Dr. Nejatullah Siddiqi is a unique mix: he is an Islamic scholar and an Islamic economist, mixing traditional knowledge and modern know how. Currently, he is professor of Economics, Centre for Research in Islamic Economics, at King Abdulaziz University in Jeddah, Saudi Arabia. He is the author of numerous books and papers about economics from an Islamic perspective.
He has been awarded the King Faisal International Prize for Islamic Studies and in 1993 he was given the American Finance House Award.
Sound Vision’s Jawad Jafry interviewed Dr. Siddiqi on May 2 to ask him to clarify and explain a number of economic concepts relating to Islam and Muslims.
JJ: One of the interesting things about Islamic economics is that often the concept of interest is mentioned in articles and research papers and so on.
But a lay person’s level, we know that interest is forbidden in Islam. However, sometimes the understanding as to why it is prohibited is not really very clear. Can you give us an understanding of why interest is wrong and why it has been prohibited in Islam?
MNS: You see, I think a little semantic confusion is involved especially in this country (the United States) because interest in this country is used in a wider variety, wider sense, and interest as prohibited in Islam is a very specific type of increment.
First of all, it is applicable only in lending. I’m talking of money interest I’m not talking of interest in barter which is something obsolete, not really practical for our purposes.
So when X lends money to buy and Y promises to pay back more than he got, that is where interest is involved.
increments, for example, you get into some business with a million and come out with a million and a half, or you buy a property, lease it, it goes on getting rent and maybe some capital gain and in the end, your investment of one million brings to you one and a half million. All these increments are Halal. They are not covered by interest.
But sometimes in the modern connotations, some of these concepts get confused and people think that that also is covered by something forbidden. So let me be very clear that interest applies only to money loan and it applies to the increment on principal.
Now why it is forbidden? The logic is very clear. Naturally, nobody takes money for keeping it for a period of time. People would either use it for financing their consumption or financing their business. Now, if it is for consumption, Islam takes the view that if you have something surplus, and your brother is in need, you should give it and he should be careful enough to repay as promised.
His need should not be exploited.
Now remember this is in the age when people did not spend beyond their means and consumer loan was looked at differently. So one other thing which must be kept in mind is that nobody is obliged to lend. If you don’t feel like helping your brother, you are free not to lend. But if you lend to finance his consumption, you do it as a good deed, not to make money.
Now, mostly our listeners are thinking of money lent for business. And they are puzzled why somebody who is making money out of the borrowed money should be prohibited from paying more or the lender should be prohibited from receiving more.
You see, as I told you just now, profit is not prohibited. But when the lender seeks risk free increment, he doesn’t want to share the risk of business, that is where the prohibition comes in. A fairer treatment of business advances, business loans should be to share the proceeds of business, if it is profit you share the profit if there is no profit you get nothing. And if there is a loss, it is a loss in your money. That is where we depart from capitalism.
Capitalism treats owners of money capital favorably, and entrepreneurs, those who take business risks, in our opinion, it treats them unfairly. So Islam prohibited interest even for business loans to ensure fair treatment of both lenders and borrowers. Both those who invest their money and those who do business with that money.
I will again say that it is not increment which is prohibited. It is guaranteed return in an environment which does not guarantee money capital always to increase. This is prohibited.
If you look at the environment of man living in this world, you will find this, that the environment is not so structured that you know what is to come tomorrow, what will be the price at which you will sell, how will you fare in a particular productive enterprise, so that is what we call uncertainty, risk.
Islam envisages a partnership between money capital and business acumen, entreprenurial ability, in which both share any incremental value which comes up due to this productive enterprise, financed by money of course, and if there is a loss, the loss is borne by the capital and of course the entrepreneur goes without reward.
JJ: Dr. Siddiqi, you are in the United States right now, you’ve just attended a conference that deals with Islamic insurance and one of the things we often hear is that many scholars have said that Islamic insurance is kind of an oxymoron, that insurance has no place in Islam. What would your thoughts be on this issue?
