In the contemporary era of globalization, the Islamic financial system encounters substantial hurdles as it aims to position itself as a credible alternative to conventional financial systems. This article delves into the impact of economic globalization on Islamic finance and the inherent difficulties it faces in achieving autonomy.
Usury and its historical context: The issue of money lending with interest rates has deep historical roots in Western civilization, sparking debates among ancient Greeks, condemnation by Hebrews, and regulation by Roman law. The concept of usury continued to evolve, creating controversy within legal and theological systems. Unfortunately, the influence of interest seeped into Muslim countries through modern economic structures and colonial pressures.
Interest and its analogy: Interest, as compensation for the use of borrowed money, has been a longstanding economic and moral dilemma. It is expressed as a percentage of the borrowed capital and can turn into usury if it exceeds legal limits. The roots of interest can be traced back to secular definitions by Western economists like Adam Smith and David Ricardo. Even the Greek philosopher Aristotle argued against the lending of money with interest, considering it unnatural.
Understanding Riba: Riba, or usury in Islamic terms, involves the increase or addition of certain items or debt due to a specified period. Different Islamic scholars have interpreted usury in various ways, with consensus on its prohibition due to its detrimental nature. Usury can manifest in different forms, including the payment of surplus from the principal amount and contracts on the exchange of certain goods that are not recognized by Shariah.
Challenges faced by Islamic finance in a globalized world: Despite its inherent philosophies, characteristics, and principles, Islamic finance struggles to break free from the grip of the global financial system. The globalization era not only facilitates transactions but also poses challenges to the implementation of the 'real' Islamic financial system. The dominance of the philosophy of economics and the conventional financial system poses significant obstacles, even in Islamic countries.
In conclusion, the Islamic financial system faces an uphill battle in establishing itself as a genuine alternative in the face of economic globalization. Understanding the historical context of usury, interest, and the challenges faced by Islamic finance is crucial for navigating the complexities of the modern financial landscape. Embracing the true principles of Islamic finance is essential for fostering economic stability and ethical financial practices in a globalized world.
The author is the Managing Director & CEO of National Bank Limited. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the first Certified Sustainability Reporting Assurer (CSRA) in Bangladesh. He is also a post-graduate diploma from the Institute of Islamic Banking & Insurance (IIBI), United Kingdom.
Messenger/EHM
