citation was prompted by the lack  of understanding of the meaning of the Shariah’s principles by  those who have set themselves up as muftis in the office of  Albaraka Bank.

A further fiction tendered to legalize the haraam participation is  the bank’s averment:

“The advocates that argue for  permissibility stated that if lawful is the majority, then the  legality of such an act prevails although it might involve some  unlawful acts.” 

The inordinate craving for making quick money regardless of the  methods of acquisition, has driven the ‘Islamic’ banks into a  state of madness produced by shaitaan. Fiqhi principles are  presented to scuttle the Shariah –to legalize swine flesh and the  vice of riba when there is absolutely no dire need to save life and  limb. The Deen has become a toy in the hands of insane  entrepreneurs –driven to insanity by the touch of shaitaan. They  lack proper knowledge of the masaail of Tahaarat and Salaat, yet  these capitalists regard themselves qualified to issue verdicts on  issues of grave Shar’i importance.

How simply and stupidly have they understood the issue of  legalizing haraam! It is not as simple as Albaraka Bank puts it,  viz., that a haraam becomes halaal merely by a majority of  halaal. Ten riba transactions never become halaal if the same  person enters into 20 halaal dealings, or if the ten riba transactions form part of a conglomeration of dealings of which  the major part consists of halaal contracts.  Ten lawful acts of Sadqah never render halaal one act of  gambling, for example.

Next: Shares, Unit Trusts and the Shariah – Part Two

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