MNS: Well I hardly know anybody throughout the world of Islam who says insurance has no place in Islam in that absolute manner. People do distinguish now between life insurance and car insurance and fire insurance. Whatever the rationale they put forward, the mechanism they suggest, most of the scholars now, including some in Saudi Arabia, in India, in Pakistan, in the United States, would allow these insurances and keep their opinions reserved or even say outright that we don’t approve of life insurance. So we must distinguish. We must not be very sweeping in reading the current religious opinion.
To the extent people do take a negative view of insurance, I would say that mostly it is based on not realizing the nature of insurance contract and not realizing the fact that with the change in environment, some new situations have come into existence which did not exist 1,000 years ago.
What I mean to say is most of our Fiqh focuses on micro relationships between X and Y. Now here is a relationship which is rather complex. It is not just a simple relationship between the person paying the insurance premium and the company guaranteeing a particular sum of money if something happens, a contingent payment.
In between, through the law of large numbers or the law of averages, there is a notion of a very large collectivity which is involved. And this macro picture, this totality, if it is not kept in view, of course one will say how come a person pays very little money and gets a very large sum of money. And somebody goes on paying premium, and he just gets back what he paid or gets back nothing at all.
So these have been the reasons why insurance contract could not be properly understood. That is my understanding and this is why I find that the environment now is much different than it was 30 years ago. You can look at the writings, even in Arabic, which has been the most conservative, they are discriminating, distinguishing, between insurance which is Halal and insurance which is Haram and they are offering solutions based on Takaful or Tabarru or whatever.
My own submission is, howsoever you structure the contract, whatever rationale or basis you suggest, Tabarru, mutual Tabarru, the core remains the same. And the core is when a very, very large number is involved, something which is very uncertain for one particular individual, it becomes possible to calculate with almost certainty for one member or any member of this group. An example I gave [is] that if you have a million shops, one shopkeeper never can know whether his shop will catch fire because of a short circuit or something. But looking back at the past quarter century, and looking at the incidence of fire in those environments, the company can fairly correctly calculate how many shops amongst one million will catch fire during one year.
This is how actuarial tables have been built. This is how the whole industry is working. Now this is something rather complicated, not very easy to understand, especially for those who can read only in a particular language.
You know very well, for example there are not very many books in Urdu which will explain, just explain, without giving any opinon, what is insurance all about. Much the same in other Islamic languages.
So those scholars who are approached, they give their opinion on the basis of what they know. What information is presented to them and sometimes it is not complete or not thorough in its presentation. So I think that this prevalent opinion is ill-founded, ill-conceived. Tradition is not always sacrosanct, and this is why it is changing.
JJ: Now you’ve mentioned a few terms, Takaful and Tabarru, and they may have some correlation to existing insurance that we find in the West, for example mutual insurance. Could you give us an idea of how an Islamic insurance system would incorporate some basic principles for the end user? How would a person, let’s say living in Saudi Arabia, be able to insure their home or their business from some sort of loss?
MNS: You see, the basic idea, as I told you, is that when there is a large collectivity faced with a similar uncertainty, the incidence of occurence can be fairly correctly calculated. That is the law of large numbers or law of averages.
Now, this core idea can be utilized for inviting those who are involved to put in enough money per head to make a pool out of which the victims, the sufferers of that unfortunate event, could be compensated so that the whole totality lives in peace, goes ahead with its life, and if a home catches fire, if a shop catches fire, if a car is faced with an accident, the pool is sufficient to restore it to its pre-accident, pre-fire position.
Some people forget that there is a big difference between other things and insurance. That insurance doesn’t make you richer. Insurance just restores your pre-accident or pre-fire, whatever is insured at, position.
Now this pool, how should it be brought into existence? How should it be managed? How should the pool be invested? Here there are different possibilities.
Now in Islamic insurance, one thing is very clear: the premium offering accumulated will be invested Islamically, which means no interest-bearing bonds will be purchased. [They] could be invested. Whatever spectrum of possibilities Islamic banks or Islamic mutual funds are present, so that one hurdle is easily crossed.
The other thing is whether the company should be working for profit or like a mutual, it should be working in such a manner that any surplus should be redistributed between the original holders. It’s a matter of policy. History to the minor, it proves that when large number of people are spread over vast regions, a commercial organization is more efficient.
This is why recently, many mutuals, by recently, I mean during the least three or four years, even this year, many mutuals are converting themselves into shareholding companies, commercial units. So ultimately, what is good for society should be adopted. [The] charge may be different in different countries, in different cases. In car insurance you may make one charge, in some other area, another charge, it’s all open. There’s nothing very categorically forbidden or ordained in this choice.
Now the current religious opinion has approved of Takaful or insurance on the basis of donation, Tabarru, gift.
Let us take car owners. They should put in some money as a gift to a pool. Just one way. It is not Muawiza, not asking for a return. Not asking for quid pro quo.
Once they have put this money, by common consent, this should be used to compensate the victims of the car accident or whatever is involved.
Now this is a way of thinking. I don’t buy this line because I think this idea of conditional Tabarru, that I will put in money, I say that I expect nothing but of course I am putting money because I expect to be compensated when the time comes. It’s better to accept the fact that we are organizing it because of the large numbers, we are using a particular discovery, a mathematical discovery, nevertheless a discovery, to our advantage and I see no Shariah barrier to this.
You know the literature has difference of opinion. My own book was published 1974 in Urdu and later in 83′ in English. Many people still think that commercial insurance is not acceptable. They have their arguments.
What is more important is that all over the world of Islam, companies have come up, with the approval of Ulema (scholars), which found a way to insure homes, cars, not life till now. And the core of the calculation remains the same.
JJ: You made an interesting point, Dr. Siddiqi about the available literature in Muslim languages, and I wanted to ask you in terms of economics, as well as Islamic studies in general, what would your opinion be of the state of literature available for, let’s say Islamic economics in the world today?
MNS: The problem is that knowledge has proceeded so fast and we being poor in resources could not allocate so many resources for the knowledge industry so we have lagged behind.
So much so that if you want something in Urdu or even Arabic, on the current financial markets, so that you can give it to an Alim, a religious scholar, so that he can understand what is derivative, what is option, what is so many other transactions going on on the stock market, there is nothing you can present to him.
Unfortunately, you will not find many people who can directly understand these new transactions through reading in English or French. So what are we going to do? That is a big problem.
Not many resources are being devoted to make the scholars up to date in matters on which they have to pronounce, life requires it.
Coming to Islamic economics, the bulk of the literature produced till now is in Arabic and English. And the best in quality is in English because those who have a higher learning in economics got it through modern languages, mostly English, some in French. Not through Arabic.
So as a consequence, the writings in English on Islamic economics are more robust, more analytical. The writing in Arabic maybe because of the audience to which they are addressed, tend to be more general, more emotional, mixing science with other types of literary expressions.
When we come to other languages, all Islamic languages now have some literature on Islamic economics. Indonesian, Malaysian, Bengali, Urdu, Persian. I know of no Islamic language, Muslim language, in which there is no book to read on Islamic economics.
But of course, the quantity differs. In Urdu, we have a large literature. But again I will say that the quality is very poor.
JJ: It seems that there is a need, as you’re pointing out, for traditional scholars to look at newer developments such as economics, perhaps bio-medicine and other areas and sort of do an assimilation of the traditional Shariah (Islamic law) point of view as well as the newer developments in a given field.
A corollary to that seems to be that there needs to be a prioritization of knowledge, that people have to somehow develop a priority, an agenda for scholarship. What would, in your view, be an appropriate agenda or a needed agenda for Islamic scholarship today?
MNS: You see brother, the need which you are emphasizing has been felt for the last half a century, if not for one century. But unfortunately, the needful has not been done. Even after almost all Muslim countries became independent, they were managing their own universities, and even after a lot of oil money was given to many Muslim countries, the resources devoted to produce scholars who know modern life intimately enough, by direct observation or by reading the literature in which most of the things are explained, they can be counted on the fingers of one hand only.
Scholars who are well-versed in English and well-versed in Arabic, deep in Islamic learning and deep in their knowledge of finance or economics. Very, very few. Now what needs to be done? You have to have resources, you have to have institutions where both knowledges are imparted under one roof or at least where scholars, well-versed in Shariah, with a little English, and economists and financial experts well-versed in their branches, in their trade, and knowing the elementary things about Islam and some Arabic, they are brought together, they are able to discuss, they are able to interact, but tell me where in the world it is being done?
There are a couple of places where you hear about center for research in Islamic economics or international Islamic university. But if you go nearer and look deeper, the resources made available have no relation with the requirements of the time. And this is why we do not have, even today, when a quarter century has elapsed to the establishment of some of these centers, what we could have expected them to produce [was not produced], because it’s not very easy.
As you know, if you take economics, if you take finance, no one person can be expert in all matters economic, all matters financial. One has to have experts in specific fields of economics and finance. So it’s not a matter of inviting three or four people to constitute a centre for research in Islamic economics or Islamic research and training institute like you have in the IDB (Islamic Development Bank) or a couple of people in Islamabad or Kuala Lumpur and then expect that you will meet the challenge of the 21st century. Much more has to be done.
JJ: Dr. Siddiqi, what would you like to see done in this area? What would your recommendations be to uplift the whole study of Islamic economics and bring it in line with economics today?
MNS: Brother, I think that a country like the United States, I have more hopes now from this part of the world.
Of course, we continue to expect from countries like Pakistan and Iran and Malaysia and others from Gulf countries who are committed to organize the financial sector in an Islamic way, to devote resources on fundamental research.
But I do observe that during the last quarter century in which we saw the emergence of a large number of Islamic banks, Islamic financial institutions, a small fraction of one percent of the profits even was not diverted to fundamental research. So I don’t have much hope.
I do urge, and I am all for inviting these people to do the needful. But I would say that people in this country, if they do realize this need, and make a campaign that people doing business here and people in finance and other institutions, they set up some structure to invite scholars, economists, financial experts, to work on specific projects.
Let us begin by at least something which describes very clearly all of the modern contracts. And then we have a forum on which various viewpoints are presented in such a manner that others can interact freely.
The problem is that very soon, in our part of the world, I mean the Gulf countries or the (Indian) subcontinent, if you take a particular position on insurance or some financial transactions, which is not in line with the common perception or some of the Fatawa (religious judgments), you don’t get a very warm welcome to present your ideas. You don’t get an environment in which further interaction is possible.
So all this has to end and no better place for a free dialogue and free inquiry and deeper research than this country can provide.
Now where to begin, that’s very difficult to say. I see the thing required. But how to assemble that institution in this country, I don’t see how. But I have seen enough in Pakistan and Saudi Arabia and Kuala Lumpur to say that the results we expected are not coming from there. We have to do something differently, perhaps at a different location.
JJ: Dr. Siddiqi, you Maash Allah, have a unique mix of both traditional Islamic knowledge as well as an understanding of modern economic systems, and Alhamdu lillah, you’ve achieved a great deal of distinction in your career. What is it that you would like to accomplish at this point in your career? Is it something like a new approach to Islamic economics? A new spirit of inquiry? Or are there certain challenges that you still see that you would like to undertake?
MNS: You see, in the beginning of our career as Islamic economists or researchers into Islamic economics, our attentions were mostly focused on ourselves, on the Muslim Ummah, the countries which formally committed to Islamicized banking, like Pakistan, Sudan, Iran, etc. And we tried to write [about] subjects which will help these countries reorganize the financial sector, the economic affairs, in an Islamic way.
[This is why we paid much attention to banking without interest and Islamic insurance and partnership and all these things.]
Now seeing what happened in these countries and how these ideas were just abused or used for political purposes, and they were not served honestly and sincerely or at least efficiently, I have come to the conclusion that we continue those efforts in a different way. However, there is no way you can leave your own house in disorder and expect others to come around to your way of doing things.
But at the same time, we must address ourselves to humanity in general. And this for two reasons.
One reason comes from the state of humanity itself. All is not well with the financial sector. All is not well with the economies. The rich are becoming richer, the poor are becoming poorer and all that comes in this scenario of increasing crime, increasing tension, threat to peace, all that is coming up.
And the other reason is that our presence outside the traditional world of Islam is increasing day by day. We have a practical stake. Unless we take our fellow countrymen in the United States and other countries, even in India, into confidence, in the sense that we try to persuade them in favor of our way of doing business, our way of doing banking, our way of doing insurance, our way of organizing the economy, we ourselves will be deprived of the opportunity to live Islamically.
And I’m optimistic that we have something for humanity. It’s very difficult for me to define it precisely but since you asked what I proposed to do in the future, I am focused on the place of moral values, ethical behavior in economic life.
Humanity has just passed through a phase in which fed [up] of the evils of capitalism, free profit-seeking economic activity, it tried to experience with some sort of a controlled economy.
But after 70 years of communism and socialism, they have realized that you’ll end up in a worse situation. There is no way to live humanly and humanely without freedom.
Now how to be free and yet avoid the ills of capitalism, there is one thing which humanity has been missing during the last three centuries and that is the possible contribution of moral values, which can come only from inside man.
Now this is not specific to economy. It is as much relevant or more relevant for family life, social life, than for economic life. So I want to explore the possibilities of how strengthening the moral commitment of individuals and purifying, improving the moral environment of society, is likely to contribute to a better economy and a better family and a better society.
Now, one should not get the impression that I am thinking of writing how you can do [this] by morals alone. No, no.
The state will be there, has to be there, to protect the weak and to ensure minimum conformity to certain social norms. And freedom of enterprise has to be there, to provide opportunity for innovation for initiative.
But in between freedom of enterprise, private property on one hand, state supervision and guidance on the other hand, there is a role for morality and ethics. This role has not been fully explored in economics for historical reasons. I need not go into them.
This is what I want to focus on in the future. And I told you in the beginning, this is something which is for everyone. This work, if it comes through, as I conceive it now, will not be addressed only to the Muslim communities or countries. It is not designed to solve their problems, worldly or Islamic. It will be addressed, Insha Allah (if God wills it) to humanity in general. Of course we are part of humanity.
Because you see, there is another realization which brings this on top of my own agenda, and that is that we are becoming really one people, the whole humanity. You cannot have your own way in one corner of the world and the rest of the world continues in a different way. You have to persuade others. You will be able to live your own way only to the extent you are able to persuade others to see at least the viability. If they don’t adopt it, at least they should come round to respect it. Respect your right to live in that way.
Now this right is conceded in personal behavior, personal laws, family laws, but it’s very difficult to partition economic and financial matters in the way we can partition personal laws. So we have to have much larger cooperation and understanding and sympathy from our fellow countrymen, neighbors, to be able to buy houses Islamically or insure Islamically or bank Islamically or have a stock exchange function Islamically.
That is what I hope to focus on to bring the essential Islamic economic message to humanity at large.
JJ: Dr. Siddiqi, we thank you very much for your time. May Allah bless you and the work you’re doing and if you have a last word or last comments, please feel free to share some more insight with us.
MNS: I too am very thankful to you for providing me this opportunity, though being a traveler I am traveling back day after tomorrow. I did not have the capacity to focus well on your questions.
Nevertheless, I will try to say a last word and that is addressed mostly to our Muslim brothers, listeners.
We need a lot of patience. I find people jumping to the conclusion that so-and-so is sold out to such and such view, and so and so will not do.
We will have to respect everyone’s right to think and express and pay attention and be modest. If you start from the position that you know all the answers, no dialogue is possible.
We need humility to realize that even in Shariah (Islamic law) matters, insofar as they relate to new situations, we don’t know the correct answers. The answers given to us are not the final word. Unless this humility comes and a greater degree of tolerance for the view of the other, the situation will not improve. I hope and pray to Allah that this comes to pass. Thank you very much.